................................................................................
ON THE RECORD
GORDON BROWN MP:
RECORDED FROM TRANSMISSION BBC-1 DATE: 11.6.95
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JOHN HUMPHRYS: But first, the other big story of the
day, the allegation that directors of PowerGen, cashed in share options and
made huge sums of money after they'd read an internal report warning that the
company's profits would be much lower than other people had expected. The
Labour Party wants an inquiry into it all and the Shadow Chancellor, Gordon
Brown, is with me now.
Mr. Brown, an inquiry into that or into
a more broad issue?
GORDON BROWN MP: The Serious Fraud Office and the Stock
Exchange are now looking at what specifically happened in the events of April
in PowerGen, but I think we need to know what's been happening in all the
boardrooms of the privatised utilities in relation to share options. You see
we are talking about probably over a hundred million pounds awarded to about a
hundred and fifty directors in the privatised utilities, and we're talking
about huge question marks arising from today's report and from other
revelations about the way the system has been working, so I think the first
thing is that there has got to be an independent inquiry into what's been going
on in the board rooms and until that is completed, I don't believe that any
director in a privatised utility should be trading in share options until the
whole matter begins to be cleared up. This is the worst example of share
option abuses.
HUMPHRYS: And do you think that that sort of
thing, the sort of thing we learned about last night, this morning, is going on
in other boardrooms of other privatised industries?
BROWN: Well what we know is that the scale of
the share option awards is far higher than people previously realised. Three
and a half million pounds for six directors in only a few days in one single
company, probably more than a hundred million pounds shared between a hundred
and fifty people and what you've got to remember about these share options is
that these are not rewards for productivity or efficiency, what the share
options reflect is first of all the government artificially selecting the price
of shares in these industries when they are privatised, and secondly, the
monopoly position that most of these industries enjoy, that means that the
rewards come from the monopoly position in the market, not usually from
greater productivity and efficiency and that's why in addition to everything
else that the Greenbury Committee looks at and that's got to be proper
disclosure of information, executive committees, their proposals being voted
on, so that executive share option packages are decided by annual general
meetings, remuneration committee has been properly elected, in edition to that,
there's got to be special measures in relation to the privatised industries and
particularly the share options and that will require legislation.
HUMPHRYS: Would a Labour Government legislate,
would a Labour Government pass a law to stop share options across the board?
BROWN: No, because employee share options and
employee shares are a very good thing.
HUMPHRYS: Well for directors then?
BROWN: To expand employee share options is very
important, but of course, executive share options have got particular things
attached to them that have brought them, I think, into disrepute.
HUMPHRYS: So would you legislate to stop all that?
BROWN: No you can't legislate to stop them but
the present system has fallen into disrepute, you cannot give tax privileges to
a system that is not working properly and that's why there has got to be
income tax on these executive share options rather than capital gains tax...we
end the tax privileges.
HUMPHRYS: So why can't you legislate to stop
executive share options.
BROWN: I think it is possible to have far
better remuneration packages in the boardrooms and I think most boardrooms will
now start to select far better packages to reward proper performance, there is
a particular problem that has got to be dealt with in the privatised ultilities
where these executive share options do not reflect performance in the market
place.
HUMPHRYS: So you would stop those, you would
legislate to stop those.
BROWN: I think these should be stopped and
I would tax them as income and I would give the regulator power to cut prices
for the consumer, where these abuses have been discovered in any particular
broadroom.
HUMPHRYS: So you wouldn't even legislate to stop
share options to executives in the privatised industries?
BROWN: Well I think you are misunderstanding
the situation, employee share option is fine...employee shares expansion
and I want to see more of that because I think employees should have a stake in
the firm, executive share options we've got to deal with the abuses and the
abuses are the way that they are rewarded, they can be awarded at eighty five
per cent of the market price.....(talking together)...I think the whole system
has gone into disrepute and I think it's got to be changed quite fundamentally.
HUMPHRYS: Well the way to change it fundamentally
is to stop it isn't it?
BROWN: Well I don't believe the executive share
option of the 1980's and early 1990's can survive but this is what a government
can do, a government can do a number of things, one, tax this income, end the
tax privileges, secondly, end the special arrangements that give the power to
buy these at eighty five per cent of their values, thirdly, put a limit on the
amounts of executive share options that can be awarded and fourth, discourage
the system of executive share options which are very unfair and fifthly, move
to a proper system of performance related pay and not one that artificially
rewards people irrespective of their merit.
HUMPHRYS: So you'd discourage it but you wouldn't
stop it?
BROWN: We would stop a number of aspects of it
yes.
HUMPHRYS: Gordon Brown, thanks very much.
*************************************** PT 2 ***********************************
JOHN HUMPHRYS: So Mr Brown can we deal with this
commitment on your part, to increase the trend rate of growth? That is going
to happen, as far as you're concerned, that's absolutely vital.
GORDON BROWN MP: Well for the thirty years after the
Second World War the British economy grew at an average of three per cent a
year. For the last sixteen years the British economy has been growing at one
point seven per cent a year, indeed the government's best projections for the
1990's are an economic growth of one point six per cent a year. Now that is
clearly too low to have the levels of employment, the rises in standard of
living and of course the good public services that people want for this country
and so any government setting out, preparing for the future, setting a national
economic purpose and that is one important role for government in consultation
with people must be aware that the increasing, the sustainable rate of growth
of the economy is absolutely vital and I, indeed, have put forward today, to my
policy forum of the Labour Party how we will go about doing that because you
must have an explanation of what's gone wrong before you can have a
prescription of what to do and our explanation is very clear. We've got an
economy that is now too small, too narrow a technological base, too few skills
within it to succeed. The reason for that is a long term failure to invest and
the reason why that cannot happen under the Conservatives is they cannot see
the positive benefits of a positive relationship between government and
industry to increase the levels of investment over the long term.
HUMPHRYS: So what are you looking for? What's
your target for the trend rate?
BROWN: I will set a target when we get into
government, in other words, what I will say is that over a period of time,
over a period of years we hope to increase the level of growth in the economy
but I'm not going to set a target in opposition without knowing all the facts
about the economy and I think indeed, the Conservatives have been wholly
irresponsible in setting figures in government before an election simply to win
elections and then having to retreat on them. You've got to be realistic and
honest and look at the figures before you can actually make these sort of
announcements.
HUMPHRYS: I can see that that would be a perfectly
satisfactory answer if I'd asked you what's going to be in your budget for
November of 1998, for instance, or 1997 whenever it happens to be but I'm not
asking you that, I'm asking you for a projection of your target for the trend
rate of growth which is based on a different set of facts altogether.
BROWN: No it's got to be higher and it will be
higher under Labour by taking the measures that we're talking about.
HUMPHRYS: But you don't know how much.
BROWN: Other countries have been more
successful over a period of time and I want us to be more successful but I
don't think it helps to pluck figures out of the air and say that the growth
rates that the Conservatives have proposed for the 1990's will average out at
one point six per cent and Labour will have one or two percentages higher than
that. What you've got to do is assess the condition of the economy, you've got
to listen to people and have a sense of national economic purpose and indeed,
when I said that one of the roles of government is to actually shape the
national economic purpose for this country. If you asked anybody up and down
the country at the moment, what was the government's economic proposals for the
future of this country, they wouldn't be able to tell you. What's a long term
plans of the government, they wouldn't be able to tell you. I believe that
what I set out which is every year before the budget, six months before the
budget, we will publish a statement of our assessment of the economy, looking
at the barriers to higher growth, looking at what could be done and options
that are available to us and we will consult widely as to how that sense of
national effort and purpose that is necessary for success can be achieved but
you're not going to succeed by plucking figures out of the air.
HUMPHRYS: Well it's not about plucking figures out
of the air this is it?
BROWN: Well you can try John to force me into
whether I .....
HUMPHRYS: Far be for me to force you into
anything, I'm not that sort of person. Look, why I say this is important and
why I'm trying to put a bit of pressure on you here is because the one thing
that's going to make the difference, according to what you've just said between
what is happening now and what's going to happen in five years, ten years,
whatever the medium term happens to be is your policies. Now you must have
some idea over the long term or medium term if you prefer, but several years at
any rate, you must have some clear idea of what effect those policies are going
to have on the trend rate of growth.
BROWN: It will increase it.
HUMPHRYS: Right but you mentioned three per cent
earlier.
BROWN: I mentioned the performance of economies
in the thirty years after the war. Now of course other economies want to be as
successful as that and we want to be successful but I'm not...
HUMPHRYS: Is three per cent possible?
BROWN: John, I'm not going to pluck a figure
out of the air..
HUMPHRYS: No I'm asking you whether three per cent
is a realistic thing to aim for?
BROWN: I've got to tell you that it does no
credit to politicians when they come on to your programmes, give figures that
they know have got to based on a proper assessment when you are in government
and can look at the conditions that you're going to face and what I will be,
you see, is honest with the country about the problems we face, honest with the
country about the difficulties we've got to surmount and that's why I propose
this six monthly consultation before a budget so that people are in a position
to put their views and we can look realistically at the options. People will be
aware of what the affect of different measures will be on the economic
performance of the economy and aware of the contribution that they as
individuals and they as companies have got to make. Now if you're deciding on
a proper strategy for the future of this country you've got to get back this
national sense of economic purpose and of course you've got also in addition to
the supply side measures we're talking about to have the stability in economic
relationships that comes from my proposals for a Monetary Policy Committee.
HUMPHRYS: But there are two reasons why you might
not be prepared to give me any sort of figure, one is what you've just said,
the other is that you can't have any great confidence in what your policies
might achieve.
BROWN: Not at all, because I've said that when
we're in government, when we announce our proposals in both our budget and our
consultation document we will say exactly what we feel is possible and can be
achieved under that government, but I've just looked at the Treasury set
projections on public borrowing. There is a huge difference between their
projections and what independent commentators are suggesting, and I'm not going
to be misled into making predictions that are not justified by the information
that is available to the government as we go in.
HUMPHRYS: But you're absolutely clear that the
growth we've got at the moment isn't adequate. It's got to be higher and
it's got to be considerably higher than it is at the moment.
BROWN: Absolutely, and we've got to be..
HUMPHRYS: ...alright, and you can leave me to
guess whether that's ....
BROWN: And we've got to raise the sustainable
growth rate of the economy, and I think everybody does understand that unless
you do so we will have balance of payments problems and we will have problems
with unemployment.
HUMPHRYS: And to get that growth, the growth that
you say is absolutely vital, there are two things that must be done you say,
and that is more training and more investment, better training and better
investment.
BROWN: As I said the macro-economic policy can
contribute a great deal by giving us stability, in fact stability in our
relations with Europe as well is going to be important. Government setting a
national economic purpose is important as well, but of course the supply side
measures can begin to answer some of the problems we've had over a long period
of time with a lack of long term investment in our economy. There is no
quick fix, but this can be done over a period of time by a great national
effort.
HUMPHRYS: As you say no quick fix, and if you're
going to improve training the way you talk about it that is a huge task isn't
it?
BROWN: It is a huge task in which everybody's
got to make their contribution. It's a task because there have been low
opportunities for people and indeed that has bred low aspirations, particularly
amongst young people which has got to be dealt with. We have got to persuade
people of the importance of education and training not just to the long term
future of the economy, but to their, as individuals, to their prospects for
getting the best earnings that are possible.
HUMPHRYS: And on training you used to have a
strong commitment, a total commitment to some sort of levy, in other words that
employers who don't train their workforce are forced to pay some sort of levy,
because otherwise, they just go along and pinch somebody else's trained workers
and they make no contribution at all, a levy in short. It seems now you're
backing away from that?
BROWN: No, at the last election we talked about
what was called a levy rebate system, that was our policy, not a levy itself.
That meant that.....
HUMPHRYS: A rose by any other name, I mean we're
talking about the same thing.
BROWN: No, this is very important because that
meant there's going to be a statutory framework for the provision of in work
training, and for indeed help for the unemployed. There will have to
legislation to create that framework. Indeed the CBI did a report only a few
weeks ago saying that the voluntary system was not working. Now what Harriet
Harman has done is begin a process of consultation with industry about the best
way forward. We're absolutely committed to a statutory framework. We do not
believe that a voluntary approach can work. I personally like the
idea of individual training accounts for employees, and we're consulting on
that, but at the end of the day the big change in the approach to training and
education under a Labour Government is that we need a national framework
locally administered that has to be statutory to ensure that we get the best
contribution possible, and of course I think the best employers recognise that
they will have to invest far more in training, and of course the University for
Industry which is a boldly innovative idea that can be implemented under a
Labour Government is a public/private partnership that can work for the benefit
of both.
HUMPHRYS: But as you say we're talking about a
huge job, a huge job that has to be done here...
BROWN: We're talking about over time making
a big change in both the attitudes of the British workforce to the benefits of
training, and I think that is very important. Low aspirations have been the
result of low opportunities, but we're also talking of course about bringing
employers and employees together in this new statutory framework.
HUMPHRYS: Therefore enormous resources have to go
into that one way or the other. Now, you talk about a statutory framework.
There's a difference between that and legislating for a compulsory levy which
was what you used to preach. That's why I say...
BROWN: John, you've misunderstood. I don't
know who's briefed you on the policy that we fought the last election on, in
fact..
HUMPHRYS: I read it rather carefully, and I also
read the things that Tony Blair said at the time when he was Shadow Employment.
BROWN: Exactly, and I was involved in drawing
it up, and it was a levy rebate system. It was a statutory framework...
HUMPHRYS: A compulsory levy to make it easy
for people watching this programme, to make it easy...
BROWN No John, it wasn't, you've got to
understand this. It wasn't a compulsory levy. It was a situation where if
employers did not train they had to make some contribution to training. If
they did train...
HUMPHRYS: I call that a levy.
BROWN: Yes. If they did train they did not
have to pay the levy, so only the firms, only...
HUMPHRYS: You're splitting hairs there, come on..
BROWN: I'm not splitting hairs, because it's
very important.
HUMPHRYS: I mean if they didn't train they would
have to pay a levy, if they did train.... well of course they wouldn't have to
pay a levy if they did train, that's perfectly sensible.
BROWN: You're trying to perpetuate the
impression that somehow every firm would have had to pay this levy. They
wouldn't.
HUMPHRYS: Not if they were already paying in
effect.
BROWN: As long as you understand that John.
HUMPHRYS: I understand that absolutely clearly,
so if you like I'll rephrase it.
brown: That's why it's important to have a
statutory framework, and that is what we're consulting on.
HUMPHRYS: Alright, well let me rephrase the
question a little bit. Then there would have been a compulsory levy on those
who did not want to train or weren't prepared to pay for training their
workforce. That is what you appear to be backing away from.
BROWN: No, we're not backing away from the
statutory frameowrk, in other words, there has got to be a legislative
framework within which that happens but of course, the individual training
account proposal has got to be looked at in some detail and I think that
protentially involves employees more in the development of their own personal
training, equally, our proposal for a university for industry is terribly
important because what we are trying to do is move from a situation where of
course the Open University was a great innovation in the 1960's that gave
people the chance of university education, for a university for industry which
uses cable, satellite, interactive communications and then we are in a position
to give people opportunities through television from their home, through
satellite and cable in the work place, to get the best training opportunities.
Now clearly, clearly, employers will benefit from that and will want to be
involved.
HUMPHRYS: But you could within this statutory
framework as you describe it, end up with something much weaker than that which
you had said was absolutely essential and that is a compulsory levy on those
who are not prepared to pay.
BROWN: No, the key question when you talk about
weakness, the key question is what is going to contribute to the persoanl
development of millions of people who are denied proper training....only
fifteen per cent of the workforce at any given month is receiving any training
in work and of course, large numbers of the unemployed are denied training.
We've said there's got to be a statutory framework, I personally am in favour
of individual training accounts to give employees more opportunities. I
recognise that employers will have to make a contribution to that and we
understand that, and, of course, that is the basis on which we are having our
further consultations with employers as well as with employees.
HUMPHRYS: But you see you almost don't need this
kind of consultation do you, unless you are doing what Harriet Harman talks
about, which is seeking some kind of consensus and the only reason for
seeking...
BROWN: Well John I think there are benefits in
achieving consensus if you can...
HUMPHRYS: Well nobody argues that....
BROWN: ...but I have not hesitated to say that
there is going to be a statutory framework for the development of training in
this country and that...
HUMPHRYS: But you have hesitated to say there will
be a statutory levy on those who do not at the moment pay or those who don't
want to pay to train their own workers, that's...I keep coming back to that
because it's the acid test.
BROWN: No the acid test is what contributes to
the development of training in the economy ......
HUMPHRYS: And you used to believe that the
compulsory levy was what would do the job, you don't any longer.
BROWN: No if every employee has, for example,
an individual training account and that is backed up by a levy rebate system or
some other system, then that achieves exactly the same effect.....
HUMPHRYS: But you're not going to make it
absolutely compulsory.
BROWN: No, we may do that, we are creating...a
statutory framework involves that job.
HUMPHRYS: You may, you may not because that's what
consensus is about isn't it, if enough employers say to you, oh come Gordon...
BROWN: I don't think any employers who talks to
me knows that I am going to back down on the question of expanding training in
the economy and the question.....
HUMPHRYS: No, no, that's a very broad commitment
and I'm looking here for a specific..
BROWN: Yes but the question is what is going
to contribute to the increased productivity and therefore the education and
training of individual workers in the economy, one proposal is an individual
training account that could benefit millions of workers, Harriet Harman has
asked that there be a period of consultation on that, including consultation on
the existing levy rebate system, one thing we are determined to do and in fact
there is increasing support for this proposal, is have a statutory framework.
HUMPHRYS: Right, investment, you say there is not
enough of it about, a lot of people say that, you say there is too much short
termism about, who's to blame for that, businessmen themselves because they are
the people who do the investing aren't they?
BROWN: Well I think it's partly that there is
no national framework within which the expansion of investment is encouraged
and that's why I believe a sense of national economic purpose is important, I
think that secondly a government that says these are markets simply
for the free..matters simply for the free market, nothing to do with us really,
we shouldn't be involved, and I don't believe that that is the proper answer,
that it is a national challenge to increase the levels of investment in the
economy, we will look at every measure that makes that possible and indeed we
have come up already with a number of proposals that I think would enhance our
ability to invest more, particularly of course, in the productive and wealth
generating industries of this country.
HUMPHRYS: What you seem to be saying is that a
national framework, a stable framework, because that's what businessmen want
isn't it, a stable framework...
BROWN: I think a stable frameowrk is very
important.
HUMPHRYS: Indeed.
BROWN: But when I put forward my proposals for
a monetary policy committee in the Bank of England, and for stabilising the
relationship between the Treasury and the Bank of England, I think people
understood that the present arrangements are unstable. I think that also
people think that the government's policy towards Europe leads to instability
in peoples decisions about furture levels of investment, and I think also of
course, the government's fiscal decisions and many of their other decisions
have actually discouraged the long term investment that's necessary in our
economy.
HUMPHRYS: But you're saying that a stable
framework of itself by itself, isn't enough to get this extra investment.
BROWN: It's necessary, it's a necessary...it's
necessary and very important.
HUMPHRYS: But you want more?
BROWN: Well of course we want more...
HUMPHRYS: I mean you are saying that businessmen
left to themselves, even if they had this stable framework that they so hunger
for aren't going to invest in the amounts that are needed unless they have
more.
BROWN: I think a low inflation environment and
an end to the inflation psychology in Britain is important in contributing to
long term investment in the economy.
HUMPHRYS: Right but why isn't that enough, I mean
why isn't this stable framework, do you think, enough for businessmen? To do
it, I mean, because they can see where their own interests lie, surely.
BROWN: But if you take for example capital
gains tax, there is a debate going on and we're part of that debate. We said
we will look at measures that would encourage long term investment and
therefore there would a reward for people investing for the long term, not
simply benefitting from short speculative gains at the same rate of taxation.
Now that is a legitimate change in the tax system to encourage long term
investments.
HUMPHRYS: So that's what they're doing at the
moment, is it? They're speculating for short term gains rather than investing
for long term.
BROWN: There are examples of course of the
capital gains tax system being used for speculation and of course there are
examples of companies that would prefer to see or investors, long term rewards
for their investment. Equally the issues of capital allowances, we've said
that we are prepared to look at that where it encourages long term investment,
we're prepared to look at the reform of corporate government and I've made a
number of proposals about the way pension funds should operate to encourage
long term investment. You see, when you ask what is the will of government,
what we've seen in government's attempts to encourage long term investment are
things like the business expansion scheme which cost over a billion pounds at
the end of the day, a lot of money and that was only methods of tax avoidance
encouraged by government. What we've now got is a venture capital trust and
the enterprise investment scheme. Two hundred and fifty million pounds a year
going in, I think, measures that actually increase tax avoidance rather than
necessarily increase investment. So you can use the fiscal system properly to
encourage long termism in the economy but of course, the main change is in the
relationship between finance and industry and I think we can play a part in
encouraging that - a long term view.
HUMPHRYS: So you're saying, you said in that
answer that you're not satisfied that the people who do the investing, the fund
managers are doing a proper job at the moment.
BROWN: I think they're now not satisfied with
their ability to influence many of the decisions of the companies in which they
invest.
HUMPHRYS: So in other words..
BROWN: What I would like to see, may I just
say, I would like to see a situation where the pension funds and the
institutional investors do set out very clearly their policies and whether it
is on executive pay which is one issue which is their concern or whether it's
on the long term plans of a company. They have a clear policy and their savers
and people who invest in these funds can see what contribution they're making
to the British economy. I've also said, by the way, that I'm prepared to look
at agreements between institutional investors and individual companies for long
term big investment projects in new technology and how we can help through the
fiscal system.
HUMPHRYS: You use the word encouragement a great
deal, we must encourage this, we must encourage that, we must encourage the
other. You might as well use the word interference mighten you?
BROWN: No I don't think it's interference to
raise the level of investment in the economy but I do accept that there is a
difference between the Conservative approach and us.
HUMPHRYS: Yes, you'd interfere and they wouldn't.
BROWN: No it's not interference. What we say
is...
HUMPHRYS: What is it if it's not interference?
BROWN: Well what Kenneth Clarke would say to
you is that government's really got no role in these matters.
HUMPHRYS: No Kenneth Clarke would say what
business needs and what's more than anything else (and a lot of businessmen say
this as well) is a stable framework in which they know where they're going....
Alright, we've established that.... okay but then you say you're going to stop
that.
BROWN: So first of all we have that stability
and I've laid out proposals which have actually been....
HUMPHRYS: Absolutely but you say isn't enough if
you've got to interfere to make them invest more, that's what you're saying.
BROWN; Of course, John that's one part of the
argument but this is not interference, this is exactly what happens in Germany
and Japan and other countries which are more successful than us. Government
works with industry to create the proper economic environment in which
investment can expand and government helps where it can to encourage small
businesses to invest more and to expand and of course, to encourage large
businesses to make the investments necessary, particularly of course exports.
HUMPHRYS: There's going to have be an awful lot of
help, to use that word, to make a difference isn't there?
BROWN: Yes but you see, John, you assume that
the role of government is simply to subsidise or to pour money into this. This
is not the role of government at all. The role of government is to be a
catalyst, to be an enabler, to enpower companies to expand and to work with
them in dealing with big problems that they face. You take our proposals, for
example, on infrastructure, on public/private partnerships, we believe we
found a way with a new task force in government working with the private sector
to improve our social and economic fabric and we've just had a conference in
fact with business where we've been looking at these things and everybody knows
that because we are committed to public/private partnerships and not obsessed
with the dogma of privatisation that we can make a difference in that area.
HUMPHRYS: But you said right at the start of this
interview, you conceeded that to get the trend rate of growth, you've got to
get the trend rate of growth up substantially it is way too low at the moment.
Now at the moment we're investing something like a close to a hundred billion
pounds a year to get the trend rate of growth up, by let's say a modest one
half of one per cent, you're talking about what another twenty billion pounds
or something. I mean where is all this money going to come from if the
government isn't going to put it in and of course the government can't put it
in because you've said you won't commit yourself to all this extra spending.
BROWN; But John even in the last five years
under the Conservative government and this is one of the problems that
investment in the economy is fallen from over twenty per cent to just over
fifteen, sixteen, seventeen per cent..
HUMPHRYS: And you want to get it back up and means
putting money back in.
BROWN: Every other more successful country has
investment levels in their economy that are above twenty per cent or just
around twenty per cent. Now clearly it is important to raise the level of
investment but you are talking about the framework within which private
companies can expand their investment and of course, in which government and of
course, the private sector can work to expand investment in infrastructure and
that is where I want to make the changes and of course, when I propose not just
the task force on public/private partnerships but a new framework in dealing
with corporate governance, we are pointing people in the direction of the long
term and national economic purpose, a sense of direction for this country and
quite specific and detailed proposals that we're consulting on at the moment.
HUMPHRYS: Gordon Brown, thank you very much
indeed.
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