Interview transcript: Alistair Darling

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This is a transcript of an interview with Alistair Darling, the chancellor of the exchequer, with Lionel Barber, editor of the Financial Times, James Blitz, the FT’s political editor and Chris Giles, the FT’s economics editor on July 3. It is unabridged and has been edited for clarity.

FT: It did occur to me coming out here, actually, that with your extensive experience in Whitehall and notably your ability seemingly to turn up in departments that are in a mess and clean them up, this must be the first department you’ve turned up in that’s actually not a mess.

Alistair Darling: Well, that did strike me as well. I said that to the Treasury senior officials when I spoke to them on Friday. I was over at DTI for 15 months and there were problems that needed sorting out, but it wasn’t like Transport or Social Security ten years ago. And I suppose the difference is, you arrive where you have a crisis to spend the first three months sorting these things out and then you gradually get to know the department. This is the complete opposite in that it’s in good nick, in both the department and the economy, which is strong and stable after ten years’ growth.

Of course, there will be challenges to come, but it’s a completely different sort of environment from the one that I have perhaps been used to. But, nonetheless, I’m immensely pleased to be here.

FT: I’m trying to get a sense of what the Darling philosophy is and how that philosophy will be visible in the way you run the department.

Alistair Darling: Well, I think first and foremost our strongest policy, if you like, over the last ten years is that fact that we’ve run a very strong stable economy since we started our work in 1997/1998. We stuck to it and we will continue to stick to it.

That’s not to say that that there won’t be some changes in the time to come, but I think underpinning everything we do, whether it’s health, education, other public services, there is a strong economy and as a government party, we’re committed to providing people with as much opportunity as they possibly can, and you can only do that if there is an economy that enables people to get into work that you, that you are able to ensure that you can help people get into work and also be fair to people who are not out of work, on pensions, and so on.

So I think what you will see here in the Treasury is continuity of approach. Of course, as we approach new challenges, the unexpected will come along and we’ve got to be able to deal with that, but I think given the strong position we’re in, I think it’s important that we build on that and that that is what some people are looking for.

I think that’s very, very important, but in terms of what drives me, it’s very similar to the things that drove Gordon when he was here, both in domestic policy and, as I said, in terms of the welfare reform, in terms of improving public services and in terms of the work that Gordon did in relation to debt relief, the work that he did in Africa, all these things are very important.

Relationships between ministers are obviously different because the personnel are different.

The Treasury is the finance ministry, but it’s also the economics ministry and it will continue to take a live interest in what the government is doing in policy terms outside the traditional Treasury lines, if you like. That doesn’t mean it’s going to tell them what to do or it’s going to insist on its policies as opposed to somebody else’s policies. That’s not my way of doing it. But I think the fundamental strength of the economy is critically important, not just for the country, but it’s also important for our credibility generally.

FT: Can we perhaps expect some further simplification of the tax system, building on what we saw in the prime minister’s last Budget?

Alistair Darling: I would like to. Certainly I think the simplification on the corporation tax and the income tax that he announced in March, I think that is absolutely right and we will see that through.

I’m conscious of the fact that the regulatory burden, for example, that business complains about, will include the tax system. Now, of course, there’s always a conflict here between taking the necessary action to stop abuse or the unintended consequences of policy, at the same time making sure that the tax system is easy to navigate. Now, obviously the headline corporation tax will help, the streamlining of the allowances will help, although as you well know, when you do that, of course, people then say, ah, but we didn’t want them streamlined in respect of our particular allowances, the sort of thing that we’re interested in.

So I do think some simplification is important, as I thought regulatory reform was absolutely necessary when I was in the DTI, and in that one should always strive in making changes to try and make the system simpler, but, of course, any Exchequer has got to make sure that if a loophole emerges or an abuse that wasn’t anticipated, you may have to do something to close that off, and inevitably that can have a degree of complexity, though one needs to do one’s level best to avoid it.

FT: Unintended consequences, abuse... I see a perfect segue to a discussion on private equity.

Alistair Darling: I thought you might raise that. Well, look, let me say two things... one is I think we should be very, very wary indeed of a knee-jerk reaction or a reaction to a day’s headlines into making a tax change that could result in unintended consequences and sometimes undesirable consequences.

I’m reminded of Sarbanes-Oxley in the United Sates, where because of what happened in Enron, understandably people wanted to make sure that, “it could never happen again” so Sarbanes-Oxley came along, and in the United States they’re now wondering how they can get out of it, because there’s no doubt it’s damaged the US market. London’s actually benefited because of that. But I think we need to be very clear that when, or if we make any changes, they’re made at the proper time, in the context of the Budget, or the pre-Budget report, and they’re done in the context of making tax reform which is beneficial to this country.

I think the other thing I would say in relation to private equity is that there are a number of examples where private equity has actually been beneficial in relation to the companies which have been taken over. I think we can’t allow ourselves to get into the situation of somehow saying that all incorporated bodies under the Companies Act are good, or private equity is bad. That is just nonsense, the world isn’t like that.

I can quote you a number of examples of bad governance, executed by companies that were incorporated in the conventional sort of way. What you will not get from us is a sort of knee-jerk reaction to these things, and I think that any changes you make to the tax system have got to be properly considered, properly thought out, and in relation to the capital gains changes of course, which Gordon started in 1998 I think it was, and then there’s been reforms since then, what we wanted to do was to encourage people to invest, and to see the value of their gain to their business.

You’ve got to be very careful that you don’t throw all of that out. Indeed, that’s not to say that I will not be vigilant in relation to abuses of the tax system, and I’ve got to have regard to the losses that the Exchequer might make. For example, Gordon had to take action in the last Budget in relation to the evidence that people were incorporating to reduce their tax. Of course the Exchequer’s always got to be vigilant about that, but I do think in relation to this private equity business, we need to look at all the evidence. Now, one of the things that I’m looking forward to receiving is David Walker’s report, which we’re due to get I think in the next few weeks, because one of the concerns is transparency, because it’s one of the concerns people have got…

FT: It’s a terrible word, transparency.

Alistair Darling: Well, basically there are far better words, people want to know what you’re up to, they want to be able to say, okay, this is a new owner, who is it? How is the company structured? What are the risks that I as an employee, or I as a possible investor might be exposed to? Now, we will want to work closely with David Walker once he’s produced his report, but I think there’s a number of things that need to be done, but I’m very clear that if you make changes to the tax system, you need to think them through, you need to not just think them through for the individual classes of tax payers if you like, but you need to also make sure that you don’t end up doing something as I say, like Sarbanes-Oxley where you think you’ve sorted one problem, only to discover you’ve created another bigger problem, and you cannot run the economy in that way, you can’t do that.

FT: Just one last thing, some of the players themselves have said that the current tax system, particularly on carried interest, is inequitable.

Alistair Darling: Yeah, I note with great interest what they said in front of the select committee but I come back to the point that I made that I think if any tax changes need to be made in this or any other area, they ought to be made in the proper context of considering what is best for the economy overall. And you need to think through the consequences because once you get yourself into a situation where you make economic policy up on the trot, then you get into huge difficulties. And coming back to your very first question, what makes me tick, my stewardship of the Chancellorship is likely to be that and I make no apology whatsoever for the fact that we are envied around the world for the stability that we have established. And part of that stability comes from the certainty that the government will react in the proper way and not be pushed into doing something where you might get a good day’s headlines and then you discover there’s ample time to repent at leisure.

FT: I suppose my only thought is that clearly the debate has moved on since Gordon Brown set up the Walker report.

Alistair Darling: Not a day goes by without private equity being in the news one way or another, whether it’s the select committee or takeovers or whatever. However, it’s my job as Chancellor to make sure that whatever decisions I take in relation to tax, they’re taken for the right reasons. And I think also you will need to look at all the evidence. And as I said to Lionel a few moments ago, to say that private equity... conventional equity investment good, is too simplistic. So I recognise that people are concerned. They want to make sure the tax system is fair, but also I think they also expect the Chancellor to make sure that if changes to the tax system are made here or anywhere else, that he properly thinks through the consequences of those.

FT: Can I ask you a couple of questions on the macroeconomic framework. You said stability is clearly going to be the most important piece of continuity. If we’re looking at the Treasury’s own way of looking at the economy, we’ve now come to the end of the cycle. Do you think this is a time to start reflecting on the fiscal rules and the monetary framework? Is there any need for any changes?

Alistair Darling: Well, I think on the first one, I don’t think the Treasury has formally made a decision on. That’s clearly something that I need to reach a decision on at some stage. But I think that the fiscal rules we have have made a contribution to the very stability that I’ve talked about. But as Gordon has said in the past, that often as a select committee you always keep these things under review. But I think that people want to make sure that we have that certainty that government is going to conduct itself in a way that it is prudent in relation to the finances, both in terms of the golden rule and the sustainable investment rule.

But, like all these things, of course you keep them under review. But if you ask me am I going to tear all these things up, then having done this for the last ten years let’s go off on a different course, no, I’m not. Because I think that that would be to discard a pretty central plank in everything that we’ve done.

FT: No, I wasn’t really suggesting you were going to tear them up. I was more suggesting that many, many outside commentators have perhaps suggested that. We’ve had a rather fruitless debate in the last few years about whether they are or aren’t met and how long the cycle is or isn’t. And they’ve come up with a better suggestion.

Alistair Darling: That’s what economists do.

FT: They do. And there seems to be consensus rather than disagreement among the economists that there are better ways of making, say, the golden rule be forward looking without tearing it up. So you keep the principle but you change the way it’s implemented. And the right time to do that would be when you could say all the past rules, everything’s been passed and now is the time to move forward. And we’re sort of at that moment.

Alistair Darling: Of course I’ve seen these reports, as I’ve said to you. These are things that we will always keep under review but I do think it is important that, as Keynes once said, “when the facts change you change your mind”.

I think at the moment I firmly believe that maintaining that approach that we’ve taken over the last few years where people have got that certainty, they know what the fiscal rules are, they understand why they’re there and we’ve been able to meet those rules. Then I think you need to… Again I am naturally prudent, I am naturally cautious but, as I say, we will always keep these things under review and, in the spirit of Gordon’s announcements, when I do have anything to say I’ll say it in the House of Commons.

FT: And on the monetary policy framework that Gordon announced to the select committee, there have been a few small changes to the appointments process. Is that as far you see the limit of changes?

Alistair Darling: No. In relation to the MPC, firstly, I very much support in establishment of the MPC. We will support them in the work they’ve got to do. Keeping inflation down is absolutely central to our approach.

In relation to the appointments, as you know, Gordon announced firstly that the certainty as to when the appointments come up, that there would be criteria published against which individuals would be made and move forward, inviting expressions of interest so that people could say I’m interested in doing this, I see what the job description is, please consider me.

What we’re going to do is that all members of the monetary policy committee, including the executives, in other words the governor and the deputy governor of the Bank of England people, when they’re appointed they will be subject to, not pre-appointment, but pre-commencement hearings by the select committee. The reason that we’re going for that is because the personality of the governor is so important, we don’t think that we should have any uncertainty that the report emerging from those hearings is so dramatic that you would rule them out. We want to be able to say this is the governor. However, before he takes up his duties he would be open to be questioned by the select committee. Now, that would apply to all members of the MPC, so you’ve got executive and non-executive people. And that would also apply to the chairman of the FSA for the same reason.

And in a slightly different move we are going to ensure that the chairman of tNational Statistics is going to be [treated similarly]. The government put a proposal but it’s votable on the floor of the House of Commons because we want to firmly establish that Statistics should be neutral and independent of government and the House of Commons. And therefore we’d have an opportunity when that appointment comes up to vote for it.

But what we want to do is make the process progressively more open because I think that will help reinforce the independence of the MPC which, as I say, is very, very important to maintaining its credibility.

FT: And if you were to, in the pre-commencement hearings, come to the judgement that somebody was not a suitable member of the MPC, would that be taken into that account and that person not appointed?

Alistair Darling: Obviously if the Treasury select committee came up with an absolutely damaging report saying this person is not fit to hold office, no government could ignore that sort of thing. But I would hope, just as in relation to the MPC at the moment, the non-executive MPC people are going before the select committee at an early stage, not necessarily before they take up… the week of their first meeting, I think. And nobody has been done over, if you like

FT: Christopher Allsopp was rejected by the select committee in 2000?

Alistair Darling: Yes. But I think there’s no point in having a select committee if you just blindly say, well, sod you, it doesn’t matter. You can’t do that.

FT: But you couldn’t imagine if, in the future, another Chris Allsopp situation happened?

Alistair Darling: I would hope that wouldn’t arise for perfectly obvious reasons. But I think what I don’t want to do is to get into a… remember Judge Bork and the United States? Where you eventually get to a situation where nobody gets appointed. The governor of the Bank of England is a pretty important appointment, and I think it’s got to be the right of the elected executive to be able to appoint somebody.

FT: On the announcement you made in terms of stats today…

Alistair Darling: Oh yes, the time before.... coming down from five days to 24 hours.

FT: And the ministers, is that for everyone including the MPC, because they clearly get information quite a few days earlier, don’t they?

Alistair Darling: I think it’s just us, the 24 hours.

I think the feeling was the ministers should not be getting national statistics five days or so before they come out, but equally, we are entitled, especially again when things might be quite sensitive to come out and maybe the minister should have a policy response or at least a comment. And that means frankly, you get them late then, probably at nine o’clock in the morning or they’re open at nine o’clock the next morning. So, that’s the rationale behind it, whereas at the moment, stuff that’s coming out today, I saw at the end of last week.

FT: Could we just go back to the role of the Treasury for a moment. Obviously, under Gordon Brown, the Treasury had enormous influence over micro policy, not just macro - tax credits, productivity. Is the Treasury under Chancellor Darling going to have the same responsibility as it were, or be the same agent of change and progress?

Alistair Darling: Well, I’ve always believed that the Treasury had to be more than a finance ministry.

You know the speculation a few months ago that Gordon was going to split the Treasury into a finance function and an economics function, the economics and the finance seem to me to be pretty indivisible. But, to give you an example, in two areas where the Treasury has to have a role, never mind if it’s desirable or not, there’s housing for example, because the problems over affordable housing, the problems for first time buyers, that has an effect on our economy.

Similarly in relation to skills which is absolutely central if we’re going to be able to improve the capacity of the economy. Just about every area you can think of, the Treasury has an economic interest, it’s not simply acting as the sort of club finance officer, and simply signing off whether or not we can afford that particular project.

Don’t misunderstand me, as I’ve told the senior management here, they said, what are your top priorities? Well, the number one top priority does need to make sure that we keep rigorous control of the finances, that when we give departments money, that we’re actually getting money for money, which is something that I think, especially at this stage of our government, I think we need to be especially vigilant about. But, what has changed is, clearly the personnel have changed. I believe that my relationship with my fellow cabinet colleagues is very much that they are colleagues; we’re all collectively responsible for what we do. I’m not in a position to going into a department saying, thou shalt do this, or thou shalt do that.

FT: So that is the way it was, you mean?

Alistair Darling: Well, I’m not saying that at all. As you know, the last Chancellor had very firm view on…

FT: Yes, I do.

Alistair Darling: …on every aspect of government policy. It is a pleasure that the Cabinet now is actually so much more businesslike today than what I’ve experienced for the last ten years.

But, I think the mood abroad, not just vis-a-vis the Treasury, but also vis-a-vis the prime minister is, there’s a new generation frankly sitting round that table now, who want to be part of decisions together. So whether it’s what we’ll be announcing in relation to education, universities, what we’re announcing in relation to housing, welfare reform, we are intimately involved. Welfare reform is another example, we have done remarkably well through the reduction of unemployment, in terms of the way that impacts on the public finances, with the social security bill’s a fraction of what it was ten years ago.

However, we’ve now reached a stage where I’m rather worried that the numbers have plateaued out, we’ve still too many people who are on benefit, especially incapacity benefit. We may have slowed down the rate of people coming onto Incapacity Benefit, but it’s still too high. Now, Peter Hain will be looking at reforms. We have a real interest to make sure it actually bites, otherwise we’ve got this problem where we’re going to have to support quite a sizeable number of people in this country on benefits, more or less indefinitely, and that’s expensive. And it’s also not good for them.

FT: So, all these comments that you read about in certain newspapers that somehow the Treasury is going to be truncated: it’s all rubbish?

Alistair Darling: As a result of what appears to be a very tough CSR settlement, which I think the Chancellor he had to visit on his own department, there will be less people than there were. But actually, it’s not far different to what there was, I think probably about ten or 11 years ago.

But, as I said to you, we’re not going to retreat into a situation where it’s simply carrying out a pretty narrow finance function, what the Treasury does is central. And housing, it’s important to say that housing is one of the big priorities for this premiership. So a lot of the stuff that we’re actually involved in, our influence over the mortgage market for example, those are frankly, we can’t stand back and simply act as a disinterested, almost a semi detached spectator, the Treasury can’t behave that way. Although, don’t misunderstand me, public spending is very, very important to us.

FT: You just talked about the Treasury’s influence over the mortgage market. We had the Miles Review three, four years ago, and not much happened. Is this something that’s really of interest to you, in the new focus on making housing more affordable?

Alistair Darling: Very much, because it’s not just the availability of actual houses, which is important, but it’s also the finance. One of the changes that has taken place since David Miles’ first report was, there are now more fixed-rate mortgages, I think three quarters of new mortgages are a fixed rate. But unlike Germany and America, they are short term, they’re two to three years, and what is obviously a concern to me is that when people come off a rate that was maybe fixed two years ago, and I suspect there are a lot of people on two year mortgages, they will now come out of that, and they will then find that the rate has gone up.

Now, if we want to ensure, it’s not just a question of housing policy, but it’s also looking at the economy. What you don’t want are people to suddenly find that their outgoings have gone up quite dramatically, because that will have an impact on what they do with the rest of their money. So, before I anticipate your next question, I have no proposal I’m going to announce today, but I’m anxious that the work that David Miles did is built upon, it’s not going to just lie on the shelf, it is actually very, very important.

Our economy, I’m reminded of, we did the assessment on the five tests, and one of the things that we drew attention to is that our economy is far more influenced by the mortgage market than most other economies for historical reasons, and therefore getting this right, both in terms of housing supply and in terms of the financing of house purchase, the information available to people, is all very, very important. And to give you another example of where the Treasury is interested, and it’s not our direct department of stuff, and I’ve said this, and I said it a lot when I was in the DTI, planning reform is absolutely essential here. It’s very easy for people to say, ah, you just want to build nuclear power stations, housing is actually a huge issue for all of us, and I didn’t think in the recent elections that I met anybody who didn’t raise it, either on their own account, or children’s account, and it’s one of the biggest problems that we were facing in this country, and planning is key to it for the reforms that we announced earlier this year.

FT: I won’t ask about detailed policy, but I will ask, it’s very clear that this Autumn a lot of people are coming off two year fixes, which they fixed in the Autumn of 2005, and the rate that they’re going to pay is a lot higher. It’s clearly one of the debates that the MPC’s having. Is it one of the things that you’re most worried about, in terms of how you see the economy going.

Alistair Darling: I think there’s a whole range of things that I look at, but as I said to you just now, because of the nature of our housing finance market, it is quite a key element, and you know that, because that’s why they’re so sensitive about interest rates.

But I think what I’d say to you is that I think housing is an area, both because people actually want houses, and because of the importance of housing finance, it is something that clearly we have regard to. What I would say to you, though, is that, going back again to our starting point, because the economy is essentially strong and because of a whole lot of other factors, I think we’re in a far better position to deal with these things than we would have been, say, 15 years ago when we certainly were not.

FT: Do you see a bigger role for green taxation?

Alistair Darling: I think it’s important. Taxation has two main functions, one is to raise money, one is also to influence behaviour and the climate change levy, for example, which has now been with us for eight or nine years, is the single biggest reason for us meeting our Kyoto obligations and in relation to the preferential taxation for biofuels and road fuels, that I hope will be instrumental in encouraging people to use more biofuels which in turn is… Even a 5% requirement would take as many cars off the road. So, yes, it is important.

FT: I’m badly informed then, because somebody I normally rely on said that you were really quite sceptical about green taxes and you thought it was very gimmicky.

Alistair Darling: Somebody who knows me quite well might have said, for example, that a strategy that was about basically pricing people off aeroplanes, which is what the Tories proposed earlier this year, I think it’s inequitable and, also, it just wouldn’t work, especially if you consider that business travellers will claim the whole lot back. So, it wouldn’t have much difference there.

But this idea that you should ration people to one flight to Torremelinos a year, which is clearly where the old Etonians think that we all go and, by the way, thinking of Edinburgh, is just about ten miles over the distance. So, if you’re in Edinburgh you wouldn’t be allowed to go to Torremelinos for your annual break. I’ve always thought that that taxation is basically punitive to the extent that it drives you off something and that is your main environmental plank, especially the climate change levy, just seemed to me to be daft. There are other ways of encouraging behaviour. I think it is important, all the environmental obligations. Stern was absolutely right. There’s an economic cost to be built into climate change and we need to do that but, frankly, the Tory reaction there is in the same category as people who call for… You get headlines saying, someone’s done something, change the tax. I may be wrong but I’d be very surprised if that particular proposal, like so many other things, grammar schools or whatever else, if it lasted. The problem is they seem to be the next day’s headlines they’re bothered about rather than what might be good for the environment or good for the economy.

FT: Are you going to look at the Barnet formula?

Alistair Darling: In relation to the present spending, it’s well on and devolved administrations are funded that way. There was a report, I think, in one of the papers which didn’t come from here in relation to that and I think my view on taxation or spending generally is that one should think long and hard before making changes to make sure we do make changes that are properly thought out. The Barnet that we have is not quite 30 years yet but, like anything else, in the Treasury, we always keep these things under review.

FT: The political landscape has changed somewhat, though, in the rise of English nationalism.

Alistair Darling: Well, yes.

FT: Scotland has moved a long way since devolution crashed in 79.

Alistair Darling: Well, it has. In relation to Scotland, we do have a nationalist administration which got exactly the same share of the voters that we got and I think in terms of what does Scotland do to become independent, I think that’s as far away as it ever was. But, of course, when you make constitutional changes, devolution, it does change things and I hope developments will help deal with things. But I think in relation to all spending, these are things that we keep under review. But I am, as I say, prudent and cautious and I’m not going to rush into something until I know where I want to be.

FT: You have to have another word for prudent… Can we talk a bit about this issue of the savings ratio? Is it too late? What can we do to improve it?

Alistair Darling: Well, I would like to encourage people to save more. As you know, the savings ratio tends to move the economy generally. And one of the concerns that I think all of us have is how do we encourage people to save, not just for their retirement, which is obviously a big issue, but how do they save for the big decisions in their lives, whether it’s funding their children’s education, buying a house and the rest of it. But the savings ratio has gone up and down in a number of successive governments. One of the things I’ll be looking at is how to encourage people how to save. We do need to have regard to the fact that people have got increasing levels of debt and that is a concern. I think too is the fact that we need to make sure that people can be encouraged to save and particularly to do so over the long term period and not leave it until it’s too late.

FT: Crossrail: one of the decisions to be taken very soon, is business is stumping up the cash, in your view, or could more be done?

Alistair Darling: Well, it will have to. I would like to go for Crossrail, as I have said. I did in transport. I think for the long-term development in London it is very important. However, it is very expensive and before we can make a final decision we need to make sure it’s affordable. And that will mean substantial contributions from outside Government. It will mean from business, it will mean from TfL, which has got to make its contribution as well. But we’re reaching the stage now where we’re moving from people’s expressed willingness to make a contribution – and I’ve met many, many over the last few years – into actually saying, right, where’s the cheque.

FT: And that moment is now?

Alistair Darling: Yes. We are reaching that stage because two things have happened. One is, as you know, Crossrail is now the second half of this parliamentary process. I think it’s finished in the House of Commons and it’s still going to go through the House of Lords, which is a major step forward in itself. But I would like to do it but I can only do it if we can afford to do it, and that means contributions from outside government.

FT: And is the window of opportunity between now and the spending review basically?

Alistair Darling: It’s not as narrow as that, no. It is very substantial expenditure and obviously I would have to take a view between now and whenever we do the spending review, finalise the spending review, as to whether or not we think that we can do it. But I think we are reaching a stage now in the next few weeks and months where we’re going to have to say, okay, how much are you going to pay.

FT: But you see this as a very important part of the infrastructure?

Alistair Darling: I spent four years just everyday thanking the Victorians for their foresight. I think it’s the Victorians that built our railway system and built our tube system. And incidentally most of the people that did the building went bankrupt at the end of their endeavour, especially the tube. Very few lived to tell the tale, which is why all the tubes are different, the tunnels are different and everything else.

But I think London basically, there’s two central infrastructures that London needs. One is the North-South link, the Thames link one, which is a much smaller scale thing and engineering wise and cost wise it’s smaller. The other is an East-West link and the Central Tube Line will just go under increasing strain. If we want the city to develop and also, critically, if we’re going to build more houses, the Thames Gateway, then there needs to be infrastructure to support that, which is why, coming back to housing, as well as doing the jobs in the City and so on, it’s important. Bt this is an expensive project, you know. This is huge, in terms of public expenditure.

FT: It sounds like business is grinding its teeth.

Alistair Darling: I think that in my experience, there is no shortage of enthusiasms. The verbals are great, and if you cash them in, you know, you can build probably two Crossrails. However, as is the way of these things, we’re reaching the stage where we want to say, okay, we can put some money in. You need to contribute something, and of course, we’ve got to talk to TfL, because it will be part of a national infrastructure, but it’s also a London railway as well.

FT: I’m sure this makes no economic sense whatsoever, but just as a dispassionate observer, you see the kind of deals that have been done in the market, extraordinary multiples, commanding extraordinary multiples, and yet, here you have a very important infrastructure project, and we haven’t been able to move forward for years.

Alistair Darling: Well, yes. It’s can be frustratingly slow, and I think, if I look at the more recent history of Crossrail, you know, it died a death in the early 1990s, mainly because the select committee that looked at it came up with such a fantastic solution that it was probably dead before they started it, and it just coincided with, 1993, was the time that the economy had gone into a deep recession, so I think, in this building, there was a huge collective sigh of relief that that was it.

Coming back to our watch, if you like, I think that because the railways have got into such difficulty, the late 1990s and early part of this century, that frankly, everybody was focused on sorting out that problem. I think, without wishing to say too much on my support, that fact we actually got the thing through into a bill, at the same time, got someone to seriously look at the project, because, in 2002, it was like a spider’s web. It’s now basically one line that runs from east to west, apart from at the eastern end of it. So it’s manageable. There’s also the people that we’ve brought in who went through the thing, and removed, you know… It wasn’t necessary to have a best of British architecture in every single station, which meant that you’re, rather like the Jubilee line things, rather over-provided for. So I think that’s helped, but I think the stage we’re reaching now is people need to come to the table, there needs to be definite commitments.

FT: Is this something that, if you looked at four or five big issues, this is going to be one?

Alistair Darling: In transport infrastructure, yes, of course. I suspect DfT actually will take the lead, because it’s the transport ministry, but the Treasury’s got to be right up there, because this isn’t just the sort that you can add in, like, a few dozen railway carriages.

This is different. We will be continuing with the work we’re doing for the promotion of the City, because the City of London is critically important to, not just London’s health, but the UK’s health. And one of the things that’s striking, when I went round the various countries when I was DTI secretary, that, time and time again, the thing that people kept saying to me, was the City of London. They were able to raise money here. I was in the Gulf recently. The fact that we pioneered Islamic finance measures will help countries in the Middle East. And Crossrail is part of that. You know, we’re fortunate. We’ve got critical mass of people here in London at the moment, and they’re here for a whole variety of reasons, but if you make it progressively more difficult for them to go about their business, physically go from A to B, then sooner or later, they will say, well, next time we’re building a new office, or next time we’re taking a big decision, where is there a good environment to be? And we can’t rest on our laurels on any aspect of London. I’m optimistic about London’s position, as I’ve mentioned. We are very good at the moment, but we want to remain very, very good in the future. So that will be critical to this.

FT: Do you think the non-domicile tax privileges are also a central part of that attraction to the City?

Alistair Darling: You know, it comes back to what we said earlier on, that you have to think through any changes you might make. I’m well aware of the fact that a number of people who are doing business here and who are contributing to business here, and who can go somewhere else.

And this is something that is not new to me. I think we have to think through those things. I do think for the rest of the country, people need to realise just how important this part of our economy is, and growing importance. You know, 70% of our economy is services. This is an extremely important part of that, and actually, on the back of it, other things will happen, you know, like some of the investment coming in to fund industry in this country. It’s partly the financing that people are looking at, as well as science. It’s important.

FT: The City’s clearly been the real driver of the British economy, particularly in the last three or four years, but also over the last ten years, it’s been the most successful part of the UK economy. Does this worry you, with the other part of your Labour party hat on, that it is London and the South East, the richest parts of the country, which is now pulling away from the rest?

Alistair Darling: Well, I’m not sure. I agree with your analysis, that the City of London is critical to the UK. It’s absolutely critical, but if you look at the other parts of the country, the one I happen to live in, for example, with a financial services industry, not south east. You know, you’ve got RBS, you’ve got Standard Life, Scottish Widows. It is pivotal to the greater Edinburgh economy. You’ve got some big financial centres in Leeds, for examples. It’s one of the reasons that Leeds is doing so well at the moment. I’d say two things to you.

One is, yes, it is important that you have got growth in every part of the UK. That’s absolutely essential. It’s also important that we encourage as broad an economy as we can. I don’t agree with the proposition you can somehow manage these things and have a command economy, saying, we’ll have a manufacturing sector that’s going to be X%, we’ll have a financial sector which we’ll hold at whatever it is. But if you look at manufacturing for example, there are areas where we’re doing well, in aerospace for example, and if we can get, especially if we can get the composite technology in Bristol, that will help, not just directly, but it will help other areas as well. Pharmaceuticals, I’ve mentioned. The biotech industries are doing well. There’s a lot of specialist manufacturing. We’re actually doing extremely well in addition to that.

However, I think it’s just a fact of life, and it’s also a fact that’s consequent on what is happening with what’s happening across the globe, that it is like that our financial services industry will remain to be the dominant part of our economy. That’s not to say that we won’t have… I think I’ve said this before on many occasions, I think our ability to innovate, our ability to develop new products will be critical to our future. But I think the fact that we have such a healthy services sector, and financial services sector in particular, is good for our economy, and we should play to our strengths, rather than hark back to a structure that might have been appropriate years ago, but isn’t now.

FT: So you want to celebrate the success of the City, rather than bemoan the fact that other parts aren’t doing quite as well?

Alistair Darling: I’ve always thought that it’s better to celebrate what you’re good at, and also encourage the things that you have elsewhere that’s good. There’s no point sitting in a dark room wallowing in the past, and saying if only this had never happened. But we have to say to some of our people, for years we’ve said, wouldn’t it be good if some of the developing countries could develop their own economies and not rely on us for aid. They’re doing that now, and as a consequence, we live in a much smaller world, and it will have consequences on us. The key is how do we adapt to that, and how do we adapt to it in a way that’s keeping people in work?

FT: Let’s talk a bit about the outside world. We’ve got a bit of time. Obviously, Gordon Brown made debt relief one of the key notes for his tenure as Chancellor. Do you have one or two issues that you think you can make a mark on, as part of the external affairs?

Alistair Darling: Well, I suppose there’s two elements. One is that, in relation to international debt, as I said earlier, I think all of us are at one on that fact that we need to be doing far more on that, both in relation to debt relief, but also in relation to health, in relation to education in Africa, other parts of the world of well. I think this is why international development department is, you know, so important, you know, to what we’re trying to do.

I think in relation to, you know, in relation to the part that Britain can play, you know, I think that is something that, you know, although we’re not directly involved in the trade talks, we can be influential. I know that Gordon has a very close relationship with Hank Paulson who has I think what I regard is a more progressive view on trade than you hear from, you sometimes hear from the other side of the Atlantic because he can see how American stands to gain from that but I think in relation to our own obligations, close relation to, trying to change the relation to, you know, the debt and aid. Those are very, very important to us, you know, they’re not sort of nice to have, they are pretty essential to what we want to do.

FT: And ECOFIN?

Alistair Darling: I should be going to ECOFIN

FT: Looking forward to working with Mr Steinbrueck?

Alistair Darling: I shall look forward to working with all my colleagues, whoever they may be as long as they know… you know, I’m not going to pre-judge ECOFIN before I get there, but I think there is an ideological battle in Europe at the moment between those who genuinely believe in the Lisbon process that was signed up to, what, eight, nine years ago, and those that, you know, don’t, to put it bluntly.

I think Europe has got a huge choice to make, you know, if it doesn’t become more flexible, if its economy doesn’t liberalise, it’s going, big though it may be, sooner or later it is going to lose out, and, you know, you can’t just make direct comparisons with the United States which is an equally big economy. The United States is one economy, you know, Europe is not in that happy state. Maybe a single market but you don’t have to go too far to discover that some markets are more global than others and energy and values is a case in point where we all signed up to it in March and three months later you can see already that half of them are saying of course we must liberalise but not yet. So, I think there is an ideological battle there and I think Europe has got to, unless we make the reforms and, you know, some relation to labour market reforms, in relation to people’s ability to trade, to open the process up, then, you know, we’re going to get overtaken by these markets. It won’t happen tomorrow, it won’t happen next week, but it will happen.

FT: So, Chancellor Darling definitely doesn’t belong to the band of economic patriots?

Alistair Darling: I do not believe in economic patriotism. I think it’s nonsense. Economic patriotism is protectionism and there’s no other name for it. I just think it isn’t possible to designate a particular industry or product or whatever and say, you know, this is so central to our way of life that…

FT: So you don’t intend to pursue a strategic yoghurt policy?

Alistair Darling: No, I think yoghurt is not one of our key industries and I struggle to understand how it can be a key industry anywhere else, frankly. Nice though yoghurt is.

FT: Just to round up, how much do you think that this is tactical positioning by the Sarkozy government and how much is it just this Colbertian streak that will be there in French policy?

Alistair Darling: I, you know, we’re watching, you know, we will watch and see what the Sarkozy administration does, you know, we’ve seen what he’s had to say during his election campaign, you know, he’s only been in power for a few weeks but what worries me is, you know, there are two ways in which you can react to what’s going on in the world just now: one is to engage with it, which we are doing, recognising that, for our population as much as the population of France or Italy or whatever, people do have concerns and they want to know, okay, if this is happening to us and if this happening to the world, what are you doing to help us adapt. Or you can put the barriers up and, you know, whether it’s stopping Dubai Ports taking over docks in the United States, or saying that Vietnam can’t bring its shoes into Europe, or saying that I will stand behind my tub of yoghurt, I just don’t think that that is a long-term strategy. It might see you through the week, but it’s not a long-term strategy. And, you know, I don’t tend, I really don’t want to get into sort of an ideological stand-off there, because I think we do need to make reforms. Unemployment in most of Europe is far, far higher than it ought to be at this stage, and, unfortunately, if you want to say to people, look reform is good for you, it’ll always seem irrelevant if people are to work now, and then someone says, but if you let the Chinese goods come in here, there’ll be even more of it. People will become even more distressed. So I think it’s absolutely essential that Europe liberalises, and I think that the Portuguese presidency has actually convened a meeting to discuss the progress on Lisbon. But we shall see.

FT: Given the events in London in the last few days, and in Scotland, to what extent, as you approach the spending review, is the shift going to have to be towards mores spending on Defence, Security, and other departments of government?

Alistair Darling: I think in relation to security, the security agencies, we’ve doubled our budget over the last few years and we make it very clear that we will provide them with what they need to fight what is a very real and present threat to us. I think it is very, very important that we do that and we give them the backing they need. Over the last few years they have done a remarkable job for us. A number of attacks have been stopped, and that wouldn’t have been possible if we hadn’t given them the tools they needed to do the job.

FT: But maybe you need to give them more.

Alistair Darling: Well, there’re a number of things that we know they need to do, but we will make sure that they get what they need to do the job. This is critically important, not just for protecting lives but it’s important for Britain generally. The other thing that I would say, because I thought you were going to ask me a slightly different thing, is that I think it’s also very important that we send out a very clear message, as you can see from the fact that Glasgow Airport opened the next day, that we’ve had these attempts at attacks, but we’re determined to get on with our lives and to get on with our day-to-day business. And we will continue to do that. That is very, very important.

FT: Can I just ask you one very quick question about the G7? Mervyn King’s been fantastically rude in saying about how pointless the G7 meetings are, particularly in relation to global economic problems because the key players, like China and others. What’s your feeling?

Alistair Darling: At this stage, not having endured this pleasure, I’m not in a rush, but I do think that it is important that we recognise that the world is changing. It’s rather like the climate change. If America isn’t there and China isn’t there and Japan gets out, then who’re you left with? So it’s important that the people who make things happen are engaged, but I’ll reserve my judgement on the G7.

FT: Thank you very much for the time you’ve spent with us. It’s much appreciated.

Alistair Darling: Not at all.

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