Question: Tony Blair has postponed the local elections and the likely date of the general election to June 7th. How does the business community respond to this?

Ruth Lea: Our feeling was that it was the right thing to do because we do have concern about Foot and Mouth and we do want to see him sort it all out. Most people's concern was that he couldn't really be concentrating on that if he was running a general election campaign at the same time. There was also the issue of whether you disenfranchise people, especially in the local elections, although I suspect that was exaggerated because you can get postal votes quite easily. But there is obviously a downside to his postponing it as well, in that the messages that it puts across to overseas investors and overseas tourists is not a particularly positive one. They have already had a lot of very bad images. I was talking to an American the other day, and the image now of Britain is one of diseased cows and funeral pyres. That sort of image is going to be very very difficult to get over and by postponing the election I think he has exacerbated that rather bad image.

Question: So he has postponed it and said we are still open for business. Do you think that image has suffered?

Ruth Lea: I think the image has suffered enormously. The most important transmitter of image is the television. You only have to talk to some Americans and you know perfectly well what a poor image they have of this country - not of course helped by what has happened to the train system, or the health system or some of our other infrastructural problems.

Ruth Lea: It is risky for him, because we could get to June 7th and still find there are major problems with Foot and Mouth - and it has not been eradicated or even got under control. What I find so disturbing about this particular epidemic is that people do not know when it will be under control. So it is risky because you could get to June 7th and you could still find the same problems. But I am nearly certain the General Election will be on June 7th. He doesn't want to postpone it until autumn in case there is some bad news on the economy, not least of all because of what is happening across the 'pond', in the United States.

Question: Looking at Foot and Mouth disease. It has had a knock on effect on all kinds of businesses. What is your assessment of the full cost to British businesses?

Ruth Lea: We haven't done a figure as such, but we know there are estimates. The CEBR estimates about seven to nine billion pounds. One of the biggest impacts is on tourism, which of course is a very big industry indeed. You can include local pubs and local bed and breakfasts, as well as big country hotels. If it is as much as that, and at the moment it is impossible to say, then you are talking about approximately a three quarters of one per cent of GDP, which is not trivial.

Question: Looking at Labour's macro economic management of the economy. Has Labour proved to business that they are a safe pair of hands?

Ruth Lea: For a start Gordon Brown has been very lucky. He inherited an economy that for the first time in generations was actually performing well, it had shown low inflation growth since 1992. Ken Clarke and Eddie George had done a superb job in getting the economy into shape in the mid '90s. But it is fair to say that Gordon Brown has managed it pretty well. I thought the decision of handing the interest rates over to the Bank of England was just the top decision he could have made, he was absolutely right. We are 100 per cent behind it. And it has been actually IoD policy for a very long time. I think the Monetary Policy Committee has performed extremely well. We haven't gone round criticising it particularly, we haven't been saying 'we must have a business voice there' because as far as I'm concerned the Monetary Policy Committee is there to control inflation and it's done it well.

On the fiscal side, I think Gordon Brown has been lucky and the surpluses have turned out much higher than anticipated by Ken Clarke. A lot of that is due to the fact that the inflation rate has been slightly higher over the period than Clarke forecast in 1996 and consumption growth has also been higher. And, of course, he has increased taxation, particularly on the business community. He has abolished the tax credits on dividend payments, he brought in IR35 which is very unpopular with a lot of business people and there was a windfall tax. But there could be dangers ahead if I may say so. There are big increases in public expenditure coming through.

Question: He wants to pump more investment into key public services such as health and education - how does the business community respond to these spending commitments?

Ruth Lea: Our feeling is that he could well find himself in some fiscal difficulties if he is not careful. Looking at the red book for this year's Budget he is already forecasting a deficit on the public borrowing of about a billion in the financial year 2002, rising to about 10 and 11 for subsequent financial years. This assumes that the economy is going to grow pretty well and there's not going to be any hesitancy on the revenue generating side. But the economy could take a tumble given that there are problems in the US, euroland is slowing and the Far East doesn't look too bright either. If the economy does take a tumble then he might well find that those deficits, which were criticised by IMF, may turn out to be much worse. I remember only too well the late eighties when Nigel Lawson had surpluses, but they turned into whacking great deficits some three or four years later. So Gordon Brown is taking risks on the fiscal side.

Question: Gordon Brown seems to regard higher public spending as a higher priority than tax cuts right now - does that concern you?

Ruth Lea: I'm not surprised he's doing this because he is a Labour Chancellor and I think the surprise, to some extent, is that this hasn't happened before. Indeed, it is interesting how, in the first two years of this parliament, Gordon Brown was so keen to stick to the Conservatives public spending projections. I know full well those projections would have been increased by a Conservative Government if they had been returned, because I remember looking at the figures in November 1996, and thinking 'this is ludicrous, no one is going to stick to these public spending figures'. But Gordon Brown did. So for the first two years he really did starve the public sector. We are not surprised, therefore, that the taps are now being turned on. But the trouble is if you starve services and then turn on the taps you have a recipe for waste.

Question: So playing boom and bust with the public services?

Ruth Lea: He could well be. We have looked at both health and education and we feel that by just throwing money at them it's doubtful you can solve the problems that are in these services.

Question: So how could you solve these problems in our public services?

Ruth Lea: I think health is much more of a problem than education. There are problems in the education sector but if you get a reasonable headmaster or headmistress in, that can make a big difference. But with health there are two major problems with funding alone. Even with the extra funding going in our health spend is still well down by international standards and the big shortfall is in private funding. One way or another people will have to be incentivised to spend more of their own money on health.

Question: So a free health service won't exist anymore - you're going to have to have top-ups. But isn't this a political taboo?

Ruth Lea: Yes and no. I wish it wasn't. My feeling is that people's expectations now of health provision are completely out-stripping what can be funded by the taxpayer. We have done a lot of work on this. Our view is that healthcare must be free at the point of access but you must be very clear as to what you are going to provide through the taxpayer, rather than the current system of rationing by delay, denial or dilution. But I think an even more urgent issue to tackle is the way the health service is managed. There are 850,000 employees of the health service; I think it's now the biggest employer in Europe. This is an impossible number of people to manage. Moreover, there is far too much political interference in the way the health service is managed. When I talk to managers in the health service they tell me that each week they receive a new initiative, they've got more target hitting to do and they have to change their priorities constantly.

Question: But doesn't central direction ensure uniform standards?

Ruth Lea: I don't think it does, you only have to see what happens from hospital to hospital. We would take the NHS Trusts and turn them into free-standing mutuals and we would cut the political interference in the management of the health service. I realise that these are issues that cannot be debated openly over the next year or so by politicians but quite honestly I think the health service is heading to disaster and then people will have to start talking about how they are going to handle it.

Question: Do you think after the general election there are Conservative and Labour MPs who are willing to 'think the unthinkable' on health?

Ruth Lea: I would like to think so but whether they will do it publicly or not I don't know, or whether it will just take a crisis in the National Health Service to actually lead to an open debate about how we should be managing it.

Question: The IoD proposes voucher schemes as top-ups for education and health - what incentives could the government introduce to get people who are paying tax for a free education and health service to then pay out for additional private provision?

Ruth Lea: If you had a voucher scheme, then you as a taxpayer are given something you can use in the public or the private sectors. Looking at education for a start, at the moment people who are using private education are paying twice. They pay their taxes and then they pay the whole lot, the total cost, of going private. The people who are doing this are finding it increasingly unacceptable. If you had some sort of voucher you could spend your taxpayer funded part in the private sector and top-up. There would therefore be a real incentive to get more of the market working. In education there is already a reasonably well-functioning market. But health is different in the sense that where you do have private sector provision it is very dependant on the NHS because the NHS is so dominant.

Question: If as you suggest - the people who pay tax and can use this provision for private services then that money is no longer in the public pot for the people who need it?

Ruth Lea: In the voucher scheme we emphasise that you would have, free at the point of access, a good education as well as a good health service; but they do have to be defined very very carefully. There would be no question of taking away a decent education and health care for people who couldn't fund it themselves. That is the beauty of the voucher scheme. You are ensuring that people have state-funded minimum standards in both education and health. But if people do want to spend more of their own money on education for their children or on their own health then our feeling is that it should be recognised that they have already contributed to state funding and they should get some of it back by the way of a voucher. I think it is particularly pertinent to healthcare where there are huge delays. Just take the example of someone who needs a hip operation. They have to wait twelve months in agony if they depend on the NHS. If they pay to go privately they have to pay the whole lot and they resent this given the fact they've contributed to the NHS. That is why the voucher scheme has got such advantages to it.

Question: Turning to another business concern - regulations. Business groups constantly complain about red tape - but you've got to have regulations otherwise corners are cut, mistakes happen and standards slip - so these regulations deliver minimum standards - why are business groups so against them?

Ruth Lea: We are in favour of regulations. I think it is true to say that one regulation I would like to see enforced better is the once concerning the importation of meat that is infected by Foot and Mouth. But regulations, 'minimum standards', must be kept in perspective. We are not however, happy with the regulations introduced by this Government. The extra employment legislation that has been brought in by this Government it is actually very very difficult to administer. This is particularly the case for small businesses. If you are a small business you don't have dedicated human resources people, you don't have pay roll clerks and so poor old Joe Bloggs, the managing director does everything, he ends up having to cope with all this paperwork. I know that when I talk to our members there is an increasing irritation over the amount of paperwork they have to cope with.

Question: Do they say these employment regulations are pointless or just difficult to administer?

Ruth Lea: On the whole they don't see the point in them. As far as they are concerned they are good employers, they don't have to have all this red tape in order to be good employers and yes the regulations are difficult to administer as well. If you want to attract good people to work you have to treat them decently. As for the bad, rogue, employer - they don't take any notice of regulations. They treat them as a joke. It just means they've got more red tape to ignore and more and more of them venture into the informal economy. So the notion that regulations turn bad employers into good employers is one of the great myths.

Question: There's strong signals that a possible second term Labour Government will be committed to introducing more family-friendly work-life balance initiatives - what do you make of this?

Ruth Lea: We're actually very concerned about them because there are already more than enough employment regulations. If they really do bring more regulation under the work-life balance scheme and family friendly schemes they will find it very counter-productive.

Question: What do businesses think about the work-life balance debate and that people are complaining that their working hours are too long, they are too stressed and they don't see enough of their families - are these legitimate concerns?

Ruth Lea: Well if you look at average working hours over the last ten or twenty years they haven't actually gone up. What is actually happening is that there is an increased dispersion of working hours, which means more people are working longer hours and more people are working shorter hours. I take the view that employers try very hard to accommodate flexible working practices but there are limitations in what you can do. One of the proposals in the Green Paper on working parents was that when women come back from maternity leave they could have the right to come back part-time. I've talked to some of our members who have just gone absolutely spare over this. They say, 'I could not cope if my key women employees would have the right to come back part time. It's bad enough as it is.' We do keep saying to Government that these regulations will backfire on women.

Question: But they would say that women need flexibility?

Ruth Lea: Flexibility is good but you must recognise that there is limitations to what businesses can do. I have discussed this many times with our members and they say 'I try, but I have got my business to run. If I've got a key employee I can't have him or her coming in two days a week or just five hours a week. It just doesn't work. I've got to keep my business open for ten hours a day'. They wish that people in Government would realise what it is like to be on the ground running a business.

There are already signs of how these regulations are backfiring on women. We have done a recent survey of our members on these extra family-friendly policies and sixty five per cent said they were already thinking twice about taking women on of prime childbearing age because of the difficulties. I thought 'that is two-thirds of our respondents' and it was an NOP survey, a perfectly legitimate statistical survey. One of the messages we try and get over to Government is that you are really stacking up trouble for women.

Question: Labour ministers, unions are saying that in a possible second term Labour Government they want to make work-life balance, family-friendly initiatives a major priority - you're against it - so do you see this as the big major industrial battleground for the next term?

Ruth Lea: We're not against family-friendly policies, we're not against policies for a work-life balance, we are against extra regulation. We're not against the policies but they have to be voluntary. They have to be something that the employer and the employee can decide. What worries me about this Government, and the TUC, is that they are talking about regulation. If they are not careful it will backfire on women and, secondly, it will gum up the works. They need to get very realistic about that. If the economy turns down then you could well find that people will be laid off and employers will be more reluctant to take them on again. If you compare our regulatory burden with euroland, we're still more lightly regulated than they are. And how do their labour markets work? Not as well as ours have been doing. Their unemployment rates are much higher, their activity rates are much lower. We've made the message clear to Government that if you do bring in extra regulations there will be counter effects which will mean that the labour market will work less well and there will be fewer jobs.

Question: Turning to transport. Roads, rail, underground - how do businesses view our transport system at present?

Ruth Lea: I think we're in a slight state of despair. The railways, well what has happened to the railways, that just beggars belief. I was very opposed to the way it was privatised. When I saw the plans to cut British Rail up into about sixty or seventy companies I thought 'these guys must be joking'. I thought it was an April Fools' joke. It was unbelievable and the consequences have been dire. We have no magic solution to what's happening to the railways. I suspect nobody has. We wish Alastair Morton at the Strategic Rail Authority the best of luck.

Government proposals for the underground are mad. I cannot understand why the Treasury is still persisting in splitting up the infrastructure from the train operating side.

Question: So the IoD backs Ken Livingstone over the Underground?

Ruth Lea: Absolutely, 100 per cent.

Question: Ken Livingstone has been in power for almost a year now. We had scare stories about what he would do if he got into power. One year on how does the business community think he is doing?

Ruth Lea: We realise that his priority is the underground and his mayoral success will be measured on what he can do about the underground. The other issues are nowhere near as important, they don't even register on the chart. He's done the right thing by bringing in Bob Kiley. Now, Bob Kiley and Ken Livingstone must be allowed to get on with sorting out the underground. If Kiley is going to deliver a safe system he's got to have overall control. If he can't go ahead with that and Ken can't go ahead with his plans, then Ken will know full well that his mayoral office will be seen as a failure.

Question: So Ken Livingstone and Bob Kiley command full business confidence?

Ruth Lea: Yes, absolutely.