I'm highly sceptical

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

The Tory leader gives his verdict on the government's proposed VAT cut and warns of a 'tax bombshell' ahead.

ANDREW MARR: "A borrowing binge today, which we're all going to be paying for tomorrow". That's been the warning this week from the Conservative Leader, David Cameron.

But he's been cutting a slightly lonely figure, urging spending restraint, and the IMF, the Institute of Directors, even the CBI want more money spent and fast.

So should the recession really be left, as one top Tory's put it, "just to take its course"... David Cameron is here now.

DAVID CAMERON: Good morning.

ANDREW MARR: You've taken a bit of a gamble, haven't you?

DAVID CAMERON: Not at all. And, by the way, I do not believe the recession should take its course. I think that we should act, and act swiftly. I've said we need to freeze people's council tax by cutting out wasteful government spending on advertising; we need to help small business by allowing them to delay their VAT payments.

That could put �10 billion into small businesses. We need to help business by cutting national insurance rates for the very smallest firms, so they keep people on. I don't believe in standing on one side, but I do have a real concern. I think people are going to be shocked tomorrow when they see the extent of government borrowing - maybe as much as 80 billion this year before the recession's even properly started, and possibly over 100 billion next year. Now next year, that is �4,000 extra for every family in the country and so I do have a real concern about a government going on a borrowing binge that even they are now admitting is going to lead to much higher taxes later.

ANDREW MARR: Now these are all slightly back of an envelope calculations, but what do you think that scale of borrowing translates into in the future in terms of tax rises - for instance on income tax?

DAVID CAMERON: Well it's very difficult to tell. We don't know what's going to be in the Budget, we don't know exactly how they're going to pay for it. But my worry is that if you have temporary tax cuts followed by large, permanent tax increases, that actually says to people this is not a stimulus; this is actually a warning about a big tax bombshell. You talk about all the international institutions.

The Head of the European Central Bank said a very interesting thing, which is that countries that have a bad borrowing situation may find that if they attempt a stimulus, because people know taxes will go up in future it won't work. Now our government actually this week have changed their rhetoric. At the beginning of the week, they were saying this is an unfunded stimulus. They're now saying taxes are going to have to go up to pay for it in future. So they're really accepting what the Head of the European Central Bank said, which is they're in a difficult situation and they really need to acknowledge the extent of the debts that they've got.

ANDREW MARR: Do you think therefore at least that they have put you into the position that if you win the next election, you will have to raise taxes?

DAVID CAMERON: Well I don't want that to happen, which is why this week ...

ANDREW MARR: I know you don't want it to happen, but...

DAVID CAMERON: Well, let me explain. That's why this week I said that Labour's spending plans from 2010 onwards are no longer affordable and we need to reduce the rate of increase. I think the last thing people need right now is the news that permanent tax rises are going to clobber them. The last thing they need is for the borrowing bombshell to turn into a tax bombshell. So coming off Labour's spending plans I think is a credible and believable way of looking the British public in the eye and saying look, we're going to try and keep your taxes down. This lot are promising you everything, promising you the earth...

ANDREW MARR: Sure.

DAVID CAMERON: ... and they're going to clobber you with an enormous tax bill. I'm going to try and avoid that.

ANDREW MARR: But if you win the election, you are going to inherit what you inherit; and if you're going to avoid tax rises, then you're going to have to go for quite substantial spending cuts. Are you, therefore, now looking at all the things that you've originally promised about extra rail links and more money for the armed forces and so on and reviewing all of that to see where you can cut?

DAVID CAMERON: Well what we're going to look at is what the Government announces tomorrow and what they do to their own spending plans. Maybe they'll come off them too, and we'll have to then set out our path forward for spending. And, yes, it is going to be difficult and there will be tough decisions to be made if you want to keep taxes down. Now there are some advantages we have: we don't believe in the big top-down government programmes; we'd get rid of the national identity card scheme; we'd get rid of the children's database; we think the NHS computer has been hugely wasteful. Some of this big top-down government stuff that Gordon Brown has been obsessed by would go. That would help. But I accept it will be tough, it will be difficult. But in the end, I would like to go into the election telling the truth about the public finances because I think at the moment the Government isn't.

ANDREW MARR: There has been a sort of extraordinary revolution in the economic and political world over the last few weeks. People watching will want to know whether the things that you said before about pledges on tax and spending are now inoperative and you're looking again at the whole picture?

DAVID CAMERON: Well what I can say is that over the last three years, I've always said that if we're going to make pledges about tax reductions, we have to show where they're paid for. So when we talked about cutting inheritance tax, we showed who was going to pay for it - the non-doms - and so every tax pledge we've made has always been matched by either some change we'd make on spending or change we'd make on tax. So I don't have some long list of unfunded commitments that I've made because I haven't made them.

ANDREW MARR: Kenneth Clarke - former Conservative Chancellor, in the view of many people the guy who dug us out of the last big recession - is calling for VAT to go down to 15%. This, we read, is what the Government are going to do tomorrow. Would you really vote against that?

DAVID CAMERON: Well let's first of all take what Ken Clarke thinks because I've spoken to him. I mean Ken has always said you know "only if it can be afforded", and actually Ken has said to me he's not yet convinced that any of these changes can be afforded. He, like me, is very worried about the public finances.

ANDREW MARR: Well he was calling for it in public.

DAVID CAMERON: He's absolutely said to me "not yet convinced it can be afforded. Let's see what they show us on Monday." But the point is you know a hundred billion of borrowing next year - that'll be the highest borrowing in the history of British government, and Ken is right to be concerned about that. Now let's � Do you want to talk about the VAT...

ANDREW MARR: I come back to my question. They, the Government says okay, 17.5% to 15%. David Cameron, yes or no?

DAVID CAMERON: Well I will set out how we're going to vote when we hear the Budget. I don't believe in announcing these things in advance and so you know I'm not going to say about voting or anything like that until we actually see what's in it. Let's have a look and then I'll tell you how we're going to vote.

ANDREW MARR: But if you're against...

DAVID CAMERON: But everybody knows...

ANDREW MARR: ...if you're against an unfunded fiscal stimulus, you're presumably determined to vote against an unfunded fiscal stimulus?

DAVID CAMERON: Everyone knows exactly where we stand, which is that we think the government debt situation is dreadful. We think that a borrowing binge now will mean higher taxes later.

But, as I say, on actual voting, I know what Gordon Brown is like. He sits there in Downing Street working out little schemes to try and trick people into voting this way or that way. We had a whole budget once abolishing the 10p and cutting the rate of income tax to try and trip up the Opposition, so I'll wait until we see their disposition.

ANDREW MARR: I can...

DAVID CAMERON: But let's deal with the issue then.

ANDREW MARR: I can fully understand the instinct. Nonetheless, it is a very straightforward issue - in favour of cutting VAT or not in favour of cutting VAT?

DAVID CAMERON: Well I'm highly sceptical ... Let's deal with the plans that are in the papers today.

ANDREW MARR: Yeah.

DAVID CAMERON: I'm highly sceptical about that for this, again for this reason. Because the Government is going to borrow �100 billion plus next year, this sort of cut in VAT would add another �12 billion to that �100 billion, and I think everyone will know that the Government is giving with the one hand and is going to take away with the other hand and VAT will soon go back up again and other taxes probably up by more. And so I think it's very, very unconvincing and I'm not sure it'll be particularly stimulating. So I'm very sceptical about it.

ANDREW MARR: But are you daring enough to actually vote against this because, after all, around the world there is a fiscal stimulus happening? Different countries are different. President-elect Barack Obama is saying similar things to Gordon Brown. Okay, it's a different situation, but CBI, all sorts of employers and business groups all backing the Government on this. Some of your own MPs on the same side. Would you really go into the lobbies against this?

DAVID CAMERON: Well I've absolutely been brave enough to stand out against what the Government is saying. It's not easy actually to say to a government that's about to shower people in tax cuts for Christmas that, look, this is a mistaken strategy.

You're borrowing so much that you're putting the public finances at risk, you're putting the currency at risk, you're putting all sorts of things at risk. It does take some courage to do that. I think it is the right thing to do. I think we've been right to warn about this, frankly. And, as I say, the Government has actually changed its rhetoric over the week from saying it's all unfunded to saying now taxes will have to go up to pay for it. So I think it's the right to do.

ANDREW MARR: I mean I'm quoting papers at you, but here is the Sunday Telegraph, you know about the most staunchly conservative paper there is, saying you know we support the Government's plan to stimulate the economy by cutting taxes and one of their commentators saying there's absolutely no choice, we have to back Brown because of the scale of what's happening and they're suggesting that you don't quite get the scale of what's happening.

DAVID CAMERON: No, I absolutely get the scale of what's happening. And let's be clear about what's at the heart of this. It is a credit crunch. If you listen to what the CBI say, if you listen to what Digby Jones was saying on your sofa this morning, the real problem business face is the fact their overdrafts have been cut, their cheques are being bounced even though they haven't reached their lending criteria.

So what we desperately need is to get the money flowing through the economy. And that is about how the banks behave, but it's not good enough, as the Prime Minister said this week, "we've done what we can", or actually Peter Mandelson this morning, I thought rather complacent about this issue. We may need to take radical further active steps to get monetary policy to work.

ANDREW MARR: Which would mean what?

DAVID CAMERON: Now let me tell you what that means. Well, first of all, interest rates need to be cut further. I'm sure that will happen. But be clear, the Bank of England said this week in terms of cutting interest rates, they have to think about what the Government's going to do on the fiscal side and that may stop them from taking more aggressive action. But even...

ANDREW MARR: But could you see interest rates going down to zero because that's being talked about?

DAVID CAMERON: I can see interest rates coming further down from where they are. It's not for me to exactly say where they end up, but I think we... it's a monetary crisis, we need monetary action. But I would go beyond that and say it's no good just politicians shouting at the banks, as Digby was saying.

Actually we may need to take action, which would include government insurance for new loans to be made because we've got to get the money out of the banks into the small businesses. I am inundated with letters now from small businesses saying you know, 'I desperately need the overdraft facility I was given that's now been withdrawn. I can't pay this higher interest rate the bank is now giving me.'

ANDREW MARR: Well that kind of scheme would not come cheap.

DAVID CAMERON: Absolutely! But I'd rather take a risk with that because I think that's the heart of the crisis than actually this you know giveaway package which I think is getting more and more unconvincing because...

ANDREW MARR: Do you think it won't work? Do you think people will simply look at whatever they get back and say, yeah, but I'm over borrowed already, I think tax rises are coming, and therefore won't spend as ministers hope they will?

DAVID CAMERON: I think that is the danger. The only certainty of a VAT cut, the only certainty is that you are likely to take another �12 billion and add that to the already enormous borrowing requirement. That's the one certainty. We know that. Do we really know that people expecting a tax rise coming down the track at them are actually going to go out and spend lots of money? So my concern - and I think it's the job of the Opposition to make clear this concern - is, look, the Government, you've got to start telling the truth about the public finances, you've got to tell people how in debt we are, how badly you prepared us for this recession.

I wish we weren't in this situation. I had the Chief Minister of Hong Kong in my office this week. He's got a surplus; he can give that away in tax cuts. I had the Swedish Prime Minister round for coffee last week. He's got a surplus; he can give it away. Because Gordon Brown didn't prepare us for the difficult days, because he didn't you know mend the roof while the sun was shining, as George has so powerfully put it, we don't have that sort of surplus in this country. In fact, we've got a massive deficit.

ANDREW MARR: Okay. What about some of the other measures that are being talked about? Would you support, for instance, a three month amnesty to help people faced with repossession on their houses?

DAVID CAMERON: Yes, I think we need to look at the detail of that. I'm worried that what the Government are suggesting is a three month amnesty but that doesn't really include after the court date. I think what's absolutely key is that if people get to court and they are making reasonable payments, then we've got to try and persuade the banks and the building societies to follow the code of conduct and not to repossess.

ANDREW MARR: Right.

DAVID CAMERON: Because the trouble is...

ANDREW MARR: Sorry, can I just keep moving on a little bit. What about, for instance, suspending the tax increase on cars, larger cars?

DAVID CAMERON: Absolutely, we have called for that.

ANDREW MARR: You'd agree with that?

DAVID CAMERON: I mean there are some things in the Budget that need to be done that we argued for last year. You know the idea of putting up taxes at this moment, we argued against the vehicle excise duty. You'll remember I asked the Prime Minister about this at Question Time after Question Time.

ANDREW MARR: So there are points where you will agree?

DAVID CAMERON: Absolutely! Absolutely. That needs to happen. They've got to clear up the mess of the 10p. They've also got to abandon the plan to put up taxes for small businesses. They're planning actually to put up corporation tax on small businesses. That needs to go.

ANDREW MARR: Were planning, I think.

DAVID CAMERON: So even before they get going, there are some things they have to do.

ANDREW MARR: Okay. When it comes to the sort of wider criticism of what you've been doing, there are a lot of people who say these are interesting measures that you're talking about, but they're quite small. Given the scale of what's happening, it's a small response and we don't get the sense of optimism and leadership - this is where we're going - that people want from a Conservative Leader.

DAVID CAMERON: Well I think people are getting from me the truth. They're getting the truth about the public finances. They're not getting a lot of blabber about how we've got loads of money that we can give to you and then take it away again. I believe in being straight with people.

ANDREW MARR: Sometimes you do need to spend money and then claw back.

DAVID CAMERON: Absolutely, but let me... But I do think the scale of the problem needs a large scale response. And, as I say, our VAT plan is a �10 billion plan for small business. Our jobs plan... The Government hasn't got a jobs plan. We have a �2.6 billion package to give companies some of the benefit of the reduced unemployment benefit when they take someone off the dole. Now that is imaginative, it's aggressive, it's active, and actually the Government has no answer on that front at all. So I think in these ways... The council tax freeze, you know.

ANDREW MARR: What about all your green taxes though. I mean a lot of people will say this is the last time... the last thing we need right at the moment is a whole series of extra green taxes.

DAVID CAMERON: Always remember with our commitment to green taxes, it is every penny that goes on a green tax has got to come off a family tax. Now what a difference that is with Gordon Brown who's used green taxes as a way of clobbering families and filling up his wallet.

ANDREW MARR: Do you look at the disposition of the parties in the polls at the moment and think that Gordon Brown is thinking of a snap election?

DAVID CAMERON: I have no idea. I'm not a soothsayer. All I know is I am ready for an election at any time. That's what you have to be in Opposition. I've called for election at all times.

ANDREW MARR: You always call for an election.

DAVID CAMERON: I'm always calling for election. I get out of bed in the morning and call for election and I'm always ready for an election, and I think this country is desperate for change. You cannot borrow your way out of a borrowing crisis. We need a party that's prepared to tell people the truth, that will help them and help them on unemployment.

ANDREW MARR: You've talked about cutting spending plans and the tax situation. The next few years are going to be pretty bloody whoever's in power.

DAVID CAMERON: It's going to be difficult, there's no doubt about it. This government has borrowed so much and spent so much and left us so badly prepared that we face the worst recession in Europe and in most of the developed world. That's how badly prepared we are. It is going to be difficult and I think the first requirement is a politician and a leader who's prepared to tell you the truth and say, look, this means spending does have to come down off the levels that the Government previously set out. That's not an easy thing to say, it's not a nice thing to say, but it's true.

ANDREW MARR: Some of the criticism that was levelled at George Osborne over the last couple of weeks seems to have been because many other Conservatives see the two of you as a sort of tiny, little clique talking to each other, not spreading your discussions more widely in the party. Do you accept that people are worried about that?

DAVID CAMERON: No, I... Well I don't accept... That's not the way, that's not the sort of leader...

ANDREW MARR: He says, "I'm a friend of David Cameron's. I'm alright." You say he's a great guy.

DAVID CAMERON: Not at all. I mean you know I don't accept that at all. It's not the way I run � I appoint people to the Shadow Cabinet who are good at their jobs, and if they're not good at their jobs then I remove them from the Shadow Cabinet. I've done that in the past. That's the way I behave.

ANDREW MARR: And he's safe? No chance of Ken Clarke, particularly after this week I suppose, or William Hague coming back into that job?

DAVID CAMERON: Well, first of all, I think George Osborne is a very good Shadow Chancellor. I think he'd make a very good Chancellor of the Exchequer. But to be clear, I mean I seek advice from a very wide range of sources.

I've had all of the former Conservative Chancellors in, many of them more than once - Nigel Lawson, Geoffrey Howe, Norman Lamont, Ken Clarke. I've had Terry Burns, the former Permanent Secretary to the Treasury in, Howard Davies, all sorts of economists. I listen to a very wide range of business voices and finance voices before making decisions. But all of them say to me, the public finances are in a mess in this country, they've got to be sorted out, and they need someone to tell people straight just how bad it is.

ANDREW MARR: David Cameron, big week tomorrow. For now, thank you very much indeed for coming in.

DAVID CAMERON: 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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