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HUMPHRYS: And we are debating the economy
this week with our studio audience. Last week I said we'd have the Chancellor
Gordon Brown with us. Unfortunately the Labour Party has told us that
Mr Brown has decided that he can't join this debate. However, we do have
his deputy with us... the Chief Secretary to the Treasury, Andrew Smith,
the Shadow Chancellor Michael Portillo, always said he was willing to
debate the Chancellor and he is here and so is the Liberal Democrats' spokesman
Matthew Taylor. They will be answering questions on a range of issues
from tax to spending, from pensions to the Euro and whatever else they
are asked.
Let me just remind
them - and everybody else - that this is a debate, not an opportunity to
deliver long set-piece speeches. So if they go on for more than a minute
at a time I may well be forced to interrupt them (painful though that task
can be).
Now our first question comes
from from Chris Cornell who is a Bank Manager. Mr Cornell your question
please.
CHRIS CORNELL: Good Afternoon.. I'm concerned
that the economy may be heading for a recession. Do the panel think that
we have really got rid of boom and bust or is this jut the calm before
the storm?
HUMPHRYS: Michael Portillo, what
do you think?
MICHEAL PORTILLO: We certainly haven't abolished
the economic cycle, and I sometimes think Gordon Brown is in danger of
believing that we have, and that's a serious mistake. I don't know what's
going to happen next, but I believe that our policies should be prudent
in order that we are ready for whatever may happen next. Unfortunately
I think the Chancellor's policy of promising to increase the government's
spending much faster than the growth of the economy, to spend our money
much faster than we are actually earning and producing that money is the
worst possible thing to do when we are facing uncertainty. And all of our
competitors around the world are actually taking this opportunity to cut
their taxes because they think that is a prudent thing to do in the uncertain
times that we now face, and that is why our policy as Conservatives is
that we can have large increases in government spending, but they must
be within the average growth rate of the economy. If we do that of course
we can have large increases in public spending, but it will be sustainable
and it is a properly prudent aspect to take in case we face difficulties
ahead. We certainly face uncertainty. If we have prudent polices then
we will lessen the chances of running into great difficulty.
HUMPHRYS: Andrew Smith, the Chancellor
uses the word prudent a great deal.
ANDREW SMITH: Well, we are very prudent,
and it's because we took tough decisions and got the economy straight,
removed the millstone of debt which the Conservatives strung around the
necks of the people of this country that the economy is in a strong position.
I can reassure Mr Cornell that if he looks at the independent forecasts,
not the Labour Party or the Treasury forecast he will see that those are
in line with the two-and-a-quarter to two-and-three-quarters percentage
growth that has been foreseen for the coming year. I have to say on what
Michael Portillo has just said though, is that far from being prudent they
are promising these twenty billion spending cuts which Oliver Letwin let
the cat out of the bag on this week. Well, Michael's shaking his head,
and in your introduction you said John, about who was attending the debate
today - until late yesterday afternoon I thought Oliver Letwin, the man
who's been hidden away all week was going to be here debating with me these
twenty billion cuts, and I have to ask Michael Portillo, when you said
on Tuesday Michael, that no Conservative spokesman had used this twenty
billion figure, had somebody lied to you or were you misleading the country?
HUMPHRYS: Now, Michael Portillo,
you can answer that and then we'll go to Matthew Taylor.
PORTILLO: Actually, I'd rather
deal with the issues. The gentleman has asked me a question. Alright,
no, I'm sorry. I'm sorry, if I've misread the mood of the audience I'll
deal with that issue. Our proposals are to reduce the government's spending
plans by eight billion pounds over the first two years, and we've set out
very clearly in this document exactly how we would produce the eight billion
of savings against the government's spending plans, and the eight billion
of tax cuts, and that eight billion of tax cuts we would deliver to the
people who've been hit hardest by Gordon Brown's stealth taxes, and those
are pensioners, we will give tax relief to pensioners so that they can
earn more of their own money and keep it, we will give that tax relief
to people trying to save, we'll make savings tax free, and we'll give it
to families. And in the second half of the parliament John, there will
be room to go on cutting taxes....
HUMPHRYS: Alright.
PORTILLO: ... because we will be
increasing government spending within the growth rate of the economy, within
what we can afford. There will be further tax cuts in the second half of
the parliament, but I cannot say how much they will be.
HUMPHRYS: Alright, we will return
to all of those subjects in - later in this debate I'm quite sure, but
the general state of the economy, Matthew Taylor?
MATTHEW TAYLOR: Well, I mean you can't get something
for nothing and that's the fundamental problem with the Conservative position,
but no doubt we'll return to it. On the state of the economy, I mean fortunately
the latest figures from America suggest things may not be as bad as at
one time they looked, but no-one can guarantee economies will always move
successfully. That's why when you've got economic success the key is how
you use that, and our criticism of this government has been in a period
of economic growth they've actually chosen not to make the investments
that they promised at the last election in education, schools and pensions.
The proportion of our national wealth during the time Labour have been
in office has gone down on each of these so-called priority areas, and
you know it from common experience. Figures get bandied around all the
time and Andrew keeps saying, not true, not true, but of course you know
the waiting lists have gone up for outpatients, you know that class sizes
for most children have gone up, you know that pensioners only got seventy-five
pence last year, you know that there are fewer police on the beat, and
the question would be of course, if they were spending so much more money,
well, where's it gone? And the answer is they're not. The economic success
that they've had, first of all they paid off the Conservative debts and
they balanced the books, I don't disagree with that principle, but in
the last budget they spent ten times as much on tax cuts that they're putting
into either education or schools, and it's that process that we so strongly
disagree with.
HUMPHRYS: Andrew Smith, I mean
clearly before you can spend it you have to make it, and we have in a sense
had a bust, or pretty damn near a bust. If you look at manufacturing industry,
four-hundred and forty-thousand jobs gone since you've been in power?
I man that's pretty close to recession in that section of the economy isn't
it?
SMITH: Well, actually John, in
manufacturing we've seen growth going up, we've seen productivity increasing,
exports going up, and investment at record levels, so I, (INTERRUPTION),
I don't dispute that manufacturing has suffered difficulties because of
the weakness of the Euro, and it's tough out there, but I tell you nothing
would do more damage to manufacturing industry and other areas of our economy
than to return to the boom/bust policies we saw before from the Conservatives
which this twenty billion cuts figure, though Michael Portillo tries to
wriggle out of it ....
HUMPHRYS: Which figure are we coming
back to...No, no, I insist that you leave it at that.
SMITH: Okay, I can't.....
HUMPHRYS: If you have a question
about it we're going to come back to that later, so...
SMITH: Can I answer Matthew?
HUMPHRYS: Answer him briefly.
SMITH: Yes, very briefly. Spending
has been going up very sharply. As a percentage of GDP health spending
is up from five point seven in the last per cent of GDP, in the last year
of the Conservatives, to six point two per cent now. Education is up from
four point even to five per cent. We're spending nine billion pounds
a year now more on the Health Service than the Conservatives were in their
last year of office and six billion more on education.
HUMPHRYS: Matthew Taylor just a
sentence or two....
TAYLOR: What Andrew knows is that
they cut to start with and put it up for the General Election. Well any
politician can play that trick. Take the parliament as a whole, the money's
down.
PORTILLO Let me....
HUMPHRYS: One sentence.
PORTILLO If Andrew's figures are
right we all have to ask ourselves how is it the government spends our
money so badly. Why is it that people are waiting longer for operations,
why is it that there are fewer policemen, why is that we started with many
schools on four-day weeks this year?
HUMPHRYS: Right, okay. Let me go
to our second questioner. Mr Bob Arora, who works for an engineering company.
BOB ARORA: Hello. The British economy has
done very well so far outside the Euro, so why do we, and should we, even
be thinking of giving up the pound at all?
HUMPHRYS: Andrew Smith, why should
we?
SMITH: Well, this country and our
exports, including from of course especially manufacturing really have
a vitally important market in Europe which is why we have said that if
it is clearly in the country's economic interest and if our economic tests
are met, then we would put the issue to the British people in a referendum.
But it has to be clearly in the country's economic interest and the British
people would have to endorse that before we joined and of course it's a
judgement that has to be made as we've said, on the five economic tests,
according to the effect on jobs, the effect on investment, the effect on
financial services, on whether there is sufficient convergence between
our economy and that of the Eurozone in order that it actually makes sense
and would work. So we are taking a very practical and pragmatic and realistic
approach on this issue - only if it's in the country's economic interest
and only if the British people want to join.
HUMPHRYS: Matthew Taylor?
TAYLOR: Well you're right, the
British economy is doing quite well, but it's not doing well compared to
our neighbours. The rate of unemployment has been coming down faster in
the Eurozone, they've been gaining the share of international trade which
we've been losing, they've been gaining a share of international investment
that we've been losing and the reason for that is the high pound and the
problems that that causes. We've seen it in car companies, we've seen it
with the loss of jobs at Corus, we've seen it with the loss of jobs in
shipbuilding and the problem with the level of the pound, of course it
may change day by day, but as it is, it's in the hands of speculators and
the reason all those other European countries have gone into the euro,
they have a reason, they have the same issues within those countries, the
same debates about sovereignty, the reason they've gone in, above all else
is to protect themselves for their majority of trade against those huge
fluctuations. We've got to remember, that in terms of manufactured goods,
sixty per cent go into Europe, less then fifteen per cent go into the United
States.
Let me just touch on why
you personally might benefit because those are all far away and effect
car companies and others, they may not effect you so directly, though if
your job is in engineering, it may. But there are also practical reasons
for you as an individual. First of all, it would save on average, if you've
got a mortgage, five hundred pounds a year, so that's five hundred pounds
to spend that you wouldn't have otherwise because interest rates in the
Eurozone...
PORTILLO: ..ludicrous...
TAYLOR: ...are lower and there's
a reason for that, cause they don't have to support the currency the same
way that Britain does over time and British interest rates have been consistently
higher over many years as a result.
The second reason is that
it brings down the price of goods. We all know we pay more for cars in
this country, we pay more for other goods in this country and the reason
that these companies can get away with it is that because it's all in different
currencies it's much less transparent. Within the Eurozone, companies are
now going to..charging the same lowest price right across all those European
countries because people can make the comparison.
HUMPHRYS: Right. Michael Portillo,
I heard the word ludicrous escape your lips at same stage in that.
TAYLOR: I think we knew we didn't
agree.
PORTILLO: I would like to thank
Matthew because he did make an argument and on the whole people don't make
an argument in favour of the euro, they just say it's inevitable and we
better get used to it and Andrew was a bit like that, he gave no reason
for it. Now, one of the mistakes that we made when we were in office, the
Conservatives, one of the great mistakes we made was to go into the Exchange
Rate Mechanism and the reason that was a mistake was that it landed Britain
with interest rates that were not suited to Britain; they were the right
interest rates for Germany but not for us. And a lot of people here will
remember that they suffered from that because people lost their jobs, their
homes and their businesses. The Labour Party and the Liberal Democrats
intend to repeat precisely that mistake, to impose upon Britain interest
rates that are wrong for the British economy. And we can see it today
in the Eurozone. They have one interest rate for the whole Eurozone which
isn't going to work because the Eurozone is lots of different economies
and that one interest rate is now far too high for Germany which has mass
unemployment and far too low for Ireland and Spain which have runaway inflation.
And for..if we are talking about how this is going to effect people, interest
rates vary from one place to another and at different times, they go up
and down and they're not consistent. But what is consistent is that over
many years the European Union has had higher levels of tax than we've had
and I would say to those people who are in business who think, well we'll
make a saving on exchange rate costs, just think about what would happen
if we harmonised our taxes all the way across Europe. That would be a
very substantial cost indeed to business and therefore I simply don't believe
what Matthew has said about mortgage rates but what I do think is that
we would face a very heavy burden of additional taxation in Europe.
TAYLOR: What went wrong Michael
when you were in office with interest rates was that you actually put them
up to fifteen per cent, the highest levels in Europe, whereas what we're
proposing is bringing them down and saving people money. So there is quite
a substantial difference there and part of the reason for that is you went
in at far too high an exchange rate and therefore having to pay people
to maintain the pound at a level that it actually wasn't worth. And what's
surprising about your...and I know it's true of Labour as well, is that
neither of you have anything to say about the exchange rate problems that
have seen car factories close, from Vauxhall, Ford, Rover, we've seen the
job losses in shipbuilding. Let the people decide on this in a referendum,
let's have this debate, you may win or we may win but people can decide
that in a referendum. But for goodness sake let's have the debate intelligently
and properly.
HUMPHRYS: Michael Portillo, a quick
one from you and then...
PORTILLO: What's so disappointing
about Matthew's argument really is that he says he wants to be in the euro
in order that we should have a devalued currency and everything about global
history tells us that actually countries do best when they have strong
currencies or rather they have strong currencies when they do best. I
mean Germany was highly successful with a strong currency, Japan highly
successful with a strong currency, USA highly successful with a strong
currency. And it is really economic nonsense to say that the reason we
want to go into the euro is to have a lower exchange rate and that is not
an argument the German people are making.
SMITH: I think that an approach
which takes a hard headed assessment of the needs of the British economy,
of the interests of the British people and says that if the tests are met
then we put it to the British people in a referendum. That is the right,
hard-headed approach in the interests of the people of this country. Michael
Portillo shakes his head and waves spin...waves his fingers about. The
spin on all of this coming from the Conservative Party, who are all over
the place on the question of Europe, we have got Ted Heath saying they
need to lose the General Election in order to learn some more hard lessons.
On the other extreme, we have got Conservative candidates going around
saying they would never join the euro and a party which is as divided as
that on such an important issue is unfit to govern this country.
HUMPHRYS: Go on, a quick response
to that Michael Portillo.
PORTILLO: There are two of us here,
Matthew and I, having a discussion about the euro and there's Andrew Smith
just doing the normal spin stuff. I mean let's address the real argument.
I think that it is not a good argument to go in to devalue our currency
and I think that it is a very powerful argument against entry that a single
interest rate would be wrong for Britain and would lead us into the sort
of errors that we....
TAYLOR: Michael, Michael....
HUMPHRYS: I'm going to stop you
there Matthew Taylor because we do have another question on this and I
don't want to deal with all the questions in one go. Tom Stuart, who's
a project manager.
TOM STUART: Good afternoon. Could the
parties clarify and I emphasise the word 'clarify', when and if Britain
might join the euro.
HUMPHRYS: Right, well you wanted
to say something Matthew Taylor, so when, when would...because we know
roughly the position of the other two parties. When is your party planning
to have its..would your party plan to have its referendum.
TAYLOR: Well, first of all contrary
to what some say, we do believe there are conditions for entry, we shouldn't
join unless we lock in at a competitive exchange rate. Lock in at the rates
we are at now would actually lose more jobs and that's the problem with
Michael's position. He can't support... whatever the speculators have
the pound at at a given time is fine, well it may be fine for him with
a background in the City and in petroleum but it's not fine for people
in my constituency, whose jobs are being lost because of the high pound
at the moment and it's not fine for a lot of other people around the country.
So first of all we have to have a competitive exchange rate and then of
course we have to meet the other conditions that Labour talk about but
make rather woolly. I believe that we can do that, I believe that it's
in the interest of the government to set a strategy for a compet...to maintain
a competitive exchange rate, whether or not we join. The referendum can
then take place, we can have that debate and I believe that can happen
in the next couple of years.
HUMPHRYS: You seem to be saying
that it's up to the markets, the financial markets, to decide.
TAYLOR: No, that's the position
of the people on either side...
HUMPHRYS: ...well it seems to be
yours as well because you say we won't go in, or we can't go in, can't
have the referendum until the exchange rate and interest rates are thus
and so. That rather implies that when the guys in the city and the girls
in the city decide that the pound is, you know, at the right place, then
you'll say we'll go in.
TAYLOR: The key thing with the
pound is that it's liable to speculation. People make money by moving,
whether it's up, or down. And what happened in every European country
that went into the European Union, was when they made it clear that they
were going to join and when they made it clear the exchange rates that
they were going join, because there was no money to be made from speculation
because they knew the levels, then that's exactly the exchange rates that
they achieved and as a result, they have been growing faster than UK, unemployment's
been dropping faster than in the UK and they've been gaining international
market share, at a time when we've been losing it. And that's given, despite
all the problems of setting up a brand new currency. Now all I am saying
is that those are advantages, Liberal Democrats will set out those advantages
but we're not going to force people into it, we're going to have that debate
and that's where I agree with Michael. There is an intelligent debate to
be had and then the British people can decide and that's the guarantee
that the Liberal Democrats give. But Michael's problem is, he set out
all the arguments against, he thinks the public are with him, but he won't
let them have a choice and in five years' time he might join anyway.
HUMPHRYS: Alright, well let me
put that to you Mr Portillo. Some people in your party obviously believe
that we shouldn't join the euro even if the economic conditions were absolutely
right. Now that isn't your position as I understand it, so presumably,
if it became clear that membership was in Britain's economic interest,
I stress the word economic interest, then you would be in favour of joining
the euro, is that the case?
PORTILLO: First of all I'll answer
the question posed by the.. no I'll come back to that, I'll answer the
question posed by the member of the audience, because if you elect a Conservative
government, we will not enter the euro and we will not have a referendum...
HUMPHRYS: ...during the next Parliament.
PORTILLO: Well, we're only elected
for one...
HUMPHRYS: ...quite so, but just
to be quite clear about that...
INTERRUPTION
HUMPHRYS: ...no, no let him finish
the point.
PORTILLO: ...now I'm coming to
your question which is about whether there are economic tests and whether
there are other tests. I've told you some of the fundamental economic
arguments against entry to the euro and they are substantial. I don't say
that they could never disappear but I don't see them disappearing, they
seem pretty strong issues to me and then there are of course political
questions as well. Let me put it this way, the European Central Bank now
sets the interest rates for twelve countries in Europe and that is like
telling people how much their mortgages are going to cost, how much growth
there is going to be, how much unemployment. Very important political decisions
and there is no democratic accountability for any of those decisions because
nobody in Europe votes for the European Central Bank. And if you're in
Ireland now and you want to vote against the policy which is creating inflation,
you can't because the policy isn't set by either Irish party, it is set
by the European Central Bank...
TAYLOR: ...but the Bank of England
is independent...
PORTILLO: ...no the Bank of England
is accountable for its inflation target to the Chancellor of the Exchequer,
the Chancellor of the Exchequer is accountable to Parliament and Parliament
is accountable to the British people and that is very clearly set out.
TAYLOR: So you want to intervene
on Bank of England monetary policy committee decisions on interest rates
because that is a very big change of policy for the Conservative Party.
PORTILLO: Matthew, stop trivialising
what I've said. You know, you know that the situation is that the Bank
of England receives its instructions on its inflation target from the Chancellor
of the Exchequer and the Chancellor of the Exchequer may change that inflation
target whenever he wishes and the Chancellor of the Exchequer is accountable
to Parliament and Parliament is accountable to the people and that is quite
different from the European Central Bank.
HUMPHRYS: Just to be quite clear
on this, what you seem to be saying in the answer is that even if the economic
arguments are in favour, however you define it, in favour of Britain joining
the euro, there might be other arguments which would keep you out of it.
That's what you're saying, is it?
PORTILLO: What I'm saying is that
the people who advocate entry have to deal with both the economic objections
to entry and the political objections to entry...
SMITH: ...John, can I just...one
further question on this because...
HUMPHRYS: ...well, we don't want
to ask him too many because I want to ask you a question...
PORTILLO: No, no, since the Chancellor
hasn't come, it's perfectly appropriate that I should take Question Time.
SMITH: You should let Oliver Letwin
and the twenty-billion out of the cake...
HUMPHRYS: ...we're coming to that,
we're coming to that.
SMITH: Michael, the question you
won't answer is can you envisage circumstances where Britain would enter
the euro. I can answer that question yes, there have to be the tests,
the British people...
HUMPHRYS: ...alright, well we know,
because you've given...let Mr Portillo...
SMITH: ...can you envisage circumstances...
HUMPHRYS: ...let me get round,
then I want to come back to you with a question along those lines, yes,
go on.
PORTILLO: I don't think policy
is about envisaging, I think it is about policy and our policy is not to
enter the euro and if you vote in a Conservative government we will keep
the pound and not go into the euro.
HUMPHRYS: Right, Mr Smith, the
National Institute of Economic and Social Research believes that we have
moved closer to meeting those five tests that the Chancellor himself imposed.
Do you agree that we, on behalf of the government, that we have moved
closer.
SMITH: Well, we haven't been maintaining
some sort of running commentary...
HUMPHRYS: ...I'm not asking you
for a running commentary. I am asking you at this particular moment in
our history, have we moved closer or have we not.
SMITH: You are inviting me to give
a running commentary...
HUMPHRYS: Do you know the answer
to that question?
SMITH: ...and I'm not going to
do it. There are certain aspects, for example long term interest rates,
where there has been convergence but we've set out our position very clearly
ever since 1997, that we will make this assessment early in the next Parliament.
It's been confirmed that that will be within the first two years and when
we make the assessment we will take account of all the relevant information.
HUMPHRYS: ...you see, it might
seem to some people, that either you know whether we have moved closer
to meeting those five tests which would be extraordinary if you did not
know, or you really don't know, or you really do know and you are not prepared
to tell the electorate, which is a bit odd, isn't it? Why should you keep
us in the dark and wait until after the next election before you give us
the benefit of your...
SMITH: I can be absolutely open
with you John and with the audience. We haven't completed the assessment,
we don't have all the information...
HUMPHRYS: ...after all these years?
SMITH: No, we haven't because we
said it would be done early in the next Parliament and when we say something
like that, we mean it and that is when it will be done according to the
tests that I've already set out and that is the only sensible way of making
this very important decision which at the end of the day must be something
for the British people, a choice which Labour would give them and which
the Conservatives would deny them.
HUMPHRYS: A quick point, Michael
Portillo.
PORTILLO: I think it's very important
to get in our minds that the tests that the government speak about are
a joke. They are just really matters of opinion and the government can
make up its mind on them whenever it wishes. There is no independent verification
of these tests whatsoever. What is more, we already know that the legislation
covering the referendum, will allow those parties that want to abolish
our currency to spend twice as much money as those parties that want to
keep our currency and the government will not tell us what the question
would be in the referendum. And since the Prime Minister will never give
us a straight-forward answer to anything, I don't think he'll ever give
us a straight-forward question and that is why this election is actually
the last chance that people will have to vote to keep the pound.
HUMPHRYS: Alright, let's move on
to our next question from Richard Fathers, who is a recruitment executive.
RICHARD FATHERS: Good afternoon. Labour has hit
us with stealth taxes, the Conservatives are promising tax cuts which I
don't think they can deliver, isn't it just the truth that whoever is in
government, taxes will rise?
HUMPHRYS: Matthew Taylor?
TAYLOR: Well the absolute truth
is you can't get something for nothing and when people come on your doorstep
and they say, we are going to cut your taxes but it's not going to cost
anything, you won't see any difference in the public services, it's nonsense
and when Labour say we're going to improve your hospitals and schools but
we're also going to offer targeted tax cuts, they are not going to be able
to deliver that either and we are going to be straight with people on that.
And I have to say, I think that people now know that. I remember and
I am sure you remember, the mood in 1997 when Labour came in. The Conservatives
had been a disaster and if they follow the same strategy which they are
outlining now, they will be a disaster again and there was a real sense
and I didn't vote Labour, I spoke to many people who didn't vote Labour,
still have that sense of 'well thank God we've got rid of the Tories'.
Even Conservatives thought that. But there's this huge...they did. Michael
might have been disappointed about his job but not many people were disappointed
about Michael. That's the truth. And the disappointment there now is is
that failure to deliver because we all know on the ground the improvements
aren't there and the reason is that whilst Labour have raised taxes, they've
actually raised them to almost exactly the same share that Ken Clarke was
planning as well. He was planning to raise taxes and the reason for that
was they were running a deficit every year, twenty-four billion, they weren't
meeting their expenditure and you can't go on spending more than you earn,
or in the government's case tax, forever. So they had to put that right
but that's all Labour did. We actually had, not only the implementation
of the Conservative spending plans but they spent even less than the Conservatives
had planned to do. The reason for that is that Labour were too timid to
tell people the truth and we don't want to have the same problem so we
will tell you the truth and that's why we can guarantee the investment.
HUMPHRYS: You probably won't get
too many headlines for that admission about not voting Labour tomorrow.
I mean...'Lib Dem says I didn't vote Labour'.
TAYLOR: It was a struggle John
but I managed to..
HUMPHRYS: Well you might if you
say it was a struggle.
TAYLOR: And I didn't do it because
we said at the time that they couldn't deliver if they didn't raise the
money to do it and we were right.
HUMPHRYS: Andrew Smith.
SMITH: We kept every promise that
we made on tax at the last General Election. We said we would not increase
the basic or top rate of tax and indeed we cut the basic rate. We said
when it was prudent to do so we'd bring in a ten p rate and we did. We
said we'd cut VAT on fuel to its lowest possible level and we have done
and we have also cut corporate tax rates to their lowest level, on large
and small businesses, of any of our major industrial competitors and so
we have kept our promises on tax and our approach is a balanced one. On
the platform of stability and strength, on the basis of the tough decisions
which Matthew opposed at the time, that we took to straighten the economy
out, we are able both to invest more in our frontline public services and
to make targeted tax cuts where those are affordable. That's why we have
been able to bring in the Child Tax Credit which is worth ten pounds a
week to every basic rate taxpayer, it's why we've brought in the Working
Families' Tax Credit which is helping hundreds of thousands of people move
off welfare and into work, part of our achievement of getting a million
more people in jobs. So that's a balanced approach and it's working.
HUMPHRYS: So there you are Michael
Portillo, they kept their promises.
PORTILLO: It depends if you have
amnesia or not.
SMITH: If you are Michael Portillo,
you need amnesia John.
PORTILLO: The Prime Minister said
that he had no plans to raise taxes at all. The Chancellor this morning
was interviewed on television and said he never gave a commitment not to
increase National Insurance but he did. He said at the last election that
the plans to increase National Insurance was a plan that was dead and buried
and now we saw him on television this morning giving no guarantee that
he wouldn't jack up National Insurance Contributions which could cost someone
earning thirty-five thousand pounds a year, another five hundred pounds
a year effectively of tax, of National Insurance Contributions. What we
have done is we have set out how we would make savings against the government's
spending programmes of eight billion pounds and how we would deliver those
tax cuts. And at the risk of, you know, repeating it, it is all set out
here. Every...I do this because actually no opposition has ever done this
before, no opposition has ever shown in exactly this detail how we would
do it and what happened in the first week of the campaign. Oh, by the way,
I should say that Professor Doug McWilliams of the Institute of Fiscal
Studies, says that these savings would be easily achievable and indeed
they would be. You know whenever... that is what he said. Whenever anybody...
TAYLOR: ...that is not correct
Michael and you know that.
PORTILLO: I'm sorry that is correct.
Professor Doug McWilliams has said that these are easily achievable. Digby
Jones from the CBI has made the point which is fundamental, that of course,
because the economy grows on average, it is possible to have more money
spent on public services year by year. But as long as the government doesn't
help itself to all the increase in national wealth, then you can have tax
reductions as well. The great mistake this government has made is to commit
itself to increase government spending faster than the nation can afford,
faster than we are earning it and that is why the Institute of Fiscal Studies
says of the government, that they need to increase their taxes by ten billion
in the next parliament. Now we have illustrated that if all of that went
on petrol, which has been their favourite stealth tax, it would push petrol
to six pounds a gallon. But I am ready to admit that they might put some
of it on National Insurance, in which case as I say, someone earning thirty-five
thousand pounds a year would pay another five hundred pounds a year in
tax.
HUMPHRYS: Just deal with that National
Insurance point Mr Smith.
SMITH: Well, what Michael's just
done actually John is confirm the clear choice, the crucial choice there
is in this General Election because what he is doing, is going out and
making huge, unfunded, irresponsible....
HUMPHRYS: ...what about that National
Insurance that I asked you about?
SMITH: ...National Insurance, we
are not going to give on each individual tax a commentary. I tell you why..
HUMPHRYS: Ah, so there might be
an increase in National Insurance..
SMITH: I tell you why because our
promises...I'll tell you the reason because our promises are set out in
the manifesto that we won't increase the basic or top rate of tax, we wouldn't
extend VAT to transport, food, children's clothing, books and so on. And
our tax policy will be based on the assessment of the needs of the economy,
the health of the public finances, the need for investment and of course
the interests of families, business and the environment. And no, no responsible
Chancellor could give some blanket commitment on each and every individual
tax and indeed William Hague last week said I am not going to say, that
no tax will ever rise.
HUMPHRYS: Okay. Let me come back
to you Mr Portillo on the area that I said I would return to because it
was raised by Andrew Smith earlier and that was Oliver Letwin, your number
two, who sort of mysteriously, disappeared for a couple of days this week
after he made a certain comment about twenty billion pounds. Let me read
to you, you say he didn't say that, I mean that's what the party says.
Let me read to you, hence the specs, getting old, what he told the Financial
Times, this is a quote from what he told the Financial Times, they've produced
this quote, in their newspaper, verbatim. 'You've got a progression" this
is Mr Letwin "which goes, four, eight, twelve, sixteen, twenty billion
pounds. It is one hundred and ninety per cent realistic to cut spending
growth this way." He said it.
PORTILLO: Even the first two figures
are wrong because my commitment is that...
HUMPHRYS: Whose figures are wrong,
I'm sorry that is what Mr Letwin..so in other words your colleague got
it wrong. Is this what you are saying?
PORTILLO: What I am saying is that
the figures are not right at all.
HUMPHRYS: Well whose...sorry, I
mean which bit of this is not right. Are you telling me that the Financial
Times..
PORTILLO: I was trying to explain
to you what was wrong. For instance, I have made it perfectly clear...I'm
not waffling.. I have made it perfectly clear.
HUMPHRYS: That was a lady in the
audience who said that, not me by the way, I'd never say such a thing.
PORTILLO: I have made it perfectly
clear that in the first budget, I am only committed to two point two billion
pounds worth of tax cuts and that is to produce the reduction in the tax
on fuel of twenty-seven p a gallon off diesel and off petrol and in my
second year, at the end of the second year, I will have produced eight
billion pounds worth of savings against the government's spending plans
and I will deliver eight billion of tax cuts and those tax cuts in that
second year will be going to pensioners, to families and to people with
savings because we will abolish saving except at higher rate tax..sorry,
we will abolish tax on savings except at the higher rate. And beyond that
period we will be able to go on reducing taxes. My aspirations then are
to tackle Inheritance Tax which effects too many people today, to attack
higher rate income tax which is today being levied on senior police officers,
senior nurses, people in the Health Service, people in the Public Services
and I put no figures on that.
HUMPHRYS: Yeah, but let me just
return, very briefly, because it does confuse people I think when a senior
figure in a party makes a statement to a newspaper which is subsequently
said not to be true. Now, are you saying this morning that the newspaper
got it wrong and misquoted Mr Letwin, or that perhaps Mr Letwin was saying
something aloud that he should not have said? It can only be one of those
two can't it.
PORTILLO: Because I wasn't there
that is impossible to judge but William....
HUMPHRYS: You've read what he said.
PORTILLO: William Hague and I make
the economic policy and I have told you today what the economic policy
is.
SMITH: Isn't the truth Michael,
that he's let the cat out of the bag and that is twenty billion cuts that
you would inflict on the British people just as you tore our public services
apart before.
HUMPHRYS: Alright, next..no sorry,
got to move on to the next question from Barbara Chivers, who is a PA.
BARBARA CHIVERS: Good afternoon, do the panel accept
that most people would be happy to pay more tax if they believe that the
money would go on things like Health, Education and Pensions?
HUMPHRYS: Do you believe that,
Mr Smith?
SMITH: I think that people support
a balanced approach as I've been setting out, I think people understand
that things have to be paid for, and you know, I often thought, you know...
HUMPHRYS: ...so that means yes,
does it? Sorry, just to be clear because...
SMITH: ...I think people reluctantly
pay their taxes but recognise that where we get the services we need that
that is necessary. I think they have a balanced approach, I have to say,
going around the doorsteps as I have done very intensively this campaign,
I don't find the first question people ask me is can I pay more on tax?
Of course...
HUMPHRYS: ...I know, but you know
what the question was, are people happy, do you believe that to be the
case, that people are happy to pay more tax for better, because that's
what the lady meant, clearly, that's what Miss Chivers meant, better public
services.
SMITH: I don't think there's an
enthusiasm for paying higher taxes, I think people want to see public services,
they recognise that they have to be paid for, or moreover, they will trust
a government which keeps its promises on tax as the Labour party has kept
our promises on tax in office.
HUMPHRYS: You would accept though,
wouldn't you, that the tax burden under Labour increased, and you did tell
us, or at least Tony Blair told us before the election that it would not.
I mean you say you kept your promise, which was the promise I am asking
you?
SMITH: The tax burden we have this
year John, is actually lower than the tax burden which the Conservatives
were proposing for this, so yes..
HUMPHRYS: Well, it's not a question
of what the Conservatives.....
PORTILLO: I think you know perfectly
well that all the figures have been rebased and that is not a true statistic.
INTERRUPTION
PORTILLO: ...is three percentage
points of national income higher than when the Conservatives left office.
HUMPHRYS: The point that I was
trying to make is that Tony Blair did tell us before the election that
the tax burden, not just income tax, and the higher rate of tax, but the
tax burden would not go up, and he hasn't.
SMITH: I've never seen words which
had Tony Blair saying that the tax burden, making a commitment of anything
like ...
HUMPHRYS: ...there are no plans
for tax increases is precisely what he said. He didn't say for income
tax increases, he said there are no plans...
SMITH: ...okay, so he didn't use
the word and tax burden, which we are just claiming that he did...
HUMPHRYS: ...you don't think that's
splitting hairs just a little bit...
SMITH: ...and the promises that
we made on tax were not to put up the basic or upper rate, and we cut the
basic rate, we said we'd cut VAT on fuel to its lowest possible level,
we'd bring in a ten p band when it was prudent to do so, and we've also
cut taxes on large and small businesses to their lowest level in the industrial
world, but our...
HUMPHRYS: ...you don't think, can
I just make this point about the tax increases, you don't think that it's
one of the reasons why people, if it's true that they are a bit sceptical
of politicians to put it mildly, is because they say things like, there
are no plans to increase taxes, and then after taxes have gone up they
say well actually, we didn't use that word burden you know, so, you know,
read the small print next time. There is a problem here isn't there?
SMITH: I think there is an issue
here which has to be addressed, and it's this. Of course things have to
be paid for and of course we need to be able to signal to the electorate
what our general orientation is on tax, and I tell you, our instinct is
not to be a tax raising party, but we do recognise that things have to
be paid for and it's why I said earlier that no responsible Chancellor
could make blanket commitments about every tax. That is what the Conservatives
did in nineteen-ninety-two, when they said there would be year on year
tax cuts, and what happened, twenty-two tax rises, driven through by Michael
Portillo, the economy destabilised, boom and bust, interest rates at more
than fifteen per cent for a year, we don't want to go back to any of that.
HUMPHRYS: Let me return Mr Portillo,
for though, if you weren't at the time, you were going like that, which
I take meant spin.
PORTILLO: Spin.
HUMPHRYS: I thought it probably
did, yes. The question was do you believe people would be happy to pay
higher taxes for better public services.
PORTILLO: I suppose my short answer
is no, because I think that so many people now who deal with the government,
know that many public services are shambolic and wasteful and inefficient,
and to me...
SMITH: ...and no way gets better
or worse if you cut twenty billion off them...
PORTILLO: ...they will get a great
deal better if a government is committed to making them more efficient.
SMITH: ...a great deal less...
PORTILLO: ...no, we are talking
about efficiency here. Anybody who deals with the Social Security system
now, knows that it is a shambles. You are passed from pillar to post.
Anybody who's seen how the government tackled the foot and mouth crisis,
all these agencies involved now, falling over each other, nobody has authority,
no-one has the power of initiative, everybody is passing the buck, everything
gets sent up to Head Office, that is the catastrophe of public services
in many areas today. Twelve thousand pounds a second of our money is being
spent by this government, and are you telling me that we can't spend ...
SMITH: ...you don't sound like
you believe in public services...
PORTILLO: Are you telling me that
we can't spend some of that money better. Oh I believe in public services,
but I don't believe Andrew in measuring them by how much money you take
from people who would spend that money on their family and how much you
can fritter away in the wasteful bureaucracies of the state. I believe
in measuring public services by what you deliver to people.
HUMPHRYS: Matthew Taylor, if you
found yourself in trouble as a government at some stage and you had to
choose between cutting public services and increasing taxes to pay for
the public services, which route would you follow?.
TAYLOR: Well, we think that public
services are in trouble. If you look at the larger class sizes, you look
at problems in hospitals, you look at the problems facing pensioners, who
got just seventy-five p last year, look at the decline in police numbers
and the rise in many forms of crime that we see, how can anyone say that
we haven't if you like, got a crisis. I mean, it's a terrible but true
fact that if you happen to get most forms of cancer in this country, if
you get problems with your heart in this country, you're more likely to
die than in other countries, and the major reason for that is there are
not the doctors and nurses and the other professionals in the Health Service
to provide that care, and that's why we are arguing in this campaign, straight-forwardly,
for a small increase in tax, typical person just a couple of pounds a week,
that these will make the improvements that we deliver because we will actually
step up right from the start of the parliament the spending on Health and
Pensions and Education and on Policing, and so my answer to you is yes,
there is a real crisis, it's not a crisis in most people's pockets, we
all find things hard, but I doubt that many people were out celebrating
because the Labour government chose, instead of making that investment,
to cut a penny off the rate of tax that Michael Portillo left when he left
office, actually taxing people on income a little less than before, at
the cost of hospitals and schools. And our policies therefore will deliver
a change which they can't. And we hear Michael talking about all this
waste, I think we can all think of an example where there's waste. But
the fact is, he was in office, he was at the Treasury, he laid down the
tax increases that John Major's government put through, the broken promises,
so to return to the question that was asked, are people willing to have
an increase, I think there are some key things before people will make
that commitment.
HUMPHRYS: Make it brief, very brief.
TAYLOR: First, to be told the truth.
And the truth is you can't get something for nothing which is why both
these parties in office put up taxes stealthily, and the second thing is
to do it fairly, and the irony of the Labour position is they'll cut income
tax but put up other taxes and that means the burden on the poor has gone
up.
HUMPHRYS: Thank you very much.
Final question from Jean Richards who is, I think, retired, Miss Richards.
JEAN RICHARDS: Do any of the politicians
really think that they could afford to live on the basic state pension
and if not, which of them is prepared to restore the link between pensions
and earnings, and guarantee that pensioners will never again be insulted
with an increase of seventy-five p?
HUMPHRYS: Well, Mr Smith, Tony
Blair said the other day that, that was the biggest mistake of his government.
You were, I think, Treasury Secretary at the time. Was it your mistake?
SMITH: We take collective responsibility
John, for the mistakes as well as the achievements. To take the.....
HUMPHRYS: You're attacking it as
a mistake clearly.
SMITH: Yes. To take the question,
I think it is very difficult for pensioners to get by, especially at the
level of the basic state pension, and that is why we've brought in the
Minimum Income Guarantee to give extra help to the poorest pensioners,
and that's gone up this April by fourteen pounds. Now, of course we look
to do more for pensioners in the future both with a further increase in
the basic state pension next year, and with the introduction of a pensioner
credit which will actually reward pensioners, those who often lose out,
the ones with the modest occupational pension or the savings that just
come above the threshold for everything. That will give them extra help,
but I have to say on this that it is the Labour Party recognising what
happened with the seventy-five pence who listen to pensioners, who listen
to the people of this country, and we put increases through this year which
were higher, not only than the rate of inflation, but also higher than
the link with earnings would have delivered as well. So we keep faith
with the pensioners and will continue to do so in the future.
HUMPHRYS: Matthew Taylor?
TAYLOR: Well unfortunately there
was a pledge in the last Labour manifesto that pensioners would share in
the growth in the economy. Yet the share of money going to pensioners
including all the benefits and all the little extras that have been tagged
on around, has actually gone down for pensioners as a share of our national
wealth, even though there are more people in that age group. So first
of all the promise was broken, and that's why pensioners got just seventy-five
p, and that's why there are increasing numbers who are very hard up indeed.
The question you asked was should the link with earnings be restored,
and we looked at this very hard. We debated this in conference a year
ago, and we concluded to do something better than that because we think
there's a generation of pensioners out there now who've been cheated of
increases that they were once promised to get, so we would up front, right
at the start of the parliament make big increases on top of Labour's plans,
unlike the Tories, on top of Labour's plans, at least five pounds a week
for every pensioner rising ten pounds at seventy-five and fifteen pounds
at eighty. The link with earnings would work out at about a pound a year,
so the very least would give everybody the equivalent of a link with earnings
at the start, and older pensioners, because we know that they tend to be
poorer, we know it's harder to get by as you get older, would get much
more still. Much fairer than that dreadful and insulting twenty-five p
that pensioners currently get at eighty. So we will transform that, again
because we are willing to tell people how we will raise it, and yes I do
think that people are prepared to do that because they know that there
is a generation of pensioners who fought the war, were told they'd be looked
after in their old age and have been let down by both the others.
HUMPHRYS: Right. Michael Portillo,
remember the question. Can people really live on the basic state pension.?
PORTILLO: No, the answer to the
lady's question is people can't live on the basic state pension, which
is why there is a Minimum Income Guarantee, which was not invented by this
government by the way, it was simply spun in a different form, it
was given a new name. It used to be called the Supplementary Pension,
and of course...
TAYLOR:: It was called means testing.
PORTILLO: Yes, it was called means
testing, and the result of Labour having been in office a few years is
that very soon fifty-six per cent of all pensioners will be required to
fill our a forty page form in order to apply for a living income to pay
the stealth taxes that the Chancellor has imposed upon them in the first
place, because it's things like the cost of petrol that have made it very
difficult for many pensioners to get by. Now, any government ought to
be thinking far ahead - how can we get out of this situation, that you
contribute at the moment for forty years and at the end of it only get
a pension of only seventy-two pounds, and the answer to that must be to
move to a situation where people are allowed to invest in funded pensions,
pension funds that grow through their lifetime, that move with the economy,
that get bigger, and we at least have a plan to do that, to look to the
future, to try and make future generations of pensioners better off than
the present generation of pensioners. And all that Labour has done on
the other hand is to tax the pension funds five billion pounds a year,
which means that those of you who are not yet drawing your pensions will
find yourselves certainly poorer than you thought you were going to be
and probably poorer than this generation, but....
HUMPHRYS: No, no, sorry Mr Smith.
We've jut time for one more, to fit in one more quick question, and that
is from Sheila Slate who is also I believe retired. Mrs Slate?
SHEILA SLATE; I would like to say that
public services like the NHS are obviously over-stretched. So wasn't it
a mistake to take away the tax perk on private health schemes, forcing
pensioners like me back into the National Health Service and costing the
government more money.
HUMPHRYS: Mr Smith, we don't have
too long on this one I'm afraid.
SMITH: No it wasn't because there
are always difficult choices to be made about how you use available resources
and we decided to use the resources in the interest of all of the patients
of the NHS and not simply those who could afford private insurance and
health expenditure is increasing at twice the rate under this government
that it was under the Conservatives. I think in their earlier remarks Matthew
and Michael understated the progress that's being made in the public services.
Of course, there's more to do but with seventeen-thousand more nurses with
a commitment to recruit twenty-thousand more nurses in the future, ten-thousand
more doctors and to put in the money that the NHS was denied under the
Conservatives, people can know that the NHS is safe with Labour where it
wouldn't be safe with boom and bust and where it wouldn't be safe with
tax and spend levels.
HUMPHRYS: Quick thought Matthew
Taylor, ending with Mr Portillo.
TAYLOR: First of all, the problem
with the figures is he makes it sound like they are new but of course they
are the figures that we've heard before. Why are they back again, well
that's because they failed to recruit the doctors and nurses and we see
the problems of recruitment. And one of the reasons they have failed to
recruit is there not paying them enough to keep them working in the NHS
in the first place. But you asked a very specific question and no, we're
not going to bring in relief on private medical health insurance and there's
a reason for that. It will cost under the Conservative plans, because
they do want to ...
HUMPHRYS: You tell me what you're
doing, because we're pushed for time.
TAYLOR: ...it will cost five-hundred
million pounds to do that, but it'll almost all go to people who anyway
already take it out, so it's a subsidy to people who can afford private
health insurance at the moment at the expense of money that we think should
be used to train the doctors and nurses that the Health Service itself
needs.
HUMPHRYS: Right, thank you. Michael
Portillo.
PORTILLO: I thought Andrew treated
us to a horrible amount of sloganising...
HUMPHRYS: ...make it quick, you've
got forty seconds.
PORTILLO: ...to explain that it
was a thoroughly vindictive act to take that tax relief away from people
and it makes a complete nonsense of Tony Blair's claims that if he were
re-elected he would have a partnership between the public and private sector
because during his period in office he has actually made life impossible
for such a partnership.
HUMPHRYS: Would you bring it back,
that's the question?
PORTILLO: It's not in my priorities
I'm afraid. I do want to, I do want to remove another penalty that the
government have put on company schemes and charging National Insurance
on company schemes, but I am afraid the government has now jacked up spending
so much and is wasting so much, that I cannot commit myself to that being
one of my priorities. I am very sorry about that.
HUMPHRYS: Thank you for that, Michael
Portillo. And Matthew Taylor and Andrew Smith and the audience. Thank
you all very much indeed and that's it for this week.
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