................................................................................ ON THE RECORD GORDON BROWN INTERVIEW RECORDED FROM TRANSMISSION BBC ONE DATE: 8.11.98 ............................................................................... JOHN HUMPHRYS: But first, the reason for being here in Eleven Downing Street, the home of the Chancellor Gordon Brown, he made his statement to the House last week about the prospects for the British economy and what that might mean for next year's Budget and he surprised most people by being optimistic. He acknowledged that the economy will grow more slowly than he'd expected a few months ago, but we are not on the brink of a recession. Even so - things are going to get tougher. Chancellor, how much tougher, how tough is it going to be? GORDON BROWN MP: Well I said that I was going to be realistic about the British economy and I also said there was a balance of risk. There have been events round the world over which we've got no control. There has been contagion from what has been happening in Asia and Russia to other parts of the globe. And at the same time, of course, the balance of risk means we've always got to be guarded about inflationary pressures which have been a cause of problems for the British economy. So my forecasts are realistic but they are based on three things that we have done. First of all, we have got inflation to its target and created a new monetary framework with the independence of the Bank of England that is longterm and is credible. Secondly, we have tackled the public finance's deficit and we reduced it by twenty billions in the first year and eliminated it in the second year, the current deficit has been eliminated and therefore we have got the public finances in better shape. And thirdly, because of that, we can see monetary and fiscal policy now working together. And so as the world economy has turned down, it has been possible, where it wasn't possible in the early 1990s, or in previous downturns, for monetary policy to react as the Bank of England have done twice, and of course for public expenditure to rise next year. Now that's the result of the difficult and the hard decisions that we took immediately we came to power. HUMPHRYS: Nonetheless, you would acknowledge that there are tough times ahead for jobs and business. BROWN: Well these are tough times because we are faced by a world downturn and we are trying to solve a particular problem that the British economy has had for years and that is being a stop-go economy. You see when we came into office, inflation was rising twice as high as our competitors, beyond four per cent, and that's why we had to take action to get the economy onto a sustainable path of growth. And we did take that tough action as I've described it and we raised interest rates, we made the Bank of England independent and we cut the fiscal deficit, something people never said we would do. Now, at the same time, we've got to create the conditions for growth and stability in the world economy now and when you have world growth rates halved, when you've got world trade growth cut by two-thirds, when of course you have got no growth at all in Japan and in Asia, you've got contraction of growth, then you are faced, for a trading nation like ours, with bigger problems than perhaps some other countries. Now we are facing both these problems and tackling them. But it's because we've put in place, and I would emphasis this, the longterm foundations for success, that I believe we can steer a course of stability through what are difficult times for both the world economy and for every individual economy as a result. HUMPHRYS: But in the shorter term, the medium term, there are going to be job losses, because as you say they are tough times. BROWN: Well over the last eighteen months, there are four hundred thousand more jobs been created as a result of decisions we've taken. HUMPHRYS: And because the economy has been growing. BROWN: And we've put in place the Welfare to World programme and there are a hundred and fifty thousand young people now benefitting from that. HUMPHRYS: That doesn't of course create jobs. BROWN: Well, of course, it is creating jobs because employers - this is not simply a temporary scheme that young people are on for a few months.. HUMPHRYS: No, but it's not a job creation scheme is it, you've acknowledged that in the past. BROWN: Yes, but John there are thirty thousand employers who've signed up to be part of this programme and they are looking for young people whom they can train and work with and of course if they are good, in most cases they will be considered for taking on and keeping on. I think it is very important to recognise that this Welfare to Work programme is quite different from temporary work and temporary training in the past because employers are directly involved in it. And it is for these reasons, plus the fact that there are to be ninety thousand more opportunties for the longterm unemployed, we've put in place a programme for disabled men and women wanting to get back into work, and for lone parents, but our Welfare to Work programme will be giving three hundred thousand people will have benefitted by the opportunties by next April. So it's very important to put in context that in addition to creating this longterm framework for interest rate policy, and for our public finances, we've put in place this longterm programme of Welfare to Work and the signs are that it has worked to create large numbers of jobs and certainly large numbers of additional opportunties for people denied hope under the Conservatives. HUMPHRYS: So taking all of that into account, are you saying there will be no lost jobs, as a result of this slow down. BROWN: You know that no Chancellor makes predictions.. HUMPHRYS: I'm not asking you to predict anything.. BROWN: You are actually. HUMPHRYS: No, no, I'm saying to you.. BROWN: You are asking me to make predictions.. HUMPHRYS: You acknowledge that there are tough times. I mean Tony Blair himself said, as you know on Friday 'there are tough times ahead for jobs and business'. You acknowledge that.. BROWN: And I said in my pre-Budget statement and that's why I say it was a realistic statement. I said no denial of short-term difficulties. There are pressures... HUMPHRYS: Which means lost jobs.. BROWN: There are pressures, there are pressures on businesses and there are pressures on individual companies and individual sectors. Some have been as a result of the Pound, some as a result of the collapse of trade to, to, to Asia, which has fallen by a half to four of the major countries we used to export to. And of course there are pressures, but I'm not going to make predictions about unemployment. I have said that these are difficult times for many companies, but of course you've got to see it in the context of four hundred thousand extra jobs since the election. HUMPHRYS: Yes, but you see this is the point. You, you, you, you claim credit for some of those four hundred thousand new jobs being created. That is because the economy has been growing at an acceptable rate. Well let me finish the question if I may. BROWN: Which of, of which I am right to claim credit for the government introducing the Welfare to Work Programme. HUMPHRYS: I'm not disputing that .. BROWN: Which our, which our opponents would abolish. HUMPHRYS: I am, I am, I've, I've allowed you to explain all of that .. BROWN: Therefore I think you can acknowledge that there is some credit due for doing that, and that is not, that is, that is not .. HUMPRHYS: Just,just said, just acknowledged that. BROWN: It shouldn't be a point of dispute. HUMPHRYS: I, I, no dispute over the - well there might be, but we're not going to enter into that at the moment. What you've said is that we can claim credit for some of those four hundred thousand jobs being created. Now they've been created during a period of growth, not staggeringly fast but - let me just finish this point. If you're prepared to claim credit for that, and we're now entering a period of slow-down, tough times as you yourself say, then I'm not asking you to tell me how many jobs are going to be lost between now and next Thursday week or something - of course that would be, that would be very silly - chancellors don't do that kind of thing. But you should at least surely, acknowledge that there will as a result of these tough times, be lost jobs, inevitably. BROWN: Well, when I said, no denial of short term difficulties, I understood that some companies are having it difficult and it is a troubled time, but .. HUMPHRYS: Right, so there will be jobs lost? BROWN: ,..you've got - but you've got to acknowledge also, that the Welfare to Work Programme, the new deal is actually moving into gear now. There are more opportunities coming over the next six months and the next nine months .. HUMPHRYS: Fine, as you say. BROWN: And they're coming you know, not just for the young people who are unemployed .. HUMPHRYS: No, no, you, you've made that point .. BROWN: But I mean right across Europe, right across the globe. HUMPHRYS: You've made that point, but I just want to be quite clear, lest anybody is in any doubt about this, that when you talk about tough times,you acknowledge that there are bound to be jobs lost. BROWN: No government, as I've said on so many times before, can guarantee that every job that exists at the moment, will always be in existence, but what we can do, and that's the point of the new deal, is say that where there have to be changes, then we will help people get the next job opportunity and that's why we've put in place a programme for companies who, where there are skill shortages, as well as the new deal, and that's why there are so many different measures to help with training people, who are looking for new job opportunities. Now no government is going to give a guarantee in a global economy, that every company like Fujitsu or like Siemens or like Hyundai will always continue with the investment decisions they announce, when something happens in Asia or Korea or happens in Germany or Japan, but at the same time, what I can say, and this is the role of government in the modern world, we will help people be equipped to cope with the changes that, that happen, and help people master and surmount these changes by giving people both skills and opportunities. HUMPHRYS: Right. BROWN: Now that is a proper definition of the role of government in a modern world. HUMPHRYS: Ok. Let's, let's look at the forecast for growth, that, that, that you've been making. You're talking about the economy growing by one to one and a half per cent next year and you're staking a lot on that forecast. An awful lot of other people, very distinguished economists, are saying well actually no, that is very optimistic, and they're calling you Gambling Gordon. They have a point don't they? BROWN: No, I think our forecast is a realistic one, it's a central view and it's actually similar to the one that's come from the IMF, from the EEC, from the National Institute. It's similar to the average of forecasters throughout the economy, which are predicting something like one point one, one point two per cent in the case of the National Institute, now .. HUMPHRYS: A bit out of date some of those aren't they? They're, they're quite old some of them. They're looking back a bit over the last three months. BROWN: Well, well, I'll explain why it is the case that this forecast is one that has been made in the way it has. We look back to the early 1990s. Now what happened in the early 1990s, and why the economy turned down so much, was because interest rates had to remain above ten per cent for four years. The public financers were not in a shape for the government to be able to invest as we are doing next April. Monetary and fiscal policy could not work together, so at the very time the world was turning down, that government of the day had to keep interest rates for a year at fifteen per cent and for four years at ten per cent. And equally they were unable to use the public investment that we are making, to help the economy grow. Now it's because we took the action early on on inflation, and therefore we got our inflation target met and took the action on the public finances, that monetary and fiscal policy can work together, to react to the international conditions that exist. Now of course, there is a balance of risk here. And I was the first to say that, in the, in the House of Commons. There's a balance of risk in relation to what's happening round the globe, where contagion is an issue and we've had to be very careful, and that's why we've got proposals for the reform and strengthening of the international financial system, but I hope we can discuss during the course of this interview, and that's why also of course we've got to be vigilant about inflationary pressures in the economy. But the reason why the British economy is better equipped to cope with the difficulties than we've been in the past, is because of these big decisions that we made, right at the beginning of the government, which were to set, not a framework for a year, but to set a long term framework for the British economy, that I think most people have welcomed. HUMPHRYS: Yeah, but, but because of some of the uncertainties that you've pointed out there, you cannot be certain about this one to one and a half per cent can you? I mean, the trouble is you see, that the trend of nearly all the forecasts, that have been made recently, has been downwards, rather than in line with yourself. BROWN: I think .. HUMPRHYS: Every week we get a new forecast and every week it's worse than the one the week before, isn't it? BROWN: Well, I ask you to look at - actually I think the last forecast to come out was the National Institute one, which is the one that I just mentioned, but I ask you to look at what the government has done and what we're doing, and I do not say, and I did not say in the House of Commons that I'm denying that there is a balance of risk because .... HUMPHRYS: Your one to one-and-a-half per cent may be wrong? BROWN: No. But I said that in the House of Commons right at the beginning of my speech... HUMPHRYS: On the down side.... BROWN: There is no denial of the short-term difficulties but I make, as every Chancellor has made, a forecast for this year, the next year and the year after that. Now on the basis of our experience in tackling the problems at the beginning of the government, that is the realistic forecast that we're making, and I believe that because we tackled inflation and because we got the deficit down, monetary and fiscal policy can now work to the benefit of the economy in the year to come. And of course if you were unable to reduce interest rates then of course, because of inflation, and you hadn't tackled it, that would mean that there was a difficulty. Now, that's what happened to the last Conservative government in the early nineties. It happened to them in the early eighties as well. Now, because we have tackled inflation we are in a better position, and that's why I say we are steering a course of stability in what is ... I have been involved in discussing these things round the world, what is a very troubled world. HUMPHRYS: Sure. You said the Institute's was the latest. In fact I think there have been some more recent than that. BROWN: I think it was the last one before I made my statement. HUMPHRYS: Well, let me give you a couple because.. BROWN: Of course we could get into an argument about who did what... HUMPHRYS: Oh sure, .. and that would be tedious, I quite agree. But there was a poll of polls, wasn't there, a sort of survey of surveys if you like, and let me give you the one from the Centre for Economic and Business Research. Now that's very recent. That suggested a decline of five per cent, a cut of five per cent - of point five per cent in... BROWN: They're suggesting a contraction of minus point five per cent. I think.... HUMPHRYS: Minus five per cent. Even if you look at another, a terribly recent one, of the Economist's survey of GDP forecasts, that was Friday, just two days ago, that was only saying nought-point seven per cent. So whichever one of the more recent ones, and this is my point, of the more recent ones that you look at, they are much less optimistic than yours was, hence the gambling charge. BROWN: Well, I say what we say is realistic, and I've given you the reasons why it is the case. The Treasury does publish and did publish an average of the forecasters, and I think it was... HUMPHRYS: A while back. BROWN: .. and I think it was one-point-one per cent. The National Institute I think came in at one-point-one to one-point two per cent, the European Commission about one-point-two per cent, the IMF... HUMPHRYS: All of those quite a ...... BROWN: Well, you wait and see what the next set of forecasts are, but HUMPHRYS: I'm looking at the most recent here. BROWN: The central issue is looking at what we've done. You can discuss.... HUMPHRYS: Well, they've done that. I mean these people have reached these forecasts themselves, that have done this survey, they've looked at what you've done and that's the conclusion they've come to. BROWN: But it's very interesting. Now, right at the beginning of the summer when I announced my spending plans for health and education, the issue was, was this spending too much or too little. Then the issue in September was, was we borrowing too much and too little. Because we've answered all these questions we are spending within the resources we have, we are borrowing prudently and people can see that, the issue has movedon to forecast - actually mainly forecast, not for this year but for next year or the year after, but I tell you to look at what we've actually done. HUMPHRYS: They've been doing that. BROWN: We have cut the deficit and indeed eliminated the current structural deficit this year, and that has been very tough action to control public spending, that people said we couldn't do,and have done. We have cut inflation... HUMPHRYS: I'm not arguing with any of that. BROWN: We have cut inflation, we have cut inflation in a way that people did not expect us to do, by being very tough, with the independence of the Bank of England. You've got a situation where unlike the previous downturns that have hit the British economy, the monetary policy and the fiscal policy can work together. That means the Bank of England has been able to respond to the world conditions that exist and been actually to reduce interest rates twice. Now, that couldn't have happened at the beginning of the nineteen-nineties, because the government of the day had to have interest rates at fifteen per cent. HUMPHRYS: As you said. BROWN: For a year. Interest rates at the moment are down from seven-and-a-quarter per cent to six-and-three-quarters per cent. Now, that is a big difference between the situation we faced in the early nineties.... HUMPHRYS: So there is no chance, no chance of growth slowing by more than one per cent. BROWN: I've said that our forecast is for a moderation of growth. HUMPHRYS: You said one-point-two to one-point-five per cent. BROWN: We've given - one to one-point-five per cent was what the forecast - that we gave, and that is the forecast that we have given, but I have also said as I continue to say, that there is a balance of risk in the world economy particular, and of course we cannot say what is going to happen in every continent, and what happened in Asia and the way there was contagiums to other continents affects a trading nation like ours, but on the best forecast that we can make the central view, that is our view for next year. And the reason is, as I say, that we have taken the tough decisions early on to put us in a better position to cope with what I think everybody agrees are global difficulties affecting every continent and every country which are forcing everybody else to downgrade their growth forecasts. HUMPHRYS: But what you're saying to me quite clearly is as result of all the things you've done in the last eighteen months, there is no possibility at all of a recession - none. BROWN: What I'm saying is that our forecast is for a moderation of growth. HUMPHRYS: A slight slow down. BROWN: What I'm also giving you is the reason why I believe that we have been able to make that forecast, and I don't think anybody can deny that the British economy having tackled inflation - you've got to remember that right throughout the last thirty or forty years our ability to maintain a low inflation level for a long period of time has always been at risk. I think there were few people round the country that doubt now our determination to have a low level of inflation,.. HUMPHRYS: Yep. BROWN: and to continue and to keep that inflation level low, and equally, - that's why long term interest rates have come down from seven per cent to five per cent. That's why the differential between us and Germany has narrowed by three-quarters of a per cent. And
Germany traditionally regarded as a low inflation economy and the narrowing of the gap on long term interest rates between us and Germany is significant in itself... HUMPHRYS: Right, so what... BROWN: And because we made the tough decisions on public finances. We are better placed to cope but of course we're in a global economy and we're subject to what happens in that global economy. My objective is that Britain can steer a course of stability and that we can be more than equal... HUMPHRYS: Right. BROWN: .. to any challenge the global economy offers us. HUMPHRYS: That is your objective but are you entering a number of caveats at the end of that answer there, which suggest that the answer to the question - is there absolutely no chance of us going into recession - was in fact, if we can interpret the bit of that...well I think not, but it is possible, is that what you were saying? BROWN: John, you ask me for what my forecast was.. HUMPHRYS: No, I asked you for your opinion, we've talked about the forecast.. BROWN: I've given you my forecast, I've given you the reason for that forecast and I've also said that as in every economy, there is a balance of risk and the risk in this particular case, at this particular time, are risks of what is happening round the world. Now, nobody.. HUMPHRYS: When you talk about risk, let's be quite clear, you're talking about the downside risk, there is the possibility.. BROWN: I think you will find from Alan Greenspan, the head of the Federal Reserve in the United States, to the Central Bank governors in Europe and Japan, there has been an anxiety that what happened in Asia could have a contagious effect elsewhere. As it happens.. HUMPHRYS: Including here. BROWN: Of course, and we are a trading nation that depends more on trade than America. It depends more on trade than the rest of Europe and we are bound to be effected if for example you've got a cut in your exports to Indonesia or Malaysia of fifty per cent, Korea of more than fifty per cent, the Philippines more than fifty in one year you are bound to be effected. And if of course Japan is not growing at all next year, is actually contracting by two and a half per cent this year, then the second largest economy in the world with which we've been trying to build up links is bound to have an effect on years, so there is bound to be a balance of risk. But you ask me what is our central forecast for next year and I give you it and I give you it for the reasons that I do, that we are in a better position to cope with these conditions than in previous times. HUMPHRYS: Right, but let me just return to it very briefly because you've said that this is our best forecast. However, you've also said things are going to get worse in the world, quite possibility, nobody can dispute that one way or the other, we don't know, the balance of risk is on the downside. So therefore, let me just return to the very simple question so that people watching this have no misunderstanding. You believe there is no possibility of a recession, or that given that things round the world are in a pretty dicky state one way or the other, it is possible that we could enter a recession. BROWN: Our forecast is for a moderation of growth not the absence of growth.. HUMPHRYS: But is it impossible that we could go into a recession... BROWN: What I am saying, I actually said the balance of risk was on both sides. There is a balance of risk.. HUMPHRYS: Oh, so we might do better than you think... BROWN: There is a balance of risk because of what is happening around the world, and of course there are always the problems of wage pressures in the British economy which could threaten a return to inflation and we've got to be vigilant about that as well and that's of course why the Bank of England and I, are always concerned to ensure that wage responsibility exists in the economy because when you have an inflation target that has got to be met, then wage irresponsibility can lead to higher interest rates. So, we have got to be conscious of the balance of risk on both sides. But you ask me what is my central forecast, I've given it to the House of Commons as I am obliged to do, and it is right to do and I give it to you and I explain why it is the case that we have taken decisions that actually nobody expected us to take in the first eighteen months of our government and we have taken them and these are the right decisions for the longterm of Britain. HUMPHRYS: Right, let's move beyond this next year 1999, and move into 2000. Now there your forecast is that there is going to be quite a bounce back, instead of the economy growing between one and one and a half per cent it's going to grow between two and a quarter and two and three quarters per cent. In other words, if the economy is a ball and it drops down, it doesn't drop into the sand and sort of the soft sand and stick there, it bounces back pretty sharply. Now that's a bit optimistic isn't it. BROWN: Well you've got to look at the economy as a whole and the economy as a whole is one that with these monetary policy changes and interest rates have come down twice, and with the public finances in a better state and with monetary and fiscal policy working together, and of course I may add working in a European context where Europe is the area of growth of the world economy over the next two years and that's of course why the forecast we make is as it is. HUMPHRYS: It puzzles me a bit and here's the reason. I came as you can see, equipped with some of your voluminous reports.. BROWN: Very good reading. HUMPHRYS: Bedtime reading, absolutely, I read them all night. Now, that's your pre-Budget report for November '97, you will recognise it. That is your pre-Budget report for '98, the last one, the one you did last week. Now in this one, the '97 one, you told us what you thought growth would be, in this one, the latest one last week, you told us what you thought growth would be and those figures are the same. Now, that - for the year 2000 of course, now that's odd isn't it because between November of this year and November of last year an awful lot of things have changed. Our economy has begun this process of slowing down, the world has changed as you have said, a quarter of the world in recession. A lot of things have changed and yet your forecast for growth has stayed the same, now that is bizarre. BROWN: Our forecast for growth for next year has come down.. HUMPHRYS: No, no for the year after, for the year 2000 as I said, that's what's in these books. BROWN: But the path of growth of course is changing because of what has happened in the world economy.. HUMPHRYS: The rate of growth you say has stayed the same. BROWN: But the path of growth has changed John. You must understand that what is happening next year is because of the slowdown in the world economy, partly because of what has happened to world trade, partly because of what has happened to the value of the Stock Exchanges around the world, you know three trillion has been wiped off the Stock Exchanges. The path of growth has changed so there will be slower growth according to the forecast next year and then growth will return to its sustainable path as I would have thought you might expect it to do. HUMPHRYS: Well no, no I would have expected it actually to take a little while to recover. I'd have thought instead of the ball sort of going boing back up again, you now like Zebedee in Magic Roundabout or something, it might have (if you'll remember the Magic Roundabout) it might have just kind of taken a little while to get moving again, bearing in mind the shocks the economy has had to sustain. BROWN: Well I described to you what is actually going to happen next year. Interest rates which of course prevented growth returning .. HUMPHRYS: Ah, right. BROWN: Interest rates of course which prevented growth returning in the early nineties, because they were at ten per cent and above for four years, have managed to come down twice. Equally our fiscal policy, our public investment is working its way through, starting mainly from next April. So in both cases, monetary and fiscal policy are working together at the right time and what some people call the automatic stabilisers are in place, for the economy. And it's for these reasons, and particularly also I should mention this, what is happening in Europe itself, because although growth has been eliminated in Asia, and although also there is a prediction of growth slowing down in America, growth will slow down in the rest of Europe, but it will be higher than in other continents, next year and the year after, and of course with fifty per cent of our trade with Europe, it is bound to have a good effect on, on some of the figures that we're talking about. HUMPHRYS: So, so those figures then for the year 2000, those assumptions of growth for the year 2000 are based on interest rates being cut and continuing to be cut? BROWN: But John, interest rates have been cut.. HUMPHRYS: Yes, yes, I take the point, but they are going to be - absolutely, you made that point very clearly. But they're going to.... BROWN: ...they have been, they have - I don't, I don't, I don't make .. I don't make predictions about .. HUMPHRYS: I know you don't - I knew you - how did I know you were going to say that? BROWN: And of course you would want me to, to stand up for what I want to be the case, that the Bank of England is independent to make its decisions. But interest rates have been cut. I ask you to look at what has actually happened, and interest rates which were fifteen per cent in the last down turn, have fallen from seven and a half per cent, to seven and a quarter per cent, to six and three quarter per cent, and of course that is one factor you've got to take into account. HUMPHRYS: Indeed and if growth is going to bounce back, the way you hope and pray that it will, then they are going, those interest rates are going to have to continue to come down, otherwise poor old Zeebedee is going to lay flat on his back, isn't it? BROWN: Well that's a matter for the Bank of England, and they .. HUMPHRYS: Of course it is, but I'm just making an obvious, drawing an obvious conclusion. You see, you said to me .. BROWN: That is a matter for the Bank of England, and if I may say so, if I may say so, compare fifteen per cent at the beginning of the nineties, with what was seven and a half per cent, then seven and a quarter per cent and then six and three quarter per cent. Now it's precisely because we're in a different situation from the end of the nineties, that I think people can be more optimistic about the, about the progress of the British economy. HUMPHRYS: So we could have the sort of growth that you anticipate, this great bounce back, with interest rates staying where they are today, without any more cuts? BROWN: Well of course this is a matter for the Bank of England. I only, I only .. HUMPHRYS: No, no, the answer to that question isn't a matter for the Bank of England, the decision is a matter for the Bank of England but you base your forecasts on something clearly, and what I'm suggesting to you is, that you cannot possibly, I would have thought, certainly nobody else is making this assumption, to whom I've talked, over the last weeks, you cannot possibly believe that you will get that rate, that degree of bounce back so the economy will all of a sudden go boing again like old Zebedee without further cuts in interest rates, otherwise it just wouldn't happen, would it? BROWN: I think John, you're getting a bit excited. I mean we're talking about .. HUMPHRYS: Interested, interested. BROWN: We're talking about one to one and a half per cent growth next year that you say is over .. HUMPHRYS: Yeah and then double it the following year. BROWN: But you want to claim is over optimistic. If I just say to you in the early eighties and the early nineties, when the economies were moving back from a down turn, from the worst point of their cycle, I think they rose by two per cent in the first year in the 1980s and by three per cent in the first year in the 1990s. We're predicting that it would be something in the order of one and a half per cent. Now I don't think that is wholly unrealistic. HUMPHRYS: No, but then you're telling me that it's going to double. BROWN: I don't think that's wholly unrealistic at all. HUMPHRYS: You're going to, that that rate is going to double the year after, notwithstanding there may be still all sorts of problems. BROWN: Hold on, John I think you should get your figures right. It's one to one and a half is the forecast for .. HUMPHRYS: For 1999. Yes. BROWN: Which you say is over optimistic.. HUMPHRYS: Others say. I have no views on this matter as you know. BROWN: Which you say..suggesting is over optimistic and then it's two and a quarter to two and three quarter .. HUMPHRYS: To two and three quarter per cent, yeah. BROWN: I am just making the point, that in the years coming out of a down turn in the 1980s and the early 1990s, the growth was higher in the first year out and I think it is not an unrealistic assumption, but you must come back again to what we have done, and what we have done is created a long term framework for this country, within which it is now possible to have an in-built capacity to respond to difficulties as they arise. If the Bank of England is able to reduce interest rates, as a result of what is happening round the world, it is because we have tackled the inflationary problem that we inherited. And if we are able to respond in public investment, from the beginning of next year, it is because we have taken action to get rid of the deficit that we inherited. And if monetary and fiscal policy can work together, then that is to the benefit obviously of the British economy. HUMPHRYS: You're going to get it right. You're confident, naturally that you're going to get it right and we will have this recovery in the year 2000. So in other words, we're going to meet the economic condtions that you set out, just a little bit over a year ago, as having to be met, if we were going to sign up to economic and monetary union. You're confident that that is going to happen? BROWN: Well, well hold on. We meet the Maastricht conditions at the moment .. HUMPHRYS: Sure. BROWN: ..in terms of public spending, .. HUMPHRYS: Indeed. BROWN: ..in terms of borrowing, in terms of inflation. HUMPHRYS: But all the other conditions that you put there, flexibility and jobs and getting the cycles, economic cycles in synch and all that. BROWN: There are five economic tests and they've all got to be met and the five economic tests involve the effect on jobs, the effect on investment, the effect on the financial services. They involve also the effect, if you like, from the economic cycle which has got to be judged, and they must involve the degree of flexibility that enables you to cope with the wage, or with shocks round any economy that is as big as the European Union. Now these are five tests. We have also of course, got to make the preparations that are necessary for a decision to be able to be made and of course when we came into government, no preparations were being made whatsoever, either for the Euro, or of course, for joining economic and monetary union. So these are all issues, and that's why I think it's a realistic position to say, as I've said before, that these five tests will be assessed, probably at the beginning of the next parliament and there will be a triple lock for the British people, that is subject to a decision of government, a decision of parliament and a decision eventually of the British people. When I spoke to the CBI on Monday, the first thing I actually said about the Euro to them, was that I was repeating that the policy that we decided on last October, that I announced to the House of Commons, is the policy at the moment, that is our policy. HUMPHRYS: Are you a bit more confident now than you were a year ago when you made that statement, that we will meet those conditions? BROWN: Well we've got to look at them at the right time and.. HUMPHRYS: But as things stand? BROWN: You've got to continue to assess the structural and cyclical factors. You've got to look at the flexibility and you've got you assess whether your level of preparations is right. And as I say, the policy is as it will remain throughout the Parliament, the one that was set out last October. HUMPHRYS: So, you are saying when we meet the conditions, then we will have the referendum as to whether we go into economic
and monetary union. BROWN: What I am saying is that when it comes to the next Parliament and this is the most realistic position, we will look at these five tests and assess how they have been met and if we believe that they have been met, then it is up to the government to decide one, to put it to Parliament and then to put it to a referendum. But of course that depends on the next General Election, it depends on a number of other.. HUMPHRYS: It might happen before the next General Election, mightn't it.. BROWN: .. factors. Well I think you read my statement in the house of Commons a year ago, and it said that it was realistic to assume that that would be in the next Parliament. HUMPHRYS: But surely it's when we meet these conditions. You don't believe these conditions will not be met, do you? BROWN: Well you've got to assess them, haven't you and it's important that we make the right decision, as I said, on national economic interest grounds. You see the Conservative Party would make it on ideological grounds, other people would just jump in tomorrow because they think it is right in principle. I've said and I think it's right and it's a sensible view and I think it's gaining support with the British public, but there are five economic tests, they are economic tests that sum up the national economic interest for Britain in this matter and we will have to see these tests met before we make a decision. HUMPHRYS: Right, but I mean you are not operating on the assumption that it's possible we will not meet those conditions are you? BROWN: That is what the tests are about. You have got to decide whether you can meet them or not and it's what the preparation is about. You have got to decide that we have actually looked at all issues that are involved in this before you make a decision. If you say the decision is on economic grounds and it's going to be made on the basis of these tests, you don't jump in and say that you have already made the decision. HUMPHRYS: So it's possible we might never meet them. I mean that is a possibility. BROWN: It is something for the government in the next Parliament to look at. These economic tests, I think they are the right economic tests. I notice you are not getting into the argument about the individual economic tests, but these I think are the right economic tests, but you have got to be properly prepared as well. And, you know, we have got a Small Business Information campaign at the moment, to help small businesses, alert themselves to the Euro, and the first stage is to be ready for the Euro when it comes to mainland Europe on the First of January 1999 and the second stage is of course to look at the tests and to see whether they are met. This is an issue which will come down to practical, economic commonsense. HUMPHRYS: Indeed, and if you are arguing, if you are saying when rather than if, as far as economic conditions are concerned, isn't it a bit odd that you, who principally, in principle in favour of signing up to the Euro, isn't it a bit odd that you are not out there arguing for us going in, since that's what you believe in as a matter of principle. BROWN: I'm arguing for the country to make a decision on the basis of these economic tests. HUMPHRYS: Yes but in principle you believe in economic and monetary union, you've never hidden that. BROWN: Go back to the statement last October which hasn't changed, the policy of the government is as set out in that statement. Any suggestion that there's been any change in policy is quite ridiculous and the policy set out there is that we did see advantages in principle in being in a single currency but we felt that the decision should be based on applying the economic tests that we had set down and then making a considered judgement and we felt that the realistic time to make that would almost certainly be at the beginning of the next Parliament and it would be subject to a decision of the British people. I don't think anything can be more straightforward than that. The five economic tests but a decision if it were to be made, a decision of the British people. HUMPHRYS: In the closing minutes, can I talk about what's happening in Central America in relation to debt relief. Now, is it, in your view, irrelevant whether we release those countries from the debt that they are owing those and others countries of course, or should we be doing more about debt relief than we are currently doing. BROWN: Clare Short has been exactly right, the first thing to do is to get emergency aid and to make that that aid is properly delivered to the people who need it. The second thing will be dealing with disease, the third thing is to re-build the economies and help re-build that infrastructure through assistance that must come, in my view, first of all through the International Community having an emergency help - I believe a new facility for countries that have faced a huge breakdown as a result of national disasters must now be created.. HUMPHRYS: That's something quite new. BROWN: Yes, and I believe that there will be support from other countries and in the European Union for contributing to that facility and I also believe that part of that could be a moratorium on debt relief for countries that are part of the HIPC Initiative as two of the countries affected... HUMPHRYS: And that should happen now. BROWN: I believe we should make progress immediately on this because the re-building of these economies and their infrastructure will have to happen soon and I believe an international effort involving many of the countries that are leaders around the world with this new facility for post-catastrophe which is essentially what we are trying to do, to deal with countries where economies have broken down as a result of natural disasters, it is something to which Britain and other countries will want to contribute and side by side with that I think we can make arrangements in relation to debt relief. The important thing is that the International Community understands this. As Clare has been saying all along that this is a natural disaster, immediate help is needed, we will need to help with disease but we will need also, as Clare has said, to help with re-building the economy. HUMPHRYS: A final quick thought if I may about a colleague of yours in the Cabinet Nick Brown who is all over the papers this morning because he has been outed, if that's the right word, as being gay. BROWN: I think most people understand this to be a personal issue and a private issue and think they will applaud the way that Nick Brown has dealt with these matters with dignity and I think it is true to say that he has support - not just in the Cabinet and from the Prime Minister personally, but support right across the Labour Party - indeed I think right across Parliament. HUMPHRYS: Chancellor, many thanks. ...oooOOOooo...