Any quotes used must be attributed to Murnaghan, Sky News  

DERMOT MURNAGHAN:

As the party conference season drew to a close this week, the Office of National Statistics revealed that the economy grew by just 0.1% in the second quarter of this year and the recent recession was much worse than we previously thought, this coming as the government comes under increasing pressure to develop a strategy for growth.  With the CBI’s John Cridland amongst others now calling for a Plan A+, he’s calling it, former Chancellor Lord Lawson joins me now from Oxfordshire.  A very good morning to you, Lord Lawson, and on this matter of A+ or whatever we want to call the plans, you may have just heard my interview with Martin Weale from the MPC, saying that central banks can’t do all the heavy lifting here, by implication is there more for the government to do?

LORD LAWSON:

Well I think there is some more for the government to do but the first thing to make clear is this, that just like for a household, if you get your household finances in a mess, and the world’s finances are in a terrible mess, if you get your household finances in a mess you can work at it and get out of the mess but you can’t do it quickly, there is no magic bullet, there is no quick solution.  I’m afraid it is like that now.  Better than me saying the government can’t do anything, there are things the government can do but there is no quick answer and it is going to take a long time before we are fully out of the mess but the government can do more things to create more confidence, confidence is crucial and if there is one thing that George Osborne said at the party conference last week which was much needed and gave me a lot of encouragement, that was when he said we are no longer going to go out ahead in the so-called climate change policy in pushing up our energy costs faster than those of other countries and our competitors overseas, also to the great disadvantage of the poor in this country who have to face higher fuel bills.   We are not going to go faster than anybody else, that is a huge change of policy direction and badly needed and will give I think a lot of confidence to business and industry.

DERMOT MURNAGHAN:

And you think can be done within the fiscal constraints, can be done meanwhile at the same time reducing the budget deficit?

LORD LAWSON:

Well actually it would help in that respect because part of this misguided energy policy was in fact going to cost the public money so it is going to help on that front.  But you are absolutely right that one of the fundamentals is to – and I am sure he is going to do this – is for the Chancellor of the Exchequer to remain absolutely firm with the deficit reduction programme and there should be no backsliding on that.  If there is any backsliding on that, that will be bad for confidence internationally and in turn it will be bad for confidence in this country.

DERMOT MURNAGHAN:

In a way though, Lord Lawson, this has become so internationalised and is such a dire situation, is there an element in which this is out of our hands?  It is out of the Bank of England’s hands, it is out of the government’s hands?  We hear today that one of these many trouble European banks is having a board meeting this afternoon, Dexia.  If it defaults can we see that whole domino effect and there is not much that we in this country can do but watch and keep our fingers crossed?

LORD LAWSON:

Well you are absolutely right, it is a global problem.  If you look at what has happened up to now, we got in to a recession which had three components.  Partly the normal ups and downs of the economy, recessions and booms alternate, they always come and go, they always have done.  This has been particularly bad because under the last government there was a huge expansion of public spending, far in excess of what the country could afford, so there has to be a reining back and in addition to that there was a major banking meltdown.  Now the reason there is so much concern just now is that on top of this banking meltdown which started in 2007, 2008, there has now been the new stage of banking meltdown because of the eurozone disaster, on top of the previous banking meltdown and that is why I think people are so concerned now and that is why measures have to be done in each country, wherever the banks are located, in order to support those banks.  But may I say incidentally, support them on terms which are far tougher to the banks than have been done hitherto.  I think one of the mistakes that the last government made in this country, it was not a mistake to bail out the Royal Bank of Scotland or Lloyds HBOS but they did it on terms which were far too favourable to the banks at the expense of the taxpayer.  So I hope a lesson has been learned.

DERMOT MURNAGHAN:

But I mean talking like that, do you feel that they could face another crisis?

LORD LAWSON:

Times are very hard and they have got to address this but they have also, on the banking front, there is another aspect which is very important to come back to what you were saying about the growth strategy and that is lending to small businesses, I am talking about viable small businesses.  That has got to be boosted and the Treasury have said, although they haven’t done anything yet but I’d like to see the follow through, it’s very important, the Treasury have said that there is going to be in parallel with the banks doing its monetary trickery, the quantitative easing, the printing of money, that the Treasury is going to institute credit easing.  We don’t yet know what form that is going to take, I think it is very important that it happens but one form that it clearly could take and which I have been arguing for is that it should take advantage of the banks that it owns, in a sense, on behalf of the taxpayer, let’s say the Royal Bank of Scotland which is a huge retail bank owning Nat West and so on, also to a lesser extent the Lloyds HBOS, and use the control that we have over these banks to promote the lending to small businesses, not on a loss making basis but on a break even basis and I think this is in tune with what Martin Weale was talking about, he referred to the decision or the recommendation to split off investment banking as far as possible from retail banking.  I think that should be done even more markedly in the banks that we the taxpayers already own and we should focus on the retail banking and lending to small businesses from those banks.

DERMOT MURNAGHAN:

Lord Lawson, thank you very much indeed for your time there, the former Chancellor, Lord Lawson there, speaking from Oxfordshire.