4.20pm, Grand Hotel, Brighton.

AB: The Times this morning pointed out that people don't think our policies add up, and part of the problem is our low credibility on the economy. Can we tackle this?

VC: I think this will be a slow and difficlt process. Perceptions take a long time to change. But we are conscious that our policies are under scrutiny and that it will not be sufficent to have a few soundbites and gimmicks to offer the public on the economy. I am optimistic that we can improve on this - partly because of the way Liberal Democrat administrations are running big cities like Liverpool, Newcastle and now Bristol. They are running a tight ship. They know tough decisions have to be taken, and they are doing well. So at local level we do have credibility on these issues. But it is a big task to transfer that to the national level.

Our main objective on the Tax Commission has been to have a clear, coherent package. This involves some repositioning as we must reflect the great increase in public spending in the last few years. So this is also a tax neutral package.

AB: As a signal about our spending intentions or simply as a "other things being equal" assumption?

VC: Both - our working assumption is that public expenditure globablly is at about the right level.

But to get back to our credibility on the economy. The tax package is an important part of this. But we are going to have to go on to look at spending.We are going to identify high priority areas such as science and education. We are going to have to balance this with low priority areas - where we think spending could be reduced.

AB: People don't read our tax proposals for themselves, but depend on commentators to form a view on what out proposals amount to. How have the Financial Times responded?

VC: The FT had a very positive editiorial as have the Guardian and the Independent. The Daily Telegraph was much less enthusiastic - which I didn't find surprising...

AB: One of the most controversial areas of the proposal is going to be the impact on Mondeo man...

VC: We need to be clear that this is for new cars. Mondeo man will not pay any of these Vehicle Excise Duty rates on his current car. So these proposals give people a choice in the future. And an all-party group in the House of Commons has also signed up to these proposals.

AB: Julia Goldsworthy yesterday suggested that these were an interim measure...

VC: I don't think they are interim as such, but our long term perspective is to move towards road user pricing, with a much better focus. In that sense, VED rates are a second best instrument. But given the record on government computerisation projects, we cannot expect to have the infrastructure for road user pricing in place in the near future.

AB: ...and these proposals are not good news for people with families. Current VED bands ignore the number of pasengers in a vehicle. Driving a Smart car which only takes two becomes much chepaer than driving a family of five...

VC: I do think our Environmental Team will need to finesse and to fine tune these proposals. This is a valid point.

AB: You have talked about identifiying prioirities and low priorities. Are we going to have a message on making the public sector more efficient by the next election?

Yes I hope so. At the last election we announced certain programmes that we thought needed to be cut.In retrospect I think we should have given this part of our programme more publicity, but people don't like to focus on the painful part of the programme.

The Tories said they were gong to "cut waste". I don't think peole believed them, and I don't think the public will believe anyone making such claims. There are probably areas onf very bureaucratic administration we could do without - the supervision of local authorities which costs £1.5 bn per annum I believe, is one we could look at. But we will need to be precise.

Howver I think your question was looking at the difference between the level of efficiency you tend to find in well run firms, and the lack of direction and low morale you find in ome areas of the public sector. We need to look further at this. There aren't any easy answers, but perhaps we need to set up some form of working group to examine the area.