23/05/2012 Newsnight


In-depth investigation and analysis of the stories behind the day's headlines with Gavin Esler.

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It's one of the biggest decisions the Government will ever have to


make - affecting millions of us - cutting billions in spending and at


the heart of their plans for the economy, but nobody yet knows what


they will do. Tonight we get a first glimpse of


Government thinking on how to cut the �200 billion welfare budget.


And we will examine options which could affect almost every home in


the country with politicians, an entrepreneur and a think-tank


thinker. We know the Government wants to save �10 billion from the


Department of Work and Pensions. We investigate some of the options


they are looking at. Major falls on stock markets across


Europe - it must be yet another last chance to save the euro. Paul


Mason is in Brussels. In Brussels, it has been a night of dinner, talk


and precious little action and time is running out.


More on the Newsnight investigation into how some civil servants avoid


income tax. And what really went on behind the


scenes as Facebook shares were sold Good evening. With the possible


exception of Buckingham Palace the residents of just about every house


in the country will be affected by changes to Britain's Welfare Bill.


The Chancellor, George Osborne, said in his Budget this year that


further cuts of �10 billion or so might be necessary, while a former


Downing Street adviser suggested saving �25 billion from the �200


billion total. Tonight we are going to get a look at what the


Government is considering and we'll debate whether such cuts are really


necessary whichever party is in power. We begin with David Grossman


who has been figuring out where your money goes and when the cuts


which have already been announced will begin to bite.


Let's start with that big fat figure - �200 billion - the amount


we spend on welfare. Half of that goes to pensioners, half to people


of working age. If we look at the graph, you can see it's gone up-


and-up until the red line. It's gone up by 55% in real terms since


1997. A big part of that growth was the introduction of tax credits. At


the moment, the total welfare spend is 13% of GDP, or out of every �8


generated in the UK, more than �1 is spent on welfare. It's coming


down slightly to 11%. The first thing to say about that is it's a


Government projection of savings going forward and we know from past


experience they don't always materialise. The Government says it


has introduced some big changes that will have effect. The big one,


or one of the big ones that we have heard about, is the benefits cap.


Now that will mean that in the future someone in a family or a


couple will only be able to earn �500 a week in benefits. For a


single person, �350 a week. It is part of the universal credit. It is


designed to cut the complexity and always, they say, always make work


pay more than being on welfare. Another big change - getting rid of


child benefit for those on higher incomes. Earn more than �60,000 a


year, you won't get any child benefit. Another big change -


replacement of the Disability Living Allowance with the Personal


Independence Payment. The Government says that should cut


500,000 people from the claimant count. Talk to ministers and they


will tell you as well as saving money, the guiding philosophy


behind the reforms is helping people stop being on benefits. At


the moment, more than one in four working-age adults do not work.


Around 2.6 million people have spent at least half of the last ten


years on some form of out of work benefits, so the cost is human and


financial. The Government says it has to save more money than already


has been outlined. In his Budget, the Chancellor said that by 2016,


we will have to cut �10 billion from the welfare budget. So how


might he be thinking of doing it? Well, one option, of course, is


Winter Fuel Payments. �2.1 billion a year goes to pensioners. It goes


to millionaires as well as those in need. Any meaningful change to get


that kind of money they are looking for will have to take into account


tax credits and housing benefit. All of that is politically


extremely difficult. It is not for nothing that in American politics


that welfare reform is known as a third rail issue. Touch it and you


die! Well, those are the numbers, but


what are the options? And how politically toxic is it for the


Government - any Government - to consider cutting the money from


some of the poorest among us? Our political editor, Allegra Stratton,


has been doing some blue-sky thinking.


Asking about someone's welfare was once just looking through a window


into someone's life - their health, happiness and good or bad fortune.


It came to me how the state looks after us in hard times. Now the


word is less clear and it enjoys less unthinking support. It sprawls.


Left unchecked by 2016, welfare will become a third of all


Government spending peryear so they feel they must cut -- per year so


they feel they must cut. If in the next Spending Review we maintain


the same rate of reductions in departmental spending as we have


done in this Review, we will need to make savings of �10 billion by


2016. Welfare is in the dock because the


public say they want welfare to be in the dock. The Deputy Prime


Minister, nick clebg, -- Nick Clegg, contemplated blocking some of this.


Iain Duncan Smith appeared to be unimpressed when the Chancellor


announced there would be a further �10 billion worth of cuts to the


welfare budget. There's many who think you can't go much deeper in


without going painfully into people's lives. There is also an


assessment that the public mood is finely balanced that you have


support for welfare reforms. Those changes that they could and might


make will be about values. There is a feeling in Government that there


are lifestyles people can't afford, that goes for them in the city as


well as for families. Explain to me - tell me about your situation.


You've got a daughter or a son? daughter. She will be three next


month. We live together. We live just me and her. I got that


accommodation not through the council, but I found it myself and


applied for housing benefit separately. You are on housing


benefit. You get help from the state for your housing. Don't you


think that you should have possibly lived at home until the point at


which you could support your own house? Well, I find that living at


home with my mum wouldn't be an option, space-wise. There is not


enough space for... How big is her flat or house? She does have a two-


bedroom flat. It doesn't sound like your house and your mother's house,


flat, is a bad police, so it is a choice you are -- bad place, so it


a choice you are making and it comes with a price tag attached?


Yes, it is a choice. At the same time, I don't think living in my


mum's house would have been - it wouldn't have been constructive.


both know people that are living with their parents, they don't have


a job, and they have fights, that is what happens. They don't have a


financial choice? I think that is the difference. I'm asking for help


towards, I'm not asking for a free handout. The lesson for officials


across Whitehall looking at the last �18 billion worth of cuts is


that you can do a lot with flow, but not so much with stock. What do


they mean? Flow is a flow on and off unemployment benefit, stock is


for those who it is more difficult to get work. If you left home, you


will have to go into the housing benefit system and it would mean


you would have entered the benefit system and you are more likely to


spend "a lifetime on benefits". Equally, what is the messaging


around young women and getting pregnant? If you can get pregnant


and the state will help you out, you are less worried about the


consequences of doing so. These are the kind of things that they are


looking at. Tory MPs point across to the US where, in 1996, Bill


Clinton allowed American states to impose "family caps" on children


born to families on welfare. More recently, though an age ago in the


life cycle of the coalition, a Cabinet minister reiterated this


could be the direction of travel. The number of children that you


have is a choice. What we are saying is that if people are living


on benefits, then they make choices but they also have to have


responsibility for those choices and it is not going to be the role


of the state to finance those choices. Changes to benefits that


affect families and children are probably a distraction. The next


really big savings will come from somewhere completely different.


think when it comes to benefits for people out of work, we do want to


reform the system. It shouldn't be driven by fiscal cost. There is


good reasons for reforming the housing benefit. It is not going to


rescue the public finances. If you want to rescue the public finances,


you have to look at pensions and the middle-class benefits. So a


debate could end up rebounding on the Tories. The Prime Minister said


that he ruled out any movement on Winter Fuel Payments being ended.


That is a tiny part of the pot. Now there is a suggestion there could


be movement on that in the next Tory manifesto. Other people,


including in his own party, think the movement has to be much sooner


than that. To those who say that will require an embarrassing about-


turn by the Prime Minister, well, Tories say look at Nick Clegg, he


did an embarrassing U-turn on tuition fees. Now it is time, Prime


Minister, for you to do yours. could reach �10 billion if you


focused on the middle-class welfare. Let's not underestimate how hard it


will be to get there. Let's start with the winter fuel allowance and


the free bus passes and the TV licences and get rid of those


benefits and then we can think about making further savings.


the coalition leadership wants to go for more cuts to the welfare


bill. As they look for options for where to go next, they are already


realising the first cut was the deepest.


Ken Livingstone is one of those who has, over the years, opposed


welfare cuts. Harriet Baldwin is a Tory MP who believes some radical


thinking is necessary. Graeme Cooke has been studying the options for


the think-tank, IPPR - and he worked as a special adviser to


Labour's Secretary of State, James Purnell, at the Department of Work


and Pensions - and Kavita Oberoi is a businesswoman who worries that


welfare helps some people become more work-shy, not more prosperous.


The big picture first. The case for another �10 million or �25 million,


sorry �10 billion or �25 billion as some have suggested. What is the


case to make those savings? most important thing that we have


to focus on is improving the incentives to go into work. As you


saw from the package that David presented earlier, with one in four


adults in workless households and a doubling of the number of workless


households under the previous Government, I think it is


incredibly important that we reform the benefits system, bring in


universal credit and really create incentives for people... It is to


save money, isn't it? The best way to save the welfare bill is to help


people into work. Welfare should be there, it should be a safety net.


It should be a strong safety net. It shouldn't be a sticky safety net.


Could you save �25 billion more? think the �25 billion figure is


going to be a myth. I really don't see that happening. �10 billion is


doable? I think that there are things that you could look at. The


package raised some of them. Although I agree in our manifesto


we said we shouldn't do anything with winter fuel allowances, to


give it to millionaires doesn't make sense. I think we should


perhaps reduce the level at which you get the winter fuel allowance.


We will come on to that in a moment. Your position is no cuts to the


welfare bill? I can immediately think of some cuts. You had �23


billion up there on the wall, housing benefit. You could cut �10


billion off that by introducing caps on rents. The Government's


gone about it by attacking the tenants and I don't know what it is


like in other parts of the country. Here in London to rent a two-


bedroomed flat takes 60% of the average take-home pay. Rents have


got out of control. You accept the principle that the welfare bill


itself is out of control for one reason or another? The strategy has


gone wrong. I became an MP in '87. I was stunned to have unemployed


people coming to my surgery saying, "I've lost my job, I went to the


DHSS and they said why don't you go on disability benefit?" They were


trying to massage down the unemployment figures and they


created a dependency culture. looked at this and you tried to


figure out what was politically possible. Labour in power would


have to look for significant welfare cuts. In that sense, there


is a political consensus? welfare bill is about a quarter of


all public spending. You can't exempt the benefits bill from


efforts to reduce the deficit. You have to start by looking at why the


benefits bill is rising. One of those reasons is that we have not


got growth in the economy, we have unemployment high, that is one of


the reasons why so many people are out of work. You also have to have


a strategy for how you want to move money... Could you save �25


billion? Could you do it? There is an argument for looking at some of


the pensioner benefits that go to those on high incomes. You could


look at pension tax reliefs. If you restricted pension tax relief to


the basic rate and means-tested winter fuel allowance and free TV


licences, you would be at �10 billion. The more important thing


is to look at what do we want to prioritise in our welfare system?


Should we shift from benefits to services? Should we do something


along the lines that Ken said which is move from subsidising rents to


building homes? My worry is that the Government are lopping bits off


the system. Where do you come in on this? Do you take the moral point


that we heard earlier, that this is good for people because it will get


them to work? I mean, I empathise with people who are on benefits who


should be on benefits. A few years ago, I went out to Mumbai. There is


no welfare system and begging isn't allowed. So what does that do? That


changes people's behaviours and people then start thinking because


they need income, they need to earn money, so they start thinking...


You don't want Indian conditions of labour here? No. We need to drive


different behaviours. People should be responsible for their own


behaviours and drive entrepreneurship. I saw there


families getting together, it was Valentine's Day, they were selling


things. We need to drive entrepreneurship, more start-ups.


Right. Aren't there some people who are untouchable in this and some of


the people you were talking about, pensioners, you can't touch that?


You might be able to do it in theory. Try touching winter fuel


allowance and people will not vote for you? Look, pensioners account


for over 40% of the benefits. You can't reduce the benefits bill


unless you look at some of the pensioner benefits. Capping


benefits for the number of children you have - the benefits cap saved


�200 million. These are sideshows to the big issues. If you want to


save money in the benefits system, you have to look at what is driving


the rises - it is higher rent, higher unemployment, it is low


wages. Right. You support the idea of a cap on families, don't you?


should have - which I understand unusually - is a Labour Party


policy. We have a policy from the Labour Party on this which is to


have a regional benefit cap. I think that we should have a


regionalised cap in terms of benefits. One of the Clinton


reforms was that they looked at the different labour markets in


different parts of the country. you think if somebody chooses to


have six children or seven children, there comes a point where the state


should no longer support those extra children? If you have never


worked and you continue to increase the size of your family never


having worked, we ought to be asking the question is there a


better way we can help you to find a better way for you to support


your family? By cutting your benefits if you have more than five


children? Gordon Brown had an idea of putting perhaps young parents


either with their own parents or in a kind of foyer and helping them


with training and education. It was another of the Clinton reforms to


make the increase in welfare, when you increase the size of your


family dependent on training and education. I think it is obscene


that somebody who might be earning �1 million a year is claiming their


winter fuel allowance. You can either have a whole load of


bureaucrats checking each individual and having some sort of


benefit cap, or you can take that money back through a more


progressive tax system. Governments have been terrified of having a


more progressive tax system. That is one way of claiming it back.


winter fuel allowance, bus passes, TV licences? The best way to do


that is to do it through a progressive tax system. Do you


claim such things? No. I didn't think it was right to claim my


state pension when I was earning quite comfortably. I think that was


wrong. I know most rich people probably do. That is wrong. Means-


testing is wrong? Means-testing - when you look at how means testing


works, what happens is an awful lot of people who should claim end up


not claiming. The thing about the bus pass - do you want to employ


several thousand bureaucrats to check each individual whether they


should be paying or whether they shouldn't? It is much better to use


the tax system to claw this back. You have all those bureaucrats in


the tax inspectorate, let them do it. Use the bureaucrats in the tax


inspectorate to claw it back? into a number of schools where


there are generations of families that have just not worked. Why is


that happening? Why is that continuing? Is that the thing


that's being aspired to just not to work? Why do you think it is


happening? Our benefits system does make it an easy choice sometimes


because if you do go out to work and if you are on the minimum pay


job, then maybe it is easier not to work because you are not that - it


is not - you are not in benefit... When I left school in t' 60 -- in


the '60s, every boy got a job. That job paid them enough to support


wife and family. I didn't know anyone on benefits through my 20s.


We have lost the jobs that working- class people used to get. We wiped


out manufacturing. All those areas where people could without going to


university have a good job. They have gone. I want to bring in


Graeme. You have been thinking about it at the Department of Work


and Pensions. Is it politically possible? You get into the granny


tax trap, you are robbing the poor. It is politically almost impossible


to do this? I think it is if you don't have an argument about what


sort of system you are trying to bring about. If you try and lop


bits off the system, it is hard to come up with a justification for


that. That is why you have to an argument about where you might


shift money. You could look at holding down the growth in child


benefit over a period of time and switching some of that into


childcare. With restricted resources as a country, we need to


think about investing in services that are going to raise our


employment rate. The people who were hit will protest and some of


them are middle-income people relatively well-off, they protest


very articulately? Sure, there are huge political difficulties with it.


There is a significant budget deficit. Welfare has to play its


part. You have to make an argument. Is this about re-working the


welfare state and any Government will have to tackle it?


universal credit will be so crucial. Let me give you an example. I had


all the growers came up saying they were having to import labour from


Moldova to take the picking jobs that students used to do. Because


of the way that the benefits system is so sticky, it is sticky as to


where you are located. Once you have the house, you can't move


somewhere else. These jobs have accommodation for the summer. You


can return with thousands of pounds which is what students are doing. I


think we do have to make sure that the universal credit, which will


start in six months' time, will really make those incentives for


moving into work and that is the best form of welfare reform you can


have. Will it save enough? Largely, it is a tidying-up exercise. There


is an overclaiming going on... There's the 65 pence withdrawal


rate which is much more attractive. There are some improved work


incentives. It has been slightly overclaimed by putting all these


benefits together that you will get millions of people into work.


Therefore you won't save as much as people think you might save? It is


only 10% of the benefits bill that is spent on the main out of work


benefits. So the big-ticket items of spending aren't there. That


doesn't take away from the fact we need to get more people into work.


Do you accept you have to change the welfare state otherwise it


won't exist? I started 50 years ago, I can't concede not doing something


each day. The idea you sit at home and watch daytime TV, that is the


most depressing prospect. That means you have to create jobs. We


have moved away from being a full employment economy. We have got -


in London we have a third of a million families on waiting lists.


Every architect is looking for work. The Lib Dems are looking at


accessing pension funds to fund a proper public works programme. Put


those people back to work, they spend that money, it creates more


jobs. Let's start thinking about getting people back into jobs


rather than just punishing people who haven't got one. If the jobs


aren't there, we are always talking about growth and where the jobs are


coming from, then I think money should be invested into really


providing aspiration and inspiration into the young and into


everybody. These days, the world is a different place. You can start -


I started my business in my bedroom on a laptop. It's cost - it doesn't


cost what it used to cost. I think we need to drive that more so. We


are seeing a lot more start-ups now. I think that is really important.


If there isn't the jobs, what are we going to do? We have to do


something different. Thank you all very much.


London down more than 2%. Bank shares down sharply. Barclays,


Lloyds and RBS all down by around 4%. Milan down 3.7%. Madrid down


3.3%. And the euro down against the dollar. It must be another meeting


in Brussels to try to sort out the euro crisis. Our economics editor,


Paul Mason, is in Brussels to try to find out what, if anything,


might be different this time. The European leaders are running out of


time and options, none more urgently than this man, the interim


Prime Minister of Greece. Prime Minister, how long have you got?


There are 25 days until the Greek election, Monday nigh -- money is


draining out of the country's banking system. What mainstream


politicians in Greece want is for these limos of the European leaders


to bring some help, pronto. What the EU politicians need to say to


Greece tonight is that while the terms of the bail-out are


negotiable, to make them easier, more bearable for Greece as well as


Greek citizens, Greece's future remains firmly in the eurozone that


there are no plans, that nobody wants Greece out of the eurozone


and nobody can make it happen or will make it happen. Next problem?


The Spanish PM met the French President today and both know the


markets are terrified of a banking collapse in Spain. The country's


banks need money, soon, to finally shore up their toxic debts. Mariano


Rajoy does not want to suffer the fate of the Irish and the


Portuguese. TRANSLATION: Most probably we will


need some funds to recapitalise some Spanish banks. Don't believe


though that we are talking about significant amounts. Please bear in


mind the Government has no intention or wish to seek European


bail-out funds to do this. Enter the French, with a demand for


growth. But it will be a challenge. The French President has disrupted


not just the traffic here in Brussels, but all the patterns of


previous summits, but what he needs now is action on his growth agenda.


On this, at least, the British Prime Minister agrees.


REPORTER: What is going to bang their fist on the table tonight?


This is an important meeting for Britain because what happens in the


eurozone affects our country. Of course, what we need is a decisive


plan for Greece and we need decisive plans to help get the


European economies moving. If we are not going to keep coming back


and back to meetings like this, we also need to deal with some of the


longer term issues at the heart of running a successful single


currency. So for the most powerful politician in Europe, Germany's


Angela Merkel, it is crunch time. Mrs Merkel has become the nay sayer,


she said no to the creation of common eurobonds to stabilise the


currency. But she knows she is isolated at this summit. She can go


on being isolated as long as the majority of Germans believe she is


doing the best she's ever done for their country. The problem is if


there is a bank run, there is nothing the Greek Government can do


to restore confidence. That is why if you are pessimistic, the EU


authorities may have less than a month in the run-up to the Greek


elections to do something big that restores confidence. When tonight's


limo-logjam disperses, we will know whether they have any plan at all.


Paul is watching the paint dry in Brussels! Is anything happening?


little bit of briefing on the floor below me by Special Advisers, but


they haven't broken up yet. I am told by somebody with access to the


inner sanctum, there won't be too many decisions taken tonight. The


basic problem remains - they don't agree. What we are sighing are,


said the person I spoke to, the -- we are seeing are, said the person


I spoke to, are the emergence of new groups, particularly around


Francois Hollande. He seems to be created access with Mariano Rajoy


of Spain and Monte of Italy. He was imposed from above on to Italy. The


agenda of that little grouping is lay off Greece for a bit and give


this Spanish, as we heard in the clip, some way out of their banking


crisis that isn't so humiliating that the Government then falls.


Beyond that, we know they have been discussing whether what you would


do to give Greece 50 billion euros to leave the euro. That is a what


if scenario. Apart from that, we have paralysis as we have for many


of the other meetings. Exactly. David Cameron has been saying it


can't go on and on. As he well knows, it has gone on and on?


if you look at Mr Cameron as a sort of worked example of what's


happened to many political leaders here, nine months ago Cameron came


with an agenda, he tried to do something, he tried to contribute.


They are not willing bystanders now. The problem is, you see the


engagement begin to turn to frustration as politicians say,


"There's only so much we can do." The Brits are concerned about being


seen as outsiders butting into somebody else's problems. Many of


the Europeans think we caused all this. Cameron is less able to act


despite, as you saw in the clip, his frustration. If that is


anything like what other politicians are feeling, what you


begin to see is an ebbing away of the ability to move things along.


We might remember this meeting, quite possibly, as the last chance


they had to sort something before the Greek election presses the


start button on a serious crisis. Paul, we have so much to look


forward to. Thank you. We have more now on the Newsnight


investigation into how some civil servants are avoiding paying income


tax by channelling earnings through service companies. Peter Marshall


is here. The head of the student loans commission was being paid


�182,000 a year through a private service company. Thus reducing his


tax bill by tens of thousands of pounds a year. Danny Alexander, the


Chief Secretary to the Treasury, immediately put him on the payroll


and made him PAYE and ordered a review of all senior public


servants to see who else was on these similar arrangements. He


found out, as we reported, quite a lot. 2,400, he told the Commons


today, are on these deals. These are highly-paid people, the minimum


they get is �58,000 a year. If you are on a salary of �120,000 a year,


it means you reduce your tax and National Insurance by �23,000.


Danny Alexander was at pains to point out that some of these deals


go back two years to the past Labour Government, 20 of them go


back ten years, which he said was an extraordinary length of time to


be on contract, all the time he was at pains to stress this is not a


problem of this Government's making. It is clear that off payroll


engagement has been endemic for too many years. It is a problem that


built-up and was presided over by the previous Government. It is


likely that under their watch, many more thousands of cases of off


payroll payment may have come and gone yet no-one said a word. The


solution to this problem is not to turn a blind eye, or brush it under


the carpet. We have to bring an end to the don't ask, don't tell


approach to this issue. That is his analysis. What is he going to do


about it? He will make all these individuals go on staff and become


PAYE from September. We all have to pay our fair share, he said. This


will apply across the Government and the Health Service. When the


Government changes the law, it will apply to the public sector, too.


All those in controlling positions must be on the payroll. And those


who aren't are freelancers. With no exceptions? A number of MPs were


questioning the BBC's arrangements so I checked before coming here.


The BBC's position is all BBC employees pay tax at source, PAYE,


others who work for the BBC but maybe freelancers, working for a


range of employers across the industry, they can be paid off the


payroll as can perhaps some presenters who may write books and


have multiple employers. This is quite legitimate and in agreement


with the Revenue. Thank you. Facebook translated its popularity


as a social networking site into popularity with investors in its


Initial Public Offering which valued shares at $38 each, though


almost immediately the price slid around 18% to $31. Tonight the US


Senate Banking Committee said it is reviewing various issues regarding


the offering. The bank, Morgan Stanley, which advised Facebook, is


being sued for allegedly warning some favoured big investors that


future earnings were likely to be lower than previously thought - a


warning smaller investors did not receive. Joe Lynam reports.


There is a reason why the people at the front of this shop are smiling


- they had just all become very real billionaires. Last Friday's


Facebook flotation or IPO, was one of the biggest ever and valued the


soirbl network at over -- social network at over $100 billion. But


now the lawyers have taken over. Facebook and some Wall Street banks


are being sued by a group of private investors who have lost


their T-shirts since last Friday. They allege that in the run-up to


the IPO Facebook warned Morgan Stanley things may not be as rosy


as they thought. The bank is accused of passing on that


information only to a select group of its Wall Street chums, instead


of telling all would-be investors. It is not clear whether anybody


broke any rules. What is clear is that if they did not break rules,


the rules themselves are very unfair. They gave much better


information to big institutional investors than they did to small


investors. Whether they broke the rules is probably going to be


litigated now. It all started so well on flotation day, shares


launched at $38 and rose a bit before closing where they started.


Rumours that some key information had been withheld as well as


glitches on the Nasdaq market started a big sell-off on Monday


and by yesterday, it had closed at $31, almost a fifth down. The


shares have rallied today, closing at $32. While it is highly unlikely


that fewer people will use Facebook as a result of the IPO, its


reputation may have taken a knock. Facebook was to become the medium


for targeted advertising on a social network. Losing investors


billions in two or three days may scare off some would-be advertisers.


To see all these shareholder lawsuits going on, to have a share


price that was ramped pre-IPO and then went down afterwards, that is


not good. Secondly, longer term, I know because this will be hard for


us, is recruitment. If you have a share price, particularly if you


are in the heart of Silicon Valley, and your share price is going down,


that could damage your long-term prospects. Talent is everything.


What was the vital bit of information which may have been


withheld from some smaller investors before the float? When


Facebook went global in 2006 it was enjoyed mostly on large screen


devices such as desktops and laptops. Adverts worked because


they didn't dominate the page. Now we consume our social networking on


hand-held devices and smartphones. There, advertising is too small to


be effective or too big that it annoys the user. It was that fear


that Facebook might not be able to get as much money from phone users


that caused concern. Morgan Stanley said today that it had follow load


the same procedures for the Facebook offering that it follows


for all IPOs and these procedures were in compliance with all


applicable regulations. With nearly one billion regular users, Facebook


is the world's most valuable address book. It has been tainted a


little by appearing to cosy up to Wall Street over mom and pop


invstors investors. Andrew Edgecliffe-Johnson is Media


Editor at the Financial Times and Dan Wagner is a Venture Capitalist.


Andrew, did Morgan Stanley get this wrong? It did a brilliant job for


their client. They got $16 billion of cash out of investors who seemed


to be lining up for this IPO. At the same time, the price was not


sustained and every adviser to a flotation like this wants to see a


pop, they want to see the shares go up 10% and stay there and build-up.


The difficult balance here is that a bank advising a company like


Facebook is trying to do two different things. It is trying to


get the best price for the company and for its original investors who


might be selling out. But it is also trying to keep the new


investors happy and engaged and create a good buzz around the


company. There is certainly not a good buzz around the company today.


It is a failure. It's not worked the way it is supposed to. Dan,


quite a few American newspapers have used the word "botched" - do


you agree? Not really. The IPO was priced fully. It certainly was...


At the top end? Yes. What happens is typically with an IPO it is


book-built during the process with investor demand and the price may


get pushed up. You have to remember these investment banks work for the


institutional investors because they are the ones who keep taking


the new issues every time a new one comes along. They want stuff them


with an expensive stock because there's demand. They will try and


price it as fairly as they can with the expectation there will be an


uplift in the after- market. What Andrew called a pop. Do you think


it is right, is it normal for some of those more favoured big


institutional investors to have information that mum and dad back


home buying a few shares doesn't get? I don't believe they do. The


SEC has strict guidelines. You have an S1 that gets filed with the SEC.


It was restated with new information. Anyone can go to the


web and download the S1 to read it in detail. So I think that full


information was out there. Whether everyone took advantage of that


before making their investment is up to them. Andrew, is there a


problem in this because of Facebook likes to look after the little


people, that is part of the image, whether you believe that or not is


up to you. Do you think that is an image problem for them now? I think


it is difficult. They have 900 million users. This is what has


built them up into this company. They have also said in that filing


that Dan refers to, we were not, we didn't start life trying to be a


company. We started off with a social mission. We don't wake nup


the morning and think about profit -- wake up in the morning and think


about profit first. This, frankly, makes you wonder whether they could


have been a bit more like a normal company. There are lawsuits piling


up. Regulators are lining up to look at this. The facts will not be


clear for a little while. What is disclosed in the court process, we


have yet to find out. So there is always a grey area where the big


investment banks are allowed to communicate with the big clients,


to point out that that sentence in the filing is the important one,


where they talk about slowing a mobile growth, the mom and pop


investor might well have missed that. So people involved in the IPO


today are saying the information was out there for everybody to see,


there was a lot of press about it, we wrote about it in the Financial


Times. But it is a grey area. I want to bring in Dan. Do you


think it is a problem for Facebook in future? No, I don't. We have to


remember two things. Shares go up and they go down. In this case, the


shares have gone down a little bit. This is a business that has the


most extraordinary profile. It's gone from profits, from losses in


2008 to a profit of a billion. Based on... It has 900 million


users. Exactly. Based on people loving what they do and thinking


this is a nice, friendly thing. If that is damaged, then they haven't


got... I don't think that is damaged. It is a dominant player in


social media and it will remain the dominant player for some years to


come. Thank you. Let's look at tomorrow's front-pages. The


Guardian has the EUfissure widens - - EU fissure widens over Greece.


The FT, Europe braced for turmoil as Greece fears take their toll.


It's got Facebook down below. The Times has market slides amid future


over Greece. The Mail has a story about a British rabies victim


fighting for his life. The Independent - eurozone set to


abandon Greece and austerity. Finally, the Telegraph as Welfare


to Work fraud scandal, whistleblower accuses company of


misusing billions... What is that about, David? The best way of


helping people is to get them into work off benefits. The Government's


big idea is to pay private companies to do that. They are


channelling �5 billion into that. They pay them by results. What if


those results aren't all that they seem? The Telegraph are leading on


secret testimony by one of the auditors of the Welfare to Work


provider A4e. He describes Welfare to Work as "multi-billion pound


scandal" and there is an unevidentical culture. In the past,


the Department for Work and Pensions has said that if they do


uncover systematic fraud, they will lose all of their Government


contracts. Now, Newsnight has obtained a report by a man called


Eddie Hutchinson, head auditor at A4e between 2011/12. He testified


at the Public Accounts Committee yesterday. Now, rather surprisingly,


that testimony was heard in secret, as was insisted on by some


Conservative members. Now, that is why it has not emerged until now.


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