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ON THE RECORD
ALISTAIR DARLING INTERVIEW
RECORDED FROM TRANSMISSION BBC-1 DATE: 14.6.98
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JOHN HUMPHRYS: Good afternoon. Is the government a
little softer on spending the taxpayer's money than it would have us believe?
I'll be asking the Chief Secretary to the Treasury, Alistair Darling, about the
consequences of loosening the nation's purse strings. That's after the News
read by CHRIS LOWE.
NEWS
HUMPHRYS: Thank you Chris.
Ever since Tony Blair moved into Downing
Street the government has been working on the comprehensive spending review -
looking at the Budgets of every single Department in fine detail to save on the
things that don't matter so much - to spend on the things that do - health and
education. On Thursday, the Chancellor told us how much more money the
government will have to spend over the next three years and most people seemed
to think he was being very prudent. He certainly encouraged that view. But is
that really the case?
In our Edinburgh studio here is the man
who controls the purse strings - the Treasury Secretary, Alistair Darling.
As a Labour Minister, Mr Darling, you
must be a bit pleased that we are actually going to be spending so much more
money than perhaps we had expected.
ALISTAIR DARLING: What we want to do is to ensure that
public spending is sustainable over the period. In the past we've reached a
situation where governments have either gone out on a hopelessly optimistic
spending spree only to have to rein back two or three years later or
alternatively, as happened with the Tories in the late 1980s, they completely
misread some optimistic signals with a result that inflation took off and they
ran into one of the deepest recessions this country has ever seen. What we said
at the manifesto, was that we would have two key rules that would determine
public spending. One of the golden rule, which is that you should cover your
current spending from revenues and the second one, the sustainable investment
rule, is that you should borrow at a prudent level for investment and capital
investment and so on. Now, what we did, on Thursday Gordon Brown announced the
conclusions of that was to estimate how much we think the government can spend
for the next three years towards the end of this Parliament. We think it is a
prudent estimate of what we can do, it is tough, people should be in no doubt
about that. But it is doing exactly what we said we would do in the manifesto
and what Gordon Brown said we would do in his first two Budgets.
HUMPHRYS: Well, you say it's tough but it's two
and three quarter per cent more than you had been spending, that's over and
above inflation of course. That isn't actually all that tough is it, that's
quite a lot of money, that's a lot of extra spending.
DARLING: It is very useful additional spending
and you know-
HUMPHRYS: It's a lot.
DARLING: -many people will say that our public
services do need additional investment and we readily accept that. But what we
are determined to do is to ensure that we only increase public spending by an
amount that we can afford to and the two and a quarter per cent growth that we
anticipate is in line with the growth of the economy over the next three years.
Now I think that is prudent and you will find that there are many commentators
over the last few days who will bear out my view that not only is it prudent
but it will also be tough. But, you know, the point here is that for the first
time a government has been prepared to set out a longer term planning horizon
than in the past, but also the government has taken a clear view as to how much
we can afford to avoid the situation that I described a moment ago where you
start spending, you then discover it's unaffordable, then you have to rein
back.
HUMPHRYS: But, you see, the word prudent that
keeps croping up, both from Mr Brown and yourself this morning. What you said
in the March Budget, was that you'd expect to spend more in the region of three
quarters of a per cent to two and a quarter per cent. Well now you're spending
two and three quarters per cent extra, that's including capital spending and of
course I understand that. Everybody had assumed that you would go for
somewhere in the middle of that range, so it actually isn't that prudent is it.
DARLING: No, what we did in the budget was to
set out three different scenarios as to how we could hit the fiscal rules that
we set out. But the overall driving force behind our approach was set out in
the manifesto and in Gordon Brown's first two Budgets and that is that we would
meet the golden rule, which is as I say, that you should not borrow to cover
your current spending and that we would have a sensible level of investment, a
sustainable investment rule for capital investment and the like. Now, that was
made abundantly clear in the Budget and I think, more than that, if you look at
the tightening, the fiscal tightening that was announced by Gordon in his first
two Budgets, that was there in the Budget, it's there now and it will be there
this year, next year and the year after and there is a significant degree of
tightening.
When we came into office, we inherited a
situation where not only had the national debt doubled in six years and we're
spending twenty-five billion pounds a year servicing that debt, but we also
found that the Tory Government was actually running a deficit on the year on
year basis. Now we've reduced that quite substantially and it's because we've
done that, we've been able to build the secure platform which you need for
sustainable public finances in the future.
I'll just repeat this point John, and
then by all means come back. We have significantly tightened the fiscal
stance, everybody knows that and it's entirely in line with what we said in the
last Budget report we published a few months ago.
HUMPHRYS: You say everybody knows that. You talk
about the last report. I mean there were indeed, there were those three
spending scenarios as you say but they ranged from three quarters of one per
cent to two and a quarter per cent and you've gone for two point seven five per
cent, now two and three quarters per cent. Now, that's actually taken a few
people by surprise. It's taken the Bank of England a bit by surprise hasn't it,
because they had based their inflation forecasts on one and a half per cent.
DARLING: No, it didn't hit the Bank of England by
surprise at all. The Bank knows the position the government has taken so far as
its fiscal stance is concerned-
HUMPHRYS: Why did it base its forecast on one
point five per cent then?
DARLINg: The-if you listen to what Eddie George
was saying at the Mansion House on Thursday evening, he was talking about the
various pressures in the economy at the moment, the various inflationary
pressures, and what he was pointing at is the-you know the quite rapid
expansion of earnings and wage increases in the private sector. But the Bank
knows what our fiscal stance is and if you look at the reaction on Friday, the
day after, the markets generally, people recognise that this is..we're taking a
very prudent and we're taking a tough view so far as public finance is
concerned. But let me repeat the point. At the election, in our manifesto and
after that we made it clear that the government would stick to these two fiscal
rules, that we would cover our current expenditure and that we would bear down
and, you know we are reducing the amount of debt down to below forty per cent
GDP. People realise that this is a prudent and tough assessment but it is
consistent also, of course, with the need, and I think everybody accepts this,
that of course public services do have to be properly funded. But you know, I
don't want to labour the point too much, but you know as you keep mentioning
it, let me repeat it once again. There is significant fiscal tightening. It was
locked in at the Budget, it's here this year, next year and the year after and
we think that the spending limits that we announced from Thursday are not
really entirely consistent with that, but they will allow spending, current
spending to grow in line with what we think the economy will do and I think
most people think that is very realistic.
HUMPHRYS: I'm slightly puzzled that you keep
saying fiscal tightening. It is - let's use language that people can
understand. If I look at my household Budget and I say I'm going to spend
more, I can't then go to the neighbours and say I'm spending less, can I,
because I'm spending more. So, how can we have a fiscal tightening as you put
it, when what we're seeing, clearly, is a fiscal loosening because you're
spending more rather that less, than what you said you were going to spend.
DARLING: Again, to put it in plainer terms, if
you like. We have reduced quite dramatically the amount of money the government
was borrowing. You know we've tightened that up quite significantly, you know.
And I repeat the point that when we came into office, the borrowing that we
inherited was quite unsustainable - twenty-five billion pounds a year on
serving the debt. The last government was running a situation where it was
spending more each year than it was getting in, even at this stage of the
cycle. Now, that was not prudent. So what we did, was we've reduced the amount
of borrowing that we inherited quite significantly and we have also, you know,
taken money out of the economy. Now, we think that was necessary because the
economy was running at a rate that frankly wasn't sustainable. But I repeat the
point, at the time of the election I think many people were surprised but, you
know, were quite pleasantly surprised that we were going to stick to two new
rules so far as-
HUMPHRYS: As you explained.
DARLING: And we are sticking to those rules,
there's no question of that, no-one disputes that.
HUMPHRYS: Alright. Let me come back to the
question of how much the government borrows as well, in a minute, the debt. But
let's look at the-this comprehensive spending review to which I referred to
in the introduction. Now that, had it done its job properly, would have meant
that you wouldn't have had to do what you have just done and that is to
increase the total amount of spending, the control total as the experts have
it, because the idea was to shift money around wasn't it, from one department
to another, so that health and education could have more money, because that's
exactly what you want to do, you're determined to do that and many people say
quite right too. But had this CSR, as they call it, been successful, this
review been successful, you wouldn't have had to pile a load of extra money
on top, if you'd been able to shift it around in between.
DARLING: Well there's two points I think to make
here. The first is that the comprehensive spending review is not yet completed.
It will be another month or so before we announce the final allocations between
departments and you're absolutely right, we are looking through every single
pound that we spend and asking ourselves how that money can be best directed to
meet the government's objectives on health, education and so on. The second
point is that we always made it clear, indeed it was quite explicit, throughout
the last year, that before the comprehensive spending review we would have to
form a judgement as to how much we could reasonably spend for the next three
years.
HUMPHRYS: -can I-
DARLING: Just let me finish this point.
HUMPHRYS: Go on.
DARLING: The logical thing to do, is it not, was
at this stage, as we move into the final stages of the comprehensive spending
review, was to set out how much the government thought it could spend,
reasonably spend for the rest of this parliament, on current spending and on
capital spending. And you know that distinction is very important because
capital has been neglected in the last few years, so it was logical to tell our
colleagues and you know once we'd told the Cabinet, it was only right that we
should tell Parliament what the overall envelope was. The next stage is how
much we allocate to each department.
HUMPHRYS: Well, let me come in there because you
said that you weren't going to do these things until after you'd completed
the-the review. Let me remind you of what you said in the March Budget about
that - Paragraph B11 - I happen to have been skimming it over my breakfast this
morning - as one does. Public expenditure plans for the years after 1998-'99
will not be known until the summer, when the results of the comprehensive
spending review are announced. I mean, what that proves is that you have - you
must know - what those - what that review achieved because you have had to put
money in now?
DARLING: No. You know, since you read that
paragraph that you referred to, it is the case that, of course, the Government
has to work out how much it can spend for the next three years. Now, the
comprehensive spending review is - you know - it's a twin process. One is to
go through existing spending and, then, ask ourselves, you know, how that money
can be best directed to delivering the Government's objectives. Alongside
that, given that, you know, the spending plans we inherited, run out at the end
of this financial year-
HUMPHRYS: Yeah.
DARLING: - it was always going to be the case
that the Government would have to announce in the summer that how much you can
spend.. of this Parliament.
HUMPHRYS: Yeah. After the review, after the
review.
DARLING: Yeah, and you know what is important is
that, you know, I think, it's commonsense. I mean, you couldn't make a final
decision on how much you were going to spend in each Department-
HUMPHRYS: Well-
DARLING: -unless you knew how much you had to
spend overall.
HUMPHRYS: Well-
DARLING: And, it's only right having decided how
much we're going to spend overall that we should tell Parliament what that was.
HUMPHRYS: But-But, I mean, it is here in black
and white isn't it? I mean, it says - let me repeat it, if I may - public
expenditure plans for '98/'99 will not be known until the summer when the
results of the comprehensive spending review are announced.
DARLING: Yes.
HUMPHRYS: Well, you have not announced the results
of the spending review and the reason you haven't done that can only be -
presumably - because it hasn't achieved what you set out to achieve because
you've had to pile more money in.
DARLING: No, no, no, no.
HUMPHRYS: Had the review been successful you
wouldn't have had to pile more money in.
DARLING: No. As against-There's two aspects of
any review of spending. One is you look at what you're spending at the moment
and, then, decide how best you can reallocate that to meet the objectives that
we've set ourselves in Health, Education, Transport and so on. But, secondly,
given that, you know, this is an unusual situation and that whilst we inherited
existing spending plans which run out this year, we didn't as would normally
have been the case announce in the March Budget how much the Government thought
it could spend for the rest of this Parliament. It was always clear that we do
that as part of the comprehensive spending review.
HUMPHRYS: After the review had been completed.
That's what the Budget said, very clearly.
DARLING: No, what-you know, I suppose I have the
advantage over you, John, in that I, actually, know how the comprehensive
spending review is going and it's very much on track.
HUMPHRYS: Well, then, you can tell us. Well,
then, let's sort this out. You can tell us - since you know. We can be quite
clear - can we? - that certain sums of money - large sums of money - because
we'd have to be talking about very large sums of money - wouldn't we? - have
been taken from some Departments and given to others. That is the case, is it?
DARLING: Well, you'll see in just over a month's
time when we make the announcement on the spending for the rest of this
Parliament, how much has been allocated to each-each Department. But, the
review was about examining each Department and looking across Government to see
how best we could allocate the existing resources to meet our objectives. Now,
on top of that - given that every Government needs to take a view as to how
much it can spend on public services - on top of that we had to reach a
judgment as to how much we could afford to spend on Current Expenditure, on
Capital Expenditure and, then, you match the two up, make your final allocation
and, of course, one of the many new aspects of this review is, of course, when
we make our announcement we'll give each Department a three-year plan so we can
plan in the future which is in itself quite an improvement.
HUMPHRYS: And, they'll all be-And, they'll all be
winners, won't they because having piled in the extra money there aren't going
to be any losers, they'll all be winners?
DARLING: No, they won't be. Not every Department
is going to be a winner. That's quite obviously the case. A number of my
colleagues will be disappointed in-in various ways. But, what we-what I can
say is that the comprehensive spending review - when it's completed - will show
how the Government intends to meet is priorities right across the board. We
were elected on some specific promises at the last Election set out in our
manifesto and we will stick to those promises and we will show how we will
deliver them. The other thing of course that will be new is that we're showing
how, you know, there are many cases in which Government spending and objectives
cover a number of Departments and we will show how we can channel the resources
that we need in that way as well.
HUMPHRYS: Can the-
DARLING: It was self-evident not everybody can
get everything they think they want.
HUMPHRYS: Can I offer you some evidence for what
some may say because we don't know, of course because you haven't been able to
vouchsafe it but-but what some may say in the event will have been the failure
of the-the spending review and that is had it worked - had it worked properly -
you wouldn't have had to do such a massive u-turn - as you have done - on
privatisation? When you were in Opposition you were agin it, now that you're
in Government, you're for it and you're flogging off everything you can lay
your hands on.
DARLING: Let me come to that point. But, you
know, just to repeat the point. The comprehensive spending review was always
going to be published in the summer. The last few months, we've made it pretty
clear it was going to be-
HUMPHRYS: Alright.
DARLING: -in July and I don't think any
commentator can realistically say that you know pass any judgment on it because
nobody knows its results yet. Now, let me turn to the-
HUMPHRYS: Privatisation.
DARLING: The partnership.
HUMPHRYS: Well, most people call it privatisation,
Mr Darling. Most people don't call it partnership.
DARLING: Well, let-let me explain what exactly-
HUMPHRYS: They see Government assets being sold
off.
DARLING: Let me explain now the approach that
we're taking and this is an approach that we set out - at great length - prior
to the Election and, indeed, I remember speaking about it on a number of
occasions. It was in the Manifesto. We're now implementing that manifesto.
What we said was this: that where the State didn't need to own assets and we
recall that we published the national asset register last November which showed
an extraordinary list of items which I think many people were taken by surprise
by just how much the Government owned. For example, service stations on the
M-One and so on which we don't need to own. And, what we've said is that if
we don't need those-those assets, then, it's far better to realise them and
plough that money back into increased capital investment in the schools and
hospitals and so on that we do need.
HUMPHRYS: Right.
Do you need to own Channel Four
Television?
DARLING: Well, what we've said was that in each
case we examine whether or not we - how we can get increased investment into
the particular corporation concerned. We look at the whole thing on its
merits. Now, we've got no plans, you know, as we've make pretty clear to do
anything with Channel Four.
HUMPHRYS: Let me rule it out!
DARLING: But, let me give you two examples that
we did refer to. One is the Royal Mint. Now, the Royal Mint actually brings
in quite a lot of Revenue, at the moment, by carrying out mint services, if you
like - producing coins and so on - for other countries. It's got quite a good,
commercial arm to it.
HUMPHRYS: Hm, Channel Four does quite well, too.
DARLING: It makes sense to see that sort of work
developed because it needs the increased investment. That's an area where we
think we can do more. If you take air traffic control, for example. Now,
everybody knows that air traffic control system is of strategic importance to
this country. Safety is absolutely paramount. At the same time, everybody
knows that we need increased investment. For years, it has suffered because of
a lack of that and what we say is that through partnership with the Government,
the employees and the private sector, bringing in additional investment, as
well as you know better management skills, in many cases, you can actually get
a better result.
HUMPHRYS: So-
DARLING: But, at the same time you can guarantee
the paramount importance of safety by having a safety regulation. Now, I
think, most people will ask themselves when they look at the public services
and so on: what they ask themselves is: how do you get the best result? How do
you increase levels of investment? That is what the Government is doing right
across the board and may I remind you'll actually see as a result of this
review process one of the biggest increases in capital investment that any
Government has produced. Now, that is something that has been neglected for
years and that's something that people will welcome.
HUMPHRYS: Can I-And, many people having heard that
answer will assume well they must have had that in their Budget plans all along
then, in that case. They, clearly, intended to do it right from the beginning!
But, let me just remind you of something. You know very well yourself what
your last Budget said about privatisation and I'll quote it:"Privatisation
proceeds nought." So, you didn't plan to do it in the last Budget, did you? Or
in the one before that?
DARLING: No. What we've done unlike the last
Government is not take credit for sales that haven't yet even been agreed and
the last Government-
HUMPHRYS: Talk about taking credit. It's
anticipated what your income's going to be.
DARLING: The last Government on a number of
occasions put into the books proceeds that they had no intention of realising.
They hadn't even done the groundwork of realising what we have been doing.
And, you know, we made this absolutely clear, you know, before the Election.
HUMPHRYS: Well, you intended to do this so why
couldn't you put in the Budget?
DARLING: Before the Election-During the Election
that we would look at all these things on their merits. What matters to us is
what works best which matters to the public and we believe that this is a way
in which we can get increased investment into the system which is desperately
needed and, at the same time, and you know I just emphasise this point: if you
look around the country just now, you see schools, you see hospitals, you see-
HUMPHRYS: Yeah.
DARLING: -roads desperately in need of
improvement.
HUMPHRYS: That isn't the point I'm making.
DARLING: With increased capital-
HUMPHRYS: Yeah.
DARLING: -Expenditure will actually enable us to
achieve-
HUMPHRYS: Hm, alright!
DARLING: -and make up the shortfall in
investment.
HUMPHRYS: That isn't the point I'm making-
DARLING: -the increased capital expenditure will
actually enable us to achieve that and to make up the shortfall on investment.
HUMPHRYS: That's not the point I'm making. The
point is that when you look at the last budget, you expected not to be getting
anything from selling off these different things. Now then you discover, I'm
suggesting to you, that the comprehensive spending review hasn't delivered the
goods in the way you had hoped it would, so you had then to sell off these
things. That's the point I'm putting to you, because otherwise if you'd
anticipated the income you could have said: we'd expect to get this amount from
flogging off this and this amount from flogging off that.
DARLING: No, because you ought not when you you
are publishing your financial forecast, take credit for something for which you
had not yet decided to go ahead with.
HUMPHRYS: But you told me you did decide to go
ahead with it, it was something you'd intended to do.
DARLING: No. What I said to you was, that in our
manifesto before the election and since the election, we said that we would
look at all these matters on their merits. That's what we said, that's what
we've done.
HUMPHRYS: So you've only just decided that the
merits - that that is merited. In that case can I just move on a little bit
and ask you whether you're going to-
DARLING: No, no, you can't leave that - you know-
hanging like that.
HUMPHRYS: Well go on, deal with that. I want to
ask you what the Government does.
DARLING: What the Government does is it considers
sometimes over months, sometimes over weeks, what's best in a particular case,
which you shouldn't do though - which is what the last Government did - was to
make an - just assume you were going to get Revenue when you may not even have
decided whether you were going to go ahead or not.
HUMPHRYS: Well, fine. Well, in that case-
DARLING: Well, what we have decided to do as we
announced and as soon as the decisions have been finalised, the Cabinet resolve
that Parliament must be told, we have decided to embark on a number of measures
which we will- which will result in increased investment. And that is the key,
that's the thing that no one should lose sight of. More investment into public
services - desperately neded investment that is what we're going to deliver.
HUMPHRYS: Right, well, let me ask you then at this
stage, what is the best thing to do in the case of Channel Four and in the case
of the Post Office? You say you have no plans. That presumably means that you
may decide at some stage in the future that the best thing to do is to sell 'em
off, or to use your own jargon, public/private partnership or whatever you want
to call it. Is that the case, have you ruled them out?
DARLING: If you look at- The Manifesto was quite
clear so far as the Post Office is concerned. It's-I don't know what else you
were reading at breakfast time but if you were looking at our manifesto you'll
have seen that the Post Office was- we're looking at ways in which we can give
it greater commercial freedom within the public sector. That is something- that
review as you know is going on at the present time, so that's abundantly
clear. I've said to you that we've got no plans so far as Channel Four is
concerned, but you know let me come back to this partnership point-
HUMPHRYS: Don't rule it out.
DARLING: -because it is an important point and if
you look at the amount of increased investment now in the Health Service, we've
got a record new hospital project programme underway - one of the biggest new
levels of investment that we've ever seen. That has been possible because
we're bringing in both public and private sector money and expertise,
partnership where the public interest is protected and where you can get
increased investment means a better quality of public service and that is
something that I think the public want.
HUMPHRYS: Alright. Let me turn to the question
of the National Debt. As for the Manifesto, I read that of course, all the
time, every day, just to keep caps on it.
DARLING: Good.
HUMPHRYS: Now, you mentioned reducing the National
Debt earlier and you've put great store by doing that, by saying that you're
going to do that but aren't you being a bit disingenuous there because again
looking at the report, based on your own figures, it's quite clear that you're
not intending to start doing that, to start reducing the National Debt.
DARLING: No, what we're doing is ending a
situation which we inherited. We were actually piling on debt year by year.
HUMPHRYS: Right. So, you're not going to reduce
it?
DARLING: -even at this stage of the economic
cyle. What we're aiming to do - what we've done, first of all - is that we
have actually reduced the deficit that we inherited because that was simply
irresponsible if we'd carried on with that policy. What we've also done is to
ensure that our Current Expenditure will be covered in each of the next three
years and you know it make sense, it's prudence if you like to ensure that
Current Expenditure is covered by taxation so that you don't simply pile on the
debt.
HUMPHRYS: Right. So you're not going to add on,
you're not going to pile on the debt, as you say, but you're not going to
reduce it either are you?
DARLING: Well, I think there's two things that
we're doing. One is, as you rightly say it, that we have avoided a situation
where debt is being added to. The only borrowing that I think is permissible is
when you are borrowing to invest and you're getting an asset that will be with
us for many generations. But you know we've never made it, you know, one of our
objectives that we would repay all the National Debt some four hundred millions
pounds of it, at the moment.
HUMPHRYS: Oh, I didn't say all the National Debt,
did I? I didn't say all the National Debt. I said reducing the National Debt.
Mr Brown said in March that you were going to start paying off the National
Debt - the nation's overdraft - but you're not and you've just confirmed that
you're not.
DARLING: No. What we're doing is we're bearing
down on debt levels. You know it will fall below forty per cent of GDP during
the course of the next three years. Now, what every Government has to do is to
have a prudent balance between how much it needs to spend because, you know,
clearly to neglect you know our education system for example would be quite
wrong. You have to balance how much you can prudently spend and we've made that
clear, that we think we can increase Current Expenditure by some two and a
quarter per cent. But, at the same time, you have to ensure that you bear down
on the debt levels that we have. Now our debt levels will in fact be
subtantially below those of our other major competitor countries, which you can
made comparisons with and I think this balance that we've struck a tough
settlement and it is a tough settlement, together with an increase in public
expenditure of two and a quarter per cent, in line with the increase and growth
of the economy, is the right balance.
HUMPHRYS: Right. Final thought on all this and we
may run out of time. The result of all of the things we're talking about this
morning is that Interest Rates are going to fall less quickly than they
otherwise would have done - that is the case. I know you don't have
responsibility for that anymore because it's down to the Bank of England but
that is the effect isn't it?
DARLING: The biggest concern so far as Interest
Rates are concerned at the moment, is that we still have inflationary pressures
in the economy. The Government has played its part by significantly tightening
the position. But as the Governor of the Bank made clear last week, the
concern at the moment is that there are a number of Wage increases,
particularly in the private sector, which are going to add to that inflationary
pressure. Now people have got to realise that if we are going to get the
longterm sustainable growth that we all want from public services and in the
economy as a whole, we can only pay ourselves those increases that are
affordable. It's a very very important point which everybody needs to take on
board from the boardroom to the shop floor.
HUMPHRYS: Alistair Darling, thank you very much
indeed for joining us.
DARLING: Thank you.
HUMPHRYS: And that's it for this week. Next week
an extended programme, an hour and a quarter thanks to the World Cup. Until
then, good afternoon.
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