I have received a copy of a letter from Dame Lucy Doolittle to Dr Roy Spendlove:
I am writing to reassure you. I know how worried you were that the government might cut spending too fast, and might take a combative approach to the EU. I think we can now be reassured that our strategy of cautious accommodation of Ministers is working.
On the spending front it is encouraging to see realism in the latest revision to the pensions proposals. Allowing people within ten years of retirement to keep their original deal is progress. You and I must not of course get involved in the Union response, but this may not be the last tweak to the system.
The useful contribution made by overall public services to growth in the last quarter has passed off with little remark in the press. We must make sure Ministers understand that this is still a case of cuts, with highly visible ones in areas like Defence and welfare. Ministers seem to come to sensible moderate conclusions when we suggest taking the raw edges away from policies like the forest sales and the capital spending cuts. I was pleased to see this issue of cuts has come out into the open over border controls, as we need to make sure the background to all this is understood, whilst being attentive to Ministers’ wishes. The problem comes if Ministers wish contradictory policies, where we need to sort it out in advance by securing the funding needed.
The March budget relaxed the envelope by £34 billion over the four years of the Plan. I would expect sensible proposals to relax it further this autumn will be received positively. Ministers are likely to want further jobs related announcements, and a stream of “shovel ready”projects to announce, so we must be ready. They are also keen in the Treasury on Credit Easing, which may be a useful vehicle for us to use for a variety of good purposes. I would like you to take a close cross cutting interest in this matter, and to be innovative so we can get the full benefits from any extra money it may bring in.
I do think Ministers have shown statesmanship over the difficult EU issues that now confront them. We need to keep up the pressure to be in the room, and to keep Ministers committed to involvement in the stresses and strains of the Euro area as well as the wider EU. I think the Euro area choice to go for more IMF involvement is inspired, and I am pleased Ministers are taking this up. The UK can now pay to play, whilst paying through a more trusted intermediary. Germany too likes this route for her own reasons, so it makes a UK-German rapprochement over certain key features that much easier. I do hope you and your team can offer good positive back up to any Ministerial wish to stay engaged, as this is a crucial time for the relationship. We have a special duty now to nurture it.
The UK’s official position is to be in favour of a substantial move to stronger political and economic union by the Euro zone. We must help Ministers ensure that we have seamless working arrangements with the zone for the UK. I think in due course this means the UK accepting more of the common positions, but I would suggest this is not the moment to make that case. Today we must concentrate on keeping the UK there as an important EU 27 player, and accepting the need for much more integration in the zone.
It is good to see how well Lagarde has made the transition to a serious working official. She has handled the need to use the IMF to assist the Eurozone well, with no sign of a backlash from poorer countries. I am also hopeful that the new Head of the European Central Bank will steer it towards a more activist policy. His interest rate cut is a useful first step, but of course much more bond buying and quantitative easing will be needed.
Yours in EU solidarity