Do you expect to see the economy grow this year?
I think we're going to see relatively slow growth; I don't expect more than about one per cent for the UK economy. I think we're in the very early stages of a recovery. Keeping interest rates low is going to be important. The big question is what's going to happen during and after the election. But any attempts to cut public spending very quickly would be a disaster.
The Conservative party has argued that the government should already have taken measures to reduce the deficit but in your view that would be the wrong option to take?
That would be a complete disaster. It's a sensible to have a plan to pay off the debt in the future, once we have some growth. But implementing cuts before there is real growth is like saying: "We're in an economic war, but we can't afford to fight because it will affect the budget." You just don't do that. Any suggestion that the deficit has not been cut sufficiently quickly is economically naÃ¯ve. No economists as far as I'm aware think it's a sensible idea. I don't know where it's coming from. The growth we're seeing is fragile and we really need to keep it going.
But there is an argument that if you don't convince the market that you're taking serious measures to cut the deficit now then they will demand a higher rate of interest and public borrowing costs will spiral. But you're not convinced by that argument?
Firstly, it's been made clear by the bond market that that's not on the table at all. Scaremongering of that kind makes no sense. Secondly, David Cameron actually said in a speech that he'd consider the possibility of defaulting on the debt, which seemed to me to be rather nonsensical. Thirdly, what you actually need is a sensible coherent plan, to deal with the deficit down the road. Nobody doubts that. That's what's credible and sensible. The big question is when do you implement it? The problem at the moment is that growth is very fragile. The plan needs to be implemented once we've entered what Skidelsky calls on the quasi boom and we're nowhere near a quasi boom. Unemployment's still rising. We still have negative growth, retail sales are falling. Implementing cuts could push us over a cliff.
How do you assess the situation facing young people at the moment?
The unemployment numbers have continued to rise and this is extremely worrying. We need to do something very rapidly about it. The government responded in the pre-budget report and in a white paper they said that dealing with the young was their top priority and so it should be. This is a very big crisis. The numbers of young unemployed haven't reached a million yet, but 950,000 or so is very bad. It's the biggest group of unemployed young people we've seen for 20 years and that we'll see for the next 20 years. Lots of graduates can't find jobs and they have student loans. I think this should be the number one priority in terms of labour market policy.
Do you think the government has done enough?
They have responded, they've been doing some good things. It helps to have more apprenticeships. But they've been swamped by the numbers, which are just so huge. My view is that they've made a good start but they need to keep going. A good example is what they've done with universities. They've given funding for extra places but applications are also up. So this is all in the right direction but we need to do more. It's much better to have people in college than it is to have them on the dole. I want to see universities being given more money to take in more people.
You've advocated in the past exempting certain young people from paying National Insurance, would you still be in favour of that?
Yes, I'm still in favour of it. I think we should. If you're young being unemployed can have a scarring effect on you. So I think we should do more to help the young than others. The idea is to give subsidies to firms to take on young people. Hopefully the recession will be temporary and this is as bad as it's going to get. So you should give the young people who are in this situation now some help. The CBI's got a five point plan that deals with much of this kind of stuff too. There is certainly support in the private sector. We should do everything we can to get young people into education, into work, into training, keep them in school - everything possible to keep them out of unemployment.
Looking at the labour market, you've said that we might be seeing the calm before the storm. Do you think there is a risk that if the demand side of the economy doesn't pick up then we could see unemployment continue to creep up this year?
That's a very good point. I think it's a big worry. A recent survey by the Confederation of British Industry shows that the retail sector is concerned about spending in 2010. Data suggests that people's earnings are relatively low. There have been wage freezes and reduced hours. Lots of people who want to have full-time jobs are in part-time jobs. All this suggests that peoples' spending going forward is going to be limited. If that's the case and we see some sort of financial retrenchment, the worry is that we'll see a double-dip. That's what happened in the Thirties. Growth started to take place and then everyone said, "Oh great, it's all over, we can cut now," so they started to cut and it pushed the economy back down again. Keep stimulus going for too long, well that's okay. But if you take it off too quickly then the danger is unemployment will rise. And any attempt to say we're going to cut public spending hugely and fire public sector workers would be an absolute disaster.