PLEASE NOTE "THE ANDREW MARR SHOW" MUST BE CREDITED IF ANY PART OF THIS TRANSCRIPT IS USED Sophie Raworth interviewed the Chief Secretary to the Treasury, Danny Alexander. SOPHIE RAWORTH: Now to a very different subject because we learnt this week that the British economy grew by less than one quarter of one per cent in the last three months - far less encouraging than the Chancellor had hoped for, and far less than he predicted a year ago. Labour says the government should act now and pump money into the economy, while many on the Right believe that the answer lies in tax cuts: there's a big lobby to dump the 50p top rate of tax. Well I'm joined now by the Chief Secretary to the Treasury, Danny Alexander. Good morning. DANNY ALEXANDER: Good morning. SOPHIE RAWORTH: 0.2 per cent in the second quarter. The Chancellor says it's positive, but I mean the only positive thing about it really is that it could have been worse. DANNY ALEXANDER: Well of course it is good news that the economy is moving in the right direction. But we always said that recovering from the deepest recession that we've had for many decades, with the largest budget deficit we've seen for a very long time, was going to be choppy. And I think probably the waters have been choppier than anyone expected … SOPHIE RAWORTH: (over) Right … DANNY ALEXANDER: (over) … and we've seen big head winds in the global economy - rising oil prices, rising commodity prices. All those things have an impact on the British economy. SOPHIE RAWORTH: Yes, but you were hoping for growth of .8 weren't you? I mean it might be moving in the right direction, but .2 is not .8 and it's falling far short of what you were hoping for and what your predictions were. DANNY ALEXANDER: Well and, as I say, there are big problems in the global economy. We're seeing things playing out in other parts of the world that are very difficult for us. We have rising oil prices causing high inflation here in this country, which affects everyone in this country in their pockets at home. Those are things that we have to deal with. But the most important thing we can do is to stick to the plan that we set out, the credibility that we established for this country when the two parties that formed the coalition came together last May to make a plan that ensured that there was confidence in the UK economy's ability to pay its way. And just to say one thing about that. That delivers a significant monetary stimulus to the economy because of course by having a credible fiscal policy, by dealing with the deficit, by getting our spending down, we give the Bank of England the space to keep interest rates low. And the price of doing what Labour says - throwing that credibility out of the window - would be to see interest rates rise, and that would affect every mortgage and every business in this country. SOPHIE RAWORTH: On a very basic level though, are you worried about the fact that these figures are 0.2 per cent? Does it worry you at all? You keep saying "stick to the plan", the Chancellor says we're sticking to the plan. You must be worried? DANNY ALEXANDER: Of course we have to do everything that we can to … SOPHIE RAWORTH: (over) But are you worried? DANNY ALEXANDER: … support growth in the economy. SOPHIE RAWORTH: Are you worried? DANNY ALEXANDER: Of course we spend all of our time focusing on dealing with the huge economic problems that we inherited and the problems that we have going forward. And you know it's not just to do with the deficit. It's also to do with the fact that the economy that we took over was one that was very unbalanced, where all the focus had been on banking in the City of London and not enough on growth in other parts of the country. So as well as dealing with the deficit, we also have to take long-term decisions which can help to rebalance the economy, to get growth in the North and the Midlands and Scotland and Wales as well as in London and the South East. SOPHIE RAWORTH: (over) I'm intrigued though … DANNY ALEXANDER: (over) That's why, for example, dealing with bank lending is such an important thing for us. SOPHIE RAWORTH: I'm intrigued to know why I ask you a very simple question - are you worried - and you're not answering, you're not giving me a yes or no are you worried. And that is why people … You know they're worried. DANNY ALEXANDER: Of course. Look of course we're concerned about the situation in the economy. That's what we spend every day, every hour of every day working on. But the problems that we face are big and long-term problems. They're not something for which there's an easy quick fix, as the Labour Party might have you believe. There are long-term problems with our public finances, the enormous deficit that we inherited; there are problems with growth where we have to free up businesses to be able to lead the economic recovery. That's why the changes we're making to the planning system, to regulation, to apprenticeships and skills and training, the steps we're taking to force the banks to lend more - those are all things that can make a difference to growth. But I think the idea that there's some sort of easy way out of this is just not right. This is a long and difficult road … SOPHIE RAWORTH: (over) No, but I mean what people want to know though … DANNY ALEXANDER: (over) … that we have to keep going down. SOPHIE RAWORTH: And what people want to know … Okay, so you say you're concerned about the state of the economy at the moment. So when people are concerned about something, they often have alternatives. Is there an alternative? You must be thinking about other ways because if this keeps going, if we have figures like this for the next two quarters, you must then have to do something different? DANNY ALEXANDER: I think you have to look at what the consequences would be of doing what some people are advising to do, which is to step back from the fiscal credibility that we established when we came into office. And we can see from other parts of Europe, from what's going on in the United States, that when you have uncertainty about a country's ability to pay its way, that has much more serious problems for that country. And so that credibility is a hard one. We have to stick to it because it's delivering benefits to this country, particularly in terms of the low interest rates that we're seeing as a consequence of that. But you're right to say that we have to do more to encourage and support businesses to grow. SOPHIE RAWORTH: (over) Yes, but if you don't … DANNY ALEXANDER: That's why we're forming the planning system; that's why we're going after the banks and encouraging them to lend more. These are things that can make a real difference go businesses. But what I reject is the argument that by changing our overall stance, we would make the economy better. I think we'd make it worse. SOPHIE RAWORTH: So no Plan B, okay. But I mean it does make things difficult for you. If the figures continue to be as low as they are, it makes it very difficult for you to deliver on deficit reduction because you're basing them on growth forecasts of 1.7 for the year; but if you don't get that, the whole deficit reduction plan, then you're going to have to rethink that. DANNY ALEXANDER: Well what we're dealing with is the structural deficit. That's what we've set our target towards. That's the part of the deficit that needs policy changes like spending reductions or tax rises to deal with. That's the part of it where we're going to stick to our plans. Of course if growth is different, that causes fluctuations for example in benefit payments, which are the so-called automatic stabilisers in the economy. Those of course will continue to operate. But fundamentally we have won a very important prize for this country. It's a prize that not every country in the world has, and that is a credibility internationally - supported by the IMF, supported by the OECD, supported by the G20 - that this is a country that can pay its way in the world, that can deal with its economic problems. And that delivers real benefits to businesses and to households in terms of low interest rates, and you know it is those low interest rates that would be at threat if we stepped away from our plan and adopted some complete alternative strategy. SOPHIE RAWORTH: Okay. DANNY ALEXANDER: That's the point I think it's important to get across - that there are real benefits to people and to businesses of the stance that we have adopted. SOPHIE RAWORTH: 50p tax rate. Boris Johnson says open this country to business, get rid of it. DANNY ALEXANDER: Yeah. SOPHIE RAWORTH: Lord Lamont is also in the papers, as you've seen today, saying exactly the same thing. Why don't you? DANNY ALEXANDER: We set out in the Coalition Agreement - and it's something that we as Liberal Democrats pushed very hard for - that the government's first priority in tax reductions would be tax cuts for people on low and middle incomes; those very families who are working hard to try and make ends meet. And you know I think anyone who thinks that we're going to shift our priority to reducing the tax burden for the wealthiest has got another think coming. That cannot be the right priority for a country at this time. We're going through very difficult circumstances. We've got real financial pressures on people and we're going to stick to our priority that says tax reductions that we can push through will be aimed at those on low and middle incomes first. SOPHIE RAWORTH: So VAT, for example? DANNY ALEXANDER: Well we have a plan for raising the income tax threshold. We've already increased it by £1,000 this year. That's worth £200 this year in the wage packets of every single person who's working on the basic rate of tax. We're going to lift the income tax threshold to £10,000. That was a major Liberal Democrat commitment at the election. That's our first income tax priority. That's what we have to stick to. I think the idea that we're going to somehow shift our focus to the wealthiest in the country at a time when everyone's under pressure is just in Cloud Cuckoo Land. SOPHIE RAWORTH: It does underline the fragility of our situation though, doesn't it, what's going on in America … DANNY ALEXANDER: It does. SOPHIE RAWORTH: … because if they don't reach an agreement, I mean literally in the next sort of 48 hours, it could be chaos. I mean we could be tipped back into recession, let alone other economies around the world. DANNY ALEXANDER: Well American politics and American politicians have shown over many decades an enormous capacity for leadership, and I think that's what they have to show now. We have to get to a situation, as we had in this country, where two parties bury their political differences; they do what the President says and leave their petty party political differences behind and do the right thing not just for America but for the whole world. You know it's not just the United Kingdom. The whole world is watching because if they get this one wrong and you know there's a default - and we don't expect that, we think that they will sort this out - but if that were to happen, it has consequences for every family and every business in this country and all across the world. SOPHIE RAWORTH: What would happen if they didn't sort it out? What would happen to us, to Britain? DANNY ALEXANDER: Well we would I think see some pretty deeply damaging consequences. Of course it would depend exactly how things unfolded, and I stress that I don't expect that to happen. I think in the end politicians on Capitol Hill can see that the implications of the precipice they're looking over, if you like, is one that they want to step back from. But you know it is something that would have big effects on the global financial system; and in a global economy where the United States is one of our major trading partners, that could have really big implications for the United Kingdom. SOPHIE RAWORTH: Let's just talk about the Lib-Dems as well finally. I mean the story, this poll that's in the papers this morning, the Sunday Times, doesn't look very good for Nick Clegg, does it? It says that only 35 per cent think that he will still be the Lib-Dem Leader by 2015. Do you agree with that? DANNY ALEXANDER: No, I don't. That's total nonsense. You know of course the Liberal Democrats have borne the brunt if you like of the coalition, and particularly Liberal Democrats in the country where we've lost some you know very hard-working councillors and campaigners over the last year. But the Liberal Democrats are a very resilient party. We're used to marching to the sound of gunfire, if you like, as Joe Grimond once wrote, and you know we are very proud of what we're achieving in government. You know it's not just the tax cuts for low earners that I was talking about. There's the additional funding for the most disadvantaged pupils; there is shifting pensions, uprating them in line with earnings with a triple lock guarantee; there's the protection of civil liberties; there's the work that we're doing to support the environment and to expand renewable energy. These are all big … SOPHIE RAWORTH: (over) But you've got … DANNY ALEXANDER: (over) … these are all big Lib-Dem commitments. SOPHIE RAWORTH: Yes, but you've also … I mean you know you've got a lot to turn around here. You look at the polls, you look at the figures; and you know things like the economy, you don't sort that out, the Lib-Dems are going to be in huge amounts of trouble, aren't they, come the next election? DANNY ALEXANDER: Well the economy is the number one focus for the entire government. We all have to sort that out. But you know I think that we will enter the next election having a very strong record in government where people have seen that we've done the right things for the right reasons; and under Nick Clegg's leadership, we will do even better at the next election than we did at the last one. SOPHIE RAWORTH: Danny Alexander, thank you very much. INTERVIEW ENDS
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