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ON THE RECORD
RECORDED FROM TRANSMISSION BBC-1 DATE 23.1.94
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JOHN HUMPHRYS: Good afternoon and welcome to On The
Record
Now, if you happen to pop down to your
local off-licence today and see a senior official of the Labour Party buying a
case of champagne, he's probably planning to send it off to the Treasury.
Heaven knows they owe them something for that confirmation of what Labour's
been saying for so long now: you'll be paying more tax under a Tory government
than you were under the last Labour one. Ah yes, but how much would you be
paying if Labour were in power now? I'll be asking Gordon Brown.
Last week the Chancellor admitted that the
higher taxes we'll all be paying from April will
"check" the recovery. As you might expect, Labout leapt on that and said: "We
told you so" ... or words to that effect. The latest disclosure by the Treasury
has given them something else to think about. But what if they were running the
shop? Well, Gordon Brown would be behind the Treasury counter in that event
and he's in our Edinburgh studio now.
Good morning, Mr Brown, good afternoon.
GORDON BROWN MP: Good morning.
HUMPHRYS: It does look doesn't it, taxes aside, it
looks as though the recovery is actually gathering strength now?
BROWN: Well I want a strong and sustainable
recovery and I don't think we have all the elements in place to achieve that.
The growth we're seeing is historically pretty low coming out of a recession.
The growth is bound to be damaged by the tax rises and the growth is not
investment led. Now if you look at what is going to make for sustainable
growth, then we need a turnaround in investment, so that it's British goods
that people buy, it's not imports that come in and we don't return to the old
stop-go economics which bedevilled us in the 1980s. So I don't think the
government have put in place the measures that are necessary for both strong
and sustainable growth and I think the Chambers of Commerce when they reported
last week, made it absolutely clear that they had grave doubts as to whether
industry and manufacturing were going to be able to respond to the conditions
that the government had set.
HUMPHRYS: But since they said that, we've had the
latest growth figures - two per cent last year, and accelerating - seven per
cent in the last quarter. So it's not bad, is it?
BROWN: But these are last year's figures, first
of all, secondly, these are not high growth figures for an economy coming out
of recession. If you look at what we've lost - seven per cent of output during
the recession then it's going to take some time even to get back to the
situation we were in 1990. Now in the seventies, when we came out of a similar
recession, we grew by ten per cent over about thirty six months. The actual
facts from now is that we'll grow by about half that much under Conservative
policies. So it's pretty low and it's not necessarily sustainable if it's not
investment led.
And my complaint with the government is
that they cannot see the difficulties ahead of them where tax cuts are going to
damage recovery. They understand that of course now, but they cannot see the
policy changes they've got to make to ensure that we have strong growth and
that we have sustainable growth.
HUMPHRYS: But what they understand is that yes,
the tax rises will - to use the Chancellor's word - check the recovery, but it
is still a recovery.
BROWN: Yes, we are growing but we are not
growing in a sustained or in a strong way. We neither have strong consumer
growth nor do we have investment growth. Look, investment's fallen by twenty
four per cent in manufacturing during the recession. We're investing three
pounds for every four pounds we invested in 1990. Look round Europe and then
look round America and Japan, and they're still investing to a far higher
degree. Our investment is actually still falling. Now you cannot have the
basis for sustainable growth and the avoidance of the stop-go economics of the
1980s unless you deal with the capacity problems of the economy, the failure to
invest over a long period of time and the stimulation of business and
manufacturing investment now. And I think the failure either to stimulate
consumer growth with tax rises now about to check that, and the failure to have
investment led growth, pile up enormous problems for the future.
Look at the growth levels that have been
predicted for the British economy. During the '90s, all the government's
figures show that the economy will grow by on average only one point six per
cent. Now that's half the historically higher levels we've been able to
achieve of about three per cent. It's half what our main competitors are going
to be able to achieve and of course, it's far lower than the Pacific rim
countries are going to be able to do. And given that we're coming from being
so much further behind, twenty five per cent less competitiveness than our main
challengers overseas, then the picture is pretty bad unless further action is
taken.
HUMPHRYS: But you've criticised the Chancellor for
taking measures which you say are going to check the recovery. If you were
Chancellor, you'd have to raise, wouldn't you, a similar sort of money in
taxes?
BROWN: Well let's look at what ought to be
done. First of all, he should cut interest rates. Interest rates are at two
and a half per cent in Japan, three per cent in America, twice as much as that
in Britain and in Europe.
HUMPHRYS: Well on that one specifically you quoted
the Chambers of Commerce earlier, approvingly, they do not think he should cut
interest rates at this point.
BROWN: Yes, but I've got to think of the
economy as a whole and I've got to think of the damage that the tax rises are
likely to do to economic activity, and if interest rates are twice as much as
they are in America and Japan and if interest rates could come down all over
Europe and stimulate economic activity, then that's something that the
Chancellor should be pressing for.
Now the reason he's not going for
interest rate cuts - let's be absolutely honest about this - is that he hasn't
solved the fundamental problems on the supply side of the economy and he fears
another bout of inflation. So that's why the second thing John, which I think
you're coming to, that he must do, is deal with the investment famine in the
economy and take measures to deal with these particular problems that industry
faces.
HUMPHRYS: The thing I was coming to was that you
would have to raise taxes yourself, wouldn't you, I mean it's a little
invidious of you to say that, you know, he's raising these taxes, checking the
recovery in a way that suggests we - if we were running the shop now - wouldn't
have to do the same and you would.
BROWN: But John, it's the Conservative
Government that has raised taxes. This is the biggest tax demand in history.
Ten billion more taxes this year, sixteen billion more taxes next year, and
let's just look at what is actually happening to the typicaL family - the
typical family is seeing its tax bill rise from thirty-two per cent under
Labour to thirty-five per cent under the Conservatives, and it's not true for
Kenneth Clarke to say this morning, as he did, that you can compare one year of
the Labour Government with what's happening under the Conservatives. Taxes
under the Conservatives will rise to thirty-eight and a half per cent of
National income. No Labour Government-, the '64 Government or the '74
Government - was ever near that figure. That is the highest tax demand from
the Conservatives, not from Labour, and I don't think people will ever trust
the Conservatives on tax again.
HUMPHRYS: But we're talking about now and the now
means that we've got a fifty billion borrowing requirement. You would have to
do something about that; you would have to raise taxes, wouldn't you? I mean
it's disingenuous of you to suggest that you wouldn't.
BROWN: Well, I proposed a number of measures in
the Budget that would be tax rises that would be both fairer and not depress
economic activity. For example, my tax on the utility companies, which nobody
has been able to suggest is not justified, but I wouldn't be taxing people with
the VAT increase and, therefore, the bill...
HUMPHRYS: Alright...
BROWN: Well, let's be clear about this. The
bills that the ordinary family would face would not include a VAT rise that is
actually going to make pensioners choose between whether they have fuel on and
use their heating or not, and the Government has a chance to back down on that
on Tuesday when we put it to a vote in the House of Commons.
HUMPHRYS: But you're acknowledging, are you (I
don't want to put words in your mouth), that you would have to raise something
similar to the amount that the Chancellor is now raising?
BROWN: No. What I'm saying is that we would
not go ahead with the VAT rise and we would find other means, particularly
looking at the utilities windfall levy, to prevent that happening.
HUMPHRYS: Well, let's deal quickly with that
windfall levy then. You've talked about that in your tax loophole scheme and
the fact is you talk about thirty-five billion pounds' worth of profits - but
that's over a number of years. You can't introduce retrospective tax
legislation and say "We'll have some of that money back now" because that
money's already been used up. It's gone out in dividends or whatever it may
be.
BROWN: But John, the utilities are making very
substantial profits this year. If the evidence is to be believed they're going
to get another windfall in the next few weeks as people pay their fuel bills in
advance to avoid VAT and the Electricity and Gas Companies are able to get the
interest payments on that without the Government doing anything about it.
HUMPHRYS: But that's not going to raise
twenty-three billion pounds, is it, I mean that's a relatively, relatively
small amount of money. One windfall tax, one-off, one year. So what about
all the rest of the money?
BROWN: But John, let's be clear about the
figures. The VAT rise will raise less than a billion pounds in the coming year
for all the damage it's going to impose, particularly on pensioners in our
community. Utilities tax, given the thirty-five billion pounds of profits
would raise substantially more than that.
HUMPHRYS: Thirty-five billion over many years - so
that's a bit misleading. Let's go back if we may...
BROWN: Yes, but John, but John get the facts
right. The utility profits are rising this year - they will rise again because
of the windfall gain......
HUMPHRYS: I'm not disputing that.
BROWN: ....that's going to come from the
imposition of VAT and even if one didn't consider retrospective action, one
would be able to raise substantial sums of money from the profits that are
being made at the moment, and I ask you - would you prefer (and I think most
British people), would they prefer a VAT rise that'll hit pensioners most of
all, or taxing what are excess profits made by the incompetence of the
Government at the expense of millions of consumers.
HUMPHRYS: What I'd really prefer is that you deal
with this basic point of whether or not you would have to raise.....the sorts
of sums that they are going to raise themselves. Now surely you've got to do
that, haven't you, because you've got fifty billion pounds borrowing
requirement?
BROWN: Yes, and we would bring down the deficit
and the reason we would bring down the deficit is we'd act on the causes of the
deficit. See, I don't think people understand properly yet that the reason why
taxes are going up, and the reason why public spending and borrowing is going
up is not because public services are improving - public services are actually
deteriorating, and the reason is that we're having to pay massive bills for the
social and economic failures of the Government.
HUMPHRYS: But Mr. Brown you're not answering this
question.
BROWN: But unemployment, for example - let's
just look at unemployment. It's costing us twenty-five billion pounds a year.
These are the bills that we are having to pay and that's why not only our taxes
are higher than they were under Labour, public spending is actually a higher
share of national income than it was when Labour left office. It's the bills
of social and economic failure that are causing taxes and spending to rise and
any sensible Government would deal with these problems at root, rather than
simply pay the bills.
HUMPHRYS: Alright, but in the meantime you have
this problem, you've got this fifty billion pounds hole that you've somehow got
to dig yourself out of. Would you not have to raise - we don't have very much
time left - would you not have to raise a large amount of money yourselves in
tax?
BROWN: But I've suggested the reforms that I
would make which would not depress economic activity and would be fairer.
HUMPHRYS: But these are loopholes that most people
accept - people like Andrew Dilnott accept - aren't going to get anywhere near
if you talked about ten billion over two years; he says that's grossly
exaggerated.
BROWN: And nobody John was able to dispute any
of my figures. Indeed, the Chancellor..
HUMPHRYS: Well, he did.. Andrew Dilnott, IFS did.
BROWN: No. No, he didn't dispute the
individual figures. What happened is that the Chancellor had to admit in his
Budget statement, despite all his previous ranting about it, he had to
admit that there were tax loopholes that had to be dealt with.
HUMPHRYS: No, what he said was "every Government
always deal with tax loopholes in every single Budget" and that's exactly that
they've done.
BROWN: And the week before the Budget, John, he
denied that any of these tax loopholes existed and I think you can remember his
quotes on that. The fact of the matter is that we would not raise VAT on fuel,
we would deal with the social and economic costs of failure, we would secure
the growth that is actually the only basis on which, in the long run, taxes and
public spending can be a smaller share of national income.
HUMPHRYS: Gordon Brown, thank you very much.
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