Murnaghan Interview with Alistair Darling, former Chancellor, 5.07.15

ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: Joining me now from Edinburgh to talk about the situation in Greece and how it could affect the UK economy is the former Chancellor, Alistair Darling, a very good morning to you Mr Darling.  Are we in a way, and is Greece in particular, between the devil and the deep blue sea here because whichever way it votes there is still a tortuous road ahead.

ALISTAIR DARLING: Well that’s probably true.  I think the concern that most people have is that the longer this instability, this uncertainty continues the greater the risk that that will begin to affect the rest of the European economy and by extension it will be yet another brake on what is a very slow recovery in the global economy.  Now in my experience if you want to sort something you have got to sort it properly.  It’s been five years now since the eurozone tried to sort out the Greek problem, it has manifestly failed to do so.  To my mind unless they take the decision they’ve got to take to write off substantial amounts of Greek debt and then to put in place a programme that has got to be delivered in turn by the Greek government, this is going to continue.  

DM: Okay, if there’s the will there you can see how the so-called haircut on the debt can happen but what about those reforms that just never happen, as you touched on, that the Greeks are responsible for?  Does it take a bunch of technocrats to go in there and make them privatise things and sell things and stuff like that?  

ALISTAIR DARLING: Well you’re right, the present Greek government when it was elected at the beginning of this year I think had a fair amount of goodwill in the bank if you like so far as the rest of the eurozone was concerned but they appeared to have squandered that.  I mean you can never be quite clear from one hour to the next what their position actually is but you’re right, if this is going to work then both sides need to agree to it.  Now in some ways perhaps we do need to look beyond the political classes in Greece where there have been problems for decades actually in terms of having a functioning, properly operating economy because I think the Greek people from what we can see, the majority of the Greek people want to stay as part of mainstream Europe if they want and I think people will understand that there are going to be some difficulties, some hardship if they can see a purpose to it, light at the end of the tunnel but at the moment you’ve got the worst of all worlds.  You’ve got a settlement which without the write-offs is never going to work, the IMF said so just a couple of days ago, everybody knows that and you are asking ordinary Greek people who are now beginning to suffer lack of food, lack of medical supplies, you are asking them to undertake pain and they can’t see the purpose of it.  So yes, you are absolutely right, it does take both sides but it is going to take an awful lot of repair work.  The risk is, the longer this goes on the worse it will be for Europe as a whole and we don’t need that when, as I say, we are still struggling to come out of a global recession.  

DM: But what about the direct effect on the United Kingdom, particularly of a broken banking system and not getting a straight answer, today one of our reporters, from the Greek finance minister, about whether the banks will reopen on Tuesday or not?    

ALISTAIR DARLING: Well look, I think there are two separate issues here. I think as far as Greece is concerned what would tip the Greek economy over the edge if you like is if the European Central Bank doesn’t renew its support for the Greek banking system and it is difficult to see how it could survive if it’s got no central bank behind it, it will collapse.  As far as the rest of Europe is concerned, I’m pretty sure that here the Bank of England and the Prudential Regulatory Authority will have a good handle on that.  The exposure to the Greek banks I think is much less than it was a few years ago, similarly the American banking system is much tighter.  I do worry a bit that there will be some exposure within Europe that we may not know about but I am assuming that the European Central Bank has been looking at that and with all they’ve been doing and the pledges they’ve made to support the eurozone economy, I’m less worried about that than I would have been two or three years ago but that is always a risk you’ve got to watch.  I think the greater problem, as I said, is that people will say this is not going to get sorted and confidence is beginning to return in the European economy but it will take a further knock.  That’s why the Americans are so concerned about it, just as they were five years ago when they couldn’t believe that the eurozone was not taking action to deal with this problem.  As I say, this has been manifest now in an acute form for five or six years and it’s still not sorted or, at the moment, anywhere near sorted.  

DM: Let’s turn our attention now to the upcoming budget, if we could, the emergency budget on Wednesday and your party is faced with a dilemma here, is it not Mr Darling, with the welfare cuts that we all know are coming along, as to how many of them you would accept given that you agree with the Chancellor, and we’ve heard it from many people from within the Labour party, you agree with the Chancellor that in normal times we should run a surplus.  

ALISTAIR DARLING:  Well look, the first thing is the Labour party suffered at the last election and before that because it didn’t have a credible economic policy and if you don’t have a credible economic policy then frankly anything else you’ve got to say is just going to be ignored.  Now that means you do have to have a view on welfare and on all aspects of the budget, I don’t think you need to start writing a budget for 2020 at this stage but you have to review as you face up to these issues, that people will judge you on how you reacted to what has been proposed.  Now obviously we don’t know what George Osborne is going to announce on Wednesday but £12 billion, if that’s what is going to be taken out of welfare and particularly if it comes from tax credits which were introduced to help people to make work pay and I do understand the problem that is arising in terms of the effect it might be having on depressing wage levels and that’s something that needs to be looked at but I think you do need to have a view as to how you would ensure that people who are low incomes are better off in work and that is a very important thing you have got to be very clear about.  

DM: It’s interesting you light on that because that’s something that Mr Osborne is writing about in one of the papers today and he is quoting Labour’s own Frank Field on that, that it seems perverse that at the bottom of the income scale people are taxed on the minimum wage and then handed money back through the welfare system, it’s better that they are paid enough in the first place.

ALISTAIR DARLING: Yes, I think to be fair Frank Field has always had that view but if you go back to when tax credits were introduced about 12 or 13 years ago, the idea was to make sure that you avoided this cliff edge that people had if they came off benefit and went into work they were worse off.  Now it’s very difficult to eliminate that completely and even the new Universal Credit won’t do that but what we tried to do is to have that bridge.  Now the risk is, if employers say well the state is going to top up your wages therefore I don’t have to pay as much, that is a problem and it needs to be addressed but what I am very clear about though is a lot of the people on tax credits are not well off by any stretch of the imagination and if you suddenly remove their tax credits they’re getting now, that will put them in a very difficult financial situation because it will take years possibly for the wage levels to adjust.  You are asking me what approach should my part take, the fundamental point is that you have got to have a credible economic policy and part of that is you have got to be clear about what sort of welfare system you want.  Now unfortunately we’ve got time to develop that but on tax credits, I was there when they were introduced and I will defend their introduction but I think now there are problems beginning to arise in the way they actually work in practice that need to be looked at but we just need to be careful about how you make that adjustment.  

DM: What about measures we might expect at the other end of the income scale, particularly when it comes to inheritance tax, that if your main home is included then the threshold could be put up to one million pounds?

 
ALISTAIR DARLING: Look, we’ve just been talking about people on low pay and there has been a lot of comment, even from some Conservative commentators, on the fact that an awful lot of people in this country are going out to work, working hard and not seeing the benefit from it so if I were writing this budget, and it’s not clear to me what the emergency is on Wednesday but if were writing it, my emphasis would be on helping people at the lower end of the income scale rather than helping a comparatively few number of people who will be affected by the inheritance tax changes and I think you’ve got to look at the politics of this.  People will say we know things are still difficult but why, if you’ve got money to spend are you spending it on a comparatively few people at the top end of the income scale rather than doing what you can to help people who are on lower and middle incomes.  

DM: You played a bit of politics didn’t you when you introduced it, the higher rate of income tax, would that go with a cut in that?  Would you say that really isn’t important at this point?

ALISTAIR DARLING: Well look, the reason that I introduced that higher rate was because at that time yes, we had to get our borrowing down and it is only fair that those people with the broadest shoulders contribute more to it.  Now the Tories and the Liberals in the last parliament decided that they would cut it down to 45, we hear George Osborne talking about taking it down to 40, what I’m saying to you is if you have got money to spend at the moment and if we are all in it together as he keeps saying, then my emphasis would be on people who are at the lower end of the income scale, who have had it difficult for the last few years and that’s where, if I had money to spend, that’s where I would spending it.  The politics of taking £12 billion away one way or another from people on low incomes and giving a lot of it back to people on the higher incomes, I’d be surprised if the Conservatives were really going to go down that path.  The emphasis must be to help people who are at the lower end rather than people at the top end.

DM: What about the middlish middle?  There is no end to that of course and this issue of social housing, people living in local authority housing and housing associations who are earning pretty decent salaries and there are quite a few thousand of them, saying you’ve got to pay the market rate?  That seems sensible.  

ALISTAIR DARLING: I wouldn’t go to the wall on that one at all, if that is what it is – although as ever you need to look at the small print.  What I would say about social housing which I think is a far bigger problem is the Conservatives announced that they are going to more or less force housing associations to sell off property, that will exacerbate a problem.  We are talking about welfare, one of the reasons why housing benefit has been going up, the bills have been going up, is because we simply don’t have enough housing and in post-war successive governments used to have a Minister of Housing who used to boast at the end of each parliament how many more houses had been built.  We need to go back to that approach, these houses will not come if we simply leave things as they are.  We need more housing, it isn’t just an issue for London, it’s an issue for every part of the United Kingdom and that again, if you look at what George Osborne might do on Wednesday I would like him to do two things.  One is to have a real boost that will actually deliver more housing every year for this parliament and beyond and the other thing, he keeps going on about the Northern Powerhouse and yet Network Rail have now had to put on hold a lot of railway development.  As a former Transport Secretary I can tell you that once you start putting these things on hold, the problems mount and mount and mount.  For my part, I would forget about HS2 which will do nothing for regional development in my view, and spend that money on getting the transport and particularly the railway system, back on track. So housing and transport, those are the two things I would have in the front of my mind as well as helping people on low incomes.  But then, I’m not the Chancellor.  

DM: The last thought, Mr Darling, on the Labour leadership campaign, in particular the inclusion in it of Jeremy Corbyn who seems perhaps to be doing better than many expected, people wanting him on the ballot paper, many people just to have the debate and now we’re hearing he is getting backed by the Unite union.  He’s a bit of a contender isn’t he?

ALISTAIR DARLING:  Well we’ll see.  He won’t be surprised to know I wasn’t proposing to back him, I have yet to decide between my three former colleagues and I’ll decide fairly soon.  I think though the view that most of us take in the Labour party is we want to get back into government again because we want to make a difference and I’m not sure that Mr Corbyn’s way is the way to do that but then we’ll probably disagree on that.

DM: Okay, great talking to you Mr Darling, thank you very much indeed. Alistair Darling there, live in Edinburgh.