Question: You said that a world economic slowdown looms large over the British manufacturing and service sectors. What effect do you expect it to have?

Digby Jones: The problem for manufacturing in the UK will be, in any event, exacerbated by the effect of the economic slowdown on euroland, because we do export around 60 per cent - of all the exports around the world go to euroland, from the UK. So not only is manufacturing under the cosh because of margin erosion caused by a weak euro, secondly if you look at Germany now it's clearly on the brink of recession, and with elections next year in Germany, have they got the political will at the moment to take some decisive action to put that right in terms of flexibility and structural reform? Now on that basis, if you've got the biggest export market with a weak currency which means that your on the margin in what you sell, and at the same time demand is slowing down in those countries in any event they are buying less because of economic slowdown. That is a double whammy for British exporting manufacturers. And, with a slowdown, activity just drops and therefore fewer people for instance, fewer tourists come and visit. So at the same time you have again a weak euro, so again those who make tourist visits from euroland into the UK; there will be fewer of them spending less. So that is another sector, 7 per cent of GDP that's tourism, that's another sector that will be another cost because of that.

Question: So do you think this could have an effect on government's macro-economic targets?

Digby Jones: Well the best thing that a country could hope to have, is faced with an economic slowdown, and by the way I don't believe that America's going into recession. I agree with the forecasters that say it is two and three-quarters/ three percent growth this year, now that's not recession, that's slowdown rather than recession. But at the end of the day, the old cliché when America sneezes the world catches a cold, and we saw that overnight with the figures with Singapore, the second quarter going into recession. South Korea is slowing down; Taiwan is slowing down, because of the effects of America because the Americans have the biggest export market. Now, that again brings the whole world slowing down. What a country needs more than anything else is macroeconomic stability and we have that! Low interest rates, steady interest rates, low inflation, under target, low unemployment, growth borne out of policy enhancement and not inflation. The whole thing is macroeconomic stability, so I don't think that this will put a massive dent in it, certainly it will put a dent in it, we revised our forecast down from just under 3 per cent down to 2.25 per cent this year, brought about by the slowdown and also the effect which is localised of course, of foot and mouth disease. Not just in agriculture where the farmers clearly had a crisis of appalling proportions but also in tourism.

Question: What are the top priorities for the government to deliver to the business community?

Digby Jones: An important thing to recognise, one of the most important things we would ask of politicians of central and local government level, and also civil servants, and indeed often the media to be honest, to recognise is that; business and people are not found on two sides, you don't get business over here and people over there. Business is people, people are business, that's exactly what it is, and therefore what is needed to be delivered in terms of the business community and in terms of people are much of the same thing. We need to get our goods to market and our people to work, and people should get to work ready to do the battle for the day and not think that they've done the battle for the day by getting there.

Question: Do you think the government recognise the transport problems that people face?

Digby Jones: I think it could have had much more oxygen at the general election campaign, and I think that it needs constant oxygen as an issue to keep it at the forefront. The problem is they've voted the money, therefore they think 'oh that's sorted', and the biggest issue is getting it spent. And therefore we have a planning system, which is bureaucratically nightmarish. It is clearly an impediment on getting these major projects through, and I was heartened in the Queens Speech where they are going to have a good look at planning. I am doing a piece of work at the moment actually, which is in consultation with our members, to come up with some positive constructive suggestions to see how we can get a better planning system. But with transport, business needs to get its goods to market and people need to get to work.

Education; I think the progress made in primary education by the last Labour term was very good indeed, but we now have a massive challenge in secondary education. And if they are going to force through reforms there, they are going to have to take on some vested interests. And business has to get better engaged in the education process. I meet businessmen all the time who are telling me they'd love to get engaged; there are some teachers who really welcome that, and there are some teachers who talk the talk but don't actually walk the walk. And we have to get kids of 14 and 15 understanding that if they move out of full time classroom education at 15/16 and move into some form of vocational training, some form of working in and with business. Just because you don't actually end up at university doesn't mean that you've failed in life. And we have to get that message across. And I've met with Estelle Morris - we have had a good conversation about it. Two or three suggestions I came up with; the head-teacher mentoring programme, which worked extremely well on a trial basis, where business mentors with head teachers. That ought to be extended, that ought to be funded properly and extended. I'd like to see heads of department in major, large secondary education schools and establishments, I'd love to see them having to spend some time in a business related to the subject they teach. And why not? Lets get every single school teacher in Britain IT literate, if every single teacher IT literate by 2040, that would be fantastic!

Question: How receptive is the education secretary?

Digby Jones: Very! You see I think this is the challenge the government has when you ask them a question about delivery. They are very receptive, and they know they have to make these differences, but they are going to constantly come up against people who have done it one particular way for many many years. And change is a worrying thing. I think this is one of the things the private sector brings to this debate, is over the last 20 years the private sector has had to change. And if you look at one group of people who have had to change, it has been the private sector unions. The constructive, responsible, helpful way in which private sector unions have had to take their part in serious worrying structural change in the motor industry for instance, is absolutely fantastic. And if I was one of those guys who really had to fundamentally change, and I didn't see the same change happening in the schools that teach my children, the hospitals that treat me, and the transport system that gets me to and from work. I'd begin to think 'well come on, we've done our bit, what about you doing your it?' And I think the biggest challenge for the government at the moment is pushing it through.

Another very good example would be the health service. This is where its also a business issue, is we need a healthy work force, we need a work force in business who can get health care, from the point of delivery done efficiently and done in a very professional manner. Now if you are sitting in a hospital trolley getting your hip operation, which you have been waiting for two years, frankly you don't give a damn whether the person who is wheeling your trolley is employed by the private sector or the public sector, you don't care, who built your hospital - you just want it done. One thing the private sector does do is it has to have at the forefront of its mind the consumer. Both from a provision of service point of view, because its second nature to the private sector, and also from a reputational point of view. If you go round treating your customers badly they tend not to come back for more, and the private sector has that philosophy. So the criticism that says 'oh they are in it for the profit' or 'oh they have a duty to their shareholders.'

Question: Lord Hattersley says the private sector is incompatible with the public service ethos..

Digby Jones: Well I'd say that's wrong. The only way they are going to give to their shareholders is to deliver the profit to them and if they don't make the profit, they don't look after the consumer.

Look at the dreadful state of the health service, some of it has been caused, quite a lot of it has been caused by a lack of investment; but a lot of it has been caused by nobody changing their processes and their systems. And by putting certain other priorities in front of the consumer. And no one is going to tell me that the private sector initiatives that are going on at the moment have been the root cause of people being left on hospital trolleys and management problems. This has been going on for years and years and years. And if the public sector has done so well, why is it in such a bad state? And we've got to move out of the mindset of saying 'either public sector bad, private sector good' or 'public sector good, private sector bad'.

The other point is that you do have, and I don't blame them for this, because at the end of the day this is their job, but you do have vested interests in the health service protecting their own. And as I say, no one should criticise them for that because that is what they are there for. But, it forgets the consumer, so this might be the union in the health service, it might be the consultants, it might be the providers of the consumer i.e. the GP. There are lots of different vested interests, area health authorities, hospital trusts, I mean they are all vested interest; and at the end of the day they all protect their own. Now, in the private sector you cant go down that path, because business is geographically mobile, globally mobile, it can say 'well if you're not going to do it, we'll understand, we're in the free world - I'll go and do it in Hungary'. Or, you have similarly consumer choice, so you also have people saying ' well I am not going to wait three years for your product, I'm sorry but I am not going to actually put up with this poor quality, I'll go to someone else'. And therefore those vested interests in private sector, be it management, be it unions, be it suppliers, they've had to change, they've had to go through this very debilitating and worrying and insecure part of life and change. Now in the public sector, in a hospital; there isn't that competitive element, and I'm not too sure there should be - I can understand why there shouldn't be. But at the end of the day it has spawned people who resist change and don't have the pressures to change.

Question: Do you think it's the structure as well?

Digby Jones: I think the structure doesn't help. It has become extremely politically hot potatoeish. And I don't understand, for instance, when you had that dreadful situation of those bodies found in the cellar earlier this year - its awful, for the relatives, and for morale in the hospital its dreadful. But why did you see the Secretary of State for Health on the television apologising, taking responsibility? Management should do that, assisted and worked with unions and other interests, all pulling towards making sure that can't happen. That's the person that should take responsibility for it, not the funder. The government is the funder, the enabler. After that it should leave the arena to the people who should be getting on with it. And the private sector has a lot to contribute. Not to the exclusion of public service ethos, and not to the exclusion of some incredibly good people working in the health service. I'll tell you something, if you were working in your office, or I was in mine; and I was really very very good at it, and I've got someone sitting next to me on the same money, begin treated exactly the same, who wasn't good at it - but the system didn't allow that differentiation to be made. And the system protected that person. I can't think of anything more demoralising for the one who is good. And at the end of the day if you've got a badden, and you've got a demoralised gooden, what hope the consumer, sitting on that hospital trolley?

Question: The leader of the Transport and General Workers Union - Bill Morris described the debate over the government's plans for private sector involvement in the public services as 'a cocktail of confusion'. Would you go along with that?

Digby Jones: Yes, and what the government needs to do is face up to it the challenge, face up to it quickly, address it, map it out. Certainly on a sector by sector basis; what suits a school in Newcastle, is not going to suit a hospital in Bristol. What suits a planning authority in Worthing, isn't going to suit a prison in Liverpool. So you know, this is not a generic 'oh well one size fits all'. But they've got to do it quickly, and they've got to meet the challenge. The time has come when the talking has to stop and the unions need to come to the party and not come to the party spoiling for a fight; but on the other hand I can't blame them for showing that they are uncertain, because they are and it needs to be spelt out. On railways in particular, the private sector needs to know it is wanted, and what is wanted of it. And I'm worried that if the government doesn't spell out its plans soon some businesses will get fed up waiting and take their bat and ball and go home - especially if they are not welcomed in. And every day that you delay in project preparation it costs you more money.

Once the confusion is over and the direction has been set I think it will be a long and painful process of change, where many sacred cows will need to be sacrificed. The time has come for Government ministers and unions and the private sector to roll up their sleeves and dedicate time and energy to the delivery of the end product - the service to you and me - the customer.

Question: What's at stake if Blair backs down from the mounting pressure from the unions?

Digby Jones: Delivery. And in 4 or 5 years time the electorate will judge them accordingly. Now, what is very important about that is that on the day of general election, Tony Blair stood in Manchester and he said 'I have been instructed by the electorate to deliver'. They are going to want to see delivery. Now a good example is we are a year and two months after Ken Livingstone was elected, and not one thing has been done. Now the PPP might not be perfect, but it is the only act in town that can be implemented immediately. It's the only act in town where you can get on with the work and start looking after London. And London is a national asset. This isn't just about looking after Londoners, this is about looking after our jewel in the crown in global perception terms and investment terms and competitive terms. And we've seen nothing for 14 months.

There is two political camps fighting their corner. Now at the end of the day, the people that suffer are Londoners, and business. And its time that stopped and people put their political aspirations behind delivery. Put them second to delivery. And I think that's what I was saying about delivery in health, education and crime, planning. You don't get anywhere unless you change, unless you force it through. And that is Tony Blair's biggest challenge, he's got to do it, he's got to do it quickly, because (A) he hasn't got enough time otherwise and (B), it creates uncertainty. Which is why I don't blame the unions for saying ' come on Tony, we are being told here we don't change, what do we have to change to?'

Question: Do you see this as an important era in relation between businesses and unions - this battle for Blair's commitment going on?

Digby Jones: I see a different atmosphere and arena for the relationship between government and unions, and between business and unions. Yes I do. If you look at the last 3 years we've had 15 new pieces of employment regulation. We've had statutory union regulation. I have to fight every day, I don't have a law that says as long you can produce a majority the law makes you recognised. I don't have that protection. And therefore business has changed. Regulation and consultation directive, those are going to come in over 7 years, and its going to come in slowly. What it will do is that it's a great asset for the increase in union power and union recognition in the workplace. Now, if you have unions taking their part in a changed paradigm in public services, they are playing their part in this huge effort to keep Britain globally competitive. Not only is there nothing wrong for that, they are actually a constructive force for good. But, the problem is, you look at some of the union officials that are being elected in various very key positions in very key sectors, and they are clearly becoming more politically motivated. And that is a worry, because yet again if that political drive takes precedence over consumer need or the business competitiveness then the situation changes and people begin to suspect, management begins to suspect, governments have a problem. So, per se, moving forward that way can be a force for good, but it's a very dangerous situation. The unions go back to the old days of being politically motivated. And to say public services have to be looked after by the government is a political sin.

Question: And have you sensed rising hostility from the unions?

Digby Jones: Not hostility no. I've sensed an increased feeling of power, and I've sensed in certain unions more combativeness, but not hostility. And I hope we never get there.

Question: How did you respond to the Queen's speech?

Digby Jones: On the whole, welcomed it. Really did welcome the enterprise bill capital gains tax provisions. We're going to have the most competitive capital gains tax regime in the whole of the Western democracies, even more competitive than America. That's great news if you want to stimulate investment. The review of stock options, at last we are going to have a better look at the way the taxman treats the stock options. And I thought, that would obviously help smaller high tec businesses who can't pay big wages at the start, but can give people a slice of the action. It's not right that those are hindered by income tax treatment at the start, rather than capital gains tax treatment at the end. So I liked that, I thought that was very good. But the one thing that seemed to be missed, is also extremely good, when you are looking at overseas employees of big British companies who participate in the big British companies' stock option scheme. And that attracts, the more fiscally attractive that is, the more that they are attractive to us. That's good for big business too. To put the competitive competition arena out from politicians' grasp and into an independent arena and into an independent atmosphere -we thought was first class. It's worked very well with monetary policy committee and we thought that was an excellent idea. That doesn't mean they are always going to be voting the way business wants, but that's what independence means, but at least its free from political persuasion. But, one little worry there, for the first time ever in Britain we are going to have the anti-competition cartels and there are going to be criminal sanctions for the first time.

Question: What's wrong with that?

Digby Jones: Well, per se, nothing. Another cynic would say if they've broken the rules they ought to be punished. And also there's another school of thought that says ' you look at America' where they've had that for many years and its been a big drive of enhanced productivity because companies can't rely on doing deals with each other. They have to get more competitive to compete, get more productive to compete, and it's therefore a very good tool in pushing productivity enhancement through in the UK. I actually agree with that, but what you need to see it in the fabric of a whole range of bullets in your belt to get there. America has, at the same time as that, it has a very big single market, 300 million people, pushing their products in that competitive arena, all speaking the same language, all using the same currency. With great transport connections, and at the same time labour market flexibility which is much better than ours, and we're much better than Europe. And labour market mobility, people move around the country a great deal, and a greater philosophy and ethos that doesn't see failure as some tremendous evil. As the old joke goes, if you haven't got one insolvency behind you, you haven't got a good CV. And that sort of doctoring of failure doesn't hang well in America. So to have criminality in competition behaviour is a good drive for productivity if you have the rest at the same time. But if what we're going to end up with is even more employment regulation, and even more directives from Brussels where Britain obeys them and other countries don't then we are going to have the worst and not enjoy the best as well, then it could be harmful for Britain. France and Germany have competitive criminality provisions on the statute, but they just never use them. Whereas I believe Britain will use them. And by the way they should. We have great street cred across the world for being transparent and obeying the rules, and I like that - we have a good reputation. But if the market we're operating in is where others aren't then it worries me.

Question: Another issue of criminality - corporate manslaughter?

Digby Jones: I can see the pressure being as such they will. I've asked them to be extremely sensitive about it in two ways. One is that I am worried about the growth and development of the blame culture in the UK. I would like to meet this wonderful person called THEY. Have you always noticed that THEY are to blame? And it's THEIR fault and THEY told us to do this - well we've got to blame THEM. And you do sometimes see a feeding frenzy in the press, to try and find someone to blame for things. You find a Chief Executive has one set of bad results and people say 'do you think he's going to be sacked?' And you have situations in dreadful accidents where instead of a cold rational objective look at what went wrong and why - which might end up with someone being blamed, I fully understand that - and rightly. But it starts from the point of lets string them all up, lets get them all up there strung up and then we'll get the one we want. Well that is no way to have a proper enquiry and system that will produce the best result. So I worry that there is a huge growth in this mentality. And that leads me to the second worry that I have, which if you are not careful, if it's unlikely to be very sensitive in the way its drafted and the way it's implemented, you will have extremely good middle managers, I don't mean the chief executive of the company, I do mean the guys on the ground, on the airport ramp, on the railway station, on the dockyard, the guys who take small decisions. And they will say 'well if anything goes wrong, my name is going to be in the public gaze, I might be prosecuted, I might then have a string of defences as to why I did everything I had to do and I was found not guilty; but by then my home will have been pilfered, my name and address will have been in the newspapers, I will have been blamed - well actually I don't think I am going to do a job. Because the upside is outweighed by the downside.' And therefore you will have a debilitation. You will have people not accepting jobs, 'I'm just not going to go there, why should I be judged in the public gaze before I even get the chance to justify myself?' And those two things are worries. Per se, I think we're going to be there, I don't think its bad generally, but the way it's drafted and the way it is implemented, we have to be extremely sensitive.

Question: Is this blame culture turning increasingly litigious, and does that concern you?

Digby Jones: Yes I do, and yes it does. I'll give you one very good example - employment tribunals. I go round the country a lot, I visit a lot of different businesses of different sizes. The number of times you get a situation where an employee leaves, they even have a leaving party for him or her, everybody's happy, goes to another job. Then the day before the time limit comes for a claim, in comes a letter from the lawyers saying she or he was constructively dismissed. You made life intolerable, that's why he left, and here is a suit for unfair dismissal. Somewhere down the next few weeks, in comes the informal chat that says this is going to cost you a lot of money in fighting it, you'll not get your money back, and waste a lot of time; tell you what - give us a couple of grand and we'll go away. And that is the litigious culture that is being bred in people and it is happening a great deal.

Question: Why is that being allowed to happen?

Digby Jones: Because employment regulations have led us down that path. And two, the way those regulations have been imposed means that the person on the hunt for cash has nothing to lose.

Question: So you think the government should tighten up?

Digby Jones: I think they've already done one or two things. They've brought in cost recovery from the individual, and they've increased how much can be claimed - and that's good. But how you go about claiming money from a person who hasn't got any? And secondly to give more power to the chairman of the tribunal to look at it before it all starts and say 'is this a frivolous claim?' They are going down the right way but there is a lot more to be done.