Transcript of interview by the Prime Minister with the Politics Show.
Read the transcript:
Interviewer:
Prime Minister over the course of this interview I am sure we are going to hear from you the arguments for why there needs to be this intervention in the UK economy, but as we stand, 24 hours out from the Chancellor’s statement, how precarious is the position of the UK economy? Are we on the edge of a precipice?
Prime Minister:
No, but the global economy is in great difficulty. I mean what has happened is we have had a banking crisis which started in America, makes me incredibly angry about what happened, the irresponsibility of risk-taking and the irresponsibility of not disclosing things, that has now spread to become not just a financial crisis but an economic crisis, and the case that we have got to face is do you take action now to prevent permanent danger later. And by taking action now and by doing things that are perhaps quite unique, can you prevent the economy getting into a worse position and can you come out of it stronger, and that is really the question that we are facing at the moment. To do nothing in my view would be irresponsible. To take action that would prevent things getting worse, to take action in a coordinated way with other countries joining us, as we have been proposing, would actually be far better because it would magnify the impact of what we are doing, but not to act is both irresponsible and uncaring given that what people are worried about at the moment, the people sitting at home watching your programme, there are people worried about their mortgages, there are people worried about their jobs and there are people worried about their savings, and small businesses particularly worrying about cashflow. We can act and that is the role of government.
Interviewer:
OK, so given the extent of what you are saying is the problem, I know you won’t go into the detailed figures now, that is for the Chancellor in his statement tomorrow, but how big a fiscal stimulus does the UK economy need?
Prime Minister:
Well there has been talk round the world, I was in Washington last weekend debating this with other countries. Everybody generally agrees that the fiscal stimulus, and what we mean by a fiscal stimulus is real help for businesses and families now, has got to be substantial to have an impact. And you will hear President-elect Obama talking about a major stimulus in America, all round Europe the different countries are talking about what they can do, China, India, Japan, Australia in the Asian bloc are also talking.
Interviewer:
So unprecedented.
Prime Minister:
It is big because look what we are facing really is a credit crunch, and now the prospect of inflation going very low, and in these circumstances interest rate cuts can have an impact but you need something else, and this is where government comes in when you have got low inflation and fiscal action does not therefore lead to inflation being the problem, you can take that action and in my view you must take that action to help families and businesses now.
Interviewer:
It is the most almighty gamble though, there is no guarantee this is going to work.
Prime Minister:
I think it is pretty clear to me that when we recapitalised the banks it was the right thing to do, so we took action first in Britain and every other country in the world followed and we strengthened the banking system.
Interviewer:
So it is no gamble?
Prime Minister:
Well I don’t see this as a gamble; I see this as necessary responsible action that any sensible government would want to take. Those people who say do nothing now would leave people, as in the ‘80s and the ‘90s without hope that their mortgage problems could be sorted out, or their jobs problems could be sorted out, it would be lacking in compassion as well as irresponsible in my view. And our job as a government is to say look here is the problem, the problem is that the system is not working well enough, we make it work better, we have a long term plan. What you will see tomorrow is a concerted and coordinated programme of action, a plan of action right across the board, not just one item, not just one initiative, because we are clear that action can be taken to take us through this difficulty.
Interviewer:
Prime Minister I understand that, but can we be clear about this, that at some future date there will be a day of reckoning where taxes will have to go up to pay for this, and are you going to be clear about that tomorrow?
Prime Minister:
I think you can be absolutely clear that the Chancellor will set out a plan of action over a number of years for both taking action now and ensuring the security of British public finances. And I think you will find that everything is above board, it is stated, there is no hidden manifesto, people will be absolutely clear that we are taking action now to prevent permanent damage later. If we did not take action now then the problems later in terms of the cost to the country would be even greater.
Interviewer:
And you have made that argument Prime Minister, I just want to be clear about this and I am going to be the shop steward for the plain English campaign, that does mean tax increases later?
Prime Minister:
What it means is he will set out a plan. Now I am not going to announce his plan but he will set out the plan and you will see it tomorrow.
Interviewer:
But the principle is that if you are going to increase borrowing now then there would have to be tax increases at a future date to pay for it?
Prime Minister:
Well you have got two things happening when an economy moves forward, you have got more growth in the economy and therefore more tax revenues, and then you have got your public spending commitments to meet. So yes he is going to set out a plan tomorrow but the plan he sets out tomorrow will be comprehensive and it will be concerted and it will be based on our understanding also of what other countries are going to do round the world because this is a global crisis, it needs global answers and we have got to work with other countries as well.
Interviewer:
POLITICAL QUESTIONS
Prime Minister:
POLITICAL QUESTIONS
Interviewer:
POLITICAL QUESTIONS
Prime Minister:
POLITICAL QUESTIONS
Interviewer:
POLITICAL QUESTIONS
Prime Minister:
POLITICAL QUESTIONS
Interviewer:
So let’s talk about some of the specifics. What would be the argument for example for a cut in VAT?
Prime Minister:
I don’t want to go into the specifics because obviously these are announcements, whether it is about VAT or anything else that would have to be made in a proper statement. What I would however say is whatever is announced tomorrow it is part of not one measure, or two or three measures; it is a concerted and coordinated plan that the Chancellor has been working on for some time. So if you want to single out one potential measure I would urge you to look at a range of measures and a range of important measures that will actually get the economy …
Interviewer:
But what about that particular one? Every newspaper has gone with the possibility of a cut in VAT. I know you are not going into the specifics but how would, hypothetically I know, how would hypothetically a cut there help?
Prime Minister:
But John you wouldn’t expect me to talk about measures that are going to be announced tomorrow. But what I can say is look what are the problems we face? The problems we face are first of all banks are not giving credit and there is not sufficient cash flow to small businesses, so we have to deal with that; the second problem we face is that people are worried about their homes and their mortgages, and I think we can deal with that; the third problem is people are worried about jobs and whether we can do something that was never done in the ‘80s and ‘90s and that is help people stay in jobs; and the fourth thing is confidence. And of course when you act on spending and on consumer spending that is about confidence.
Interviewer:
Sure, we will talk about some of those issues, particularly the banks, in a moment. I just want to stick with this idea of the sort of targeting of the help, is there a particular group that needs help or are you just saying it is help to everyone because Alistair Darling in the papers this morning seems to be suggesting it is help for everyone, including millionaires.
Prime Minister:
But you have got to get the economy moving forward. I mean the economy moves forward when people have sufficient confidence to take the actions that they would normally take in good times, and certainly people are worried about their mortgages so they have not been spending, certainly people are worried about their jobs, so they have been tightening their belts. What we need, right across the world by the way, and this is why I am talking to people in America and in Europe all the time, is a concerted action that will bring the confidence that is missing in the system.
Interviewer:
So you want people to spend more.
Prime Minister:
Well I think we want people to be protected in their jobs by an economy that is moving forward as far as possible, I think we want people to feel secure in their homes because most people have assets in their homes that are worth a great deal of money but many people feel insecure, and I think we want the cash flow for small businesses to be moving forward.
Interviewer:
You would like to see the tills jangling a bit more on the High Street?
Prime Minister:
I think consumer spending is part of this but I think it is also a confidence in the economy that encourages employers that there are going to be markets for them in the future, and encourages home owners that their homes are safe, and encourages people to trust the banks again. And one of the features of this crisis, and I think we should really look at what has gone wrong, is that people have not been trusting banks that have made irresponsible mistakes.
Interviewer:
But if you give a fiscal stimulus tomorrow which encourages people to spend, isn’t there a danger that the same people who led to this crisis, ie you know in the sub-prime area in America and to a certain extent over here as well, that they will spend more and they will have more debt and that is what led to this crisis.
Prime Minister:
No, if I may put it this way. The assets that people have in Britain are far greater than any mortgage or other debts they have. I think it is often forgotten that people have built up wealth in housing and in other areas as a result of a relatively successful economy, and while some people definitely may be over-stretched, the vast majority are people who have got assets that are worth a considerable amount of money and will return to be worth more as this financial problem is eased, and at the same time to have a capacity both to spend where necessary and want to see the economy moving forward. They have lost confidence in the banking system, where markets fail the job of government is to rebuild that confidence.
Interviewer:
OK, but what do you want people to do? Is it that you want people to be spending more money?
Prime Minister:
What I want is an economy that is moving forward generally.
Interviewer:
No, no, the specific of whether people should spend more.
Prime Minister:
But hold on, hold on, you are not going to get me to talk about measures tomorrow. What I want is an economy where people are in jobs and feel secure in their jobs, where mortgages are more secure for people and they are less worried about either going into arrears or repossessions, I want small businesses who are the life blood of our economy to have the cash flow that allows them to stay in business. One of the ways we get out of this is by exporting, with the pound we can export to the rest of the world, so it is as I say a range of things that are necessary. And one of the things we need is also public investment … in the construction industry.
Interviewer:
And one of the things you have spoken about just a moment ago is banks lending money. Do you understand the enormous sense of anger that is felt in the country that these banks have taken taxpayers’ billions and yet are making loans very difficult for small businesses and you know the threatening of foreclosures on mortgages.
Prime Minister:
Well I have been angry about the behaviour of banks, starting with the sub-prime market in America, and we have got to create a situation where having recapitalised the banks, look if we hadn’t done that John some of the banks would have collapsed. We had to do that because we recognised how important banks are to the financial system. Now we have got to persuade them and cajole them into lending at appropriate prices, at reasonable prices, to small businesses particularly who need money, and we have got to get them to resume mortgage lending. Now you will see in the pre-budget report and subsequently a number of measures that will actually make that happen more quickly, and the question is can we get banks back to lending at the level of 2007 and can we do it quickly. And I believe that that is part of the restoration of confidence in the economy.
Interviewer:
What does persuade and cajole mean, those are two interesting words that you have used? I am sure that when you leave this room and when you have been speaking to the banks I would imagine the tone is a bit angrier than that.
Prime Minister:
Well we were very clear that they had to pass on the cut in interest rates to mortgage holders and that has actually happened. We have been very clear also that they have got to be far more sympathetic to the small businessman or woman who is watching this programme who feels that the overdraft rates that they are charging, or the terms or the charges are too high, and we are dealing with that and I see the Royal Bank of Scotland this morning has responded by saying they are not going to change the terms of their overdrafts when the time is extended.
Interviewer:
Do you expect others to follow suit?
Prime Minister:
I expect and hope that others will follow suit that is the right thing to do.
Interviewer:
Have you had an indication of that?
Prime Minister:
I think we have got an indication that the banks are prepared to listen to what the public is saying, as well as the government is saying, and that is they have got to be more responsible in the way they treat longstanding customers who have served them well and now they must serve better.
Interviewer:
And if they don’t, does persuade and cajole change into being a bit of a stick with which you are going to make sure they do do that?
Prime Minister:
Well I think the government has a number of measures it can take, but I think at the moment what we are wanting to do is to create all the conditions, you know this is happening in America, it is happening in Europe, everywhere the banks are not lending, we have got to create the conditions in which that lending can actually happen and that will be a mixture of carrot and stick.
Interviewer:
Yes. Lord Mandelson said this morning that they had behaved alarmingly.
Prime Minister:
I think that is true because there is a loss of confidence in banking and they are if you like increasing that loss of confidence by not acting in the way that banks normally do. Now there are reasons why in a world where things seize up banks find themselves in a difficult position. We are unfreezing and unblocking the problems that have caused them not to lend, and I think once we have done all these things it is up to them to respond to the public need for this. You see what I think people do not yet quite realise, and it is important for me to say this, is when we come down to the needs of people who have got mortgages, and have got savings, and have got pensions in the banks, they need to feel confident that this banking system is sorted out. And that is why I have been so keen to get the reforms in the banking system in place so this shadow banking system that operated, that we really didn’t know much about, is no longer something that threatens the stability of our banks and then people’s finances.
Interviewer:
Do you think you will be able to stop the foreclosures, the repossessions by this kind of three-month grace period or is that just delaying the inevitable?
Prime Minister:
I think you will find we are going to take further measures. Look the position is that interest rates have come down. In the 1990s when we had a recession …
Interviewer:
Just on the specifics, you said you may be taking further measures, I would be very interested to hear.
Prime Minister:
Well we consider further measures, but look most people who have got a mortgage at the moment have got relatively low interest rates compared with what happened when we had these 15 and 18% interest rates in the 1990s and we have got to help them through this difficult period. If some people become unemployed we are introducing from 1 January help that would be there for 13 weeks, after you have been unemployed for 13 weeks you will get help with your mortgages. We want to do something also for people in work who are finding it difficult. And I believe it is not beyond the ability of government working with the banks and building societies to find the means by which people facing some problems with their mortgages can either have longer periods of repayment or recapitalise some of the arrears or other things are done because you know I am pretty clear that with low interest rates it is possible for most people, other than because they have got very big problems maybe in their marriage or something else, most people can stay in their homes.
Interviewer:
Later in the programme we are going to be hearing about a number of British people who have put their money into banks on the Isle of Man that were taken over by Icelandic banks and as a result have possibly lost all their life savings. What can be done to help them?
Prime Minister:
I have had a number of people write to me about this and I am obviously very concerned about this because the Isle of Man is not within our jurisdiction for regulation. We have guaranteed the savings of people in British banks in a number of cases, even although they were owned by Icelandic banks themselves. This is now a matter that the international authorities are dealing with, we are talking to the International Monetary Fund who have made a deal with Ireland about the repayment of debts that these banks have entered into, this is something that we will have to pursue internationally. And I think we may have to look at the relationship between the Isle of Man and Britain in this respect because I think it is sad when people are in effectively an island that is operating in a different way from the rest of Britain.
Interviewer:
Prime Minister you were famous for that phrase there will be no return to boom and bust, do you now regret that phrase?
Prime Minister:
This is an international crisis that has not been generated in Britain.
Interviewer:
But the phrase.
Prime Minister:
Look you can go back and say what did you do and what you didn’t do. I was talking about 15% interest rates, we have never returned to 15% interest rates and we won’t, but what I do say to you is this is an international crisis, it is global, it started in America, we have had very little control over it in its origin.
Interviewer:
Yes you have made that point, but just on that phrase, I wonder whether you now regret it.
Prime Minister:
No because we had a situation where we had 15% interest rates in the 1990s, we didn’t have control over inflation. We created the Bank of England system that has worked well for the last ten years.
Interviewer:
But does none of the responsibility of what we are in now reside here in No 10 Downing Street?
Prime Minister:
I take responsibility for what happens in this country and I do so every day and I do not in any way resile from that, but I have got a duty to explain, you can’t solve this problem unless you know what caused it, and what caused it was not something that happened in Britain, what caused this problem was a new banking system that developed for a global market that in many cases was taking too big risks and in many cases was not disclosing to people, even its shareholders, what it was doing. And we are now having to deal with the fallout from that problem. The inflation and the problems we had were not generated themselves in Britain, I think everyone understands. Even the Americans now say this is a global problem that started in America.
Interviewer:
But when you saw along the High Street that you had Northern Rock offering mortgages of 125%, when you were Mr Prudent Chancellor surely you must have thought this is unsustainable, it is fine when the sun is shining but clouds always come on the horizon.
Prime Minister:
There are always problems every day that you have to deal with, new problems, but this is a very special and unique set of events that have come together round the world. We had the oil crisis, then we had the credit crunch, and I don’t think it really helps the debate if you say that this is not a global problem, it started globally and it has got to be dealt with in a global as well as national way.
Interviewer:
Right, what about the political fallout from this because it does seem that since the credit crunch has come that perversely normally the Prime Minister’s stock falls, your stock has risen. An election in 2009?
Prime Minister:
I am not thinking about that at all, in fact it is almost completely wrong to even consider this because what we are thinking about all the time is what we can do, our undivided attention is on getting this problem sorted out. Look I am here in a job where round the world every country is facing problems, we have got to deal, in fact we have got to help lead the world out of this …
Interviewer:
So why not rule it out, can we just say no election in 2009.
Prime Minister:
I am not planning it at all.
Interviewer:
You are not planning it at all?
Prime Minister:
Of course I am dealing with my undivided attention on the problems of the economy and I don’t think people would think much of me if I wasn’t, and that is what I am going to do.
Interviewer:
OK, a kind of final thought really because as I say people who know you say he looks more self-confident, more relaxed, he is smiling a lot more. Is there almost a sense in which you are relishing having to deal with something which kind of maybe suits your skills and talents and experience?
Prime Minister:
No I don’t think so. Leadership is about meeting challenges when they arise. This is unprecedented in the way it has hit the rest of the world. I think I have got a role to play because I can work with other countries, we are working well together, we are leading the G20 next year which is a group of countries having to deal with this problem, covering most of the world economy, and I think I can bring some of the experience I have got to deal with these problems. When you are dealing with something unprecedented however orthodox thinking goes out of the window, you have got to think out of the box. And what we have managed to do with taking shares in banks, now with persuading people about the need for a fiscal stimulus, which would not have been accepted by many countries before, is thinking out of the box, doing the right things, that is what government is for. If markets fail governments have got to step in.
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