25/01/2013 Newsnight

Triple-dip recession? Full on depression? The economy shrinks

again. Is the Chancellor's plan shot?

Out in the real world, one of life's strivers confronts the

elephant in the room. All the bills are rising and we're not getting

any extra money ourselves. What do you do? I'm a builder by trade.

is that? Slow, very slow. Even London's mayor tells the

Chancellor to junk talk of austerity. Is it time for a re-

think? We ask the Government? Also tonight, we will have the

latest from Mali, Steve Hewlett's there.

As the Islamist rebels threaten to ban music in Mali, we talk to the

musician who has gathered musicians together to sing about peace in

their country. The German comedian, tells us what

he would miss if we left the EU. sir talgia, before I moved to

Britain, I didn't know how to goose step, if it wasn't for the BBC, I

still wouldn't know. Good evening, flat, stiing nant and sluggish,

that is the optists. The rest are warning the economy faces a triple-

dip recession, the first the country has seen in modern time.

The latest figures show the country's economy shrank by 0.3%,

numbers that lin crease the pressure on George Osborne to come

-- will increase the pressure on George Osborne to come up with a

Plan B and make it grow again. Arguably the biggest name in the

Conservative Party called for the Chancellor to junk talk of

austerity and crack on with major building projects to revitalise the

economy. First, Paul Mason has been in Gravesend to see what it means

close up. In a parallel world, where

everything had gone right, Britain's trade routes would be

awash with exports. Its high streets would be buzzing. Its

manufacturing would be out of trouble. But they are not. One

negative quarter is not a disaster, but what we are seeing here is the

failure of a plan, the Government thought by now the economy would be

well down the path of what it calls rebalancing. Away from reliance on

state spending, and consumer spending, and towards manufacturing,

and exports. That is just not happening fast enough.

This is the third time growth has dipped below zero since the Lehman

Brothers crisis. This time it has been driven by a 1.5% fall in

manufacturing, combined with a one- off dip in oil production to take

overall productive industries down by minus 1.8%. This was the first

set of figures for two years, where Government spending fell as a

driver of GDP, by 0.7%. So, overall, for the past 12 months, the economy

has grown by a big, fat zero. And on the streets of Gravesend, in

Kent, a town that boomed once, but now is not booming, they have

noticed. Dire, I'm not working at the moment,

I haven't been at work for the past month, no work. What are wages like

when you do work? It goes up and down doesn't it. It depends where

there is work, if there is work somewhere sometimes tough take it

if it is a little bit less money. That the voice of a carpenter, this

of a pub landlord. Does it feel like a triple-dip recession? Yes,

very bad. Why? The pub is bad, trade is gone, no wages. What are

you doing in the costume? Trying to boost trade. Everyone is waiting

for the pay packet, as soon as it is in it is gone on bills, no

luxury money. What about you? feel the same, no spare money,

everything goes on bills, electric has gone up again. It is constantly

rising and nothing's going up in the money, all the bills are rising

and everything like that, we are not getting anything extra

ourselves. What do you do? I'm a builder by trade. How is that?

very slow. When it comes to green shoots amid all of this, economists

can't see many. If you look at where the source of demand is

coming from in the UK, it is not coming from consumers who are

seeing their real wages eaten in to by inflation, it is not coming from

banks, which are deleveraging, or the Government in the middle of

implementing austerity measures, it is not coming from the global

economy either. It is not surprising at all that the UK

economy has gone back into stall speed and may dip into recession

again. When it comes to long periods of suppressed growth, there

is a word for it, depression. This was the shape of the last

depression, output falling from 1930, but back up in positive

territory by the start of 1934. Now, here's what we have lived through,

shallower, but now 12 months longer and leaving the economy smaller

than it was five years ago, and nowhere near getting back into

positive territory. It is a reminder that Britain face as very

tough economic situation. It is a reminder that last year was

particularly difficult, both with the problems we have at home,

dealing with the debts built up over many years. But also, frankly,

the problems in the eurozone, where many of our exports go, which is is

now in recession. We can either run away from those problems or

confront them. I'm absolutely determined to confront them, so we

can create jobs for the people of this country. The Chancellor had

prepared for today's news by eating pizza, in Davos, with friend "Dave"

and rival "Boris". The London mayor made a speech calling for the

Government to junk the rhetoric of austerity and be confident. As for

the opposition? We need action now to kick start the recoverry, a

temporary VAT cut and bring forward public investment. As Nick Clegg

said yesterday, get houses built and people back to work, boost

confidence and get demand moving. I'm afraid it looks as if we will

have the Government trying to laugh off what is happening in the

economy. That is not good enough. In the search for answers,

attention is turning to monetary policy, could the Bank of England

start targeting, not inflation, but the rate of growth in Britain's now

frozen factories and ports. Canadian Martha Kearney takes over

at the bank in July, d Mark Kearney, takes over the bank in July, some

want that to start a re-think. Should they use monetary policy and

the ability of the Bank of England to create money, in different, more

aggressive ways, which means that money goes directly and powerfully

into the economy. The arrival of a new governor, who certainly is

thinking about these sorts of issues, and is aware of these

challenges, is, I think, the ideal occasion to re-think the strategy

we have been following, which seems to me obvious is not working.

causes of today's dip are a mixture of external conditions and domestic

ones, but policy is the one thing you can control. You can, if you

want, blame the euro crisis, and austerity here, but ultimately

today's policy comes down to this. If you say you are going to

rebalance the economy, and promote growth, using Government policy,

you actually have to have a policy and it has to work.

For now, George Osborne is sticking to his policy, though mutterings in

the coalition and his party are getting louder.

Joining me now is David Gauke, the Exchequer secretary to the Treasury.

You must be incredibly disappointed? Obviously we would

want stronger growth than in 2012, 2012 is a difficult year, for the

UK and other places as well. In fact, the numbers we have seen

today are broadly in line with what the Office of Budget Responsibility

said last year. If you look over 2012. So not surprising, not really

disappointing at all? The fact that the economy contracts in the last

quarter of last year is not a big surprise. And there was no growth

last year. Clearly we would want growth. The question is why is that

happening and what can we do to get growth in the future. The reason

why it is happening is we have the eurozone crisis, we have commodity

prices higher than we would like, and we have been dealing with the

aftereffects of the financial crisis of 2007/08. You could

mention the snow if you need more reasons! That is not what the

Government has set out but the Office of Budget Responsibility has

set out why we were struggling this year. You have managed to achieve

something remarkable, you have put the economy into reverse three

times, we are heading for a triple- dip recession? The Office of Budget

Responsibility predicted that the last quarter of 2012 would be a

contraction, they are predicting that the first quarter of 2013, the

economy will grow. This is your policy? That is the point I was

making a moment or so ago, the reasons why the economy has gone

through a difficult spell are because of these particular factors,

how do we get growth? I don't believe that borrowing more money

is the solution to those problems. What we want to do is make sure

that we get lending through to businesses. When you listen to

those voices in Gravesend, people saying there is no spare money, the

bills are constantly rising, there is no trade, there is no wages, the

whole point of your plan for austerity is it was meant to be

offset by growth, that of the policy, and the policy has failed?

The reasons why growth has been disappointing over the last two

years. Disappointing, there has been nothing, it has not grown?

has been disappointing for the very reasons I have set out, the

question is how do we get that growth. The answer isn't more

borrowing that puts at risk higher interest rates, the answer is to

try to get rid some of those regulations that hold back

businesses, it is about getting money through to businesses, with

the funding through lending scheme, it is about switching spending to

infrastructure, capital spending. Things like science, David Willetts

was on this programme last night setting out what we are doing.

Within your own Government and your own party Nick Clegg has admitted

those capital spending cuts were a mistake. You have heard from Boris

Johnson, the biggest name in your party, saying junk the austerity

talk. He's telling the Chancellor to do is. Is there a Plan B now?

is absolutely right that we made the case why we had to take very

difficult action to deal with the deficit, we needed to make that

case. We still need to make that case. You haven't dealt with the

deficit, it has actually increased? It is 25% lower than it was. It has

increased in the last 12 month. is lower than it was when we came

into the office. It increased in the last 12 months, that is where

you are? The Office of Budget Responsibility predict the deficit

will continue to fall, but we will wait for the time of the budget.

The reality is, if we had not taken difficult decisions on spending and

tax, we would have a deficit still in similar terms to where we were

two years ago, and that would have put our credibility at risk. Most

people hearing this, you are talking about credibility and the

credit rating, most people will say we don't care about that as much as

we care about growth. We need to see things happening in the economy,

this is what we feel, every day in our pockets, when do you say, do

you know, we got it wrong, time for a U-turn? I tell you why it matters,

it matters because we don't have that credibility, we will see

interest rates rise, we will see mortgage rates rise, we will see it

harder for businesses to get access to finance. So there will be no

concession to what is going on now? That is damaging for the economy.

You are sticking rigidly to this plan, there will be no turn? It is

vital that we are determined to bring down the deficit, but

alongside that, we have to continue to do. It is credibility over

growth, bluntly? Not at all. That is where we are? There is no

tension between the two. A precondition for growth is

credibility. There is a tension between the two, that is what you

are told, Boris Johnson has said we cannot risk losing confidence, it

is time to junk talk of austerity. The IMF has said if things don't

get better we need to do austerity slower. Jim O'Neil has said the

same, the head of Goldman Sachs, are these voices not credible?

need to demonstrate a show of getting our public finances under

control, we need to put in place and impli mate the policies we have

announced. About support for conditions and infrastructure and a

competitive tax system it, those are the steps this Government is

taking to ensure we get the long- term growth. There is a very clear

desire and strategy by this Government to get growth. But the

idea that the solution to these problems is if we borrow �160

billion a year, that all those problems go away is nonsense.

Great to have you here, if you can hold on we can talk to France

O'Grady, the General Secretary of the tuck, and -- TUC, and the

former member of the Monetary Policy Committee. What do you make

of what we have just heard, France O'Grady, that the solution is not

just to borrow more and make cuts? The Government's austerity policy

has lost all credibility. Frankly, last time we heard a Conservative-

led Government say there is no alternative, it didn't end well. We

have got zero growth, austerity is faileding, and employment is still

far too high, -- failing, and employment is far too high, with a

quarter of all young people long- term unemployed. Real problems with

ordinary working people suffering the third year of real pay cuts. We

have sucked demand out of the economy. Business confidence is low,

because consumer confidence is low. People haven't got money to spend.

It was good to hear Nick Clegg say sorry for cutting �22 billion off

capital investment, but he also said people need money in their

pockets. In which case, why have a 1% cap on benefits and wages, let's

look at wages-led growth, a good industrial policy, and some jobs

for our young people. Marina Bell, what is the answer? I think the

important thing for credibility is that fiscal consolidation,

austerity happens, with regard to what is going on in the economy. So

that over the cycle, and when the economy recovers, plans are in

place to bring the cyclical adjusted current budget deficit

back into balance. That is a plan we have, but with a rolling five-

year horizon. It should be contingent on where the economy is,

and the target to stablise debt as a percentage of GDP, should also be

subject to the economy getting back to trend. We shouldn't try to

achieve these targets in too fast a time frame. You would agree that we

should slow down? Absolutely. Bluntly France O'Grady, you have to

the -- bluntly Frances O'Grady you have the minister here what do you

want? We want a policy, led by the Prime Minister, that you need to

re-think austerity parties, making ordinary working-class families

poorer is not -- working families poorer is not going to make the

country grow. We need demand back into the economy, and the best way

to do that, there is lots of evidence on this, is to put money

in the pockets of working people and the poor, because they spent it

in the local economy. Where as the rich, tend to save or shove it off

to tax havens. So you need to start being fair, you need to start

investing for the future, we need to get our infrastructure moving.

You need to get some real reform of the banking system, because they

put us into this mess, they need to be reformed in order for us to get

out of it. Is what you are hearing, and we will put this to the

minister in a second, realistic, and what do you expect Mark Kearney

to do when he comes in, should the Bank of England have more powers

now? The bank has been given an incredible amount of power.

terms of bank regulation, for example, do you think they will

take that bull bit horns? I would hope that in terms of bank

regulation they will go a little bit easier in the prudent policies

of raising capital ratios. I think the irony of the situation we are

in, is policies that would be prudent in other times likely

borrowing, balanced current account budget, high capital ratios, are

not the sort of things you should be putting in place in the teeth of

a recession. So I hope that there will be a slowdown, perhaps, in

pushing up the capital ratios. I would hope that the Government and

the banks stick with targeting inflation. Mormonry, as we heard in

the film, more aggressive -- more monetary policy, as we heard in the

film, more aggressive monetary policy may be required. There are

signs in the last few months that the healthy levels might be

reversing. Let's put some of the blunt things

people are talking about now, a cut in VAT, a cut in national insurance

contributions, are these the things that we are going to see in the

March budget, should we? Not if we can't afford them. That is the

challenge. It is all very well, and I heard Ed Balls today saying we

should do all this, we should cut these taxes and spend more into

this area. What that would result in is more borrowing, I'm afraid

that is...You Are already spending more on the welfare budget because

more people are out of work and suffering? For the reasons I

outlined earlier, these are difficult times for the economy,

there is that flexibility within our current plans, that may happen.

The idea of a stimulus, that we choose to enter into, is just more

borrowing, and I'm afraid, the answer that we get from Labour all

the time is borrow more. That's always their answer, that is what

they do in Government as well. don't want to taper cuts at this

point? The difficulty if we try to go for revering things, if we try

to go for -- reversing things, if we try to go for big tax cuts we

can't fund from elsewhere, we can't and we find interest rates going up

and you take more money out of the economy. This is full steam ahead,

Plan A, nothing has changed as of today? The strategy of getting the

public finances under control, while at the same time taking some

of the difficult decisions to ensure the UK can grow is the right

approach, it is not going to always be popular, there will be

resistance to it, and it's not easy when the world economy is going

through some of the challenges it is at the moment. But it is the

right approach for the long-term for this country.

Thank you. A British surveillance plane has

taken off to support French military prayings against shraelist

rebels in Mali, earlier today -- Islamist rebels in Mali, earlier

today planes bombed positions, and a town has been retaken. We spent

the day in Bamako, I I asked what the mood was like there? The first

thing that strikes you here is the sheer sense of relief that everyone

I have spoken to feels. They have been saved by the French from all

the problems they foresaw, if the Islamists had come here. This is a

very poor country, of course, but a country that is very rich in

culture, with a fairly easy going form of Islam, very famous for its

music and other forms of culture. People, of course, heard all the

news that was happening in the rebel-controlled north, all the

punishments, for smoking, the punishments for women who were

unveiled, and the amputations for theft, they were terrified that

would come here. The problem now is the sheer weight of expectations

that are being put on the French. People not only expect the French

effectively to liberate the whole country from the Islamists, but

they also want the French, their former colonial masters, who

achieve some kind of political fix here, to reintroduce democracy, and

even a better form of democracy than people had before the French

left. Whether the French really have the appetite to sort all that

out is very much open to question. What does that mean for the

operation, how long do the French have to be there? Well, the

operation to drive the Islamists back is proceeding fairly steadily.

At first, with French air strikes, then French Special Forces, and

then the malian army behind, that but the really big fight, foit in

the desert, the fight for the two many Islamist-controlled towns,

Timbuktu we don't know where that will go. We don't know whether or

not French public opinion will change. We have heard of reprisal

killings by the Mali army. That is France's main ally. What is

supposed to happen is that behind the French are supposed to come

these contingents of west African forces from Nigeria, Togo, Ivory

Coast and so on. But even a special adviser to the mally President said

to me today that he -- Mali President said to me today he

wasn't sure if these forces could cope in unfamiliar terrain. It was

kite-flying under the Taliban, ballroom dancing under Mao, history

under Pol Pot, the first impulse of a dictator is to control the people

under the freedom it bans. If the Islamists of west Africa get their

way, the next addition to that will be music in Mali. Enter the mally

musician who has gathered 40 musicians to sing in their country

and against the imposition of Sharia Law. Nowhere does music have

political importance than in the vast desert state of Mali. Now in

exile in southern France, she talked to Steve Smith.

At a sound check for a concert near Marseille tonight, it is rising

star Fatoumata Diawara. But her thoughts are 2,000 miles away, with

the conflict in Mali? I decided to go in Mali in the summer to do the

holy day. People said don't stay in Mali, you have to go back because

you are in danger in Mali now. I said, OK, so it is time to do

Can you tell me about this song you have recorded with the other

musicians from Mali? Every artist expresses themselves about how they

are feeling, the first one is peace, the second one it is about uniting,

between our brothers from the north and the people from the south. As

musicians we needed to express that, talk about reality, be a voice of

those people. Music is very important, more important than

politics. Also we have a very bad situation, very bad politics kal

situation now. And the people really -- political situation now,

the people really need some hope. We know many shocking things are

happening in Mali at the moment, there is mistreatment of musicians,

we have heard of instruments being confiscated, recording equipment

smashed? It is also one of our fights to protect our music. In the

last few minutes months music is in danger in mal-- the last few months,

music is in danger in Mali, the Islamists want to stop music.

what we understand, some of the people in the north, the Islamists,

regard music as wrong and yet it is a vital part of your country's

tradition, isn't it? I don't know which kind of music they want. They

want us to sing only about God. So we can't do that. We can't do that.

We needed to express ourselves, we need to express the many problems

of Mali by music. We do everything by this. Politics, everything.

condition of women, you sing about that? Emancipations, you know.

That's the way that I decided to talk to my generation, by music. I

have this kind of writing, very new for my country, and the people are

very receptive of that, they love that. My generation like my kind of

writing, because it is more direct. If I stopped that, what are we

gonna do, what will we be? We will lose everything. Our soul, our

culture, our ancestoral gifts. Our spiritual things, the spirit of

Mali is music. You were in the country recently,

what is happening with your family, and your friends, how are they

while this is going on? We don't know what is going to happen

tomorrow. Politic cleel we don't have anybody who can -- politically

we don't have anybody who can really help us. That is the second

problem, very important now. To really make us a very sad. I have

many friends who are artists, who play on the records, very great

artists in Mali, nobody has gigs now. We can't play. You can't play

at home? No. Because it is too dangerous? It is very dangerous. We

can't have a kamikaze to come and explode everything. We are very

worried. Every artist is really happy to do this project, and they

thing, I hope, so it will bring a big hope for the mally people.

Any friends in Europe are good right now, the German newspaper has

run an article begging us to stay in the EU. Listing ten reasons why

Europe needs us. Before we go we offer our own repost, a German

stand-up median gives us a list of what he will miss if we left the

European Union. What does Britain do best, celebrating incompetence,

and a continent of self-deprecation, the idea you can laugh off failure.

It doesn't matter how bad you mess up in your line of work, as long as

you can tell the tale of your underachievement in a funny way.

Britain is all about a great sense of humour, and nostalgia, before I

moved to Britain, I didn't know how to goose step. If it wasn't for the

BBC I still wouldn't know how to. The Dunkirk spirit, it is very

British, but probably not a very good example, if that was all about

Britain getting out of Europe. Then sectarianism, I love sectarianism,

but in Scotland it's brilliant sectarianism, it makes for such

great football. And in a way I understand it is a blight on almost

every other aspect of life, those 90 minutes on a Saturday afternoon

it is worth it. Alcohol, at home I'm an alcoholic, here I'm joly.

Free schools, even if they open with a school with the best of

intention, Ofsted will make them jump through so answer hoops they

will be mental by the end of it T But it doesn't matter, what this

country is all about is tolerance. Britain, very good to us foreigners,

you hole date us. You don't welcome us, you don't welcome us, but you

tolerate us, that is a great British virttu. There is something

you really dislike, but you can't be bothered to do anything about it,

at home we call that lazy cynicism, here it is tolerance. The biggest

problem if Britain leaves the European Union, people in Berlin

will have to pay for more their After Eights, so, please, stay.

Please. There you go, you heard it from

here first. Tonight on Review, Sarah Churchwell,

James Fox and Lionel Shriver join me to talk about four giants,

Abraham Lincoln in the hands of Spielberg, the real Orwell season,

and Turn of the Screw done by Hammer Theatre of Horror, and all