25/07/2012 Newsnight


25/07/2012

The stories behind the headlines. Paul Mason unpeels the latest bad news for the UK economy, while Allegra Stratton considers the government's options. Presented by Gavin Esler.


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Transcript


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The weather's lovely, summer is here, the world is coming to enjoy

:00:13.:00:17.

London 2012, there is just one catch, the British economy is

:00:17.:00:21.

shrinking at an alarming rate, down 0.7% last quarter.

:00:21.:00:24.

According to the Government's original plan, the economy should

:00:24.:00:29.

now have grown by 5%. Instead, it is smaller than when they took over.

:00:29.:00:33.

Closing the deficit of the purpose of the coalition, and the

:00:33.:00:37.

Chancellor. So can either survive if they fail?

:00:37.:00:43.

The Business Secretary, Vince Cable, tell us us it is disappointing, and

:00:43.:00:46.

-- tells us it is disappointing, and discusses his job prospects.

:00:46.:00:50.

REPORTER: Do you think you would make a good Chancellor? I would,

:00:50.:00:54.

but George Osborne is doing it well, and we are doing it as part of a

:00:54.:00:57.

team, we are not suggesting changing the arrangements. We will

:00:57.:00:59.

hear from economists and leading business people.

:00:59.:01:04.

Nine athletes are banned from the 2012 Olympics for doping. Newsnight

:01:04.:01:09.

uncovers new methods cheats are using to avoid detection. To be

:01:09.:01:13.

able to prove that would be great, but at the moment the standard of

:01:13.:01:17.

the drug testing isn't quite at the level where everybody can believe

:01:17.:01:27.
:01:27.:01:27.

in the system. Good evening, idea that this summer

:01:27.:01:32.

we might finally see the end to the recession was dashed today, by

:01:32.:01:35.

figures which show the British economy shrank by 0.7% from April

:01:35.:01:38.

to June. The figures could be corrected up or down, the message

:01:39.:01:43.

is clear, Something isn't working. The TUC said the Government had

:01:43.:01:47.

wiped out the recovery. Others directly blame George Osborne, one

:01:47.:01:50.

Lib Dem peer suggested he was like a Chancellor on work experience,

:01:50.:01:54.

and should be moved in favour of the Business Secretary, Vince Cable.

:01:54.:01:58.

We will hear from Mr Cable about his job prospects in a moment.

:01:58.:02:06.

First here is Paul Mason. To lose two quarters growth might

:02:06.:02:11.

be regarded as misfortune, to lose a third, big time, might be seen as

:02:11.:02:15.

carelessness. Today, George Osborne had to face

:02:15.:02:22.

the fact, never mind the rain, the Jubilee, a 0.7% shrinkage in just

:02:22.:02:27.

three months, is bad. Of course, there are one-off factors like the

:02:27.:02:31.

bank hole day, that is not an excuse I'm using. Frankly, even

:02:31.:02:34.

without that, these would be disappointing numbers. They remind

:02:34.:02:37.

us that Britain has some deep- rooted economic problems, that will

:02:38.:02:43.

take time to solve. This is what a double-dip looks like. Deep falls

:02:43.:02:47.

in growth, after Lehman Brothers, nearly four years ago, then

:02:47.:02:50.

recoverry, and since the coalition took power, shrinkage in more

:02:51.:02:55.

quarters than not. It put Labour, which warned of

:02:55.:03:01.

exactly this, on the front foot. Today is the day we see that this

:03:01.:03:04.

Government's economic plan has failed. They promised change, they

:03:04.:03:08.

promised people that the pain they were inflicting would put our

:03:08.:03:13.

economy back on track. But month- on-month, year-on-year, we see

:03:13.:03:16.

things getting worse, not better. It is families and businesses that

:03:16.:03:21.

are paying the price. And an influential Lib Dem peer,

:03:21.:03:25.

and friend of Vince Cable, said George Osborne should be sacked.

:03:25.:03:30.

the beginning of this Government we had three out of the five Liberal

:03:30.:03:36.

Democrat cabinet ministers, with great business experience and

:03:36.:03:40.

economic expertise, Vince Cable, Chris Huhne and David Laws, Vince

:03:40.:03:46.

Cable is available, but if the others are available soon we would

:03:46.:03:49.

like to see them back at the heart of economic policy. Are you

:03:49.:03:54.

suggesting one of them should be the Chancellor? Yes. Today's news

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is particularly bad because exactly the sectors said would lead Britain

:03:59.:04:04.

back into recovery, are themselves into bad and deep recession.

:04:04.:04:07.

Construction down 10% in the last nine months, and production,

:04:07.:04:10.

leading all the manufacturing industries, down more than 2%. It

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is all so far away from what the Treasury's own independent experts

:04:15.:04:20.

predicted two years ago. George Osborne's basic problem is

:04:20.:04:25.

none of the projections he based his strategy on has come true. The

:04:25.:04:29.

economy was supposed to rebalance, it hasn't, manufacturing was

:04:29.:04:33.

supposed to recover rapidly, it hasn't. And as for the growth

:04:33.:04:41.

figures, well, 2010 was supposed to be 1.8, wrong, 2.4% in 2011, wrong,

:04:41.:04:45.

2.9% this year, badly wrong, because we are in recession, as for

:04:45.:04:53.

2.8% next year, again, not likely. So why so bad for so long. Interest

:04:53.:04:57.

rates are near zero and the Bank of England has pumped more than �300

:04:57.:05:00.

billion to the economy, through printing it. Those on the right of

:05:00.:05:03.

economics say the Chancellor is just not implementing the policies

:05:03.:05:07.

needed for the private sector to offset the cuts in public spending.

:05:07.:05:13.

A lot of it is policy induced. The refusal to rapidly cut the size of

:05:13.:05:17.

the public sector, but also the refusal to pursue key

:05:17.:05:20.

liberalisations of the labour market, energy markets, where it is

:05:20.:05:23.

piling more costs on businesses. Also, I think it has been too weak

:05:23.:05:27.

in the field of liberalising planning as well. Meanwhile, from

:05:27.:05:30.

the other side of the coalition, there is frustration, at the

:05:30.:05:34.

absence of a state-backed growth plan. Vince Cable's leaked letter,

:05:34.:05:39.

in February this year, warned George Osborne the Government was

:05:39.:05:44.

"missing a compelling vision...a clear and confident message about

:05:44.:05:48.

how we will earn our living in the future ". Last work the IMF gave

:05:48.:05:55.

the Government a nudge towards more infrastructure spending, not so far

:05:55.:05:59.

reciprocated The IMF says he should use the fiscal space they regard

:06:00.:06:02.

the Treasury to have at the moment, because of the low interest rates,

:06:02.:06:07.

to get money spent quickly on key infrastructure projects. That could

:06:07.:06:10.

be the high-speed rail being discussed, or new toll roads, it

:06:10.:06:15.

could be the energy infrastructure we need to decarbonise the economy.

:06:15.:06:18.

It could be housing, a housing shortage in the UK at the moment.

:06:18.:06:22.

All those things desperately need doing at the moment, there isn't

:06:22.:06:25.

enough private sector investment, and the Government is able to

:06:25.:06:28.

borrow at rates we haven't had for generations. What the Government

:06:28.:06:33.

has effectively done for the last two years to swap a recovery for

:06:33.:06:38.

fiscal stability, that is no mean achievement when the rest of Europe

:06:38.:06:43.

is howevering on the brink of chaos. But it is whether the markets

:06:43.:06:46.

continue to believe his deficit reduction plan.

:06:46.:06:50.

This is the plan, currently, tax rises in blue, spending cuts in red.

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And the biggest years of cuts ahead of us, including two extra years

:06:56.:07:00.

after the 2015 election, added once the Government accepted its

:07:00.:07:04.

original projections were wrong. Two things happen if we are right

:07:04.:07:08.

about the figures today, first we will be borrowing more this year

:07:08.:07:12.

than intended. We may end up borrowing more than last year.

:07:12.:07:17.

Secondly, we won't go through to 2015 and 2016 in terms of cuts, we

:07:17.:07:20.

may go to 2017 and beyond, if the Office of Budget Responsibility

:07:20.:07:23.

says to the Chancellor this is a permanent reduction in economic

:07:23.:07:27.

output. For the Treasury, the bottom line

:07:27.:07:31.

is this, the UK economy is shrinking, and shrinking economies

:07:31.:07:37.

have trouble paying their debts. Paul is here now, along with our

:07:37.:07:42.

political editor, Allegra Stratton. Where does this leave the deficit

:07:42.:07:45.

reduction strategy, Paul? A big question mark over it. You now have

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people in the bond markets tonight saying, this is a country already

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on negative watch for its triple-A rating, and if it goes much further.

:07:55.:07:58.

Look, there is one story in the world, that is debt, and people

:07:58.:08:02.

paying down their debt, sometimes so fast that the economy shrinks

:08:02.:08:05.

and then you can't pay back your debts. It is a vicious circle.

:08:05.:08:08.

Britain stayed out of that for two years, but if we have another

:08:08.:08:12.

quarter of 0.7, or if this carries on for any great length of time, we

:08:12.:08:18.

will be part of that story. Even if you don't want to be at the edge of

:08:18.:08:22.

a vortex, you don't want to be sucked into it. Where does this

:08:22.:08:25.

leave George Osborne, then? I don't think he thinks he's on work

:08:25.:08:32.

experience, if he does, he thinks he's a graduate of work experience.

:08:32.:08:36.

Bad experience! Who would the Prime Minister turn if he was looking to

:08:36.:08:40.

reshuffle George Osborne? It would be George Osborne, he's the Prime

:08:40.:08:42.

Minister's chief economic and political adviser, the idea he

:08:43.:08:46.

would be shuffled is one of the follies of current politics, it is

:08:46.:08:49.

mad. If the deficit reduction strategy goes, or rather if he goes,

:08:49.:08:54.

the deficit reduction strategy goes, not only the Tories' main plan, but

:08:54.:09:00.

also the called, in their -- Tory's main plan, but also in their words,

:09:00.:09:03.

the glue of the coalition goes. Today, there are terrible figure,

:09:04.:09:08.

and everybody is genuinely shocked by the figure, something the

:09:08.:09:12.

viewers won't be comforted by, the idea they were blind sided by them,

:09:12.:09:15.

nevertheless, we have already had the deficit reduction programme

:09:15.:09:21.

extended by two years. They did so, for me, it was quite Houdiniesque,

:09:21.:09:25.

first it was at the end of the parliament, then extending by the

:09:25.:09:28.

two years, they got away with it. They have got away with the pushing

:09:28.:09:33.

back, now we are seeing more bad news, but equally, compared to that,

:09:33.:09:39.

I don't think it is massively worse news. The idea that he goes

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anywhere is fanciful. Is bad news for the economy, at

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least in political, narrow political terms, good news for

:09:46.:09:51.

Labour, because they can say "I told you so". Ed Balls has based

:09:51.:09:54.

his entire political career on being right, that Osborne would not

:09:54.:09:58.

only crash the economy, but in crashing it he would crash the

:09:58.:10:01.

deficit reduction target. The problem s you saw my graph in the

:10:01.:10:05.

report, Labour doesn't even have a deficit reduction tart t gave up on

:10:05.:10:09.

trying to have one when it -- target, it gave up on trying to

:10:10.:10:13.

have one when it all went wrong in last November, you couldn't compare

:10:13.:10:17.

like with like for the last Government, the figures were so

:10:17.:10:20.

different. The problem now is, if the Office for Budget

:10:20.:10:24.

Responsibility says the 0.7% is real, we are cutting that from the

:10:24.:10:28.

UK economy, what that means is an in coming Labour Government f it

:10:28.:10:34.

wanted to even match, pound-for- pound, the general proposal of the

:10:34.:10:38.

outgoing Lib Dem and Conservative one, would be facing scales of cuts

:10:38.:10:44.

and tax increases, that they can't yet contemplate. But they are

:10:44.:10:47.

contemplating, this is what is so fascinating for us in our jobs,

:10:47.:10:50.

firstly, you have this �10.5 billion of welfare cuts that we

:10:50.:10:54.

have done on the programme before. There are many people, including, I

:10:54.:11:00.

don't know, but Rachel Reeves, who will you speak to in a empt mo,

:11:00.:11:05.

that they probably have to accept those at the next election, because

:11:05.:11:08.

welfare, our viewers won't like this, it does resonate so much with

:11:09.:11:13.

people that it has to be cut. Lots of people in Labourite now are

:11:13.:11:19.

thinking, how do we answer this in a particularly Labour, socially

:11:19.:11:23.

democratic way, that is one of the ideas bubbling around at the moment.

:11:23.:11:27.

In Government one of the problems for them, I wonder if today is not

:11:27.:11:33.

proob embl, that it is so bad, it is pull ow -- problem, that it is

:11:33.:11:38.

so bad, it is pull out every drawer and bring out what you can. Do you

:11:38.:11:42.

do massive investment but do it in a way that is lots of public money

:11:42.:11:45.

that doesn't affect the deficit or levels of debt. Not everyone in the

:11:46.:11:50.

Treasury likes that? They hate it, that is why it is not forth coming

:11:50.:11:54.

so far. We will save it for another day. I caught up with Vince Cable

:11:54.:11:57.

in his departmental offices in central London today.

:11:57.:12:01.

When you were made aware of these figures yesterday, what did you

:12:01.:12:07.

think? I was disappointed. We know that the economy has got a lot of

:12:07.:12:11.

difficulties. They are frequently rehearsed. We have the problems of

:12:11.:12:15.

banks that don't work effectively, we have a shortage of demand,

:12:15.:12:20.

because of consumer debt, we are trying to deal with our deficit

:12:21.:12:24.

which affects consumer spending. Above all, we have this very

:12:24.:12:27.

difficult situation in the eurozone, which is affecting our exports. It

:12:27.:12:30.

is not surprising that we are struggling with economic difficulty.

:12:30.:12:34.

Not surprising? I think the scale of the downturn was disappointing,

:12:34.:12:37.

we acknowledge. That You say it is not surprising, but this is the

:12:37.:12:41.

very core of Government policy, this is what you are about, trying

:12:41.:12:46.

to bear down on the deficit, while increasing growth. You are failing

:12:46.:12:49.

at both. That is not surprising? They are not happening as rapidly

:12:49.:12:53.

as we would want. But, just to put the other side of the case, there

:12:54.:12:59.

are some positive things happening. There is a lot of private sector

:12:59.:13:03.

job growth, 800,000 over the last two years. There are some very good

:13:03.:13:07.

industrial success stories. I was unable to refer to them this

:13:07.:13:13.

morning, the Jaguar Land Rover, the 1,100 new jobs, on top of the 8,000

:13:13.:13:18.

they have already done. A lot happening with hit tachy and trains.

:13:18.:13:22.

The overall growth picture is not good. The figures show the reason

:13:22.:13:25.

why. Predominantly because of weakness in construction. If you

:13:25.:13:29.

take credit for some of the good news, presumably, you have to take

:13:29.:13:35.

the blame for the bad news, it is pretty appalling? These are not

:13:35.:13:38.

good figures. There is no point denying they are not good figures.

:13:38.:13:43.

It is easier to understand, I think, the deep factors, which we are

:13:44.:13:48.

struggling with. The IFS says that the figures are so bad you might

:13:48.:13:54.

need even more cuts in 2017, can you actually foresee going into the

:13:54.:13:57.

next general election saying, we may need more cuts in 2017, to get

:13:57.:14:03.

on the course we set for ourselves? We are taking the programme of cuts,

:14:03.:14:08.

which we have to undertake in order to get massive deficit down. And

:14:08.:14:12.

that is in a measured way. We have been flexible about this. The

:14:12.:14:15.

Government's objective when we came into office was to try to deal with

:14:15.:14:19.

the structural deficit in four years. We have accepted and

:14:19.:14:24.

practised that it is six years in the November statement. We are

:14:24.:14:27.

flexible in the speed with which this is being applied. There could

:14:27.:14:33.

be more cuts in 2017, it could be inevitable? It could well be. The

:14:33.:14:36.

Prime Minister is talking about the whole process taking a decade. That

:14:36.:14:39.

is a reflection of the massive scale of the problem we are dealing

:14:39.:14:44.

with. The economy is smaller now than when you became Business

:14:44.:14:48.

Secretary, you didn't presumably go into politics to preside over a

:14:48.:14:51.

shrinking economy, or a lost decade for the British economy? I didn't

:14:51.:14:55.

go into Government to preside over a shrifpbging economy. I did go

:14:55.:14:58.

into Government to -- shrinking economy. I did go into Government

:14:58.:15:03.

to deal with massive economic problem. This is something we

:15:03.:15:09.

haven't dealt with in my lifetime, theing collapse, and the

:15:09.:15:12.

existential crisis in the eurozone affecting our economy, and dealing

:15:12.:15:16.

with a massive deficit problem. These are not easy things. I take

:15:16.:15:21.

it as part of a challenge to be part of the team dealing with it.

:15:21.:15:23.

don't think anyone would underestimate the challenge facing

:15:23.:15:26.

any Government with these problems. As you know, Conservatives say, we

:15:26.:15:30.

need more deregulation, we need more cuts, and people on the left,

:15:30.:15:33.

including some within your own party, would like to see more

:15:33.:15:38.

investment, more public spending, and inevitably more borrowing, you

:15:38.:15:42.

are wobbling between the two? not wobbling, I don't think the

:15:42.:15:48.

issue is predominantly a problem caused by lack of deregulation or

:15:48.:15:53.

lack of cuts. I don't buy that, sometimes in jargon called, the

:15:54.:15:57.

supply side agenda. We have to regulate, I don't think that is the

:15:57.:15:59.

problem, we have very flexible labour markets in this country.

:16:00.:16:03.

That is one of the main attractions for the big inward investments we

:16:03.:16:07.

have succeeded in attracting here. The basic problem is one of demand.

:16:07.:16:10.

This is, of course, made more difficult by the fact that the

:16:10.:16:15.

Government, and any Government trying to deal with a deficit, adds

:16:15.:16:20.

to that problem. We tried to offset it by very, very active, vigorous

:16:20.:16:22.

policy by the Bank of England. The Bank of England has been very

:16:22.:16:24.

supportive. It was during the crisis under the last Government,

:16:24.:16:29.

it continues to be here. That is an essential part of the mix. Could

:16:29.:16:34.

you, given that analysis, couldn't you do what the IMF is ugt ising

:16:34.:16:40.

you have room to do. You -- is suggesting you do, you have room to

:16:40.:16:48.

spend more on infrastructure growth, to help the economy and boost

:16:48.:16:51.

through the construction sector, which you identified as a problem?

:16:51.:16:55.

The Government is doing both of those things. The infrastructure

:16:55.:16:58.

initiative launched last week is an attempt to give the Government

:16:58.:17:01.

balance sheet, which is strengthened by the reflecting low

:17:01.:17:05.

interest rates in Government borrowing, using the Government's

:17:05.:17:10.

balance sheet to support big infrastructure projects financed by

:17:10.:17:15.

pension funds. Would you like to do more than that? Directly using low

:17:15.:17:20.

interest rates to keep interest rates lower for bank borrowers,

:17:20.:17:23.

under the National Loan Guarantee Scheme. Those ideas are already

:17:23.:17:26.

implemented. You could do more, that is the point? It may be we

:17:26.:17:31.

have to do more. Your analysis in February, and the letter published,

:17:31.:17:34.

suggested you said that you sensed that there is still something

:17:34.:17:37.

important missing, a compelling vision of where the country is

:17:37.:17:43.

heading. Many people agreed with your analysis. I take it you still

:17:43.:17:46.

agree with your analysis? What we are putting in place, I was

:17:46.:17:49.

referring to one particular aspect of policy, which is what we call

:17:49.:17:53.

industrial strategy. I think what has happened in the last few months

:17:53.:17:57.

is we have got the building blocks in place, and are accepted. What

:17:57.:18:01.

that means is getting the Government behind, things like,

:18:01.:18:05.

apprenticeships, innovation, supporting supply chains, above all,

:18:05.:18:08.

supporting a resurgence of manufacturing, which we are really

:18:08.:18:13.

beginning to see. Working in a co- operative, long-term way, with, say,

:18:14.:18:18.

the automobile industry, Aerospace, life sciences, and services, like

:18:18.:18:23.

creative industries. That structure is being put in place, and is

:18:23.:18:25.

producing results. I wrote the letter because I have

:18:25.:18:28.

responsibility for driving that agenda. Is George Osborne the man

:18:28.:18:36.

who has killed off the recovery? it is not a personal thing. He's a

:18:36.:18:40.

colleague: He is in charge? We are collective responsible, we have a

:18:40.:18:44.

common agenda. We work well as a team. There is no personal blame

:18:44.:18:49.

attached to it. He called today's figures disappointing, some people,

:18:49.:18:52.

including your friend, Lord Oakeshott, said he's disappointing,

:18:52.:18:57.

he says that the Chancellor is on work experience and could be

:18:57.:19:00.

replaced with someone with more experience, meaning you? Lord

:19:00.:19:03.

Oakeshott is a good friend, I don't agree with him on everything, this

:19:03.:19:07.

is one area I don't agree. don't agree you will make a good

:19:07.:19:11.

Chancellor? I probably would, George Osborne is doing the job and

:19:11.:19:16.

we are doing it together as part of a team. Nobody is suggesting the

:19:16.:19:21.

change. Lord Oakeshott is still your friend? Long standing for

:19:21.:19:24.

decades. Even though his judgment on this piece? We have friendly

:19:24.:19:29.

disagreements, we do on this issue. The Shadow Chief Secretary to the

:19:29.:19:33.

Treasury is here, do you think he would make a good Chancellor?

:19:33.:19:40.

couldn't do much worse than the current guy in it. Maybe a future

:19:40.:19:43.

Lib Dem-Labour coalition we will see. A serious point, you have made

:19:43.:19:48.

a lot of running as a party about the damage caused by the cut. Paul

:19:48.:19:51.

Mason's analysis is accepted by everybody, the worst of the cuts

:19:51.:19:55.

have not yet happened. So, it follows, that they can't be

:19:55.:20:01.

responsible for all of this, can they? The Government's decisions,

:20:01.:20:04.

especially around the Comprehensive Spending Review in the autumn of

:20:04.:20:08.

2010, caused this collapse in confidence, since then, the economy

:20:08.:20:15.

has contracted. The numbers over the last three successive quarters

:20:15.:20:17.

of a shrinking economy, the Government has to take large

:20:17.:20:21.

proportion of the blame. The big cuts haven't come in yet, you agree

:20:21.:20:25.

with that? The confidence was choked off at the time of the

:20:25.:20:30.

Autumn Statement in autumn 2010, since then, we have seen

:20:30.:20:33.

construction fall, we have seen manufacturing output fall, in the

:20:33.:20:38.

numbers today, service output fall as well. Of course, there are

:20:38.:20:43.

international factors at play as well. Indeed, the eurozone debt

:20:43.:20:49.

crisis, the IMF says, is part of it? Apart from Italy, one of the

:20:49.:20:51.

industrialised economies, the only one who have gone back into

:20:51.:20:54.

recession. The Government has to take a large proportion of the

:20:54.:20:57.

blame from the numbers we have seen today. The only good thing out of

:20:57.:21:01.

the nuplgs today is it is a wake-up call for the Government to change

:21:01.:21:04.

their plans. As you heard Vince Cable say, they are prepared to be

:21:04.:21:09.

flexible and do more. Ed Balls and yourself have made a lot of play

:21:09.:21:13.

with the IMF saying Britain has more to do, more room to spend and

:21:13.:21:17.

borrow a bit more. You have to accept more of the IMF's analysis

:21:17.:21:20.

then, a credible deficit reduction plan is the key to everything. They

:21:20.:21:25.

think the Chancellor has one? credible deficit reduction plan is

:21:25.:21:32.

key. You don't have one? This deficit reduction plan is two years

:21:32.:21:40.

off course. As Paul Johnson from the fiscal studies area says there

:21:40.:21:46.

is more to go. This plan no longer seems credible. The ratings

:21:46.:21:49.

agencies say that without growth the deficit reduction plan is not

:21:49.:21:54.

achievable. The Government have got themselves into a vicious circle,

:21:54.:21:58.

they see the deficit and make cuts, but as a result they choke off

:21:58.:22:03.

growth, the deficit increases, and the deficit higher than a year ago.

:22:03.:22:09.

They cut a bit more and make things worse, they are in a vicious circle.

:22:09.:22:14.

Even though you accept there are other things responsible? Yeark but

:22:14.:22:19.

ripped out of the foundations of the -- yeah, but ripped out of the

:22:19.:22:22.

foundations of the house, and now we are in a more difficult position,

:22:22.:22:31.

we are not able to withstand the shocks coming our way. The IMF

:22:31.:22:38.

suggesting that there could be more cuts on to 2017, so it will be an

:22:38.:22:43.

absolute hair-shirt election, and a decade of a lost British economy,

:22:43.:22:45.

isn't it? There is nothing inevitable about this. The reason

:22:45.:22:49.

that we have got the two extra years of deficit reduction, and

:22:50.:22:51.

potentially another five years of it after this parliament, is

:22:52.:22:57.

because of the decisions that this Government have made, it is not too

:22:57.:23:00.

late for them to change course. There is a huge hole there, we have

:23:00.:23:05.

to close the deficit? It is not inevitable it has to carry on to

:23:05.:23:08.

2020. If the Government put in a strategy of jobs and growth to get

:23:08.:23:12.

the economy moving again, to help businesses succeed and get people

:23:12.:23:18.

back to work, we get to pay less in benefits and more tax rerevenue.

:23:18.:23:22.

The economy will grow gain and the deficit coming down sustainably. --

:23:22.:23:26.

grow again and the deficit coming down substantially.

:23:26.:23:30.

Are you saying you could bring the deficit down quicker than the

:23:30.:23:33.

Government? The deficit in the US is coming down at a faster rate

:23:33.:23:37.

than in the UK. In part because their economy is growing, and

:23:37.:23:41.

unemployment has been falling. You have to have tough decisions on

:23:41.:23:44.

taxation and spending to get the deficit down, but also jobs and

:23:44.:23:48.

growth as well. Without that the plan does not add up. That is why

:23:48.:23:52.

we are seeing both the deficit increasing, but also the economy

:23:52.:23:55.

back in this deeper double-dip recession.

:23:55.:24:01.

Thank you very much. What can be done to get the economy

:24:01.:24:05.

moving, what is the real problem here. I'm joined by Sir Martin

:24:05.:24:09.

Sorrell, of the advertising firm WPP. Mark Longhurst of the British

:24:09.:24:12.

chambers of commerce, Kate Barker a member of the Bank of England

:24:12.:24:15.

Monetary Policy Committee for ten years, and Vicky Pryce, formerly

:24:16.:24:19.

the head of the Government's economic service.

:24:19.:24:23.

Kate Barker, unemployment is actually going down, and so is the

:24:24.:24:29.

GDP going down, any first year economics student would say a

:24:29.:24:33.

mistake here surely. Can we believe the figures? We found the

:24:33.:24:40.

combination of pricing unemployment and rising GDP is wrong. I know

:24:40.:24:43.

they work very carefully, this is a difficult quarter to get right.

:24:43.:24:46.

They don't know the figures for June. June contained both the

:24:46.:24:51.

Jubilee and wet weather. It is likely that these figures will be

:24:51.:24:57.

revised up. That doesn't explain away the last year, it has been a

:24:57.:25:01.

year which GDP has fallen and unemployment has risen. It is not

:25:01.:25:04.

the last quarter. We are either doing incredibly badly on

:25:04.:25:08.

productivity, or the numbers are wrong. The employment figures are

:25:08.:25:15.

more reliable. Three quarters, a third quarter of constrax, it is

:25:15.:25:21.

bad news whatever way you look at it? We shouldn't panic, there are

:25:21.:25:25.

statistic issues one has to establish, and reworking of numbers

:25:25.:25:30.

over time. The biggest difference we have seen is in Q2, second

:25:31.:25:34.

calendar quarter was certainly weaker than the first calendar

:25:34.:25:37.

quarter for our clients. We saw that from across the world. The

:25:38.:25:42.

real issue is what is happening, the big difference has been the

:25:42.:25:45.

eurozone and the deterioration of the eurozone. Companies actually

:25:45.:25:51.

have very strong balance sheets, their balance sheet today compared

:25:51.:25:58.

to 2008, pre-Lehmans and post- Lehmans, is much bigger. But they

:25:58.:26:02.

are not spending? They have the confidence but the uncertainty of

:26:02.:26:06.

the eurozone. You commented on the US, my feeling would be just before

:26:06.:26:10.

the election in the United States in November, or after it. We will

:26:10.:26:15.

be finger pointing at the US not having dealt with its deficit. Not

:26:15.:26:20.

having dealt with a Simpson's bowl- type solution for it. The primary

:26:20.:26:25.

problem we see is the uncertainty in western Europe.

:26:25.:26:29.

When you talk to businesses up and down the country, they may say,

:26:29.:26:33.

that but they talk about the banks? Certainly the figures we referred

:26:33.:26:41.

to, we think, are superintendant, the last quarter. It is not

:26:41.:26:45.

unprecedented for the figures to be revised. You think they could be

:26:45.:26:48.

potentially that badly off. Are you hearing people are doing perhaps

:26:48.:26:52.

not brilliantly, but not too badly? We do the biggest business surveys

:26:52.:26:56.

in the UK. We have a pretty good idea what is going on out there.

:26:56.:27:02.

Businesses are saying it is tougher than it used to be, but we are

:27:02.:27:05.

doing OK. We are concerned about the confidence in the environment

:27:05.:27:08.

in which they are operating. Europe in particular. Those businesses

:27:08.:27:11.

with cash are not investing that cash right now. Because they are

:27:11.:27:17.

concerned about access to capital in the future. About 42% of

:27:17.:27:22.

businesses are in the high-growth, or relatively new category. They

:27:22.:27:25.

can't get access to finance. What is behind the figures?

:27:25.:27:29.

construction element is a very important one, we mustn't

:27:29.:27:33.

underestimate t I would be very surprised if it gets revised up.

:27:33.:27:37.

construction there is a problem? The Government has been cutting

:27:37.:27:40.

back capital spending very significantly. What tends to happen

:27:40.:27:46.

if you do that, is the firms you normally go to procure all the

:27:46.:27:50.

construction and everything else done, just on the jobs they would

:27:50.:27:53.

otherwise have, with the Olympics it helped a bit on the construction

:27:53.:27:56.

strike. But because of the cuts of public sector capital spending,

:27:56.:28:00.

they have not been replaced by any business investment. So we haven't

:28:00.:28:05.

actually seen factories being built, except in some very, very small

:28:05.:28:08.

examples of that happening. We have actually seen the construction

:28:08.:28:12.

figures decline very significantly. They are the swing factor here. It

:28:12.:28:16.

is not going to change, unless there is some dramatic move by the

:28:16.:28:19.

Government to spend a lot more on infrastructure, and housing, which

:28:20.:28:23.

I think it can actually do. Construction is a key to a lot of

:28:23.:28:28.

this? A lot of people watching would say we have had one of the

:28:28.:28:33.

biggest infrom structure of a lifetime, building the lipblic park,

:28:33.:28:39.

costing billions. Surely -- build building the Olympic Park costing

:28:39.:28:43.

billions. It is pretty much done. But I absolutely agree with Vicky,

:28:43.:28:48.

that we ought to be thinking of spending more on housing and

:28:48.:28:52.

infrastructure. Some of the big infrastructure projects take time

:28:52.:28:55.

to come through. We have seen good policies from the Government and

:28:55.:28:59.

the bank recently, to improve the supply of lending. That is one

:28:59.:29:05.

thing, but the demand for lending is another. We probably need the

:29:05.:29:09.

Government to do more on demand. If they do it t and spend it in ways

:29:09.:29:14.

that help us to build in the long- term, help us get young people back

:29:14.:29:17.

to work or build social housing, I don't think the markets would have

:29:17.:29:24.

a problem. It sounds like a Plan B? When you have as many shocks as

:29:24.:29:30.

knocked you of course, you think again. The biggest factors are

:29:30.:29:33.

outside the control of the Government. You are not necessarily

:29:33.:29:38.

worried about Spain going down, you are worried about the dominos that

:29:38.:29:43.

will claps if Spain was going down, and the contagion spreading across

:29:43.:29:47.

Europe. It is the biggest trading partner, a conference tomorrow to

:29:47.:29:51.

stimulate British business to export and trade more. Trying to

:29:51.:29:54.

run a business, when I look at western continental Europe, not so

:29:54.:29:59.

much the UK, actually, our business in the UK lasts two or three years,

:29:59.:30:02.

that should be strong, we have added jobs, at the same time our

:30:02.:30:06.

revenues have grown. Our revenues have grown faster than GMP. They

:30:06.:30:12.

would do better. The key issue is dealing with the eurozone crisi.

:30:12.:30:18.

You agree broadly with that? eurozone matters very much, we will

:30:18.:30:25.

see more crisis in the foreseeable future, it will not end. The IMF

:30:25.:30:30.

has revised figures downwards. They have a problem, Spain can't borrow,

:30:30.:30:34.

with great difficulty, neither can Italy or many other countries,

:30:34.:30:40.

yields are going up everywhere. We can, we have our own monitoring and

:30:40.:30:46.

economic policy. The fact we have extended the period of fiscal

:30:46.:30:55.

consolidation and by a few years, and it has not rattled the markets.

:30:55.:31:00.

We can do only certain things in our control? The US has already

:31:00.:31:03.

been downgraded and it hardly made a difference.

:31:03.:31:08.

We see in our surveys business are doing for more exports. We have

:31:08.:31:12.

seen a growth of exports of manufacturers and service in the

:31:12.:31:17.

last quarters. The last time it happened it was choked off by a

:31:17.:31:23.

lack of investment and finance. It is an important thing forea lot of

:31:23.:31:25.

growth businesses, able to get access to finance. Our members

:31:25.:31:28.

think the Government should do something bold and imaginative now

:31:28.:31:34.

to stimulate confidence. The thing they should do is massive instra

:31:34.:31:38.

structure projects in the medium -- infrastructure projects in the

:31:38.:31:43.

medium and long term. They have to seek private financing for it.

:31:43.:31:47.

Pension funds, sovereign wealth funds. You have to rerisk the

:31:47.:31:54.

political risk so the funds are prepared to invest. Our view is you

:31:54.:32:00.

can particular to Plan A deficit reduction and get growth as well.

:32:00.:32:03.

Get Mario Draghi in a room with Angela Merkel and get them to sort

:32:03.:32:07.

it out. When the Germans actually come to the rescue then it will

:32:07.:32:11.

sort itself out. It is kind of humiliating for a Chancellor to say

:32:11.:32:15.

it is nothing to do with me, get Angela Merkel to sort it out?

:32:15.:32:18.

not nothing, but the key factor, that is the key difference we have

:32:18.:32:21.

seen over the last three months. you think it matters n that sense,

:32:21.:32:25.

who the British Chancellor is, Mr Osborne has been having a lot of

:32:25.:32:29.

bad publicity today, whoever the Chancellor is would be having it in

:32:29.:32:33.

the neck any way. Does it matter? Yes, of course it matters what

:32:33.:32:37.

positions we take. Therefore it matters who the Chancellor is. I

:32:37.:32:41.

would absolutely agree, while the eurozone is not sorted out we won't

:32:41.:32:46.

get back to healthy growth. At the very least we need to avoid a

:32:46.:32:48.

downward spiral. What the Chancellor can do in terms of

:32:48.:32:53.

spending a bit more, in terms of helping us move towards these

:32:53.:32:58.

infrastructure projects people have talked about. I'm not sure it is --

:32:58.:33:03.

talking about. I'm not sure what is as much as is said can be done.

:33:03.:33:08.

Unless we do housing, it take as long time to have an impact. They

:33:08.:33:12.

have a multilayer affect, a lot of money stays in the economy and

:33:12.:33:14.

doesn't disappear into foreign lands, because you are doing it

:33:14.:33:20.

here. You tont have to in put a lot -- don't have to input a lot to do

:33:20.:33:24.

T but what is going on now is also a discussion about whether we need

:33:24.:33:27.

to do something extra or on tax. Whether we need to do something for

:33:27.:33:32.

the poorer people, because they are the ones that spend more. Whether

:33:32.:33:36.

there has to be some targeting reduction in the cost to people, if

:33:36.:33:39.

you like, in terms of the way they live, to make a difference. We are

:33:39.:33:43.

getting back to the vicious part of the circle, which is it is a lot

:33:43.:33:47.

easier to spend money than pay off the deficit. That causes the

:33:47.:33:51.

problems you are worried about. Just to pick up that point you made

:33:51.:33:54.

about the United States, do you seriously think by the end of the

:33:54.:33:58.

year, looking back the past three or four years, people would say

:33:58.:34:02.

they have done a lot better than we have, you say people will be

:34:02.:34:04.

pointing the finger there? Unemployment, in front of an

:34:04.:34:12.

election, they usually see, in what we call the US presidential legs

:34:12.:34:22.
:34:22.:34:24.

year it goes down. It is stubbornly on these charts, and based on a

:34:24.:34:28.

failure to improve the unemployment statistics. By the time we get to

:34:28.:34:33.

the election, we might see signals in the bond market, and with the US

:34:33.:34:38.

dollar, as disquiet, with a failure to do more with the deficit and

:34:39.:34:42.

failure to come up with more. Two things you can always predict

:34:42.:34:47.

about the Olympics, records will be broken, and some athletes will be

:34:47.:34:50.

caught cheating. Today nine athletes were banned from the games

:34:50.:34:55.

after drugs tests. Including the middle distance runner, Mariem

:34:55.:35:01.

Selsouli, who was tipped to win gold. There is a new test for human

:35:01.:35:06.

growth hormone, but one unofficial sport is a came of cat and mouse,

:35:06.:35:11.

the cheats, the suppliers and the authorities. We reveal how some

:35:11.:35:14.

athletes are finding new ways to cheat, and authorities are finding

:35:14.:35:24.
:35:24.:35:27.

new ways to catch them. For many endurance athletes, it is

:35:27.:35:35.

their secret weapon. Training at altitude. 6,000 feet above sea

:35:35.:35:41.

level in the pier knee, athletes are preparing for -- Pyrenees,

:35:41.:35:44.

athletes are preparing for London 2012, others take a different route.

:35:44.:35:46.

The authorities are doing everything they can to stop the

:35:46.:35:55.

cheats. But is it a race they can ever win? You do dedicate your life

:35:55.:35:59.

to training hard, and geting the best out of yourselves -- getting

:35:59.:36:04.

the best out of yourself, and to hear one of your competitor might

:36:04.:36:08.

have taken an easy route and short cut is frustrating. Paula Radcliffe

:36:08.:36:12.

is doing naturally, what others turn to drugs for. Train this high

:36:12.:36:18.

and the human body produces more of the hormone, EPO, this stimulates

:36:18.:36:23.

the growth of red blood cell, which allows athletes to take on more

:36:23.:36:29.

oxygen, and muscles to perform better. Injecting EP does the same

:36:29.:36:34.

thing, and it is banned. -- EPO does the same thing, and it is

:36:34.:36:38.

banned. She disagrees because it puts in question everybody. I had

:36:38.:36:42.

my performances doubted. It is wanting to be able to prove, in

:36:42.:36:46.

some way, they were 100% clean. I know that inside and it means a

:36:46.:36:53.

hell of a lot to me. At the same time to be able to prove that would

:36:53.:36:58.

mean a lot to me. But the standard of drug testing isn't at the level

:36:58.:37:04.

where everyone can believe in the system.

:37:04.:37:09.

It is lock-down day at the official Olympics testing lab. Samples are

:37:09.:37:14.

in from the London Marathon in April. But the Olympics, the plan

:37:14.:37:18.

is to test one in every two competitors, including all

:37:18.:37:22.

medallists. And every day they will test 400 or so samples. More than

:37:22.:37:27.

at any previous games. The lab's been paid for by GlaxoSmithKline,

:37:27.:37:33.

but it is run by a special team -- specialist team from King's College

:37:33.:37:39.

London. What you see in the labs are method that is are superfast

:37:39.:37:45.

and super accurate. This should give a message to athlete that is

:37:46.:37:49.

if you take drugs you will get caught. Don't come to London and

:37:49.:37:55.

take drugs. We want drugs to be used safely, not misused. The sport

:37:55.:37:59.

is about integrity, health and honesty. We want only clean

:37:59.:38:07.

athletes taking part in the games. That might be the ambition, but

:38:07.:38:10.

however clever the science deployed to stop the cheats, doping remains

:38:10.:38:15.

a constant undercurrent. And what's new, is that attention is shifting

:38:15.:38:19.

beyond just the athlete to their entourage. The trainers and medics

:38:19.:38:26.

that support them. Dwain Chambers, the British

:38:26.:38:30.

sprinter, controversially allowed back into Olympic competition this

:38:30.:38:38.

year, tested positive in 2003 for a steroid called THG, or the Clear,

:38:38.:38:45.

behind Chambers was a Californian nutritionists, Victor Conti, and

:38:45.:38:49.

organic chemist, Patrick Arnold, credited with designing the steroid.

:38:49.:38:54.

And just this summer, US anti- doping authorities charged seven-

:38:54.:38:58.

times Tour de France winner, Lance Armstrong, with use of banned

:38:58.:39:02.

substances. Unusually, the team behind him, including his doctors,

:39:02.:39:06.

allegedly involved, were also charged. They all strongly deny the

:39:06.:39:14.

charges, and Armstrong notes that he has never failed a drug test. To

:39:14.:39:21.

take on that culture, the World Anti-Doping Agency, has turned to

:39:21.:39:26.

the big pharmaceutical companies for help, companies like Glaxo

:39:26.:39:31.

smilt Klein, scientists will warn them about any -- GlaxoSmithKline,

:39:32.:39:39.

scientists will warn them about any new drug and how to test for it.

:39:39.:39:42.

The test case involving Dwain Chambers would indicate there is a

:39:42.:39:45.

great motivation for an athlete who wants to cheat, or an organisation

:39:45.:39:49.

who wants them to cheat, to be able to have something they think we

:39:49.:39:53.

don't know about. It is easy to see the same circumstances could arise,

:39:53.:39:59.

if someone could get hold of a drug in a pharmaceutical company's

:39:59.:40:03.

pipeline t could be used with impunity, at least for several

:40:03.:40:06.

years, enough to win yourself a gold medal somewhere perhaps.

:40:06.:40:12.

However, with this arrangement, we will let WADA know right away,

:40:12.:40:16.

forewarned is forearmed. Bradley Wiggins has emphasised all the way

:40:16.:40:21.

through, to his triumphant finish of the Tour de France, that his win

:40:21.:40:24.

means so much, because he races clean. And because doping has

:40:24.:40:34.

dogged the tour since the late 1990s, most most recently rogue

:40:34.:40:38.

athletes are said to control the amount of drugs they take, so their

:40:38.:40:42.

levels never go over allowed limits. A journalist who followed the race

:40:42.:40:47.

through all the years of scandals, says an extended web of players

:40:47.:40:52.

made it possible. It is combination of using dodgy doctors and shadey

:40:52.:40:57.

scientists, and also athletes pursuing an edge themselves. The

:40:57.:41:01.

ability to do that has been enhanced by the Internet. There is,

:41:01.:41:08.

again, lots ofen he can dotal -- anecdotal evidence that athletes

:41:08.:41:13.

talk about which products are useful. There is quite a background

:41:13.:41:19.

of competition to see who can get to those products first. Who can

:41:19.:41:26.

avoid detection first. It is an arms race mentality. Scientists and

:41:26.:41:30.

athletes will tell you sport is much cleaner now than it was even a

:41:30.:41:34.

few decades ago. They will also concede that there are people out

:41:34.:41:38.

there who have found ways to work the system. And others who are

:41:38.:41:42.

looking for new ways to increase performance without being caught.

:41:42.:41:51.

The future of doping in sport could prove darker. By studying identical

:41:51.:41:56.

twins, Genette cyst Tim Spector is discovering the genes we are born

:41:56.:42:00.

with aren't set in stone. We can alter how each gene behaves and is

:42:00.:42:04.

expressed in our bowedies. It is the new science of epigenetic, and

:42:04.:42:09.

could have an impact on sport. He foresees a time when athletes

:42:09.:42:14.

simply take a tablet to turn up the volume of useful genes.

:42:14.:42:17.

switching certain genes on and off, you can change the proteins they

:42:17.:42:22.

use, and depending on which genes you are targeting, they have

:42:22.:42:26.

different affects. We know certain endurance genes are associated with

:42:26.:42:30.

being a top athlete, these endurance, long distance genes,

:42:30.:42:35.

give you a greater lung power, it could be turned on. In someone who

:42:35.:42:38.

is already a pretty good athlete, would it be worth doing that,

:42:38.:42:44.

tweaking in that way? I think the level of top athletes, a few per

:42:44.:42:49.

cent here and there, can have enormous differences on their world

:42:49.:42:52.

rankings. Certainly, if I was a top athlete, in the sports business, I

:42:52.:42:56.

would be thinking of any ways that are legal to change my genes to

:42:56.:43:04.

improve things. Anti-doping authorities have banned

:43:04.:43:08.

Genetteic manipulation, and the scientist os -- genetic

:43:08.:43:14.

manipulation, and the scientists on the trail say they have made it

:43:14.:43:18.

harder to cheat. Samples are stored for eight years, if any new tests

:43:18.:43:23.

come up they can look back and see if anyone was cheating. There is

:43:23.:43:27.

the biological passport, a snapshot of the athlete's physiology, and

:43:27.:43:32.

should stay constant over time if it changes, that is a sign they

:43:32.:43:36.

could have cheated. The authorities think they are doing quite well and

:43:36.:43:39.

they have made significant grounds. In some areas they have, I worry

:43:39.:43:43.

that we are being presented a makover. And that, actually,

:43:43.:43:49.

underground, there is still loot of doping activity going on. You

:43:49.:43:54.

wonder how winnable the fight is. If you talk about athletes who have

:43:54.:43:58.

been through the experience and been banned, they will say it is a

:43:58.:44:03.

constant battle because there will always be somebody looking for an

:44:03.:44:09.

edge, and always people who are interested. Back in 2001, Paula

:44:09.:44:12.

Radcliffe took a difficult decision to protest. Russian athlete, Olga

:44:12.:44:17.

Yegorova, had failed a drugs test before the World Athletics

:44:17.:44:23.

Championship, but was allowed to race. And ten years later, she says

:44:23.:44:28.

her strong anti-doping stance is about sticking to the values that

:44:28.:44:34.

keep her competing. My biggest goal and biggest aim is when I finish my

:44:34.:44:37.

career I walk away and say that was the best I could do. I know that

:44:38.:44:42.

was everything that I could give. That was all I could do. I want to

:44:42.:44:47.

be able to look back with pride, I want my children to look at the

:44:47.:44:52.

performances and say mummy did that and she worked hard for that. Being

:44:53.:44:57.

able to stand on the top and look at the people you have beaten in

:44:57.:45:06.

the eye and know you have done it fairly, that means a lot to me.

:45:06.:45:11.

With the science of doping becoming more sophisticated, and the teams

:45:11.:45:16.

behind the cheats scouring science journals for clues to the next drug.

:45:16.:45:20.

Those trying to catch the cheats are struggling to keep up. For many,

:45:20.:45:25.

the cheats have already done enough to place an element of doubt over

:45:25.:45:33.

every sporting performance. Tomorrow Susan will reveal how Team

:45:33.:45:37.

GB is harnessing perfectly legal advances in science and technology

:45:37.:45:47.
:45:47.:45:47.

Apology for the loss of subtitles for 48 seconds

:45:47.:46:35.

to improve athletes' performance. That's all from nice night tonight.

:46:36.:46:40.

We wanted to leave you with news that South Korea is not the same

:46:40.:46:43.

country as northyia. Perhaps, like most people you knew that already,

:46:43.:46:46.

but at the Olympics, when the north Korean women's football team

:46:46.:46:51.

prepared for their game today, they walked out when the South Korean

:46:51.:47:01.
:47:01.:47:34.

flag was shown. Here is what Good evening, another hot day in

:47:34.:47:37.

the south. We have more of that hot weather to come for a couple more

:47:38.:47:42.

days. As we look to Thursday's forecast, more cloud in the north,

:47:42.:47:46.

where it is cooler. We are looking at a bit of rain come the afternoon

:47:46.:47:50.

across parts of southern Scotland. Some bright weather through

:47:50.:47:54.

northern England, temperatures in Manchester at 25 degrees. Clearer

:47:54.:47:58.

skies further south, yet again we could see 30 for south-east England.

:47:58.:48:03.

Through the afternoon some sea breezes developing, sunny skies

:48:03.:48:07.

across part of Devon and Cornwall. With that heat, the small risk of

:48:07.:48:11.

afternoon showers across part of Wales. Most places should miss them.

:48:11.:48:14.

If they are triggered, they are likely to be heavy and thundery.

:48:14.:48:18.

For Northern Ireland a change come the afternoon. With more cloud and

:48:18.:48:22.

the risk of rain further south. The best of any brightness along the

:48:22.:48:27.

north coast. The North West Highlands of Scotland holding on to

:48:27.:48:37.
:48:37.:48:48.

With GDP down 0.7% in the second quarter, what next for the UK economy? Paul Mason unpeels the latest bad news for the UK economy, while Allegra Stratton considers the government's options. Presented by Gavin Esler.