A degree of restraint

On Sunday 08 February Andrew Marr interviewed Alistair Darling MP, Chancellor of the Exchequer

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

The Chancellor reminded banks that they would have failed if it weren't for taxpayers.

ANDREW MARR:

Alistair Darling MP, Chancellor of the Exchequer

The news is full of the backlash, as we've been hearing, against the greedy bankers.

So what is the Government actually going to do about this?

And having pretty much exhausted both interest rate policy and monetary rate policy, what happens now?

Well I'm joined by the Chancellor, Alistair Darling. Welcome, Chancellor.

ALISTAIR DARLING:

Good morning.

ANDREW MARR:

Let's start with the story of the day, as it were, which are these bonuses. One newspaper saying a billion pounds to be paid out by the Royal Bank of Scotland. That's the plan. What can you actually do about this? I gather you're angry about it, but what can you do?

ALISTAIR DARLING:

Well I think what a lot of these bankers need to understand is that some banks today would not be standing if the taxpayer hadn't stepped in to save them. And we did that not to save the banks themselves, but to make sure that we could keep the system going to support families, to support businesses because millions of people depend on that system. But I'm very clear that no-one who was associated with these large losses, this excessive risk taking, should be allowed to walk away with big cash bonuses and I've made that very clear to the new Chief Executive of RBS. And when we introduce the new lending agreements, which banks have to enter into if they want any government help in the future, that will be tied to stringent conditions not just in terms of lending but also in return, in respect of the payments they make to their staff. Now there's nothing wrong with a bonus system that rewards success. There is everything wrong with a bonus system which has over the last few years been rewarding failure and encouraging excessive risk taking, which has caused all the problems not just here but across the world. That has got to stop.

ANDREW MARR:

You as it were, on behalf of the rest of us, own 70% of RBS. Can you just say this will not happen?

ALISTAIR DARLING:

I spoke to the Chief Executive of RBS and I've made it clear, and he agrees, that no-one that is associated with these large losses should be allowed to walk away with large cash bonuses. Now obviously there are contractual problems with some staff. And indeed if you look at your average teller across the counter who you meet, they're not terribly well paid and I don't think anyone would quarrel with making sure they're properly rewarded. What is wrong though is that whereas in the past a bonus was something special you got as a reward for hard work or putting in an extra effort, over the years a lot of bankers have come to expect it as a right, very large bonuses, and that just cannot go on. They can't return to business as usual and I've made that very clear both in respect of RBS, NatWest where we own the majority shareholding. But also in future where banks enter into an agreement with us, in return for public support there's got to be agreements both in terms of lending to businesses, to people, but also in respect of the practices they have for rewarding their staff. We've got to make sure that success is actually rewarded, not failure.

ANDREW MARR:

What it seems may happen is that in some of these banks lots of people in other parts of the business will still get very large bonuses and lots - you mentioned cash bonuses - people even in the parts of the businesses which have failed will get bonuses in terms of shares. I come back to the point, if something like a billion pounds notionally or in cash was paid out inside RBS, what would you do about that?

ALISTAIR DARLING:

Look, no figure's been agreed and you know I've made it clear that in respect of the people who got these banks into trouble in the first place - the people who've taken excessive risks, the people who actually were the authors of their misfortune and by extension everyone else's - they shouldn't be rewarded for that. Now there are cases in banks where it's right to reward people for doing well, and especially amongst some of their low paid staff. There's absolutely nothing wrong. I think people would say that's fair enough. What has gone wrong is the incentives in the system have skewed things, so that we've got into the difficulties we've got today. But if you look in relation to what the Americans are proposing, what President Obama is doing, what he's saying is there's a limit there on the amount of cash you can get, but he also... You know the Americans recognise that if you want to incentivise people in the long-term through shares and so on, you know they can see the point in that. The key thing surely though is to stop this business where people who you know took excessive risks that brought their banks down...

ANDREW MARR:

Sure.

ALISTAIR DARLING:

...and then have so badly affected the rest of the world economy, they should not be rewarded for that. Far from it.

ANDREW MARR:

Are you attracted by the notion of the Obama style absolute cap on salaries for people working in banks that have had to be taken over by the Government?

ALISTAIR DARLING:

Well, look, you can look at the detail of these things and what is important though...

ANDREW MARR:

There's a pleasing simplicity about it, isn't there?

ALISTAIR DARLING:

Up to a point. Like all these things, you need to look at the detail. And you know the Americans recognise it, it's recognised the world over. You know you do need to make sure you've got incentives for people who actually make the difference between a bank working and not working. What I think people really get angry about though is when they see banks have failed, they see they would only be standing there because of taxpayers...

ANDREW MARR:

(over) Yes, we understand the anger...

ALISTAIR DARLING:

(over)Yeah, but the point is...

ANDREW MARR:

...we're wondering what's going to happen.

ALISTAIR DARLING:

Yes. What I'm saying is that people who have been associated with those big losses, those people who were the authors of this...

ANDREW MARR:

(over) Should not take the money.

ALISTAIR DARLING:

...they should not be rewarded for that. Far from it.

ANDREW MARR:

So can you say to those people watching that a billion pounds will not be paid out in bonuses at RBS?

ALISTAIR DARLING:

Well absolutely no figure has been agreed at all.

ANDREW MARR:

But much, much less - if anything?

ALISTAIR DARLING:

As RBS has said, they want to make sure they cut down these payments to the absolute minimum they have to. And you know people have to understand that you know these banks would not be here but for the British taxpayers. Therefore they have to show a degree of restraint that people would expect.

ANDREW MARR:

So all around the City you know there are stories of people rushing to get their last, big bonuses in before the rules change or the doors slam.

ALISTAIR DARLING:

And this brings me onto the broader question, the point which I was raising in the article that I wrote in the Sunday Telegraph today, and that is I think the whole culture in the boardrooms of British banks needs to change. You know in the past, as I've said, bonuses were something special, something you were lucky if you got one; whereas what you've ha�, what happened...

ANDREW MARR:

(over) It became routine, absolutely.

ALISTAIR DARLING:

Not only routine, but people actually think they're entitled to them come what may. And you can't have a situation where if people 'screw up', to use today's phrase, therefore they get rewarded for it.

ANDREW MARR:

(over) And you've got the power as Chancellor to stop that happening.

ALISTAIR DARLING:

In relation to those banks where we have shareholdings or where banks enter into... What happens is that we're making available money to help get the banking system going along. Banks in return for that have to enter into a lending agreement. If they do that, the conditions there will include restrictions on what they can and can't pay to their staff and they should be in no doubt about that.

ANDREW MARR:

That's what's coming next.

ALISTAIR DARLING:

If we're providing money - then people, the public are entitled to see something in return, particularly in relation of course to lending, which perhaps takes us onto the broader questions.

ANDREW MARR:

Well I would like to come onto the broader stuff...

ALISTAIR DARLING:

Yuh.

ANDREW MARR:

Because it could well be said, I think, that you've thus far, at huge public cost, nonetheless you've saved the banks as institutions, but you haven't saved the banking system. The banks are no longer doing what they're there to do - in other words putting money through the system.

ALISTAIR DARLING:

Well...

ANDREW MARR:

Lots and lots of businesses, lots of examples in the papers today...

ALISTAIR DARLING:

Sure, yeah.

ANDREW MARR:

...going under because they can't get the money.

ALISTAIR DARLING:

There's two things. Firstly you're right. The first thing they had to do last October is to stop the system collapsing, and some of it was hours away from collapse when we took that action. Other countries have done it too and we'll continue to do that. You're right too, the second thing is to make sure that we increase the total amount of lending. Now that has been increasing, but that's against a background where nearly half the lending that took place in this country came from foreign banks or else from money that was raised abroad, and that has dried up to a large extent.

ANDREW MARR:

And our banks were lending abroad, not here in fact - a lot of them.

ALISTAIR DARLING:

Some were. But if you look at the amount of lending here, almost half of what you borrowed by way of mortgages and just about half of what businesses borrowed either came through foreign banks like the Icelandic Banks, the Irish Banks, who have all you know withdrawn to a large extent, or the money that was actually lent here was raised in the American housing market, for example. Now that has dried up. What we need to do now is to make sure that you have a combination of getting the banking system lending. But also - and you know it's important to remember this - many of the measures that I announced last autumn to help small businesses, medium sized and large businesses, they're coming through now. They will take time to work their way through, there's no overnight fix to all this, and it's taking place all the time against a background where the conditions in our economy, in other economies across the world are still deteriorating - some of them quite sharply. So we're not dealing with a static situation, but what we are doing is making sure that a combination of action on the banks and direct government action, that will make a difference, it will come through, and it will make a difference to our ability to get through this and to recover.

ANDREW MARR:

Interest rate policy has more or less disappeared now. We're down to zip pretty much, which leads to the next possibility - this so-called quantitative easing, a ghastly phrase, but basically printing money and pushing it as the Government into the system. Do you contemplate that? Do you take that seriously?

ALISTAIR DARLING:

Well, look, where we are just now is that the price of money, the amount you pay for your loan, as you say is down to 1%. You know, I don't think it can go much lower than that and still have a difference. What bothers us, what bothers the Bank of England is that if you allow a situation to arise where people think prices are going to keep falling, people will simply not spend their money, they'll stay at home. And that's what happened in Japan for many, many years.

ANDREW MARR:

Ten years!

ALISTAIR DARLING:

That's right and we've got to avoid that. So the question is do you put more money into the system because most economies work better when you've got you know a very...

ANDREW MARR:

Right.

ALISTAIR DARLING:

...rising prices - not too high, but they are slowly rising. That is what the Bank of England, and I'm discussing that with the Governor at the moment, whether or not we should give the bank an extra lever to pull, so that in addition to all the other things - the low interest rates, the measures that we're taking in relation to people in income tax coming down from April, help for families, help for businesses - when you take that all in totality, it's actually putting a lot of money into our economy. And you know I'm sorry to come back to this point - it does take time; there's no instant fix to all this.

ANDREW MARR:

(over) It does take time. But people talk about printing money. That could happen.

ALISTAIR DARLING:

Well it doesn't quite work like that.

ANDREW MARR:

But as a shorthand.

ALISTAIR DARLING:

At the moment, what is happening is the Bank of England is buying corporate bonds off companies - something it would never normally do - to give them more money. This is simply an extension of that. You know we're in territory now where countries right across the world are having to contemplate things that in normal times they simply wouldn't look at. But these are not normal times. You know right across the world you're seeing the economies sharply turning down. We've got to be able to deal with that, just as we took the lead last October. We've got to be doing things now, which will help our economy over the next few months over what will be a difficult year.

ANDREW MARR:

The French Finance Minister said that we're at least three European Eurozone countries very close to the edge. Is that your understanding as well?

ALISTAIR DARLING:

Well it's common knowledge there are a number of Eurozone countries that are having difficulties.

ANDREW MARR:

Close to bankruptcy.

ALISTAIR DARLING:

But it's also pretty common knowledge there's not a country in the world - you know ourselves, France, Germany, the Americans have been in recession for a year now, Japan, China turning down - there's not a country in the world that isn't affected by that. The question though is what do you do? And the answer must be surely we'll play our part at home, but this will only work if we get other countries doing similar sorts of things at the same time. That's the focus of the meeting that we're having - you know the larger economies in London in April.

ANDREW MARR:

So when President Sarkozy rips into you and Gordon Brown for the 15% VAT not working, being completely useless, Britain's got a very weak economy, that was our only choice - how do you respond to that?

ALISTAIR DARLING:

Well, look, President Sarkozy is actually putting quite a substantial stimulus into his economy. I think he was having an argument on French television as to whether he ought to be doing a VAT reduction or supporting the car industry and he said he would support the car industry. So, incidentally, are we. But in relation to VAT...

ANDREW MARR:

But you can't say that other governments are following your plan, can you?

ALISTAIR DARLING:

They're doing all the same thing in respect of putting money into the economy.

ANDREW MARR:

In different ways, yes.

ALISTAIR DARLING:

In diff...Of course, and that's right because all our economies are different. I'll just make the point about VAT since you know you raised it earlier with George Osborne. As you said, the Independent Institute for Fiscal Studies...

ANDREW MARR:

Well I don't...

ALISTAIR DARLING:

...even Ken Clarke, who is now one of George Osborne's frontbench...

ANDREW MARR:

(over) Well he says, of course, that he would only support it in certain circumstances, which you didn't.

ALISTAIR DARLING:

He also said it would be foolish to say that if you cut prices by 2.5%, it wouldn't have an effect. So of course it will have an effect. But it wasn't just for one month, it wasn't just for Christmas. It was for the whole year. And it isn't the only thing we're doing. You know a lot of people have said why aren't you reducing income tax. Well we are for basic rate taxpayers from April, for example.

ANDREW MARR:

(over) Well I want to ask you about one other particular group, which are the very, very large group of people called savers - many of whom are now in desperate straits because they're getting nothing like the income that they were hoping for. Many of those people of course pensioners. Is there nothing you can do for them?

ALISTAIR DARLING:

Well, look, I've made it clear that you know at the Budget...

ANDREW MARR:

Which will be when, by the way...

ALISTAIR DARLING:

...I will look at all these things...

ANDREW MARR:

...because there's a doubt about that?

ALISTAIR DARLING:

Well I don't think there's any... I haven't actually decided on the date yet. But we actually did have an effect, a pretty major budget in November just a couple of months ago, so you know it's not something that you need to do tomorrow. I've made it clear that I'll make my, I'll decide on the date, but you know it's not something I think we need to rush into just immediately.

ANDREW MARR:

Okay. So a late budget and very different figures in it, no doubt, from last time, but also something for all those savers?

ALISTAIR DARLING:

You know I'm very conscious of the fact that particularly older people who very often rely on savings need to be helped. Of course it's one of the reasons that we raised the tax free amount for older people by far more than it is for the likes of you and me...

ANDREW MARR:

Alright, okay.

ALISTAIR DARLING:

...so, yes, we do need to help people.

ANDREW MARR:

Well, listen, for now thank you very much indeed Chancellor.

ALISTAIR DARLING:

Thank you very much.

NEWS

ANDREW MARR:

Well we've almost run out of time this week, sadly no time for our usual chat at the end. One last question for the Chancellor however. That Sunday Times story about this chap Marino who's going to be who's in charge of that crucial body linking the Government to the banks. He's been connected to a Lichtenstein operation which advises on tax evasion, not right is it? Yet another example of somebody with a slightly murkier past.

ALISTAIR DARLING:

Look he's also the chairman of Pearsons who own the Financial Times, you know like a lot of these guys you know they've been involved in quite a few things.

ANDREW MARR:

So he keeps his job?

ALISTAIR DARLING:

Well look I think it's important you get people who've got the right skills to do a difficult job but I haven't looked at the article in detail but you know...I think sometimes�

ANDREW MARR:

�One for the in tray tomorrow maybe...

ALISTAIR DARLING:

...you know s�

ANDREW MARR:

Thank you we have run out of time�

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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