I cannot re-write the Budget

I cannot re-write the Budget says the Chancellor of the Exchequer; but there will be future help, for 10p tax losers.

Alistair Darling MP, Chancellor of the Exchequer

ANDREW MARR: Now then, last week the Prime Minister was in Washington, the Chancellor was in New York and Beijing.

But behind the overseas smiles worries about tax and the economy at home darkened the mood.

When MPs arrive back at Westminster tomorrow after the Easter recess there's going to be the most ferocious arm-twisting to try and stave off a major rebellion over the abolition of the 10p tax rate.

Well the man at the centre of all of this is the Chancellor, Alistair Darling. Welcome.

ALISTAIR DARLING: Hello.

ANDREW MARR: Thank you for coming in. Did you settle down and intend five million low paid people to lose?

ALISTAIR DARLING: No, when we made the changes last year what we wanted to do was to have two rates of tax in this country - the top rate the 40p, and to reduce the basic rate of tax to the lowest level it's been for 75 years, down to 20p.

Now we recognised that when the 10p tax rate came out we would need to do more to help people, particularly on low incomes. That's why, for example, we took more pensioners out of tax by raising their, the amount of money they can keep before they pay tax. And that's also why we spent about a billion pounds on improving tax credits which helps particularly families with children.

So what we did as that first step was to see what we could do to help people and indeed actually improve their incomes and the Institute for Fiscal Studies, independent of us of course, recognised that if you look at the population as a whole those on the lowest third of incomes actually gained the most.

ANDREW MARR: Nonetheless, when you looked at these changes did you know that five million low paid people were going to be hit?

ALISTAIR DARLING: Yes, well as I said to you...

ANDREW MARR: You knew that. Was it a mistake?

ALISTAIR DARLING: Of course you know when you make any changes to the tax what the effects will be.

ANDREW MARR: Right.

ALISTAIR DARLING: And indeed in this last budget, the one that I delivered, I was able to spend even in a time when we're pretty constrained with the amount of money we've got, a billion pounds on improving the position for families with children.

And in future budgets, maybe in future pre-budget reports, I also want to do more because I attach considerable importance to making sure that we help people on lower incomes. I want them to be able to keep as much money as they can, and that is why I intend, as I say, in future budgets, to be able to do more.

What I can't do is to re-write the budget. The financial year has already begun, there are millions of people who are already going to be paying tax at 20p rather than at 22p and it isn't possible as you go into a financial year to unravel the whole thing and attempt to re-write it. What I can say though is, as I just said a while ago, is that I intend in future budgets to return to this subject. You know, one of the areas...

ANDREW MARR: If you're saying that Chancellor, you accept that this has been a terrible mistake?

ALISTAIR DARLING: No, I think...

ANDREW MARR: Otherwise you wouldn't say that.

ALISTAIR DARLING: The reform that we made starting in 2007 which is one of the most radical changes to the income tax structure that we've seen in this country, reducing the basic rate to 20p was absolutely right and was widely welcomed.

ANDREW MARR: So you knew that five point something million people, I assume you accept the IFS figures on this, were going to lose out from this. And these are single, low-paid people. How does that make you feel? I mean did you come into politics to do this?

ALISTAIR DARLING: I came into politics to encourage people to work hard, to see the benefits of their work.

ANDREW MARR: And to pay more tax as a result?

ALISTAIR DARLING: And I also came into politics to ensure that we do more to help families with children.

After all we've taken, we've taken more children out of poverty than any other government, we've taken pensioners out of poverty as well, we've been able to do that principally through the introduction of the tax credits which are benefiting millions of people in this country.

And one of the major, one of the reasons we actually spent more last year, in Gordon Brown's last budget, was because we put more money into the system to help families with children.

Now you are right, there are people for example if you take people under the age of 25 who get, who don't qualify for the working tax credit, look at the minimum wage, the national minimum wage has gone by about �13 a week over this last year and this year. So in cash terms we're also helping people there, just as the pension has gone up, other incomes have gone up as well.

ANDREW MARR: Hairdressers' assistants, librarians, people working in call centres, millions of them, many of them your core voters, are for the next year going to be paying, you know, a fair amount more in tax and nothing can be done about it. That's the situation.

ALISTAIR DARLING: Many of them are benefiting, for example as I said, from the increase in the minimum wage which will go up by about �13 over this year and the coming year.

So I think you have to look at those figures together. But of course in, as I say to you, with this as an area which you know I will be returning to in future budgets because I think it is right that we continue to do everything we can to help people, especially people at the lower end of the income scale.

But I think the overall reforms which we made and which the IFS last year when they looked at them, broadly welcomed and made the point that as a result of everything that Gordon did in his last budget, that the lion's share of the gains if you like went to the poorest third of people in this country.

ANDREW MARR: And you accept there's five million people who are going to lose out - accept that figure?

ALISTAIR DARLING: Inevitably when a change of this magnitude was made there were a number of people who wouldn't gain from...

ANDREW MARR: 5.4 million.

ALISTAIR DARLING: But you can't look at those things in isolation. You do also need to look at what we've been doing in terms of the tax credits, in terms of taking pensioners out of tax, and as I say, it is something that I intend to return to. You know, I was able to do something in this last budget despite the fact we are in, you know, what you might describe as constrained circumstances because of the overall state of our revenue.

ANDREW MARR: For those Labour MPs who desperately want some kind of extra help for those people, you are saying nothing doing this year?

ALISTAIR DARLING: No, what I'm saying to my colleagues is that look at what we have done for this last ten years. No one will dispute that we haven't done more than any other government to help people.

ANDREW MARR: But with respect, this year.

ALISTAIR DARLING: And in relation to this year, you know, I said I cannot re-write the budget. I don't, I think it would be totally irresponsible to unravel everything and start from scratch into the start of the financial year.

What I can say is, you know, I listened to George Osborne earlier and I don't actually remember the Tories saying too much about people on lower incomes.

ANDREW MARR: Well he says he did at the time.

ALISTAIR DARLING: Well of course he would say that wouldn't he. You know, look at what he's said, look at the proposals he's making.

What I can say to my colleagues is it is something that I want to return to because I attach considerable importance to doing that. But also look at everything else that we have been doing to help people get on, to support themselves and their families.

ANDREW MARR: So these people will be helped in the next budget?

ALISTAIR DARLING: I said to you I'd return to this matter, obviously I will need to look and see what the overall fiscal position is next year. But this is an area which I think it is important that we help people, particularly people on low incomes. But we need to look at everything we're doing as well as the tax system.

ANDREW MARR: A lot of people looking at this from the outside, people from all parts of the political spectrum, see this as an appalling slow motion car crash about to hit this government.

As big as the poll tax in its way was for the Conservatives, and will be surprised and perhaps a little despairing if they're on your side of the argument, that you're not able to do more about it, that everyone seems stunned by what's happening but not able to stop it?

ALISTAIR DARLING: Look, I think as I said to you, if you look at what we've done overall in terms of economic growth, in terms of the fact that you know we've record numbers of people in work, we've got unemployment the lowest it's been since 1975.

And, you know, people wouldn't have believed that if you'd been having that conversation with us you know, 10 or 15 years ago. And in terms of what we've done in the tax system, the tax credit system which has lifted a lot of children out of poverty, it's helping families with young children. Ten years ago a family would get something like �27 a week, families on lower incomes, for the first child. Today it's about �70. So we've done a lot.

Now, I don't argue with you there isn't a lot more to do. But whether it's the wider economy and especially that in the current circumstances where we are going through an extremely difficult situation along with every other country in the world, that we have been able to do things that you know years ago people wouldn't have thought were possible. Our commitment is completely unshakable as far as that is concerned.

ANDREW MARR: This is car crash now. This situation happening now.

ALISTAIR DARLING: No, I just don't accept your analogy there. I think most of my colleagues would see...

ANDREW MARR: Well wouldn't that win the vote next week?

ALISTAIR DARLING: Yes.

ANDREW MARR: Are you sure?

ALISTAIR DARLING: And I believe that like most of my...

ANDREW MARR: Seventy Labour MPs have names down...you know, ministers on the edge of resigning about this.

ALISTAIR DARLING: Whenever you come up to votes like this you get all sorts of speculation but I think the majority of my colleagues can see two things very clearly. One is this government has a commitment to helping people on low incomes, to continuing to get children out of poverty, to continue to help older people as well, that is completely unshakable. But they also know that, you know, up against them is a Conservative party that frankly doesn't have a commitment to these things.

You know you were talking to George Osborne earlier, he's got �10 billion worth of tax promises and he can't tell you where the money will come from. I think the other thing that my colleagues realise that especially at this time, what they're looking for is the government above all else, is to maintain stability particularly in the housing market, because that is very, very important to a very great number of people.

ANDREW MARR: Let's come on to the housing market. Because you, I mean you have been speaking to the big banks. And you appear to be offering some kind of deal to them whereby they hand over some of their mortgage commitments to the government. You take those over and you hand them back government bonds instead. Is that right?

ALISTAIR DARLING: Yes. The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the situation we've got at the moment where basically banks because they don't yet know the exposure that other banks might have to the American sub prime mortgage market, and to other mortgage-backed securities.

What we're doing is we're trying to unbung that situation so that the bank will be making money available to the British banking system.

They'll be lending the money so it's got to be repaid, and it'll take security in return for it. But the idea behind it is it will open up the market and it will begin the process of opening up not only the mortgage market which of course will help householders.

ANDREW MARR: Some people will say it feels a bit like the government taking on some of the risk in the problem from what the five big banks in this country who [inaudible] �209 billion profit.

ALISTAIR DARLING: We're not going to do that. What we're doing is we recognise that the market in mortgage-backed securities which is where a lot of the banks raise the money which in turn they lend to, you know, you and me through our mortgages.

Because that's dried up following the collapse of the American sub prime housing market last year, what we're doing, what the Bank of England will do is in effect lend the banks that money, it's got to be repaid and in the meantime of course the Bank of England will take a security, those mortgages. So it's not giving the banks money, it is lending the money to the banks. If that does not happen then I think there is every chance that the situation will get worse, whereas I think if we go ahead with this and I'll be making a statement in the House of Commons to explain it more fully tomorrow afternoon, we believe that this will be an essential step in trying to get the financial market stabilised.

That in turn will help the mortgage markets too. But it's also important that the banks begin now to disclose the extent of their losses, to explain how they're going to rebuild our capital, and we're beginning to see signs of that happening now. Because the sooner there is more openness, more transparency, people, banks understand the extent of what happened to them last summer and the period since, the more chance there is of restoring, getting ourselves back to the stability and normality that we need.

ANDREW MARR: You can ask the banks to do this. You can help them to make it happen. But what if they don't? They didn't pass on the last cut in interest rate to their customers. They are trying to rebuild their down financial position. Do you really have the control over how the banks operate that you need?

ALISTAIR DARLING: We can't tell every bank what to do. But I think if you look at what's been happening in the last few days I think the pressure on banks to declare the extent of any losses they've made, to declare the extent of the mortgage-backed securities they hold and how they're going to deal with it, and how they're going to raise money from their shareholders.

I think you'll see much, much more of that. I think in terms of what we can do, I think what we can do is to make sure that we can provide a market for this stuff so that we can re-open the financial markets because that is an essential precondition of them being able to put more money into the system to help in the provision of mortgages.

And you know, as I said before, we are doing our bit and I would like to see the banks pass on the benefit of the three interest rates cuts we've had over the last few months but we recognise that this is an unprecedented shock to the system. We haven't seen this in generations. It's happening in America, Europe, the Far East, it is affecting countries all over the world. We're determined to do everything we can to get that normality here.

ANDREW MARR: And if that doesn't work, if this package doesn't work how much worse can it get?

ALISTAIR DARLING: Well I think that, I suppose one analogy you might use is, you know, you imaging that someone's eaten some bad food and they've got a dose of food poisoning. Some aspects of it just have to work their way through the system.

For example you've seen some of the banks, UBS in Switzerland for example, having to write off, you know, vast sums of money. Other American banks have had to do it. You know we're seeing bits of it, we're seeing the beginnings of that here.

ANDREW MARR: That's an analogy Chancellor you don't want to follow too far if I may say so!

ALISTAIR DARLING: However, we can help the process. We can help the process and the Bank of England's measures tomorrow I think will help that process by easing up those markets which in turn will help the mortgage market and Britain's housing market which is so important to us.

ANDREW MARR: A lot of people are really noticing and really hurting when it comes to the cost of food.

ALISTAIR DARLING: Yes.

ANDREW MARR: ...rising very fast. And they look at the official inflation rate and they say this is not my inflation rate, this is not what's applying to me.

ALISTAIR DARLING: Yes. We use the internationally recognised inflation rate and I bet you if we changed it we'd be accused of all sorts of things. The point you make about food is a serious problem.

It's affecting us, as you said I was in China last week, it's affecting China, it's affecting countries right across the world. And I did say last weekend at the meetings of the major economic powers that we needed to do something about this. One of the things for example we need to look at is that a lot of grain is now being diverted into biofuels. Now I'm in favour of biofuels but there are crops...

ANDREW MARR: But not at the expense of food?

ALISTAIR DARLING: There are crops you can't eat which you can convert but it is nonsense, for example, to be subsidising grain, wheat that could be used to make into flour, into food, and diverting that into fuel for cars. So I think that's one area we need to look at. So too is the whole question of food production.

ANDREW MARR: OK.

ALISTAIR DARLING: But you're absolutely right, inflation in relation to food, as it's in relation to oil, is a serious concern for economies the world over.

ANDREW MARR: Right, finally, is this your poll tax moment?

ALISTAIR DARLING: No it's not. I am optimistic that we can win the next election provided that David Miliband, my colleague, was saying in the newspaper today, if we can show that we've got the determination to win, that we show that we can understand not only people's concerns but actually have solutions for them, we'll win. And I've got every confidence in that.

ANDREW MARR: Alistair Darling, thank you very much indeed.

ALISTAIR DARLING: Thank you.

INTERVIEW ENDS

Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.

NB: This transcript was typed from a recording and not copied from an original script.

Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy

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