January press conference

8 January 2008

Gordon Brown, accompanied by Chancellor Alistair Darling, answered questions from national and international journalists in Downing Street today.

• Prime Minister's Press Conference
• Pay awards key to stability - PM
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Prime Minister:

Good morning and a happy New Year to all of you and welcome to my first press conference of 2008 - I am afraid without mince pies on this occasion!

I start this year vigilant, but positive, about the resilience of the British economy, ambitious for advancing our programme of investment and reform to improve our public services and a private reflection that we can all learn as we move forward.

In a minute the Chancellor, who is with me, will bring you up to date with what the government is seeking to do to deal with the most immediate issue to make sure that Britain is best placed to deal with global financial turbulence. The key is maintaining a stable, low inflation economy with the flexibility to make the right long-term decisions. Britain's inflation at just over 2 percent compares well with the US at 4 percent, the Euro area at 3 percent together with expected inflation low over the next period of time, it made it possible for the Bank to cut interest rates late last year.

To keep inflation low we made difficult decisions to stage public sector pay awards in the last year in the knowledge that higher inflation would wipe out higher settlements. That helped to break the back of inflation in Britain in 2007. Now in 2008 we have to show that we can maintain stability over the long term and as the Chancellor has said this morning to send out the best possible message about long-term inflation and about stability and to be fair to public sector workers one way forward is a move towards long-term public sector pay settlements. While this will not be appropriate in all cases we will be working where relevant with the professions to consider this option for the future.

We as a government are firmly committed to maintaining the fundamentals of stability and growth. We will work internationally, as well as nationally. The Chancellor will be meeting the European members of the G8 in the next few days. I will meet Chancellor Merkel, President Sarkozy and Mr Prodi later this month, and Alistair will outline the measures that we are proposing to them for how we deal with the global financial turbulence.

Chancellor:

Thank you Gordon. We start this year at a time of considerable uncertainty in the global economy. Right across the world this will be a difficult year but whilst we will be affected by this, and in a global economy every country is of course affected, we are well placed, in fact we are almost better placed than most other countries, to see through this uncertainty.

First, last year our economy was growing the fastest in the G7. We have seen growth in this country for a record period. We have got more people in work than ever before - over 29 million - we have got the lowest levels of unemployment since 1975 and that gives us the strength to face the current international uncertainty. And as the Prime Minister has said, inflation here is amongst the lowest in the G7, lower than America, lower than Europe, and that gives us the flexibility we need to face the present times, flexibility we simply did not have in the early 1990s, and it has enabled the Bank of England to cut interest rates, with room to make further reductions if they believe it is right to do so, as they said in their last published minutes. Indeed over the last decade, inflation has been lower than in any of the previous five decades and half what it was in the 1990s. That is important because low interest rates, and therefore low mortgage rates, make a substantial contribution to the living standards of families in this country.

Now we remain committed to creating a platform of stability and we will continue to do that as we have in the past year with public sector pay. And as I said this morning our aim is to have awards that are consistent with the achievement of the inflation target of 2 percent, that they are affordable, but that we want to move towards a position where we have long-term pay awards because we believe they would be good for public service employees and their families, they would provide stability and certainty for the economy and of course Departments which have had three year settlements for some time now would be able to plan much more efficiently.

Now separately, as the Prime Minister has said, in the international field, in relation to the current turbulence in the financial markets, I shall be meeting shortly with my counterparts from France, Germany and Italy to put forward proposals to both the European Union and then to the G7 and the IMF when it meets in Japan in early February. What we want to do is to establish early warning systems so that we can see the problems that arose and affected America last summer far earlier, to make sure that we have got better international supervisory standards in relation to credit rating agencies, in relation to supervisory standards generally, so that we can avoid this situation happening again where very quickly a problem that happened in the United States spreads right across the world affecting not just this country, but other countries as well.

As I said last week, this week I will be appearing before the Treasury Select Committee. I will be publishing later this month the full range of wide-ranging proposals for reform of the supervisory system to ensure that the FSA and the Bank of England have got the powers that they need to ensure that we can properly supervise and deal with problems that arise in the future. But it is important that we take action not just here but also internationally, because this is an international problem and a great deal of it needs to be resolved at an international level.

Question:

Prime Minister, can you explain to a teacher or a nurse why they should accept a long term pay deal when they simply do not know what their costs will be and frankly they don't trust the government to stick to the recommendations of independent pay reviews? And if I may just pick up on what you yourself have just said, you did seem to hedge this proposal. You called it one way forward, not appropriate in all cases, working where relevant. Is this going to affect many people or are you in truth signalling that it won't affect many people at all?

Prime Minister:

Well, I think large numbers of people have expressed interest in long-term pay deals. What people all round the country want is the certainty moving forward, greater stability in the family finances, and a knowledge that they have a longer term pay settlement that can meet the bills particularly for their mortgages. So there is an interest. I know that many of the people representing teachers, nurses, other groups in the public services, are interested in securing long term pay deals. The question is can we get them moving forward in the next few weeks? I believe that with the considerable interest in having that, we will move it forward. Why is to the advantage of teachers, nurses and others? It puts everything on a long term footing, it means that as people face mortgage bills and utility prices they know exactly what their income is likely to be. It does mean that it is good for the economy as well, because while last year we broke the back of inflation - inflation was rising very fast at the beginning of last year, it is now about 2.1 percent, in future years it is a long term stability that we want to see. And therefore three-year pay deals, consistent with three-year public spending settlements, mean that we have that consistency and long-termism in the setting of pay as well. Now I think that is to the advantage of not just the economy but the advantage to individual groups in the country.

Question:

Won't they think that their bills are going up, but their pay will not be guaranteed to go up with them?

Prime Minister:

But we are going to keep inflation under control. The whole purpose of this is keeping inflation under control. We saw inflation rising at the beginning of last year. It was rising in all countries of course as a result of the rise in oil prices. It was rising also in Britain as the result of utilities. We took decisive action. I wanted to pay the nurses more, I wanted to pay the teachers more, I wanted to pay the prison workers, I wanted to pay the police more, but we had to take this difficult decision so that interest rates could come down at the end of the year, as they did, and we could get inflation completely under control.

Now at the end of the year inflation had gone to 2.1 percent. There will be utility price rises which will affect it in the next month or two, but by the end of the year we believe that inflation will be around 2 percent this year in Britain as well. Now it is to maintain that low inflation environment that benefits everyone, because there is no point in a big salary rise that is wiped out by a big inflation rise. Everybody has seen that in the past. That was the pattern of the 1970s, the 1980s and the 1990s. We have moved beyond that over these last few years. We have had 10 years of some of the lowest inflation this country has seen, we have removed a great deal of the volatility from the British economy. Of course we are affected by international events, but the important thing to say today is that if we can get longer term pay settlements, then not only will the economy be better off, but those people who sign up to these long term settlements will be better off as well.

Question:

Prime Minister, your close ally, Ed Balls, said at the weekend that the next election would be in 1 ½ years time. Can we take it from that, that it will be no later than the summer of 2009 and if not, why will it take longer than that to set out your vision which is the reason you gave for cancelling the last election? And secondly briefly if I may ...

Prime Minister:

... two questions.

Question:

I know but this was picking up something you said at the start, you said privately we have all learned. What have you learned?

Prime Minister:

What I have learned is exactly the answer to your first question and that is I am not speculating about elections and you would not expect me to do so after the events of the last few months. What I am saying is we will not be diverted from the long-term challenges facing this country. Yesterday I made a speech about the long-term future of the National Health Service. Last week we issued a document about the future of our Welfare to Work Programme. On Thursday John Hutton will make a statement about nuclear energy. If you take all the big decisions that any advanced industrial country has got to make, Britain has got to make these decisions like other countries about secure energy, about building new and affordable houses, about improving our transport and our infrastructure, about a better planning system, about the skills we need for the future. Now these are the long-term decisions that we need to make about the future of the country. My vision is of a country where everyone has the chance to realise their potential to the full and I believe that in the big decisions that we are making at the moment, announcing over the next few days and weeks, you will see that we are making the right choices for the future of this country and there will come a time when people will want to judge that, but that is not now. The time now is to make the right choices and I will be judged by the right choices that we have made.

Question:

Prime Minister, change is a concept which seems to be energising voters on both sides of the Atlantic, both here and in America. Now when you became Prime Minister you talked a lot about offering change. Listening to you now you are representing the economic strength of a government in which you played a key part for more than a decade. So are you still offering change or isn't that really something which your opponents can offer but neither of you frankly can offer given how long you have been part of a Labour Government?

Prime Minister:

No, I am offering my ideas about the future, that you build a stronger Britain with secure energy, with a more flexible economy, with the skills that we need, with a Health Service that concentrates on prevention, with a Welfare to Work system that gets people into work, in the way that we will continue to do over the next few years, where everyone has the chance to realise their ambitions and their aspirations for the future. Now it happens to be the case that the foundation of all that is a strong economy. We have had a strong economy for 10 years, we are determined over the course of this year that whether we are buffeted by international events or not, we will maintain the strength of the British economy. And we also believe that we have got a resilient economy because we have created the foundations in the last 10 years where we have an economy that is capable of adapting to the changes that are happening around us.

So there is no contradiction, between talking about the fundamentals of having a strong economy and talking about our vision for change which is equipping Britain in every single respect for the future that we face. All round the world countries are looking at how they are going to respond to Asia, to the climate change issues, to terrorism and security and what we are doing in Britain is looking at each one of the major decisions that we have to make as a country, whether it is on energy, or on the environment, or on planning, or on housing, or transport, or education or on science and we are prepared to make these long- term decisions.

[party political content]

Chancellor:

And there is another point too that I would like to make. Not only do we need to make changes because of the huge challenges we face over the next few decades, but we also need policies that actually work. And if you take Welfare to Work, which has been a tremendously successful programme that we have operated in the last 10 years, we have seen many, many people go into work, unemployment as I have said was at record low levels. Our policies work.

[party political content]

Question:

[party political content] people if you talk to them still feel that there are hundreds of thousands people out there on incapacity benefit, on job seekers allowance who should not be. Do you agree that you have not done enough so far to get people back into work?

Prime Minister:

We have been very tough and are getting tougher in the announcements we made only a few months ago. For example single parents. We have said they have got to start training for work at the age at which their child is 5. Incapacity benefit, we have started moving through the stock of incapacity benefit with our proposal that in time they will have the medical examinations. If you take the long-term unemployed, it has always been the case that people have been denied benefit if they refuse to accept work. But I will tell you what has changed, [party political content], is that we recognise that where the problem in 1997 was the lack of jobs, the problem in 2007 is the lack of skills. And what is preventing so many people from getting the jobs that we need them to get for the future is that they do not have the skills for these jobs, and that is why we are trying to do two things [party political content]. First of all, we are being tough in saying that it is a duty upon the unemployed in future not only to be available for work and not to shirk work, but also to get the skills for work. So that is a new duty that we are introducing.

And secondly we are working with employers, and employers have already signed up to 300,000 jobs that they will provide for the inactive to get them back to work, and this is the way forward for welfare for the future. There are 6 million unskilled workers in the British economy. 5 ½ million of these jobs may be redundant by 2020. The premium is getting the skills for a job that is available. [party political content]. 10 years ago it was the lack of jobs, now it is the lack of skills. We have got to get people with the skills for jobs. Now we have announced a whole series of measures over the last few months and I could go through each and every one of them, but for each of these different categories it is getting people back into a situation where they either get the new skills that are necessary or get skills for the first time. Now that is the future of welfare to work programmes. It is about getting people the skills to get the jobs that are available and getting employers who are prepared to take them on. And we are doing both these things.

Question:

Prime Minister we appear to be in the grip of a knife crime epidemic in this country with teenagers being murdered and stabbed. When are you going to stop the police from merely issuing cautions to people found walking the streets armed with knives? And have you considered actually making it a mandatory jail term for anybody caught walking with a knife?

Prime Minister:

Well we will consider all possible measures to deal with knife crime in this country. 6 or 7% of violent crime is conducted through knives and therefore it is completely unacceptable. When we had an amnesty for knives we got a number of knives in, and we have got to look at that again as well. We increased the sentences for holding a knife, we made it impossible for shops legally to sell knives to people below a certain age, we have done more to make it possible for teachers to confiscate knives in schools, we are doing more about screening, metal detectors so that we can detect where knives are being used in particular communities. We are targeting hot-spots throughout the country where guns and knives are prevalent, and we are not only having more police powers to deal with this, stop and search powers, but we are monitoring these areas as people go in and out, and of course we are tightening up on the amount of police resources that are used to deal with this. We will do everything to tackle knife crime in this country, we will tackle knife crime, gang crime and gun crime, and I think you will find that Jacqui Smith, the Home Secretary, will be making a statement on this very soon.

Question:

Prime Minister you accept that 2008 is going to be a very difficult year economically. Do our think mortgage lenders have a duty to pass on interest rate cuts to their customers?

Prime Minister:

I think where interest rates happen, the Building Societies and banks have got a duty to take that into account.

Chancellor:

If you look at the picture just now, a fair number of lenders have passed on the decrease fairly quickly. Obviously the relationship between a borrower and lender is a commercial relationship. But I would hope that if interest rates continue to come down then the benefit of that reduction will be passed on to mortgage payers because that will benefit them and their families. And just as people recognise that when interest rates go up their mortgage rates go up, they expect that when interest rates come down that the lenders will reduce the rates so that they can benefit - it is part of the deal.

Prime Minister:

Let's remember also when looking at this, I know the anxieties that people have round the country about the global financial turbulence and how it affects them and I know that people with mortgages know what happened 10 - 15 years ago when Britain had similar problems in the past. Now what happened then was inflation was too high to allow interest rates to come down, and therefore you had 10% inflation in the early '90s and 15% interest rates. What we are trying to engineer is a situation here where by bearing down heavily on inflation we can keep interest rates for mortgage holders down. And it was because we were able to cut inflation during the course of last year that interest rates were able to fall at the end of the year. Now that is the position we want mortgage holders to be in, that the official interest rates are low as well and we don't return to the situation that we had in the past.

Question:

Do you think that in the medium to long term, to be effective, ID cards will need to be compulsory for British citizens?

Prime Minister:

That is the option that we have left ourselves open to but we haven't legislated for it. I think over the course of the next few months people will see that there is some wisdom in the argument that we have put forward for identity cards themselves. If you look at the information that we are asking people to give for their identity card it is not much more than is actually required for a passport, but the advantage people have from an identity card is that that information cannot be used without biometric identification. So that is why we are starting with the foreign nationals and that is why we will move further, linking if you like passport information to biometrics over the course of the next few years, but we leave open a parliamentary vote on the decision about compulsion.

Question:

Prime Minister are you going to consider following the initiative of the French President, Sarkozy, specifically with regard to Syria.

Prime Minister:

I thought you were referring to what seems to have been the subject of President Sarkozy's press conference ... and it certainly wasn't Syria. And I am not going to venture down the road that President Sarkozy was forced to go with the press this morning and talk about his personal life.

Question:

Can I finish the question?

Prime Minister:

Oh, sorry. You have excited a lot of interest in the rest of your question.

Question:

The problems simply are that Lebanon is being destabilised at the moment by Syria. He has recognised that fact. UNIFIL have reported great problems, Hezbollah is re-arming in the south, there were rocket attacks this morning on northern Israel - allegedly from Hezbollah. And can we have a cast iron assurance, unlike the situation which arose just after the last press conference you gave with regard to Afghanistan and the Taliban, that there is no prospect, no possibility that any government Ministers, or officials, or agents are going to be talking to Hamas, Hezbollah or any of the other extremist groups until and unless there are complete clear-cut commitments that they will recognise Israel, accept it and not attack it?

Prime Minister:

Well our position with Hamas has been made clear over a long period of time that Hamas has got to sign up to the four principles, and that includes recognising the state of Israel and deploring violence. As far as Hezbollah is concerned I deplore any violence organised by Hezbollah in this region. Of course Syria has a responsibility here. I hope it will exercise its responsibility in relation to those people who are undertaking this action against Israel and we will continue to remind Syria of its responsibility. And of course as far as certain aspects of Hezbollah's work are concerned, it is proscribed in Britain.

Question:

Prime Minister if long term public sector pay deals are so important for the economy and inflation, why did the Chancellor's predecessor not introduce them over the last decade?

Prime Minister:

Because we had a public sector pay award system that generally speaking worked for us over these last few years. I think you will find when you look at the record of the last 10 years, in contrast to the previous 10 years or the 10 years before that when public sector pay was always the issue, that we managed to secure good public sector pay settlements that were in the interests both of those people working in our public services and in the interests of the economy. But what we are describing today, and what the Chancellor described this morning, is a new challenge for the future. I think what people want to know over the next few years is that we can have a stability that is long term and not just year to year. And now that we have put in place three year public funding settlements for departments it is possible to have three year pay deals as a result of that. So if you are looking for the long term stability, lowering inflation expectations over a period of time, coming within our target of inflation, which of course was not the same target as we had in 1997, then to get long term public sector pay settlements is a good thing. Now it may not work in some areas, it may not be relevant in some areas where you have public sector pay review bodies that are sitting at the moment, but there are a number of areas in the public sector where I believe it can work and I believe it can contribute to the stability of the economy. And to get that long termism is I think a very important feature of both making life more stable and secure for British families and putting the economy on the right path and sending out a message internationally that Britain is both a resilient and long term stable economy.

Chancellor:

We will also have ten years of stability as far as price rises are concerned, because back to an earlier question, we can now say to people look we have had that stability. When people ask well what is going to happen over the next three years, because we were prepared to take the tough decisions ourselves, or the Monetary Policy Committee of the Bank of England has done so, we have been able to keep inflation price rises down. And if we get these longer term pay deals, as I say the biggest benefit actually goes to the public service workers themselves because they and their families know how much they are going to get and they can plan ahead accordingly.

Question:

I would like to ask you Prime Minister if you still have confidence in Sir Ronnie Flanagan, Her Majesty's Inspector of Constabulary, after the Judge in the Omagh trial, which was just before Christmas, was highly critical of the police investigation, describing the attitude of some of the officers as slap-dash and seemingly thoughtless. And given that the current Chief Constable, Sir Hugh Ord, has said that his officers were hindered by mistakes made during the initial investigation when Sir Ronnie Flanagan was in charge of the RUC, and Sir Hugh has also said it is now highly unlikely anyone will be prosecuted for the bombing. Isn't that unacceptable, and doesn't Sir Ronnie Flanagan have to be held accountable?

Prime Minister:

Well I have worked with Sir Ronnie Flanagan on many occasions. He is conducting a review of policing in this country. He is doing an excellent job. He published an interim report which was very helpful to the process of police reform and I have got no reason to change my judgment, and I am not going to change my judgment on that.

Question:

Prime Minister what is your reaction to the assertion from the Bishop of Rochester that areas of Britain have been turned into no-go areas by Muslim extremists and that Britain's Christian heritage is being undermined by multiculturalism?

Prime Minister:

I know that there are pressures in many areas of the country but I don't accept that there are or should be no-go areas in any part of the country. And I do believe that Britain's Christian heritage, which underlies the establishment of the Church, which the Bishop also talked about on Sunday, is an absolutely critical and essential part of the fabric of our national life. And so I will do everything in our power. You will remember I did a statement to the House of Commons only a few weeks ago about how we would deal with terrorism in this country and one of the things that I wanted to encourage, and we are encouraging - there will be a paper on this soon - is interfaith dialogue, bringing the different faiths together in different communities of the country. And in every community and constituency of this country I want to see an interfaith dialogue taking place. So far from people being isolated from each other and never talking to each other, and far from there being no-go areas in the country, I want the coming together of all the religions, where there are different religions in communities, to actually happen. So the interfaith dialogue is a very important part of that.

Question:

I think you are meeting David Beckham in the near future. Can you tell us why? Do you want him to have some sort of role in encouraging youngsters to get into sport?

Prime Minister:

David Beckham did a brilliant job helping us win the Olympics. He was one of the team that helped us win the Olympic decision for London for 2012 and I think the whole country was grateful for the work he and others did to make that possible. And if David Beckham could help us in the future on some of the other big national projects, that would be to the benefit of the country as well. But I have got no specific plans to talk to him about them.

Question:

Could you tell us whether the nationalisation of Northern Rock is something that the Bank's shareholders should take into account when they meet on 15 January? And a separate one if I may. Would you consider appointing the Bank of England Governor for any term that is less than the five year maximum?

Prime Minister:

We are getting to a tradition of two questions for every ...

Chancellor:

On your first point on Northern Rock, I have made it clear on many occasions in the House of Commons, and I think at last month's press conference, that all options remain open. I have always been clear about that. Anybody, whether they are a shareholder or anybody else, can be absolutely clear that all options are on the table. The other thing that I repeat again for the avoidance of doubt, the government guarantees remain in place, we have made that clear and discussions in relation to Northern Rock continue.

In relation to the appointment of the Governor, as Ken I think we were asked about this last month, that is something that we will decide in the course of the next few weeks.

Question:

Going back to the mortgage rate cut question, are you prepared to send the same message on passing on cuts to energy firms who this week are hammering their customers with rises of in excess of 10%?

Chancellor:

Yes, look in relation to energy, two years ago you may remember that prices went up quite dramatically because of difficulties in getting gas. We had lost some of the gas storage in the North Sea, we had difficulty getting gas supplies across the pipelines from continental Europe, and there was also again international uncertainty in some of the areas where gas is produced. Prices, wholesale prices, then came down, the consumer prices came down. Now I fully understand that we have seen for a wee while now quite high levels of oil and gas, but earlier this week - yesterday - I wrote to the Chairman of OFGEM, the independent regulator, and I have asked them if they would let me have an assessment of the way in which the market is working at the present time.

People do understand that prices go up and they go down, and they understand that these are because of all sorts of reasons: a shortage of refining capacity, the problems a few years ago as a result of the hurricanes in the Gulf of Mexico, a great deal of uncertainty in some of the areas that produce oil and gas. But they also want to know from oil and gas companies, the stuff they actually sell to you is bought several months earlier, what they are doing to plan ahead and to make sure that we have a highly competitive market. Our energy prices in this country have been lower than many of the other European states and other parts of the world, but I want to make sure that we maintain that competitive market so that consumers at every stage, whether they are industrial or domestic, can enjoy the benefits of the lowest prices that are possible given the constraints under which all of us have to operate. But it is important that these energy markets operate properly and that is what OFGEM was appointed to do.

Question:

Prime Minister as a keen student of American politics, are you heartened that America now seems ready to contemplate the election of its first black President? And what contacts have you had previously with Barack Obama?

Prime Minister:

Look that is a matter for America and it is a matter for the American political system, and I am not going to speculate about who is either going to win one nomination or one party's nomination in America, or who is going to win the eventual Presidential nomination. What I can say is that the British Prime Minister will work very closely with whoever is elected as the American President for the future.

Question:

You spoke and said you had broken the back of inflation during the past year. You then went on to say you expected inflation to rise as a result of what has been happening with higher energy prices. How serious are these inflationary pressures in the economy and do you think that is going to make it difficult for further early cuts in interest rates?

Prime Minister:

Well I think you know that what was happening last year right at the beginning of the year was that inflation was rising towards 3% and then above 3%, and that is something that we didn't want to see happen. It was the result of the oil price rises and the utility price rises that came before that. Now obviously there are going to be some utility price rises over the next period of time, but our estimate is that inflation will be 2% by the end of the year.

Chancellor:

If you look at the last published minutes of the Monetary Policy Committee of the Bank of England you will see that they take into account everything that could affect prices, but they make the point that given where we are on the economy, given the reduction in inflationary pressures there has been, they believe that they have got the room - if they judge it the right thing to do - to make further reductions. Now obviously it is for the Monetary Policy Committee of the independent Bank of England to decide what is appropriate, but we are in a position, because of everything that has happened over the last few years, to create a position of certainty, of stability, which has given the Monetary Policy Committee room for manoeuvre that quite simply was not available 15 years ago. Now it is for the MPC to make their decision, they will take into account all the pressures that we face, but if you look at the last minutes of the meeting they are optimistic in relation to inflation.

Question:

The latest poll in The Times today puts you 24 points behind the opposition leader on the issue of leadership qualities. I just wonder, you appear to be suffering from the Hilary Clinton factor where the public has deserted you in droves. She said her feelings were hurt by that and I wondered if your feelings were the same. And I understand that you have had some sort of makeover, whether it was extreme or not I am not sure, and I am wondering whether that makeover was to make you more appealing to that public that ... you?

Prime Minister:

None of these things is true and I really don't take one poll, nor does anybody else take any one poll seriously. Look I am focused not on the short term, I am focused on the long term issues. The tests will be: have we made the right choices for Britain, have we made the best choices? And I will be judged as to whether we make the best choices for this country. And the best choices for this country about how we equip ourselves for the future, how we come through the global financial turbulence, how we enable everyone in this country to have greater opportunity and security. Now these are the issues that I want to focus on, and will continue to focus on.

Question:

Prime Minister you talked about knife crime and about the measures you are taking against it, but I wondered what you ascribe this rising toll to? Is this a weakness in policing, in the education system, social provision, or are we seeing some kind of more serious and intractable social breakdown? I mean basically what is happening with British kids at the moment?

Prime Minister:

There are issues we have got to deal with where kids are out of control, where they are roaming the streets, where they are out late at night, where they are not pushed into being at home by parents or by other people. There is a real issue. And there is an issue about gangs in Britain that we are dealing with, and there is an issue about gun crime as well as knife crime that I know affects a small number of communities in a big way, but worries the whole population. Now what are we doing? What we are doing is we have taken these hotspots, those areas where the problem is greatest, and we have comprehensive action to try to deal with the consequences of what is going on, and to stop the problem itself. So pull young kids out of gangs, to have detectors to make sure that we know where guns and knives are in a community, to have stop and search powers, to have police surveillance powers and to deal with that issue. Yes I know there are issues about families and how families control their younger teenage children and how they get them back under control when there has been a problem, but we have got to show that we can both punish and prevent. Our strategy is to punish where is crime and to prevent where at all possible, and that is why the hotspot strategy goes hand in hand with what was announced in the Children's Plan only a few weeks ago.

Question:

Rail passengers in the west of England are holding a public meeting next week and they are proposing a fares boycott. They say that after a year of appalling service from First Great Western with overcrowding and delays they are still having to pay above inflation increases in fares from this month. What is the government going to do to make sure that rail transport in the west of England is affordable and efficient?

Chancellor:

I know there have been problems with the line out of Paddington down to the west country, and I know also that Network Rail and First Great Western have been having discussions to try and improve things. And equally our colleague, Ruth Kelly, the Secretary of State for Transport, is aware of this to try and resolve the problems in relation to punctuality and also I think there are measures in the pipeline to improve the amount of capacity on the line. But I think in relation to fares generally we have doubled investment in the railways over the last ten years. I know that at times upgrading and improving lines can prove extremely troublesome, as we have seen in the last couple of weeks or so, but it is necessary to carry out that upgrading but it does come at a cost. Now a lot of that cost is being met by the general taxpayer, but it also means that some fares have risen, although there are other fares available which are a lot less than sometimes the headline increase issue that you read about. But I know that Ruth Kelly is particularly concerned about this problem and we will give it all the attention it needs.

Generally it is a measure of the success of railways that more than a billion passengers are using railways, and more people are using railways than for many decades. But where there are specific problems, as you describe on that line, then Ruth Kelly is looking at them and she is meeting and will meet the companies concerned. And any passenger who feels aggrieved about the service that is on offer, particularly so since there has been new investment in these lines, we will listen to what they have to say.

Question:

Prime Minister in the week of the disputed Presidential elections in Kenya, does your UK government recognise the Presidency of Mr Kibaki?

Prime Minister:

What I want to see is a bringing together of all the different groups in Kenya. I have talked to the President, I have talked to Mr Odinga. Mr Kufuor, who is the President of Ghana, will after conversations with him and other people asking him to do so too, be in Kenya today to begin a process of mediation. Now I want both parties to meet together with Mr Kufuor, I want them to look at what they can do to improve the national unity of the country. I want an end to the violence that is taking place in the country, I want them to consider whether a coalition or unity or cohesion government is possible, and perhaps they want also to consider whether at that stage there are constitutional changes that are necessary that have got to be put to the people. The violence in Kenya is totally unacceptable, the loss of life is abhorrent to all of us, it remains for all the parties to come together to see whether they can form a government of reconciliation to make sure that the killing stops and that we can have the peaceful progress that we want to associate with the future of Kenyan politics -but sadly is lacking at the moment.

Question:

I wonder if you could tell us your take on the new Iranian-American confrontation in the Gulf? And have you spoken to President George Bush before he embarked on his tour to the Middle East?

Prime Minister:

I will be speaking to President Bush soon. As far as the incident affecting Iran, this is to be regretted. All the information that is needed on this incident is still to come in and I think it is premature to speculate about what has actually happened.

Question:

Can I take you to Scotland Prime Minister? You said you welcomed the debate on this subject, but I would like to get your personal view about the call from Wendy Alexander and other political leaders in Scotland for the Scottish Parliament to have more powers, particularly over tax. Are you for or against the Scottish parliament having more powers?

Prime Minister:

This is a debate about the responsibility and accountability of the Scottish Parliament for the use of the resources it spends, and this is a debate that has got to be had at some point over the next few years about accountability for money spent. And that is why we are looking at different ways where that debate could actually happen, but I am not going to conclude the debate, it is a debate that should happen. Can I just emphasise one thing - that this year will be an important year for the Union. [party political content] And I think over the course of the next year it will become very clear that two-thirds of the people of Scotland want to remain part of the United Kingdom.

Question:

Prime Minister I just want to ask you how satisfied are you with the measures being taken by President Musharraf to hold general elections in Pakistan?

Prime Minister:

It is very important that the Pakistan elections are free and are fair and that everything is done to show the international community that all the barriers and obstacles that existed a few weeks ago to there being free and fair elections have been removed. It is tragic that we have faced the assassination of Benazir Bhutto, it is tragic that there has been so much loss of life in the country, it is tragic that there is still controversy over what happened when Mrs Bhutto died. And that is why I asked the Metropolitan Police to provide some help to the Pakistani authorities in investigating what has happened. President Musharraf has withdrawn the state of emergency, he has released a large number of prisoners, he has made arrangements for the elections to go ahead. These elections will have to be properly monitored because there are several thousand polling stations in the country itself, and we will be insistent that if the elections are to be held as valid by the international community, they have got to be held in a free and fair way and that requires all action to be taken so that there is neither intimidation, nor is there censorship, nor are there political prisoners who have not been released at the point at which the election happens.

Question:

Prime Minister are you seeking a commitment from Northern Rock bidders to not cut any jobs, or at the very least minimise job losses? And when will the final decision actually be made?

Prime Minister:

Well I am going to ask Alistair Darling to answer that. But of course throughout this set of events we have tried our best to protect the depositors and savers of Northern Rock and to keep the business going.

Chancellor:

I think we are all very aware of the importance, particularly in the north east of England, of Northern Rock. It is a major employer. And I very much hope that at the end of the discussions we are able to do everything we can to help the company and its employees. But those discussions are continuing. For obvious reasons I am not going to provide a running commentary on those discussions, but I said at the end of last year that what the company needed was some breathing space to look at options. The government is facilitating that through various means and we will continue to do so. But you know this is a difficult situation but we will do everything that we can to help.

Question:

[party political content]

Prime Minister:

What has happened in Glasgow in the last few years is that the number of people in jobs has increased, there has been a very big reduction in unemployment and a big increase in employment. And what we want to do is more of that. But the way that we will do more of that is getting those people who are inactive, with the skills that can get the jobs that are available. There are vacancies in Glasgow and Scotland and because these people don't have the skills they are not able to take them up. Now that is why our duty to acquire skills will be written into the next stage of welfare legislation, and the next stage is to get employers and to get them to take on people who are inactive or previously on incapacity benefit, and then get them back to work. So we are determined to move forward our welfare to work programme. It has involved 2 million people receiving help over the last 10 years. It is a very tough programme in terms of its sanctions and we have announced in the last few weeks the toughening up of the sanctions still, and our determination is to give people the skills and then get an employer to take an interest in taking them on for jobs. Now that is the way to get people back into work.

Question:

In the announcement on nuclear energy later in the week, will you be clarifying what incentives you will be offering the industry to build the necessary power stations?

Prime Minister:

Yes, I think it is difficult for me to pre-empt an announcement that will be made to the House of Commons, but I think I can say to you that all the details of what the nuclear programme would look like, if we went ahead with it, will be announced on Thursday by John Hutton. So this is a very comprehensive announcement that will look at all aspects of the nuclear industry, indeed it will be a statement on energy generally and will not simply be about nuclear.

Question:

Prime Minister you met the Iraqi Prime Minister last week, Mr Maliki. I wanted to ask you firstly, how convinced are you that he is committed to political reconciliation and that this year we will see a movement on key political issues such as the oil and hydro-carbon law? And I wanted to ask you regarding the Basra Investment Commission, apart from appointing Michael Wareing to the position that he has been appointed to, what movement has been made on this commission, and will he be visiting Basra soon?

Prime Minister:

Can I say first of all that progress on reconciliation in Iraq has not been fast enough and it should be speeded up over the course of this year. And when I met Mr Maliki I did emphasise to him about the importance for the hydro-carbon law, about other laws, including local government elections laws that are necessary to bring the whole country together. As far as the Basra Commission is concerned, we are determined to give people in Basra a stake in the future. So, yes, there are 30,000 security troops that have been trained, either police forces or armed forces, that can maintain law and order. But the long term future of Basra depends on creating jobs and prosperity and income for people. And Mr Wareing of course has come from Britain to be part of that. I urged Mr Maliki to appoint the Iraqi members of the Commission now so that it can begin its work in getting more people back to work and bringing prosperity to what should be a very rich area of the country. And I believe that he will make progress on this very quickly now.

Question:

Prime Minister can I get back to the President Sarkozy press conference today for a second?

Prime Minister:

I know you must be sorry to be missing it.

Question:

He managed to talk also about other issues than his private life. He mentioned that on the reform of the Security Council France would support the membership of the Permanent states, the Permanent Members of Germany, Japan, India, Brazil and one African country. I think also he said that he would favour the enlargement of a G8 and transform it to a G13. What are your views on that?

Prime Minister:

Well I put forward proposals in the Lord Mayor's speech only a few weeks ago. First of all, yes we would extend the Security Council, but of course the challenge is reaching agreement from all the parties on that, and it may be that there has got to be an interim settlement on the road to further reform. And as far as the G8 is concerned, as you know the G8 Plus 5 meets on a regular basis, but only for a small amount of the time that the G8 comes together. Now there are proposals to extend that relationship and to broaden it so that China and India and South Africa and Mexico and Brazil are part of these discussions, and that is something that we favour also as well. So the world's institutions are ripe for major reform - the World Bank, the IMF, the UN, the different international organisations that were built in the 1940s that have got to be reformed and renewed for the purposes of 2007, and reform of the Security Council and the G8 is very much part of that.

Question:

Going back, could you be a bit more specific please on the forthcoming meeting with Germany, France and Italy and give us a hint of this early warning system you were talking about? So what about the dates and what about the contents of this meeting? And just a last point, was Italy the last addition because until 20 days ago or so there was just Germany and France, as far as I understood?

Prime Minister:

The meeting is the European members of the G8. And as you know I said at the last press conference that we want to discuss major reforms in the international financial system that could benefit all the economies. Some of the lessons, that as Alistair has just talked about, we have learned from the global financial turbulence. This meeting will be preceded by a meeting of the G8 Finance Ministers that are from European countries, and perhaps Alistair wants to add to that.

Chancellor:

Tommaso Padoa-Schioppa, the Italian Finance Minister, and I have had many discussions over the last few months about the changes that we think are necessary and he has played a major role in trying to bring about that reform. The Forum for Financial Stability, which was set up some time ago, will report to the G7 countries when we meet in Japan in February. What we are looking at is ways in which the IMF, given its international role, can detect problems that are arising. We can look at what international supervision is appropriate, for example in relation to off balance sheet organisations that have caused so much difficulty, particularly in the United States, also looking at issues like the way in which how the work of credit rating agencies work. So there is a whole range of matters that we are looking at that will help improve things, and the work of both the Forum for Financial Stability, which of course is chaired by Mario Draghi and also Mr Padoa-Schioppa is very, very important.

Question:

Just going back to energy, the Chancellor said it was important to have a fully functioning energy market. Do you think the market isn't working properly at the moment? Do you suspect there may be some collusion going on? And would you like to see a full competition inquiry into the sector?

Prime Minister:

Well the liberalisation of energy is a fundamental issue for the whole of the European Union, and as someone who I think has covered these matters for some time, you know that creating a single market in energy is one of the priorities of the British government. So that is something that we will continue to move forward with the single market review that is taking place in the European Union.

Chancellor:

And that is why I have asked Sir John Morgan, the Chairman of OFGEM, to let me have his assessment of how the UK market is operating. Because we do need to make sure it is competitive, and as Gordon said we also need to make sure that the European market is competitive. And I think as far as the European market is concerned there is still room for substantial improvement.

Question:

Do you think there is a case for setting a minimum price for carbon, or do you think that would represent a form of subsidy to the nuclear industry?

Prime Minister:

I think that is the debate that we are going to have about the future of carbon markets generally, and I think that is a debate that really is going to be part of the climate change talks as well that started at Bali. And I think London could be the centre of a global carbon market and we are calling a conference to look at those very issues. But as far as what is going to be said in the nuclear paper on Thursday, which is also a statement on energy generally, I cannot pre-empt that.

Chancellor:

I would just say one thing in relation to the carbon market, a carbon price will also help renewables. And we have always made it clear that our policy is to reduce the amount of energy generated from high carbon content. Nuclear is low carbon, and as Gordon has said there will be a full statement on Thursday. But renewables, in which we have seen a very significant increase in capacity in this country, are also low carbon but a carbon price actually helps all low carbon sources of energy. So yes it is very, very important.

Question:

Prime Minister, as a former Open University Tutor yourself, why do you want to cut funding for second degrees, which will cost the Open University millions of pounds?

Prime Minister:

We want people to do second degrees and we want more people to get qualifications. The question that John Denham has had to look at is what are the priorities for spending over the next period of time. Now one of our problems I have just mentioned is the number of people who do not have qualifications at all and who have got to get qualifications for the first time, and he has made announcements along these lines. But I too, like you, want to do more to help the Open University.

Question:

Prime Minister you are going to start your first state visit to China shortly. Apart from the meeting with Chinese political leaders, are you going to address the Chinese entrepreneurs, especially the private sector, where those especially in the manufacturing sectors have a growing concern over the protectionism in the trade area, because these people have had a difficult time with the continental European countries over the anti-dumping issues etc. If the UK is going to be the same case, I think they are going to suffer such a heavy blow.

Prime Minister:

Well we are the free trade country of the world. We believe in free trade, we are against protectionism, we will fight it whenever it appears and wherever it becomes a problem for the working of the global economy. I am looking forward to my visit to China. I will be meeting businesses in China. A number of British businesses are coming with us to China because we see this as an expanding export market for the future, but of course that export market has got to be based on free trade and not protectionism.

Question:

Tony Blair tried to get an agreement with the Spanish government over Gibraltar and at the last minute it failed. Are you going to do something during your government?

Prime Minister:

We have no plans to enter that at the moment, but I will continue to have my discussions with Prime Minister Zapatero about all these issues.