................................................................................ ON THE RECORD ALISTAIR DARLING INTERVIEW RECORDED FROM TRANSMISSION BBC-1 DATE: 14.6.98 ................................................................................ JOHN HUMPHRYS: Good afternoon. Is the government a little softer on spending the taxpayer's money than it would have us believe? I'll be asking the Chief Secretary to the Treasury, Alistair Darling, about the consequences of loosening the nation's purse strings. That's after the News read by CHRIS LOWE. NEWS HUMPHRYS: Thank you Chris. Ever since Tony Blair moved into Downing Street the government has been working on the comprehensive spending review - looking at the Budgets of every single Department in fine detail to save on the things that don't matter so much - to spend on the things that do - health and education. On Thursday, the Chancellor told us how much more money the government will have to spend over the next three years and most people seemed to think he was being very prudent. He certainly encouraged that view. But is that really the case? In our Edinburgh studio here is the man who controls the purse strings - the Treasury Secretary, Alistair Darling. As a Labour Minister, Mr Darling, you must be a bit pleased that we are actually going to be spending so much more money than perhaps we had expected. ALISTAIR DARLING: What we want to do is to ensure that public spending is sustainable over the period. In the past we've reached a situation where governments have either gone out on a hopelessly optimistic spending spree only to have to rein back two or three years later or alternatively, as happened with the Tories in the late 1980s, they completely misread some optimistic signals with a result that inflation took off and they ran into one of the deepest recessions this country has ever seen. What we said at the manifesto, was that we would have two key rules that would determine public spending. One of the golden rule, which is that you should cover your current spending from revenues and the second one, the sustainable investment rule, is that you should borrow at a prudent level for investment and capital investment and so on. Now, what we did, on Thursday Gordon Brown announced the conclusions of that was to estimate how much we think the government can spend for the next three years towards the end of this Parliament. We think it is a prudent estimate of what we can do, it is tough, people should be in no doubt about that. But it is doing exactly what we said we would do in the manifesto and what Gordon Brown said we would do in his first two Budgets. HUMPHRYS: Well, you say it's tough but it's two and three quarter per cent more than you had been spending, that's over and above inflation of course. That isn't actually all that tough is it, that's quite a lot of money, that's a lot of extra spending. DARLING: It is very useful additional spending and you know- HUMPHRYS: It's a lot. DARLING: -many people will say that our public services do need additional investment and we readily accept that. But what we are determined to do is to ensure that we only increase public spending by an amount that we can afford to and the two and a quarter per cent growth that we anticipate is in line with the growth of the economy over the next three years. Now I think that is prudent and you will find that there are many commentators over the last few days who will bear out my view that not only is it prudent but it will also be tough. But, you know, the point here is that for the first time a government has been prepared to set out a longer term planning horizon than in the past, but also the government has taken a clear view as to how much we can afford to avoid the situation that I described a moment ago where you start spending, you then discover it's unaffordable, then you have to rein back. HUMPHRYS: But, you see, the word prudent that keeps croping up, both from Mr Brown and yourself this morning. What you said in the March Budget, was that you'd expect to spend more in the region of three quarters of a per cent to two and a quarter per cent. Well now you're spending two and three quarters per cent extra, that's including capital spending and of course I understand that. Everybody had assumed that you would go for somewhere in the middle of that range, so it actually isn't that prudent is it. DARLING: No, what we did in the budget was to set out three different scenarios as to how we could hit the fiscal rules that we set out. But the overall driving force behind our approach was set out in the manifesto and in Gordon Brown's first two Budgets and that is that we would meet the golden rule, which is as I say, that you should not borrow to cover your current spending and that we would have a sensible level of investment, a sustainable investment rule for capital investment and the like. Now, that was made abundantly clear in the Budget and I think, more than that, if you look at the tightening, the fiscal tightening that was announced by Gordon in his first two Budgets, that was there in the Budget, it's there now and it will be there this year, next year and the year after and there is a significant degree of tightening. When we came into office, we inherited a situation where not only had the national debt doubled in six years and we're spending twenty-five billion pounds a year servicing that debt, but we also found that the Tory Government was actually running a deficit on the year on year basis. Now we've reduced that quite substantially and it's because we've done that, we've been able to build the secure platform which you need for sustainable public finances in the future. I'll just repeat this point John, and then by all means come back. We have significantly tightened the fiscal stance, everybody knows that and it's entirely in line with what we said in the last Budget report we published a few months ago. HUMPHRYS: You say everybody knows that. You talk about the last report. I mean there were indeed, there were those three spending scenarios as you say but they ranged from three quarters of one per cent to two and a quarter per cent and you've gone for two point seven five per cent, now two and three quarters per cent. Now, that's actually taken a few people by surprise. It's taken the Bank of England a bit by surprise hasn't it, because they had based their inflation forecasts on one and a half per cent. DARLING: No, it didn't hit the Bank of England by surprise at all. The Bank knows the position the government has taken so far as its fiscal stance is concerned- HUMPHRYS: Why did it base its forecast on one point five per cent then? DARLINg: The-if you listen to what Eddie George was saying at the Mansion House on Thursday evening, he was talking about the various pressures in the economy at the moment, the various inflationary pressures, and what he was pointing at is the-you know the quite rapid expansion of earnings and wage increases in the private sector. But the Bank knows what our fiscal stance is and if you look at the reaction on Friday, the day after, the markets generally, people recognise that this is..we're taking a very prudent and we're taking a tough view so far as public finance is concerned. But let me repeat the point. At the election, in our manifesto and after that we made it clear that the government would stick to these two fiscal rules, that we would cover our current expenditure and that we would bear down and, you know we are reducing the amount of debt down to below forty per cent GDP. People realise that this is a prudent and tough assessment but it is consistent also, of course, with the need, and I think everybody accepts this, that of course public services do have to be properly funded. But you know, I don't want to labour the point too much, but you know as you keep mentioning it, let me repeat it once again. There is significant fiscal tightening. It was locked in at the Budget, it's here this year, next year and the year after and we think that the spending limits that we announced from Thursday are not really entirely consistent with that, but they will allow spending, current spending to grow in line with what we think the economy will do and I think most people think that is very realistic. HUMPHRYS: I'm slightly puzzled that you keep saying fiscal tightening. It is - let's use language that people can understand. If I look at my household Budget and I say I'm going to spend more, I can't then go to the neighbours and say I'm spending less, can I, because I'm spending more. So, how can we have a fiscal tightening as you put it, when what we're seeing, clearly, is a fiscal loosening because you're spending more rather that less, than what you said you were going to spend. DARLING: Again, to put it in plainer terms, if you like. We have reduced quite dramatically the amount of money the government was borrowing. You know we've tightened that up quite significantly, you know. And I repeat the point that when we came into office, the borrowing that we inherited was quite unsustainable - twenty-five billion pounds a year on serving the debt. The last government was running a situation where it was spending more each year than it was getting in, even at this stage of the cycle. Now, that was not prudent. So what we did, was we've reduced the amount of borrowing that we inherited quite significantly and we have also, you know, taken money out of the economy. Now, we think that was necessary because the economy was running at a rate that frankly wasn't sustainable. But I repeat the point, at the time of the election I think many people were surprised but, you know, were quite pleasantly surprised that we were going to stick to two new rules so far as- HUMPHRYS: As you explained. DARLING: And we are sticking to those rules, there's no question of that, no-one disputes that. HUMPHRYS: Alright. Let me come back to the question of how much the government borrows as well, in a minute, the debt. But let's look at the-this comprehensive spending review to which I referred to in the introduction. Now that, had it done its job properly, would have meant that you wouldn't have had to do what you have just done and that is to increase the total amount of spending, the control total as the experts have it, because the idea was to shift money around wasn't it, from one department to another, so that health and education could have more money, because that's exactly what you want to do, you're determined to do that and many people say quite right too. But had this CSR, as they call it, been successful, this review been successful, you wouldn't have had to pile a load of extra money on top, if you'd been able to shift it around in between. DARLING: Well there's two points I think to make here. The first is that the comprehensive spending review is not yet completed. It will be another month or so before we announce the final allocations between departments and you're absolutely right, we are looking through every single pound that we spend and asking ourselves how that money can be best directed to meet the government's objectives on health, education and so on. The second point is that we always made it clear, indeed it was quite explicit, throughout the last year, that before the comprehensive spending review we would have to form a judgement as to how much we could reasonably spend for the next three years. HUMPHRYS: -can I- DARLING: Just let me finish this point. HUMPHRYS: Go on. DARLING: The logical thing to do, is it not, was at this stage, as we move into the final stages of the comprehensive spending review, was to set out how much the government thought it could spend, reasonably spend for the rest of this parliament, on current spending and on capital spending. And you know that distinction is very important because capital has been neglected in the last few years, so it was logical to tell our colleagues and you know once we'd told the Cabinet, it was only right that we should tell Parliament what the overall envelope was. The next stage is how much we allocate to each department. HUMPHRYS: Well, let me come in there because you said that you weren't going to do these things until after you'd completed the-the review. Let me remind you of what you said in the March Budget about that - Paragraph B11 - I happen to have been skimming it over my breakfast this morning - as one does. Public expenditure plans for the years after 1998-'99 will not be known until the summer, when the results of the comprehensive spending review are announced. I mean, what that proves is that you have - you must know - what those - what that review achieved because you have had to put money in now? DARLING: No. You know, since you read that paragraph that you referred to, it is the case that, of course, the Government has to work out how much it can spend for the next three years. Now, the comprehensive spending review is - you know - it's a twin process. One is to go through existing spending and, then, ask ourselves, you know, how that money can be best directed to delivering the Government's objectives. Alongside that, given that, you know, the spending plans we inherited, run out at the end of this financial year- HUMPHRYS: Yeah. DARLING: - it was always going to be the case that the Government would have to announce in the summer that how much you can spend.. of this Parliament. HUMPHRYS: Yeah. After the review, after the review. DARLING: Yeah, and you know what is important is that, you know, I think, it's commonsense. I mean, you couldn't make a final decision on how much you were going to spend in each Department- HUMPHRYS: Well- DARLING: -unless you knew how much you had to spend overall. HUMPHRYS: Well- DARLING: And, it's only right having decided how much we're going to spend overall that we should tell Parliament what that was. HUMPHRYS: But-But, I mean, it is here in black and white isn't it? I mean, it says - let me repeat it, if I may - public expenditure plans for '98/'99 will not be known until the summer when the results of the comprehensive spending review are announced. DARLING: Yes. HUMPHRYS: Well, you have not announced the results of the spending review and the reason you haven't done that can only be - presumably - because it hasn't achieved what you set out to achieve because you've had to pile more money in. DARLING: No, no, no, no. HUMPHRYS: Had the review been successful you wouldn't have had to pile more money in. DARLING: No. As against-There's two aspects of any review of spending. One is you look at what you're spending at the moment and, then, decide how best you can reallocate that to meet the objectives that we've set ourselves in Health, Education, Transport and so on. But, secondly, given that, you know, this is an unusual situation and that whilst we inherited existing spending plans which run out this year, we didn't as would normally have been the case announce in the March Budget how much the Government thought it could spend for the rest of this Parliament. It was always clear that we do that as part of the comprehensive spending review. HUMPHRYS: After the review had been completed. That's what the Budget said, very clearly. DARLING: No, what-you know, I suppose I have the advantage over you, John, in that I, actually, know how the comprehensive spending review is going and it's very much on track. HUMPHRYS: Well, then, you can tell us. Well, then, let's sort this out. You can tell us - since you know. We can be quite clear - can we? - that certain sums of money - large sums of money - because we'd have to be talking about very large sums of money - wouldn't we? - have been taken from some Departments and given to others. That is the case, is it? DARLING: Well, you'll see in just over a month's time when we make the announcement on the spending for the rest of this Parliament, how much has been allocated to each-each Department. But, the review was about examining each Department and looking across Government to see how best we could allocate the existing resources to meet our objectives. Now, on top of that - given that every Government needs to take a view as to how much it can spend on public services - on top of that we had to reach a judgment as to how much we could afford to spend on Current Expenditure, on Capital Expenditure and, then, you match the two up, make your final allocation and, of course, one of the many new aspects of this review is, of course, when we make our announcement we'll give each Department a three-year plan so we can plan in the future which is in itself quite an improvement. HUMPHRYS: And, they'll all be-And, they'll all be winners, won't they because having piled in the extra money there aren't going to be any losers, they'll all be winners? DARLING: No, they won't be. Not every Department is going to be a winner. That's quite obviously the case. A number of my colleagues will be disappointed in-in various ways. But, what we-what I can say is that the comprehensive spending review - when it's completed - will show how the Government intends to meet is priorities right across the board. We were elected on some specific promises at the last Election set out in our manifesto and we will stick to those promises and we will show how we will deliver them. The other thing of course that will be new is that we're showing how, you know, there are many cases in which Government spending and objectives cover a number of Departments and we will show how we can channel the resources that we need in that way as well. HUMPHRYS: Can the- DARLING: It was self-evident not everybody can get everything they think they want. HUMPHRYS: Can I offer you some evidence for what some may say because we don't know, of course because you haven't been able to vouchsafe it but-but what some may say in the event will have been the failure of the-the spending review and that is had it worked - had it worked properly - you wouldn't have had to do such a massive u-turn - as you have done - on privatisation? When you were in Opposition you were agin it, now that you're in Government, you're for it and you're flogging off everything you can lay your hands on. DARLING: Let me come to that point. But, you know, just to repeat the point. The comprehensive spending review was always going to be published in the summer. The last few months, we've made it pretty clear it was going to be- HUMPHRYS: Alright. DARLING: -in July and I don't think any commentator can realistically say that you know pass any judgment on it because nobody knows its results yet. Now, let me turn to the- HUMPHRYS: Privatisation. DARLING: The partnership. HUMPHRYS: Well, most people call it privatisation, Mr Darling. Most people don't call it partnership. DARLING: Well, let-let me explain what exactly- HUMPHRYS: They see Government assets being sold off. DARLING: Let me explain now the approach that we're taking and this is an approach that we set out - at great length - prior to the Election and, indeed, I remember speaking about it on a number of occasions. It was in the Manifesto. We're now implementing that manifesto. What we said was this: that where the State didn't need to own assets and we recall that we published the national asset register last November which showed an extraordinary list of items which I think many people were taken by surprise by just how much the Government owned. For example, service stations on the M-One and so on which we don't need to own. And, what we've said is that if we don't need those-those assets, then, it's far better to realise them and plough that money back into increased capital investment in the schools and hospitals and so on that we do need. HUMPHRYS: Right. Do you need to own Channel Four Television? DARLING: Well, what we've said was that in each case we examine whether or not we - how we can get increased investment into the particular corporation concerned. We look at the whole thing on its merits. Now, we've got no plans, you know, as we've make pretty clear to do anything with Channel Four. HUMPHRYS: Let me rule it out! DARLING: But, let me give you two examples that we did refer to. One is the Royal Mint. Now, the Royal Mint actually brings in quite a lot of Revenue, at the moment, by carrying out mint services, if you like - producing coins and so on - for other countries. It's got quite a good,
commercial arm to it. HUMPHRYS: Hm, Channel Four does quite well, too. DARLING: It makes sense to see that sort of work developed because it needs the increased investment. That's an area where we think we can do more. If you take air traffic control, for example. Now, everybody knows that air traffic control system is of strategic importance to this country. Safety is absolutely paramount. At the same time, everybody knows that we need increased investment. For years, it has suffered because of a lack of that and what we say is that through partnership with the Government, the employees and the private sector, bringing in additional investment, as well as you know better management skills, in many cases, you can actually get a better result. HUMPHRYS: So- DARLING: But, at the same time you can guarantee the paramount importance of safety by having a safety regulation. Now, I think, most people will ask themselves when they look at the public services and so on: what they ask themselves is: how do you get the best result? How do you increase levels of investment? That is what the Government is doing right across the board and may I remind you'll actually see as a result of this review process one of the biggest increases in capital investment that any Government has produced. Now, that is something that has been neglected for years and that's something that people will welcome. HUMPHRYS: Can I-And, many people having heard that answer will assume well they must have had that in their Budget plans all along then, in that case. They, clearly, intended to do it right from the beginning! But, let me just remind you of something. You know very well yourself what your last Budget said about privatisation and I'll quote it:"Privatisation proceeds nought." So, you didn't plan to do it in the last Budget, did you? Or in the one before that? DARLING: No. What we've done unlike the last Government is not take credit for sales that haven't yet even been agreed and the last Government- HUMPHRYS: Talk about taking credit. It's anticipated what your income's going to be. DARLING: The last Government on a number of occasions put into the books proceeds that they had no intention of realising. They hadn't even done the groundwork of realising what we have been doing. And, you know, we made this absolutely clear, you know, before the Election. HUMPHRYS: Well, you intended to do this so why couldn't you put in the Budget? DARLING: Before the Election-During the Election that we would look at all these things on their merits. What matters to us is what works best which matters to the public and we believe that this is a way in which we can get increased investment into the system which is desperately needed and, at the same time, and you know I just emphasise this point: if you look around the country just now, you see schools, you see hospitals, you see- HUMPHRYS: Yeah. DARLING: -roads desperately in need of improvement. HUMPHRYS: That isn't the point I'm making. DARLING: With increased capital- HUMPHRYS: Yeah. DARLING: -Expenditure will actually enable us to achieve- HUMPHRYS: Hm, alright! DARLING: -and make up the shortfall in investment. HUMPHRYS: That isn't the point I'm making- DARLING: -the increased capital expenditure will actually enable us to achieve that and to make up the shortfall on investment. HUMPHRYS: That's not the point I'm making. The point is that when you look at the last budget, you expected not to be getting anything from selling off these different things. Now then you discover, I'm suggesting to you, that the comprehensive spending review hasn't delivered the goods in the way you had hoped it would, so you had then to sell off these things. That's the point I'm putting to you, because otherwise if you'd anticipated the income you could have said: we'd expect to get this amount from flogging off this and this amount from flogging off that. DARLING: No, because you ought not when you you are publishing your financial forecast, take credit for something for which you had not yet decided to go ahead with. HUMPHRYS: But you told me you did decide to go ahead with it, it was something you'd intended to do. DARLING: No. What I said to you was, that in our manifesto before the election and since the election, we said that we would look at all these matters on their merits. That's what we said, that's what we've done. HUMPHRYS: So you've only just decided that the merits - that that is merited. In that case can I just move on a little bit and ask you whether you're going to- DARLING: No, no, you can't leave that - you know- hanging like that. HUMPHRYS: Well go on, deal with that. I want to ask you what the Government does. DARLING: What the Government does is it considers sometimes over months, sometimes over weeks, what's best in a particular case, which you shouldn't do though - which is what the last Government did - was to make an - just assume you were going to get Revenue when you may not even have decided whether you were going to go ahead or not. HUMPHRYS: Well, fine. Well, in that case- DARLING: Well, what we have decided to do as we announced and as soon as the decisions have been finalised, the Cabinet resolve that Parliament must be told, we have decided to embark on a number of measures which we will- which will result in increased investment. And that is the key, that's the thing that no one should lose sight of. More investment into public services - desperately neded investment that is what we're going to deliver. HUMPHRYS: Right, well, let me ask you then at this stage, what is the best thing to do in the case of Channel Four and in the case of the Post Office? You say you have no plans. That presumably means that you may decide at some stage in the future that the best thing to do is to sell 'em off, or to use your own jargon, public/private partnership or whatever you want to call it. Is that the case, have you ruled them out? DARLING: If you look at- The Manifesto was quite clear so far as the Post Office is concerned. It's-I don't know what else you were reading at breakfast time but if you were looking at our manifesto you'll have seen that the Post Office was- we're looking at ways in which we can give it greater commercial freedom within the public sector. That is something- that review as you know is going on at the present time, so that's abundantly clear. I've said to you that we've got no plans so far as Channel Four is concerned, but you know let me come back to this partnership point- HUMPHRYS: Don't rule it out. DARLING: -because it is an important point and if you look at the amount of increased investment now in the Health Service, we've got a record new hospital project programme underway - one of the biggest new levels of investment that we've ever seen. That has been possible because we're bringing in both public and private sector money and expertise, partnership where the public interest is protected and where you can get increased investment means a better quality of public service and that is something that I think the public want. HUMPHRYS: Alright. Let me turn to the question of the National Debt. As for the Manifesto, I read that of course, all the time, every day, just to keep caps on it. DARLING: Good. HUMPHRYS: Now, you mentioned reducing the National Debt earlier and you've put great store by doing that, by saying that you're going to do that but aren't you being a bit disingenuous there because again looking at the report, based on your own figures, it's quite clear that you're not intending to start doing that, to start reducing the National Debt. DARLING: No, what we're doing is ending a situation which we inherited. We were actually piling on debt year by year. HUMPHRYS: Right. So, you're not going to reduce it? DARLING: -even at this stage of the economic cyle. What we're aiming to do - what we've done, first of all - is that we have actually reduced the deficit that we inherited because that was simply irresponsible if we'd carried on with that policy. What we've also done is to ensure that our Current Expenditure will be covered in each of the next three years and you know it make sense, it's prudence if you like to ensure that Current Expenditure is covered by taxation so that you don't simply pile on the debt. HUMPHRYS: Right. So you're not going to add on, you're not going to pile on the debt, as you say, but you're not going to reduce it either are you? DARLING: Well, I think there's two things that we're doing. One is, as you rightly say it, that we have avoided a situation where debt is being added to. The only borrowing that I think is permissible is when you are borrowing to invest and you're getting an asset that will be with us for many generations. But you know we've never made it, you know, one of our objectives that we would repay all the National Debt some four hundred millions pounds of it, at the moment. HUMPHRYS: Oh, I didn't say all the National Debt, did I? I didn't say all the National Debt. I said reducing the National Debt. Mr Brown said in March that you were going to start paying off the National Debt - the nation's overdraft - but you're not and you've just confirmed that you're not. DARLING: No. What we're doing is we're bearing down on debt levels. You know it will fall below forty per cent of GDP during the course of the next three years. Now, what every Government has to do is to have a prudent balance between how much it needs to spend because, you know, clearly to neglect you know our education system for example would be quite wrong. You have to balance how much you can prudently spend and we've made that clear, that we think we can increase Current Expenditure by some two and a quarter per cent. But, at the same time, you have to ensure that you bear down on the debt levels that we have. Now our debt levels will in fact be subtantially below those of our other major competitor countries, which you can made comparisons with and I think this balance that we've struck a tough settlement and it is a tough settlement, together with an increase in public expenditure of two and a quarter per cent, in line with the increase and growth of the economy, is the right balance. HUMPHRYS: Right. Final thought on all this and we may run out of time. The result of all of the things we're talking about this morning is that Interest Rates are going to fall less quickly than they otherwise would have done - that is the case. I know you don't have responsibility for that anymore because it's down to the Bank of England but that is the effect isn't it? DARLING: The biggest concern so far as Interest Rates are concerned at the moment, is that we still have inflationary pressures in the economy. The Government has played its part by significantly tightening the position. But as the Governor of the Bank made clear last week, the concern at the moment is that there are a number of Wage increases, particularly in the private sector, which are going to add to that inflationary pressure. Now people have got to realise that if we are going to get the longterm sustainable growth that we all want from public services and in the economy as a whole, we can only pay ourselves those increases that are affordable. It's a very very important point which everybody needs to take on board from the boardroom to the shop floor. HUMPHRYS: Alistair Darling, thank you very much indeed for joining us. DARLING: Thank you. HUMPHRYS: And that's it for this week. Next week an extended programme, an hour and a quarter thanks to the World Cup. Until then, good afternoon. ...oooOooo...