On Sunday 26 July 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.
Alistair Darling on the future of public spending.
ANDREW MARR:
Alistair Darling MP, Chancellor of the Exchequer
Now Alistair Darling gave an interview, you may recall, last summer, in which he warned us of very hard times ahead.
He was much mocked and briefed against for doing that, but of course he was right about it, wasn't he?
And he has been the great survivor of last month's reshuffle.
But what happens to the economy over the next few months will be the key to Labour's fortunes.
We are officially in the steepest slump now since the 1930s.
Chancellor, welcome and thank you for coming in. The latest figures out from the National Institute for Economic and Social Research are pretty awful looking. They suggest that the slump has been deeper perhaps than even you feared and that it's going to take longer to climb out of it.
ALISTAIR DARLING:
You're right, I think there's no doubt we are going through the deepest downturn recession that we've seen well in excess of 60 years. And I thought last summer that I could see that things were beginning to deteriorate and if you look at what's happened over the last few months right across the world, you can see that's been borne out.
Now the question is how do you make sure that the recession is less deep and less painful than it would otherwise be, which is why we have been supporting businesses, supporting people because that's an essential prerequisite of recovery. But I am confident that recovery will come.
But here, you know having listened to David Cameron's interview earlier, you know there is a big difference between us. I believe that the government can actually make a real difference not just at the rate at which we come out of recovery, but also the sort of country we will be as we come out of recovery and as we seize the opportunities that are available to us in the future.
ANDREW MARR:
Just staying on the figures for a moment, it does look like it's going to be very hard for you to hit your forecast of minus 3.5% this year. The last quarter was a disappointing one, I would have thought, in terms of what's happened to the economy.
ALISTAIR DARLING:
Yuh.
ANDREW MARR:
Do you now, do you still think you will hit that target?
ALISTAIR DARLING:
I think and I've always said that I think the economy will start to grow at the turn of the year and we will see modest growth next year. And indeed if you look at most of the commentators since the budget time have begun to take that view as well. Now there's no doubt…And remember the figures we got last week are a preliminary view.
They are subject to revision because it's simply the way that national statistics work. But I don't want to belittle in any way the fact that we and other countries - and you're seeing it with 18% unemployment in Spain, a 20% reduction in industrial capacity in Germany, you're seeing high unemployment in America - we and every other country are going through a very substantial downturn.
The key to me is yes you've got to take account of that; is what do you do about it? And that is why I think government's action - and both the OECD and the IMF, all the commentators have said that we were absolutely right to support our economy at a time like this.
Or, put another way, to start cutting money out of the economy just now I think would be disastrous and would do long-term damage to this country, which is why I just think the Tories are wrong on that.
ANDREW MARR:
And yet when you look at what happened in Norwich and when you look at the opinion polls as well, this notion that it's a choice between Labour investment and you can carry on spending in the old way, on the one hand, and nasty Tory cuts - people simply don't believe it.
ALISTAIR DARLING:
But I put it rather differently to that. I do think that people know that given what we are going through just now, there will have to be difficult choices, priorities will have to be set, and both political parties are going to have to do that.
ANDREW MARR:
(over) Let's use the word cuts.
ALISTAIR DARLING:
Well we are, we are…I've already said - and if you look at the envelope that I've set for public spending in the next 3 year period, it will be at a very, very much more tight rate of growth than we've seen in the past. Now that does mean that you've got to make choices.
I mean you're raising a wider point, I think, in relation to Norwich because I don't think that was just the one issue. I think that there is clearly an issue for us that we really do need to come out fighting.
ANDREW MARR:
You've got…
ALISTAIR DARLING:
If we are going to win a fourth term, if we are going to get people's confidence back, we are going to have to come out fighting and say what we believe in.
ANDREW MARR:
As a government…
ALISTAIR DARLING:
That is absolutely critical to us. There's no doubt about that.
ANDREW MARR:
As a government, you got it wrong first time round on this message, didn't you? It was too crude. Labour cuts…Labour investment versus Tory cuts. That was a mistake.
ALISTAIR DARLING:
Well, look, I have always said that right since the pre-budget report last year and at the budget itself, that we were going into a period where we would have to make choices.
There are some things you simply can't do at the rate you wanted to do them; there's some things you may have to put off; there's some things you may have to decide okay in the light of what's happening, we're not going to do them. Now I've said that since last November, I've said it again in relation to the budget.
ANDREW MARR:
You can see the Prime Minister didn't get it right.
ALISTAIR DARLING:
Well the Prime Minister was making a broader point. And actually if you look at the Tories over the last few days, some of them appear to have been almost wallowing in the prospect of making cuts here, there and everywhere. I do think you know this is an important point for both the main political parties.
We are going to have to set out what our priorities are, what is it that drives us if we're elected to government, what's our vision for what government can do for people, what it can do for the economy? And you make your choices underpinned by those values and those principles.
ANDREW MARR:
I asked David Cameron about something the Liberal Democrats have started to raise as an issue. I'd like to do the same with you, which is that yes there's an issue about public spending - of course, we've talked a bit about that - but also there's an issue about collapsing tax revenues. You know this better than anybody else.
ALISTAIR DARLING:
I do.
ANDREW MARR:
It's all coming from the City and it's not. And that, therefore, any programme for the future to put the public finances back on an even keel does need to look at tax again as well and does need to look at where we tax and how we tax.
ALISTAIR DARLING:
Well it does. And at the budget, as you'll know, I said that we would have to increase the top rate of income tax to 50 pence, which affects about 1% of the population. I've also been able of course to couple that with reducing the amount of tax that basic rate taxpayers pay because I think it's important that you help people who are pretty hard pressed at the moment.
ANDREW MARR:
What about VAT because as things stand, it's due to go back to 17.5%…
ALISTAIR DARLING:
Which it will.
ANDREW MARR:
And it definitely will?
ALISTAIR DARLING:
It will do, yes.
ANDREW MARR:
It will do.
ALISTAIR DARLING:
Look, the reason that I cut VAT was to bring forward spending during this year as part of the process of helping our economy get through it. But you know when you consider that it costs almost about a billion pounds a month, I was quite clear at the budget and clear when I announced this last November that the VAT rate would return to the 17.5% at the end of this year.
Now that remains the case. Which you're right, Andrew, that you need to look at spending, we need to…We've looked too at tax and we've tried to do this in a way that is fair. No-one - and I've said this before - I didn't want to raise the top rate of tax, but I've done it because at a time like this you should ask people who've got the broadest shoulders to shoulder the burden, and that's why we put up tax for the people at the top end of the income scale.
And I think a combination of that and just having a long, hard look at where we spend our money, what difference it makes. And I think there is a distinction between people, if you like the slash and burn type mentality and those who believe that public spending actually can make a difference to the fabric of this country.
ANDREW MARR:
You've been very frank about VAT. Are we going to see a comprehensive spending review before the General Election because one of the things that people say about this government is that you say there's going to be some tough choices and difficult things ahead, but you won't talk about them until after people have voted?
ALISTAIR DARLING:
Well I think I have. I mean I did say at the budget time that at this time when you've got so much uncertainty around - and we've just been talking about that, that's obvious - you can't settle people's budgets down to the last tray of paperclips between now and 2013 at the moment.
But I did say we'd need to come back to this at the pre-budget report because the one thing that I really think is important is that we are committed to the finances in this country being sustainable.
Clearly you know because of what's happened, because of the collapsing revenues in the City, because of the fact that stamp duty's down very significantly, we've got to take account of that. But when it comes to the pre-budget report, the budget next year and of course the Election, people will want to know from all the political parties okay if we vote for you, where do you stand?
ANDREW MARR:
(over) And they will get from you at least the bones of that kind of spending review that will allow them to take a decision?
ALISTAIR DARLING:
You have to set, you have to set out those priorities.
ANDREW MARR:
Okay.
ALISTAIR DARLING:
Apart from anything else, the next election could see a government elected until 2015. It will need mandate for the hard things it's got to do as well as the things it wants to do to improve the country. And politics is about choices and I think when people, when people go to the polls, whenever it is, they'll want to know where both, all three political parties stand.
ANDREW MARR:
Well speaking about choices, the war in Afghanistan is a choice - costing an extra 12 billion or so a year we read today.
ALISTAIR DARLING:
Well…
ANDREW MARR:
I just wonder how long that is…that kind of spending is sustainable?
ALISTAIR DARLING:
Since the war in Iraq and Afghanistan, we have spent it's actually about £14 billion on extra money over and above defence spending to make sure the troops had got the equipment they need in the front line. Now in relation to Afghanistan, the reason that we are there is twofold.
Firstly, the presence of the Taliban, al-Qaeda there is and remains a threat to our country as well as other countries as well. But also I think there is a chance of trying to establish in that country a better life, a more democratic based government. That's why we're there. And of course as long as our troops are there, they do need to be supported.
ANDREW MARR:
Have you given them everything that they've asked for?
ALISTAIR DARLING:
Yes. We have a well established system that if the military need additional equipment or additional resources to look after their people who are in action in the frontline, then we will provide that.
ANDREW MARR:
So General Dannatt comes along with his shopping list and you meet that?
ALISTAIR DARLING:
Well he has…When he comes along with his proposals, we will sit down and look at them. Any treasury is bound to say, go through the individual proposals and say, "Do you need this for your operations?" or "is this a long-term thing?" and so on. But I'll be quite clear that if we send troops, many of whom are risking their lives, they are entitled to be supported with the equipment they need and the resources they need and that remains the case.
ANDREW MARR:
Did you know earlier on in this conflict and process that the military were worried about the number of helicopters and felt they weren't getting enough, or has that been rather recent?
ALISTAIR DARLING:
Well I think we have increased helicopter capacity. And remember also the helicopters that are available in Afghanistan, whether they come from us or the Americans or anyone else, are pooled…
ANDREW MARR:
(over) Is it true by the way…
ALISTAIR DARLING:
It is an international force, remember.
ANDREW MARR:
…what David Cameron was saying about all these Chinooks sitting in air conditioned hangers in Hampshire and not being used?
ALISTAIR DARLING:
Yeah, I'm afraid there is something of a history here that equipment has been ordered; that when it arrives it is so sophisticated it can't actually be used for the purpose that we want. That, I'm afraid…
ANDREW MARR:
And whose fault is that?
ALISTAIR DARLING:
Well I think that is…If you go back over the last 30 years, I'm afraid there are examples of procurement of military equipment where what was procured, by the time it turned up circumstances had changed and (in some cases) the stuff just wasn't capable of being used.
And in any event, you know I think people understand that to take a helicopter that's been deployed you know say in this country and then taking it to a hot country like Afghanistan, it needs some adaptation.
But I think you know this is actually another reason why we are right to start the process of a fundamental review of our defence spending, which we announced a couple of weeks ago, because you need to do that from time to time.
ANDREW MARR:
The banks, are they giving enough support to small business and businesses? I think you're going to, you're likely to be calling some of them in to talk to them tomorrow, I think.
ALISTAIR DARLING:
Yuh. I am concerned that whilst we've seen an easing of the position in relation to borrowing for mortgages, if you like - and if you look at the bigger companies because of the actions being taken, they've been able to raise money through the bond market and so on - I am extremely concerned at what the banks are doing for the small and medium sized companies in this country.
ANDREW MARR:
Because of the cost of borrowing is going up.
ALISTAIR DARLING:
Yeah, that's what's worrying me, because what companies are being charged does seem to have gone up relative to what banks are actually having to pay because of the fact we've got very low interest rates.
And people have got to understand in the banks, we did not stabilise the banking system, rescue some banks out of some sort of charitable act or because we felt sorry for them. Far from it.
We did it because if you don't have a banking system that provides credit for businesses, then you will make recovery and prosperity after that much, much more difficult.
ANDREW MARR:
So do you fear that in fact what's happening is the banks are rebuilding their balance sheets rather than keep…getting the economy moving again?
ALISTAIR DARLING:
(over) To be fair, I want them to rebuild their balance sheets because you know, heavens, if you look at what's happened…
ANDREW MARR:
(over) They have to.
ALISTAIR DARLING:
…they really need to do that. But at the same time, because of the particular circumstances we're in now, because of the fact we've got this recession, we also need them to lend money. And that's why we recapitalised them to do that.
And that means they've got to live up to the promises that they made and that is why we will be going through with each individual bank, asking them why is it that at a time when the cost of borrowing is coming down, it would appear that the cost to the small business appears to have gone up. Now we're playing our part. The banks have got to understand that the public will not understand it if they don't play their part to the full.
ANDREW MARR:
And, finally, we know that by-elections are different, but half the swing in Norwich would see you lose your own seat. Do you think Labour can still realistically talk about winning another General Election?
ALISTAIR DARLING:
Yes I do and I'll tell you why. We have been in office now for some time. We've begun to put right many of the things that needed to be fixed when we came into power. I'm not prepared simply to stand back and see that written off. I believe it's essential that the Labour Party comes out fighting this autumn.
We've got to re-engage and enthuse our supporters who stayed away from the polls last Thursday that there is a fight to be had. Whoever wins the next election will shape the destiny of this country (Marr tries to interject) not just for the next 5 years, beyond that. So I am confident. I'm not noted as a natural optimist…
ANDREW MARR:
(laughs) No.
ALISTAIR DARLING:
…but I believe that we can win and that we will win, but we really do need to come out fighting.
ANDREW MARR:
Even under Gordon Brown?
ALISTAIR DARLING:
Yes, absolutely. Gordon Brown has the values, he's got the commitment. But it's up to…It's not just one person. It's up to each and every one of us to show to people that we actually have the will and we have the determination to win the next election, and, actually more importantly, rebuild this country and deal with all the challenges that we know are coming.
I am optimistic and confident about the future of this country provided we recognise that right choices need to be made, and that means that we've got to fight for every single vote.
ANDREW MARR:
Okay. Well I think we have a scoop then: Alistair Darling optimistic. Thank you very much indeed for coming in.
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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