25/07/2012 Newsnight


25/07/2012

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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,

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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,

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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

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

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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

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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

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

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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.

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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

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after the 2015 election, added once the Government accepted its

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

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

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

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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

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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.

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

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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.

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

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

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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

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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.

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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,

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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,

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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

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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

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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

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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

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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.

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

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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

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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

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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

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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

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

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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.

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