Interview: Danny Alexander on unemployment, the IMF and Scottish independence

After a 70,000 increase in unemployment and criticism of austerity by the IMF, the Chief Secretary to the Treasury insists the coalition is not on "the wrong path".

It’s been said that the Welfare Reform Act is the most ambitious overhaul the UK’s welfare system has seen in 60 years. It was billed as a restoration of the UK’s welfare system to “one that is fair for society” and promised to improve the lives of 2.8 million low income households; however, according to preliminary research conducted by the New Statesman, the Act has actually made the lives of 2.6 million British families worse. So, who did the reforms help?

“Well look, the central purpose of the reforms is to ensure that we have a welfare system in which people are always better off in work than on benefits – and one of the things that we found with the welfare system as it was when we came into government was that an awful lot of people for whom that just wasn’t the case. So, the system was encouraging people not to go into work, but to stay on benefits instead – and there are an awful lot of people who, with the right support, encouragement and incentives can get into work, are capable of working and want to work. There are also a large numbers of people on benefits – 2.8 million people on incapacity benefit, is one example – who had simply been left on that benefit for very many years without the help and support, many of whom wanted to work and couldn’t.
 
And so I think having a welfare system that genuinely means two things: firstly it has to support people when they’re genuinely in need. Secondly, it has to ensure that people are better off in work than on benefit. That’s good for the whole country, because if you have a welfare system that is offering the opposite incentives – that distorts that whole way our labour market works – it means that there’s an awful lot of people who could be contributing to the economy through work who are not able to do so. But of course, you also have to make sure that those people who genuinely can’t work are also properly helped and supported – and so I think the reforms are fair to those individuals for that reason, but also fair to society at large. We’re asking everybody in this country who pays tax to help support the over £200bn a year cost of our welfare system – and at a time when there is real pressure on our resources as a country, we have an additional responsibility to make sure that resources are used in the right way. Therefore, I think that these reforms are true – if you like – to the original intentions of the welfare system as it was designed and set up by William Beveridge all those years ago.”
 
The IMF recently lambasted the British government for its ‘too-much-too-soon’ austerity measures. Is there any validity to such claims?
 
“I think that dealing with the deficit, that reduction to public spending and so on, are absolutely necessary to restore our country back to health. When we came into office, the deficit – which is the gap between what we raise in tax and what we spend – was over £150bn. To put that in a different way, that’s more than the entire cost of running the National Health Service in England, Wales, Scotland and Northern Ireland – it’s just not sustainable as a country to go on like that.
 
But also, importantly, the interest rates that we pay as a country are very important because we pay a lot of interest on that debt, but also it feeds through to the interest rates that people pay on their homes and their mortgages, businesses and so on. By having a policy for dealing with those financial problems – that the people who borrowing the money trust the financial markets – we’ve managed to keep our interest rates very low. That’s good for the economy as a whole; so, my big worry would be if we abandon that and say, ‘we’re gonna borrow even more and spend even more’, that we would jeopardise that credibility, interest rates would go up and that would be very painful for the whole country.
 
I think that where I would say we’re already actually acting on the sorts of things the IMF has said is that we’ve been very flexible in how we respond to changing circumstances. Just in the budget, last month, despite deterioration in the economy’s forecast, we didn’t chase the numbers with even more cuts. We stuck to the plan we had, and we allowed the automatic stabilisers in our economy to operate in full so that when the economy’s going more slowly than people expect, we’re allowing the borrowing to pick up the strain of lower than expected tax receipts – so, welfare spending, unemployment benefits and so on – may be slightly higher than expected. So actually, I think we’ve shown a lot of flexibility, but the basic plan to get our public finances back into balance I think is essential to the future of our economy.”
 
Figures released this week indicated that unemployment amongst Britons jumped by 70,000 in the three months ending in February – reaching an estimated total of 2.56 million. To some extent, do these figures not validate criticism of George Osbourne’s austerity measures?
 
“I don’t think we’re on the wrong path – and of course I think about this a lot, you know? I’m one of those people responsible for those decisions, so of course I spend a lot of time looking at these things and thinking about them and so on. But the conclusion I’ve reached – and the conclusion the government has reached – is that for all the reasons I’ve just explained, the path we’re on is the right one. We’ve got to stick to that path, we’ve got to do even more at every stage to encourage and support British businesses, to invest and create jobs to grow.
 
Actually, I think if you look over the last two and a half years, the record on employment and the number of new jobs being created in our economy is a success story. Well over a million jobs have been created in the private sector over the past 2 years, and the number of people in work in this country is at one of the highest levels it’s ever been in the United Kingdom. If you compare that to similar countries like France and Germany for example, where their growth forecasts are lower, in France the unemployment is much higher. This suggests that some of the things we’re doing are helping.”
 
I don’t believe everything that Ed Balls says, but…
 
“No, you really shouldn’t.”
 
…he’s called the coalition’s income tax changes a “giveaway” for the rich…
 
“No, I think it’s total nonsense – and also, total hypocrisy coming from a Labour party that left us with a tax system that’s so full of holes that the wealthiest in this country could avoid tax left, right and centre. So I think it’s pretty hypocritical, to be honest.”
 
So, does that mean the system is fair for everyone?
 
“I think by far the biggest income tax cut that came through the system in April was that the increase in the tax-free amount that every pays. Everyone who’s working on the basic rate income tax – 25 million people this month across the UK – are getting an income tax cut because we’re putting our own resources where we promised in the Lib Dem manifesto we would do, which is in cutting taxes for working people. Actually, the wealthiest in society are paying more tax now than they ever did when Ed Balls was in government.”
 
The so-called ‘granny tax’ – which will mean that the personal allowance for pensioners no longer rises with inflation – has received almost as much criticism as the removal of the "spare room subsidy". Shouldn't a person’s income increase to match inflation and unavoidable rises in the costs of living?
 
“As we’re increasing the personal allowance for everyone else so much more quickly than forecast – it will be £10,000 next year – we think it is right, and in the long term, a simplification of the tax system to have the same tax for everybody. But for pensioners, I think we have made some important changes so the rate of increase in the state pension now is greater than it’s ever been before. So, previously it was done by inflation – and that led to derisory increases in previous governments like under Gordon Brown’s 75p a week increase at one stage. But we’ve put in place a triple lock that says that we will increase it every year by inflation, earnings or 2.5% – whichever is the higher. And so, the basic pension that everyone gets is going up much faster than it would have done if we’d left things previously. Only about half of pensioners pay income tax, so I think that’s a good balance.”
 
A couple of weeks ago, cities across the nation took to the streets in protest over the ‘bedroom tax’ – the biggest by far taking place in Glasgow, with an estimated 3,000 protesters. As tensions increase in the run up to the Scottish independence referendum, do you not think that some of these austerity measures will push voters into the hands of the SNP?
 
“No I don’t. I think that the vast majority of people in my constituency and elsewhere are better off as a result of the tax and benefit changes that are coming through tis April. The income tax in particular is a real help especially in areas where people’s incomes are lower – such as in the highlands, where the incomes are lower than the rest of the country – those income tax cuts will make a real difference, as will the acts on fuel duty and in other areas. And look, I think the biggest thing that everyone in Scotland is facing is the debate on independence, and I think that the vast majority of Scots of all age groups and all backgrounds recognise that we’re better together as part of the UK. People see the Nationalists for what they are – which is an organisation that has a one-track mind and want to break up the United Kingdom. That’s the wrong thing for the country, and so I look forward to being successful in that campaign.”
 
Nash Riggins is the politics editor of Brig Newspaper
Chief Secretary to the Treasury Danny Alexander arrives at number 10, Downing Street ahead of a cabinet meeting. Photograph: Getty Images.
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The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.