23/05/2012 Newsnight


23/05/2012

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


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Transcript


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

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

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

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they will do. Tonight we get a first glimpse of

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

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

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

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

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

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they are looking at. Major falls on stock markets across

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

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

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and precious little action and time is running out.

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More on the Newsnight investigation into how some civil servants avoid

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income tax. And what really went on behind the

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

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exception of Buckingham Palace the residents of just about every house

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

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

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

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

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

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

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

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

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which have already been announced will begin to bite.

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

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

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

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

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

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

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

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

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Government projection of savings going forward and we know from past

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

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

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

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

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

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

:03:12.:03:16.

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

:03:16.:03:20.

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

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

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

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replacement of the Disability Living Allowance with the Personal

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Independence Payment. The Government says that should cut

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

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

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

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

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

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

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

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

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

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

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

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

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

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tax credits and housing benefit. All of that is politically

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

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

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die! Well, those are the numbers, but

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

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Government - any Government - to consider cutting the money from

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

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has been doing some blue-sky thinking.

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

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

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

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

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

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

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

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the same rate of reductions in departmental spending as we have

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

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2016. Welfare is in the dock because the

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

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:06:34.:06:37.

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

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Iain Duncan Smith appeared to be unimpressed when the Chancellor

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

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

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

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assessment that the public mood is finely balanced that you have

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

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

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

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

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

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

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

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applied for housing benefit separately. You are on housing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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life cycle of the coalition, a Cabinet minister reiterated this

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

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

:10:00.:10:03.

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

:10:03.:10:06.

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

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

:10:12.:10:15.

affect families and children are probably a distraction. The next

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really big savings will come from somewhere completely different.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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benefits and then we can think about making further savings.

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

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

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realising the first cut was the deepest.

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

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

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

:11:57.:12:00.

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

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

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

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

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

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

:12:25.:12:28.

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

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

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

:12:37.:12:41.

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

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households under the previous Government, I think it is

:12:44.:12:48.

incredibly important that we reform the benefits system, bring in

:12:48.:12:51.

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

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

:12:55.:12:59.

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

:12:59.:13:04.

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

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

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

:13:15.:13:19.

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

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

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

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

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

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

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

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

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

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

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

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

:14:05.:14:09.

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

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

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

:14:18.:14:24.

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

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

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trying to massage down the unemployment figures and they

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

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figure out what was politically possible. Labour in power would

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

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

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

:14:52.:14:56.

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

:14:56.:14:59.

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

:14:59.:15:03.

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

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

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

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

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

:15:23.:15:27.

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

:15:27.:15:31.

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

:15:31.:15:34.

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

:15:34.:15:37.

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

:15:37.:15:40.

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

:15:40.:15:44.

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

:15:44.:15:48.

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

:15:48.:15:52.

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

:15:52.:15:56.

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

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

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

:16:09.:16:14.

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

:16:14.:16:17.

changes people's behaviours and people then start thinking because

:16:17.:16:22.

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

:16:23.:16:29.

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

:16:29.:16:33.

different behaviours. People should be responsible for their own

:16:33.:16:35.

behaviours and drive entrepreneurship. I saw there

:16:35.:16:40.

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

:16:40.:16:44.

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

:16:44.:16:49.

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

:16:49.:16:54.

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

:16:54.:16:58.

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

:16:58.:17:02.

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

:17:02.:17:05.

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

:17:05.:17:09.

unless you look at some of the pensioner benefits. Capping

:17:09.:17:13.

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

:17:13.:17:17.

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

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

:17:21.:17:25.

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

:17:25.:17:32.

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

:17:32.:17:35.

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

:17:35.:17:38.

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

:17:38.:17:42.

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

:17:42.:17:46.

regionalised cap in terms of benefits. One of the Clinton

:17:46.:17:51.

reforms was that they looked at the different labour markets in

:17:51.:17:54.

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

:17:54.:17:57.

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

:17:57.:18:03.

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

:18:03.:18:07.

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

:18:07.:18:10.

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

:18:10.:18:14.

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

:18:14.:18:17.

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

:18:17.:18:21.

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

:18:21.:18:25.

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

:18:25.:18:29.

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

:18:29.:18:33.

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

:18:33.:18:37.

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

:18:37.:18:42.

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

:18:42.:18:46.

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

:18:46.:18:48.

bureaucrats checking each individual and having some sort of

:18:48.:18:54.

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

:18:54.:18:57.

progressive tax system. Governments have been terrified of having a

:18:57.:19:01.

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

:19:01.:19:07.

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

:19:07.:19:10.

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

:19:11.:19:18.

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

:19:18.:19:23.

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

:19:23.:19:28.

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

:19:28.:19:32.

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

:19:32.:19:37.

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

:19:37.:19:44.

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

:19:44.:19:48.

several thousand bureaucrats to check each individual whether they

:19:48.:19:51.

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

:19:51.:19:56.

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

:19:56.:20:02.

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

:20:02.:20:08.

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

:20:08.:20:13.

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

:20:13.:20:17.

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

:20:17.:20:22.

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

:20:22.:20:26.

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

:20:26.:20:31.

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

:20:32.:20:36.

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

:20:36.:20:45.

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

:20:45.:20:48.

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

:20:48.:20:52.

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

:20:52.:20:57.

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

:20:57.:21:01.

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

:21:01.:21:05.

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

:21:05.:21:09.

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

:21:09.:21:14.

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

:21:14.:21:18.

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

:21:18.:21:21.

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

:21:22.:21:25.

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

:21:25.:21:28.

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

:21:28.:21:32.

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

:21:32.:21:36.

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

:21:36.:21:39.

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

:21:39.:21:42.

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

:21:42.:21:46.

think about investing in services that are going to raise our

:21:46.:21:49.

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

:21:49.:21:55.

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

:21:55.:22:00.

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

:22:00.:22:03.

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

:22:03.:22:09.

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

:22:09.:22:13.

welfare state and any Government will have to tackle it?

:22:13.:22:17.

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

:22:17.:22:23.

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

:22:23.:22:27.

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

:22:27.:22:31.

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

:22:31.:22:36.

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

:22:36.:22:38.

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

:22:38.:22:42.

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

:22:42.:22:47.

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

:22:47.:22:52.

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

:22:52.:22:58.

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

:22:58.:23:04.

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

:23:04.:23:08.

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

:23:08.:23:13.

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

:23:13.:23:17.

incentives. It has been slightly overclaimed by putting all these

:23:17.:23:22.

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

:23:22.:23:25.

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

:23:25.:23:30.

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

:23:30.:23:33.

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

:23:33.:23:38.

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

:23:38.:23:43.

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

:23:43.:23:48.

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

:23:48.:23:53.

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

:23:53.:23:55.

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

:23:55.:24:00.

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

:24:00.:24:05.

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

:24:05.:24:09.

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

:24:10.:24:13.

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

:24:14.:24:18.

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

:24:18.:24:22.

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

:24:22.:24:26.

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

:24:26.:24:30.

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

:24:30.:24:35.

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

:24:35.:24:38.

providing aspiration and inspiration into the young and into

:24:38.:24:41.

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

:24:41.:24:46.

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

:24:46.:24:50.

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

:24:50.:24:54.

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

:24:54.:24:57.

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

:24:57.:25:00.

something different. Thank you all very much.

:25:00.:25:04.

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

:25:04.:25:07.

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

:25:07.:25:12.

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

:25:12.:25:15.

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

:25:15.:25:18.

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

:25:18.:25:28.
:25:28.:25:29.

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

:25:29.:25:35.

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

:25:35.:25:44.

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

:25:44.:25:50.

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

:25:50.:25:55.

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

:25:55.:25:59.

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

:25:59.:26:05.

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

:26:05.:26:09.

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

:26:10.:26:15.

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

:26:15.:26:19.

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

:26:19.:26:23.

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

:26:23.:26:28.

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

:26:28.:26:38.
:26:38.:26:41.

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

:26:41.:26:45.

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

:26:45.:26:53.

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

:26:53.:26:56.

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

:26:56.:27:00.

Portuguese. TRANSLATION: Most probably we will

:27:00.:27:04.

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

:27:04.:27:09.

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

:27:09.:27:13.

mind the Government has no intention or wish to seek European

:27:13.:27:20.

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

:27:20.:27:28.

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

:27:28.:27:32.

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

:27:32.:27:40.

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

:27:40.:27:44.

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

:27:44.:27:48.

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

:27:48.:27:51.

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

:27:51.:27:55.

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

:27:55.:28:00.

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

:28:00.:28:03.

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

:28:03.:28:07.

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

:28:07.:28:11.

longer term issues at the heart of running a successful single

:28:11.:28:15.

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

:28:15.:28:25.
:28:25.:28:27.

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

:28:27.:28:32.

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

:28:32.:28:37.

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

:28:37.:28:41.

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

:28:41.:28:47.

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

:28:47.:28:51.

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

:28:51.:28:56.

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

:28:56.:29:00.

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

:29:01.:29:08.

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

:29:08.:29:13.

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

:29:13.:29:19.

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

:29:19.:29:24.

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

:29:24.:29:30.

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

:29:30.:29:33.

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

:29:33.:29:37.

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

:29:37.:29:41.

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

:29:41.:29:47.

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

:29:47.:29:53.

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

:29:53.:29:59.

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

:29:59.:30:02.

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

:30:02.:30:07.

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

:30:07.:30:10.

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

:30:10.:30:17.

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

:30:17.:30:22.

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

:30:22.:30:25.

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

:30:25.:30:30.

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

:30:30.:30:35.

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

:30:35.:30:41.

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

:30:41.:30:45.

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

:30:45.:30:49.

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

:30:49.:30:55.

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

:30:55.:30:58.

engagement begin to turn to frustration as politicians say,

:30:58.:31:02.

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

:31:02.:31:06.

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

:31:06.:31:11.

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

:31:11.:31:15.

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

:31:15.:31:17.

anything like what other politicians are feeling, what you

:31:17.:31:24.

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

:31:24.:31:27.

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

:31:27.:31:32.

they had to sort something before the Greek election presses the

:31:32.:31:37.

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

:31:37.:31:40.

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

:31:40.:31:43.

investigation into how some civil servants are avoiding paying income

:31:43.:31:45.

tax by channelling earnings through service companies. Peter Marshall

:31:45.:31:53.

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

:31:53.:31:58.

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

:31:58.:32:04.

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

:32:04.:32:07.

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

:32:07.:32:11.

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

:32:11.:32:15.

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

:32:15.:32:21.

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

:32:21.:32:27.

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

:32:27.:32:36.

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

:32:36.:32:40.

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

:32:40.:32:44.

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

:32:44.:32:48.

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

:32:48.:32:51.

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

:32:51.:32:55.

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

:32:55.:33:04.

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

:33:04.:33:09.

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

:33:09.:33:13.

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

:33:13.:33:17.

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

:33:17.:33:21.

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

:33:21.:33:25.

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

:33:26.:33:29.

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

:33:29.:33:33.

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

:33:33.:33:38.

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

:33:38.:33:43.

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

:33:43.:33:46.

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

:33:46.:33:48.

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

:33:48.:33:55.

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

:33:55.:34:05.
:34:05.:34:05.

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

:34:05.:34:09.

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

:34:09.:34:14.

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

:34:14.:34:19.

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

:34:19.:34:24.

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

:34:24.:34:28.

payroll as can perhaps some presenters who may write books and

:34:28.:34:33.

have multiple employers. This is quite legitimate and in agreement

:34:33.:34:36.

with the Revenue. Thank you. Facebook translated its popularity

:34:37.:34:39.

as a social networking site into popularity with investors in its

:34:39.:34:42.

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

:34:42.:34:48.

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

:34:48.:34:51.

Senate Banking Committee said it is reviewing various issues regarding

:34:51.:34:55.

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

:34:55.:34:57.

being sued for allegedly warning some favoured big investors that

:34:57.:35:00.

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

:35:00.:35:10.

warning smaller investors did not receive. Joe Lynam reports.

:35:10.:35:13.

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

:35:13.:35:18.

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

:35:18.:35:23.

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

:35:23.:35:32.

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

:35:32.:35:36.

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

:35:36.:35:40.

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

:35:40.:35:44.

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

:35:44.:35:48.

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

:35:48.:35:51.

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

:35:51.:35:54.

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

:35:54.:35:59.

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

:35:59.:36:03.

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

:36:03.:36:08.

the rules themselves are very unfair. They gave much better

:36:08.:36:11.

information to big institutional investors than they did to small

:36:11.:36:17.

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

:36:17.:36:21.

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

:36:21.:36:26.

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

:36:26.:36:30.

Rumours that some key information had been withheld as well as

:36:30.:36:33.

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

:36:33.:36:39.

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

:36:40.:36:45.

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

:36:45.:36:49.

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

:36:49.:36:54.

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

:36:54.:36:58.

for targeted advertising on a social network. Losing investors

:36:58.:37:04.

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

:37:04.:37:08.

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

:37:08.:37:15.

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

:37:15.:37:21.

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

:37:21.:37:25.

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

:37:25.:37:30.

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

:37:30.:37:34.

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

:37:34.:37:37.

What was the vital bit of information which may have been

:37:37.:37:42.

withheld from some smaller investors before the float? When

:37:42.:37:46.

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

:37:46.:37:51.

devices such as desktops and laptops. Adverts worked because

:37:51.:37:57.

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

:37:57.:38:01.

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

:38:01.:38:06.

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

:38:06.:38:10.

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

:38:10.:38:14.

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

:38:14.:38:17.

the same procedures for the Facebook offering that it follows

:38:17.:38:24.

for all IPOs and these procedures were in compliance with all

:38:24.:38:27.

applicable regulations. With nearly one billion regular users, Facebook

:38:27.:38:32.

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

:38:32.:38:41.

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

:38:41.:38:43.

invstors investors. Andrew Edgecliffe-Johnson is Media

:38:43.:38:49.

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

:38:49.:38:56.

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

:38:56.:39:01.

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

:39:01.:39:07.

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

:39:07.:39:11.

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

:39:11.:39:20.

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

:39:20.:39:24.

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

:39:24.:39:30.

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

:39:30.:39:35.

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

:39:35.:39:41.

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

:39:41.:39:44.

investors happy and engaged and create a good buzz around the

:39:44.:39:47.

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

:39:47.:39:51.

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

:39:51.:39:57.

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

:39:57.:40:01.

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

:40:01.:40:07.

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

:40:07.:40:10.

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

:40:10.:40:15.

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

:40:16.:40:18.

institutional investors because they are the ones who keep taking

:40:18.:40:22.

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

:40:22.:40:25.

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

:40:25.:40:31.

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

:40:31.:40:36.

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

:40:36.:40:41.

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

:40:41.:40:45.

institutional investors to have information that mum and dad back

:40:45.:40:50.

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

:40:50.:40:56.

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

:40:56.:41:00.

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

:41:00.:41:05.

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

:41:05.:41:08.

information was out there. Whether everyone took advantage of that

:41:08.:41:12.

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

:41:12.:41:16.

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

:41:16.:41:18.

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

:41:18.:41:24.

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

:41:24.:41:29.

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

:41:29.:41:32.

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

:41:32.:41:37.

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

:41:37.:41:40.

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

:41:40.:41:46.

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

:41:46.:41:52.

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

:41:52.:41:56.

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

:41:56.:42:04.

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

:42:04.:42:08.

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

:42:08.:42:14.

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

:42:15.:42:18.

investment banks are allowed to communicate with the big clients,

:42:18.:42:22.

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

:42:22.:42:26.

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

:42:26.:42:30.

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

:42:30.:42:33.

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

:42:33.:42:39.

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

:42:39.:42:49.
:42:49.:42:51.

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

:42:51.:42:56.

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

:42:56.:43:00.

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

:43:00.:43:04.

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

:43:04.:43:09.

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

:43:09.:43:18.

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

:43:18.:43:22.

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

:43:22.:43:27.

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

:43:27.:43:30.

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

:43:30.:43:35.

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

:43:35.:43:41.

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

:43:41.:43:51.
:43:51.:43:52.

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

:43:52.:43:59.

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

:43:59.:44:07.

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

:44:08.:44:14.

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

:44:14.:44:23.

fighting for his life. The Independent - eurozone set to

:44:23.:44:29.

abandon Greece and austerity. Finally, the Telegraph as Welfare

:44:29.:44:33.

to Work fraud scandal, whistleblower accuses company of

:44:33.:44:42.

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

:44:42.:44:46.

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

:44:46.:44:50.

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

:44:50.:44:54.

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

:44:54.:44:58.

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

:44:58.:45:03.

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

:45:03.:45:11.

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

:45:11.:45:17.

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

:45:17.:45:21.

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

:45:21.:45:25.

uncover systematic fraud, they will lose all of their Government

:45:25.:45:31.

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

:45:31.:45:37.

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

:45:37.:45:40.

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

:45:40.:45:45.

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

:45:45.:45:50.

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

:45:50.:45:57.

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