................................................................................ ON THE RECORD FRANCIS MAUDE INTERVIEW RECORDED FROM TRANSMISSION BBC-1 DATE: 11.10.98 ................................................................................ JOHN HUMPHRYS: If this government has had a pretty easy ride so far it's been because the economy has been sailing along relatively smoothly. Well now the sea has suddenly become very stormy indeed and there may well be a hurricane bearing down on us just beyond the horizon. The Chancellor still sounds optimistic that we'll weather the storm, the Tories say he has steered off course and that could sink us. The Shadow Chancellor Francis Maude is with me. JOHN HUMPHRYS: Good afternoon Mr Maude. FRANCIS MAUDE MP: Good afternoon. HUMPHRYS: Mr Brown says, he said it again this morning, that it is just a slow-down in growth, down to one per cent next year, and it's, that's all it is, it isn't a recession, we're not approaching a recession. Do you think he's right? MAUDE: Well, even going down to one per cent next year has the possibility that that will involve a recession, what is technically a recession next year. HUMPHRYS: That's technically, is two ... MAUDE: Two quarters... HUMPHRYS: ...without negative growth.. MAUDE: ..absolutely, in succession. Now, you know we obviously, we all hope that isn't going to happen, because that's grim news, that's a heavy price that gets paid, by people who lose their jobs, whose businesses fail, whose houses are put on the line. It's a grim business if we do go down that path. But actually what is already admitted, suggests that we are sliding down towards a recession and you know, you have to say that even that revised forecast, which he hasn't made officially yet, this has just sort of been filtered out through his, his press people. That is still very much at the top end of the outside forecast. Most economists are now predicting growth of considerably less than that. HUMPHRYS: What should they do? MAUDE: Well I don't know. I don't know at all, I, what I do know is that it's worse than it need have been. They, he's made some basic blunders which have made it much more likely that this downturn will turn into a recession and that's why William Hague this week called for him to have a moratorium on some of these measures, but you know, when you attack savings as he did, right after the election with the huge five billion pound tax on pensions, the abolition of TESSAS and PEPS, what's the effect of that? Well we've seen the amount of money that people save in this country falling, and dramatically, by as much as a quarter already. They spend it, that boosts inflation, bank has to put interest rates up and keep them up higher and for longer. Then the higher taxes on various things and the cost of living, petrol and so on, that puts up the cost of living inflation, interest rates up. Then the extra costs which we've been talking about, things like the minimum wage, haven't come into effect yet, but are already affecting earnings' levels, and then on top of that the spending spree he embarked on in the Summer. All of these keep interest rates higher for longer. I mean the recession, the down turn, longer and deeper which is why we say this is a recession, a down turn made in Downing Street. HUMPHRYS: But what you didn't include in that long list was the most important thing of all perhaps, and that is what's happening way beyond his control. I mean if people aren't buying computers or cars or whatever it is, anymore. If there's a crisis in South-East Asia, then that's going to be the problem for us, I mean that is what he is saying quite fairly, surely, it isn't of our making? MAUDE: Obviously, none of us pretend that there's not a problem in the world outside. Clearly there is and it's become very dramatic in the last month or so. But actually manufacturing in Britain has been in and out of recession throughout this year. It went into recession, way before Boris Yeltsin thought about having a crisis in Russia and you can't argue, seriously argue that Britain's manufacturing went into recession while America was still booming, the continent was recovering, just because there was a down turn in South-East Asia, it just doesn't make sense. No there were basic policy mistakes here, which meant that Britain is much less able, and this is the key point, Britain is much less able to withstand the global economic weather. You see the point here is, what does the government actually do here, in Britain, that sets conditions here, that sets policies here, that enable Britain to shrug off as much as possible, what's going on elsewhere and what we're saying is that there were four basic blunders that Gordon Brown made..(interruption)..exactly, which make it much more difficult for Britain to withstand it. HUMPHRYS: Right, that was then, this is now. We now find ourselves in a mess, according to you. What should he do? Interest rates you have been saying, had been saying, whether you are still saying it, were too high, should they come down. MAUDE: Well interest rates are certainly higher than we would like them to be. HUMPHRYS: So you'd cut them if you were in his - or at least you would instruct, or you would comment to such an extent - because of course the Bank of England now has responsibility for that. Would you tell the Bank of England or hint to the Bank of England that you want to cut them again? MAUDE: Well the first thing we would do is not run our policy in such a way that forces the Bank of England .. HUMPHRYS: Yeah but we're in this position, I mean that's the point. MAUDE: So you have to start by seeing how you can reverse the stupid things he's done that have got us into this mess in the first place, and you stop pursuing policies which force the Bank of England to keep interest rates higher than they need. I have to say that, the very worst thing that he can be doing, is by briefing against the Bank of England, as his people seem to have been doing. HUMPHRYS: You mean people like Charlie Wheelan, the spin doctors, or whoever they may be? MAUDE: One never knows who these mysterious people are. But, a briefing that interest rates are going to come down. This sort of overt or covert pressure being placed on the Bank of England.. HUMPHRYS: Why shouldn't he say if he thinks interest rates should come down. MAUDE: Well because it makes..well it's probably improper anyway but in any event, it's very counter-productive. HUMPHRYS: You can't order them to but if he says: look, I've got a feeling that maybe they, I mean the Prime Minister himself said he hoped that interest rates had peaked, well perfectly reasonable for a Prime Minister or a Chancellor to say that isn't it. MAUDE: As long as he understands that the effect of him doing that is to make it more difficult for the Bank of England to bring interest rates down. You really have to do one thing or the other... HUMPHRYS: Why? MAUDE: You have to have, I'll just explain it. You either have a Chancellor of the Exchequer who trusts himself to set inflation policy, monetary policy himself and keeps the power in his own hands and exercises it in a way which is transparent, where he can be held accountable for what he does and that's the way we favoured, so we wouldn't have handed this power over in the first place. But if you are not going to do that, then you must have a system which is completely independent. HUMPHRYS: Would you take the power back now. MAUDE: Well that's got to be looked at very carefully... HUMPHRYS: Is that something you are seriously looking at? MAUDE: We're going to look at that very carefully indeed. This is not a decision to rush into. We need to see what - I think the point is that it looks like Gordon Brown's beginning to regret this very bold step, as it appeared at the time, of handing over power over interest rates and as soon as the going got tough, he began to regret it and began to want to influence it. The fact is that the Bank of England must, if it's to carry out this power effectively, must have the credibility in the markets which suggests that it isn't going to give way to political pressure. So the more overt political pressure that the government places it under, the more difficult it is to cut interest rates when they may, perhaps feel that cutting interest rates further is what they can do. HUMPHRYS: So, he should keep his mouth shut or at least his spin doctors should. MAUDE: Yes, absolutely. That's not a bad lesson for them generally. HUMPHRYS: He says that what you would do, now that we are developing, creating this black financial hole for ourselves, I think you talked about thirteen billion pounds, the deficit, he says that would you would do is cut spending and since the extra spending that he has announced is mostly for education and health, that is what you would attack. MAUDE: Well it isn't actually what the most severe extra spending is for. HUMPHRYS: It is. MAUDE: Some of it is, but actually... HUMPHRYS: A lot of it, anyway go on.. MAUDE: Just to look at the figures, thirty-seven billion extra on Social Security which is nearly as much as the health and education additional spending put together. And the point is that this is a problem entirely of their own making. The whole point, the thing that they built their policy on, was that they were going to cut welfare spending and they said that explicitly, we will cut the bills of welfare. They failed to do it, their welfare bills are going to go up and up and up. Even on the basis of their optimistic economic forecast made back in the summer. But now that those look totally unrealistic, those welfare bills are going to go up by much, much more because they just do. You know you have more unemployed people and more demands on the welfare budget, that's going to go up a huge amount. Now, this is a problem entirely of their own making. It was madness, ,and we said this at the time, to commit Britain to three years of very big increases on public spending without knowing how Britain was going to pay for it, and of course now that we see that the growth is going to be much less, what you see is that every single penny of growth that our economy achieves in the next three years is going to be soaked up by the government. HUMPHRYS: So, you've got two choices haven't you really. You can either cut the spending or you can raise taxes. What would you do? MAUDE: Well, they've got three choices actually. They can... HUMPHRYS: I'm asking you what they can do. MAUDE: They can cut spending, and I think he'll find it very difficult to do. He should not have embarked .... HUMPHRYS: Would you do that - let's just be clear.. MAUDE: That's all very well John, but we wouldn't have got ourselves into this mess... HUMPHRYS: No, but nonetheless, we are here now and if you're going to criticise him, it's only valid to ask you what you would do. MAUDE: If he wants advice on how to get himself out of his own mess, I mean he needs to start reversing some of the basic mistakes that he's made, and start listening to people outside. HUMPHRYS: Go on. How? So in thirty seconds what should he do? MAUDE: How do you cut this - how do you fill this black hole? Well, it's either him raising taxes, it's either him cutting - or raising taxes even more than he has done already, because there have been seventeen tax rises in the first seventeen months. Or he has to cut spending in which case he's going to make himself deeply unpopular with those people who he's talked into a state of heightened expectations, or he has to raise borrowing, and I say there's a thirteen billion, even on his own still optimistic forecast - there's a black hole of thirteen billion. HUMPHRYS: Right, you've got one sentence to tell us what you would do. MAUDE: Well, I would - I suspect actually it will end up being a combination of controlling the spending, but that needs looking at the whole of it, particulary at welfare bills. We kept welfare bills under control. Welfare was falling as a proportion of the national income. He's now set it to rise dramatically. HUMPHRYS: Francis Maude, thank you very much indeed. And that's it for this week until next Sunday. Good afternoon. ...oooOooo...