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ON THE RECORD
RECORDED FROM TRANSMISSION: BBC-1 DATE: 21.5.95
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JOHN HUMPHRYS: Good afternoon from Nottingham -
stamping ground of the Chancellor of the Exchequer. I'll be talking to him
live about how we're ever going to feel good again when the old enemy inflation
maybe threatening to rear its ugly head once more. That's after the News read
by MOIRA STUART.
NEWS
HUMPHRYS: Mr. Blair will tell the nation tomorrow
that he will be tough on inflation and tough on the causes of inflation. That,
not growth, is his priority. And that makes it difficult for the Conservatives
to attack him. What's more, Mr. Blair and his colleagues have no track record -
no form. It's much easier to attack a Party that's been in power for nearly
sixteen years - and does have a record. With me is the Chancellor Mr Clarke.
Good morning to you - good afternoon to you. What does it feel like to be on
the left of the Labour Party.
KENNETH CLARKE MP: I don't think I am quite there, but I
look forward to Tony doing the Mais lecture tomorrow. I did it last year but
it sounds like Tony Blair's going to be bambied, pretending to be Monarch of
the Glen. I mean, there is no substance in all this, and what I do find
intriguing is, I must be the first Chancellor who has a Shadow Chancellor who
isn't criticising what I'm doing. I mean the problem that Gordon is really in,
is not the City and the markets and all that, he's not responsible for that at
the moment. His problem is that he thinks what I'm doing is working. He
hasn't actually for some time opposed anything I've actually done, and the most
recent decision I took which was a little controversial not to raise interest
rate about ten days ago, we've gone I think the best part of a fortnight now,
and he won't say whether he agrees with it or not, and the problem from his
point of view is he knows that it's working. He knows that he couldn't do any
better, he know's I haven't persuaded the general public of this yet but he
believes that over the next two years this might get very worrying indeed and
mainly what he's doing is abandoning the Peter Haines of this world, and the
old bits of the Labour Party, but if you look at his sppech and I'v tried to
analyse it in the Sunday Times this morning for the the sort of business
audience who are interested, who want to read the News Review, it's vacuous,
it's empty, it isn't the economics of Margaret Thatcher of Nigel Lawson, or the
economics that I follow, because times have moved on, but it is just empty,
empty.
HUMPHRYS: I thought you just said he wasn't....
CLARKE: No, I said he's not opposing me. What
he does is produce impenetrable prose, - Gordon Brown I'm talking about, last
week, I haven't seen Tony's yet - fourteen, fifteen pages, at the end of which
insofar as you could find any content, it was a softening of policy compared
with my own. He does vaguely talk about borrowing more money, he says for
public investment, it doesn't define that, he obviously is giving himself to
allow to spend more than I would. He makes very very important sounding
statements about debt GDP ratios, actually what he says is rather more relaxed
than the course that I'm on, but (interruption) but basically other than that,
what he doesn't say is what his inflation target is, says he'll have one....
HUMPHRYS: Oh, he says he'll have one, a very
strict one.
CLARKE: Yes, but mine's one to four per cent,
bottom half of that by the end of this parliament. Why doesn't he have one.
What's his?
HUMPHRYS: Because he doesn't know the state of the
books yet.
CLARKE: Of course he knows the state of the
books, going back to the interest rate charges, he's got the monetary report,
he's got the bank's inflation report, he's got every commentator talking
under the sun about it, and he won't tell me whether he agrees with it or not.
Public spending, he has no target for public spending. Taxation, he has no
proposals whatever. This isn't an economic policy, it's a lot of guys who
realise that tax, borrow and spend failed every time Labour's been in office,
they realise that poor old Peter Haines is still believing. I mean Peter
believes it, that Neath would benefit from an attempt to go back to Wilsonian
economics which didn't do Neath any good at the time, and Brown and Blair are
saying nothing. Most remarkably they're not even opposing me. We've got the
strongest economic recovery in western Europe, we're keeping inflation down,
we've got unemployment falling, and we therefore get these wordy lectures,
rather than opposition.
HUMPHRYS: But it's a bit silly to criticise him
for not giving us his tax ratios isn't it. I mean you won't give us - if I
said to you, "Give us your budget for two years hence for November '97", you'd
say, "You're barmy, of course I can't do that". Why should you expect them to
do that?
CLARKE: But I have a target, I have a target of
twenty per cent - twenty p standard rate, when it's in the interests of the
economy to do so. I frequently say that the successful modern economies are
going to be low tax economies, I say that to have a low tax economy you've got
to control public spending.
HUMPHRYS: He said all that.
CLARKE: No, not ......
HUMPHRYS: ...we will not tax for the sake of
taxing, how many times have you heard that?
CLARKE: Yes, that's very very good, and then you
ask him, - try to get him remotely, remotely clear about the higher rates of
taxation.
HUMPHYRS: But he can't do that.
CLARKE: Who's going to pay the higher rates of
taxation.
HUMPHRYS: You can't tell me what the higher rate
of taxation's going to be two years from now, and they're not going to be in
power, if they are in power for two years from now.
CLARKE: But I've given you my medium term aim
the twenty p standard rate. I've actually said and demonstrated how, with
public spending control we're going to pursue the aim of a low tax economy, as
a way of succeeding. He always votes against my tax increases, I'll give him
that, he always votes against any spending controls I introduce. How on earth
that matches these bold words about public borrowing I haven't the first idea,
but it isn't a policy, and it isn't just you know - I'm delighted they're not
attacking what I'm doing at the moment, and I'm not very interested really in
some of this rather empty rhetoric they come out with. It is actually
dangerous. Here am I putting together I think a healthy economic recovery and
these guys are running an ad-man's campaign when there's nothing inside it - no
policy.
HUMPHRYS: You say that, you say it's dangerous,
but it's proving very effective isn't it, and that's the problem from your
point of view. He is persuading the city that it's going to work under a
Labour government. The chief economist for Goldman Sachs said just the other
day, "There is less risk as we see it now from a Labour Government going mad
than there is from a Conservative Government, this Conservative Government
running a loose policy". So they're actually more scared, many of them, of you
staying in power, than they are of a Labour Government coming into power, and
that's a turn up isn't it?
CLARKE: Well, firstly I haven't heard that
quote, and you're building an awful lot on it.
HUMPHRYS: There are all these other quotes, I'll
give you much more if you like.
CLARKE: The City are not persuaded by Gordon
Brown.
HUMPHRYS: Oh, many of them are.
CLARKE: And - I simply do not believe that,
the chap from Goldman Sachs if he said that - over the last two years we've
achieved an inflation record, with inflation below three per cent underlying
inflation, for nineteen months now which is the best we've had since 1961.
Since I've been Chancellor I have absolutely scrupulously pursued a policy
aimed at my low inflation target. I have tackled the deficit we have in public
spending and the public borrowing that the recession caused more determinedly
than any other finance minister in western Europe - it's working. The trouble
in Neath is of course the message in Neath has not got across. That is why
unemployment is down by six hundred thousand since the peak. That is why we're
creating new full time jobs in this country and I can say to Goldman Sachs,
that is why we are actually achieving a stable environment for businessmen,
industrialists out there, steadily getting a healthy recovery in place. Now
that is substance, that is real substance compared with what the Labour Party
are putting forward which is as I say, very very wordy, somewhat impenetrable,
and when you try to touch it, vanishes to nothing in your hand.
HUMPHRYS: But you I see, I quoted a banker to
you a minute ago, I could have quoted Howard Davis to you, Director General of
the CBI, now Deputy Governor, (interruption) - exactly... of the Bank,
appointed by the Treasury presumably, by your own government.
CLARKE: Appointed by the Queen actually on
the advice of the Prime Minister who was advised by me.
HUMPHRYS: Precisely, and he believes that the
Labour Party has changed. He's impressed by what they're saying.
CLARKE: Well, I'll discuss it with Howard when
next I meet him. But we at the moment have four per cent growth, falling
unemployment, low inflation, a very strong export performance. Now, I don't
need to look back to old Labour because that is now extinct, but if you...
HUMPHRYS: You accept that do you? Do you acccept
that old Labour is extinct?
CLARKE: The ideas are bankrupt, they've
failed. We haven't had a Labour government since the war that didn't leave
higher unemployment when it had finished than when it arrived. But they're out
there, alive and well on the bank benches of the Labour Party in parliament.
HUMPHRYS: But you accept that this is a new
Labour Party that's being led by Blair and Brown?
CLARKE: Blair doesn't believe any of that
stuff and Brown doesn't believe any of that stuff. What I press them for is
what is new Labour, it's new Labour which is synthetic.
HUMPHRYS: New Labour is restrained, new Labour is
not allowing inflation to run away. New Labour is not Keynesian.
CLARKE: When I first became Chancellor, when
Gordon hadn't got into post-Keynesianism and androgynous growth theory and
all that sort of stuff ...
HUMPHRYS: We haven't heard that one...
CLARKE: He's given that up, but when I first
came in he was always urging me to lower interest rates, but I wouldn't. When
I began to actually get things under control and began to reach the problems of
a recovery growing which I now had to keep non-inflationary, Gordon at
first week in week out, saying he'd reduce interest rates. Now we are in the
situation of delicate judgement. The man at Goldman Sachs and the man out
there trying to earn his living in a business and the man out there hoping that
his job's going to become more secure have now got to watch us deliver low
inflation whilst the recovery goes on, and what does Gordon Brown say about
that when I have a difficult controversial decision? Two weeks after the
decision he cannot say whether interest rates are too high, too low, remain the
same, he went off into irrelevant criticism, his speech last week produced
nothing, nothing on monetary policy, except he was going to create a
committee. I mean he criticised the Ken and Eddie show, I think the Ken and
Eddie show has got a good track record, and Ken and Eddie are not only agreed
on the policy objective but we deliver it very consistently. What does Gordon
say - he's going to have a committee with trades unionists on both sides of
industry to advise Eddie, who is going to advise him. These are not real
people with an economic policy. Labour is pretending, it has an economic
policy whilst it doesn't actually oppose mine at the moment because it's
working.
HUMPHRYS: Well let's move away then from the
Gordon and Tony show if you like, to the Ken and Eddie show which you
introduced yourself. One of the worries there in the City and in many other
areas is that you are now actually playing fast and loose with inflation for
political reasons, and that's why you didn't put interest rates up the last
time you were...
CLARKE: Well both Eddie George and myself went
out of our way to emphasise that that was not the case, that the two of us are
totally committed to the same policy. Both of us believe, I think, we have the
best chance we've had since the war of combining economic growth with low
inflation. You'll have to find out what he actually advised when the minutes
come out, what he's actually said ever since, as I have said ever since is that
we have a commitment to precisely the same policy objective. When I took the
decision last time, which was the day after elections, rather than before
election, so there was no politicking, it was after the election, people had
already voted, I was free to make an economic decision. I gave a press
conference precisely to explain my reasons for the decision, my reasons were
based on the data showing that I have succeeded in slowing down the growth of
the economy to a more sustainable rate, that the figures that we had were
inconsistent, parts of the economy seem to be doing well, parts not so well.
The evidence for inflationary pressures from consumer demand or pay was
non-existent and that it was therefore a finely judged decision that in my
opinion the policy could be pursued without raising interest rates.
HUMPHRYS: That wasn't the opinion of the Governor
of the Bank of England?
CLARKE: Well, wait and see.
HUMPHRYS: But you're not going to deny that there
was a difference of opinion.
CLARKE: It's the opinion of most of the
commentators and what I...
HUMPHRYS: You're not suggesting to me that you
listen to the commentators rather than you're own Governor of the Bank of
England?
CLARKE: No, I don't.
HUMPHRYS: You'll be listening to us next!
CLARKE: What I do and on the evidence so far, I
really do not believe that Gordon Brown is capable of doing, is actually making
my own decisions based on my own judgements, policy objectives that I'm
committed to and which for two years I've been consistent about and which for
two years I've explained with as much clarity and candour as I can, to the
British public. And what I'm pursuing is a policy of combining growth with low
inflation and we're combing that better than any British Government since the
war.
HUMPHRYS: And you've created a real rod for your
own back here haven't you, by giving the Governor of the Bank of England a much
greater role, much more transparency as you say, and everybody says that's a
good thing and economically perhaps it is, (a) so long as you listen to him and
(b) so long as you do what he says because if you don't do what he says - you
didn't do it the last time - if you don't do it the next time they're going to
say "hello, what's going on here?"
CLARKE: I deliberately made the changes, I sort
of made it more transparent, I gave him a bigger role, we're open with genuine
minutes and genuine meetings about our decisions, the inflation report that the
bank puts out is not edited by the Treasury anymore - that was my decision. As
far as I can gather, I don't think Gordon opposes any of that anymore.
HUMPHRYS: No.
CLARKE: It's taken him about eighteen months to
decide that perhaps they are going to do that, what Gordon now says is that he
wants to surround all this with another of these committees. I mean I gather..
HUMPHRYS: Yeah but I mean you're moving back to
Gordon Brown now, I'm trying to talk about you and Eddie George...
CLARKE: What I'm saying about myself and
Eddie George, is that the two us, you could not have in Eddie George and
myself and Howard Davies as well I believe, three people more committed to the
idea of enabling British industry and business to maintain a sustained
recovery, one that will last, without being destroyed by low inflation and I
don't think the mimicry of the Labour Party of that, has anything like the
substance you're trying to give him.
HUMPHRYS: Well why in that case do we have Eddie
George saying things like: "I lie awake at night worrying that it's all going
to be thrown away".
CLARKE: Yes well that was...
HUMPHRYS: By whom?
CLARKE: That was...well he didn't say by whom? -
he wasn't..(both talking at the same time)..he was gloriously misreported. I
mean you and I handled this on your programme you know every morning during the
week, you have great long question and answer questions and then you find the
newspapers have picked bits of it out. Eddie made a speech last week as
consistent as my speeches, he actually answered questions where he was
addressing an audience and people took out phrases and tried to pretend it
related to me. ...the Governor of the Bank of England and the Chancellor of the
Exchequer currently have in common is we're both confident we can deliver
sustained recovery with low inflation and we're both determined to do so and
I..not only have I spent two years doing that but I'm not a guy who changes his
mind easily and I am a guy who can take decisions and back judgement.
HUMPHRYS: But he and many of his professional
advisors are worried that you're not going to do that, that you're not going to
hit those targets. You didn't like the Eddie George quote, let me give you one
from the Bank's economics director, Mervyn King: "The Chancellor will have to
climb down, sooner rather than later."
CLARKE: Well again I've not heard that quote and
I'd like to see whether it's accurately taken from context and so on. With
Mervyn King and Eddie George, we all have discussions on the basis of hitting
the inflation target. Everybody - widely excited when the bank's inflation
report which thanks to my decision now goes out without the Treasury can see it
- shows that we were half a per cent, in their opinion - above my target.
HUMPHRYS: And heading in the wrong direction.
CLARKE: There's a lot of criticism
of the bank because none of these inflation forecasts are ever spot on, indeed
most forecasters have got inflation wrong, year in year out for some time now,
since I've been Chancellor most forecasters have spent their time over
estimating inflation.
HUMPHRYS: Yeah but you've got to listen to
somebody haven't you.
CLARKE: Half a per cent. I mean here was the
Treasury's inflation forecast, three per cent by 1997, half a per cent above
the target we're aiming at and the report itself said this is very uncertain
stuff. If the British economy can carry on having a recovery of the strength
that we have now, and in 1997 inflation is three per cent or as I believe in
the lower half of my target range two and a half per cent or below, that would
be a fantastic performance compared with the British economy since the war
where the ruin of Neath in part stems from the repeated history of throwing it
all away in tax, borrow and spend. Now that's where Labour....these guys are
not going to stand up to all the pressures if they ever get into power.
HUMPHRYS: But you began the sentence with the word
if and of course it's an a big 'if' as you say forecasts are invariably wrong,
but if you're not going to listen to the Bank of England, when they fire all
these warning shots across your bows (sorry about the mixed metaphor but you
know what I mean) then who are you going to listen to and are you saying that
next time you meet Eddie George and once again he wants to put up the rate of
interest, the interest rate, are you going to say 'well...exaggerating it"
because if you do say that then the markets are going to really get worried.
CLARKE: I do listen to them, I have established
in a different and more transparent way than ever before, a clear
constitutional position, the Chancellor decides but it does so on the advice of
the Governor of the Bank of England...
HUMPHRYS: But having opened the books now, if you
ignore that advice we will know that you have ignored that advice...
CLARKE: That is right..
HUMPHRYS: And people are going to get worried and
then people are really going to start selling the pound.
CLARKE: No two people ever agree, if you get two
economists, no two economists ever agree one month to the next exactly what to
do. So when I started the system up, I think I said at press conferences, I
certainly did to Eddie, the test of the system will come when we disagree and
you'll have to find out whether we're disagreed last time and people will have
to wait and see. We're not disagreed on the objective of policy and the
discussions are certainly not as you describe. I mean British journalism in
general I would say they're not ready for open government because they never
even read these minutes and they still invent fiction about what actually
happens. When we sit down and have these discussions with Treasury advisors,
Bank advisors, my junior ministers and myself, we all discuss the policy I've
laid down, the inflation target, we discuss the data, the statistics on British
industry. I'm glad to say we talk about real industry, what's happening in the
labour market, what's happening in the different sectors of industry as well as
the monetary aggregates, the exchange rate, all these other things and in the
end the judgement is - do we need to change interest rates this month or not.
Some months it's easy. I mean the last minutes we produced showed...well the
last meeting but one, they were out in the public domain last week, showed it
was very straight forward, there was no case for raising interest rates. Others
are more difficult and finely judged. I keep putting up interest rates when I
have to, before the Party Conference I put them up.
HUMPHRYS: I remember, I remember.
CLARKE: I put them up in December, and again in
February (talking together)......
HUMPHRYS: But you daren't do it again, now look at
the state of the housing market, Easter is supposed to be a time when the
housing market goes ike this, last Easter it went like that, you've got a real
problem there haven't you?
CLARKE: What I have to dare to do is deliver
sustained recovery with low inflation and every time I take an action to
deliver that I get not a word from Gordon Brown, not a word from Tony Blair, I
get confusion from the financial commentators and look at the track record,
nineteen last year four per cent growth. Inflation below three per
cent all the time, good balance of payments and a boom led by manufacturing and
exports and people..all the complaint people could find against it was
consumers don't feel good, for years we have wanted manufacturing and exports
to create a healthy recovery and what the public really want is one that will
last and it will last with us - it won't last with the Labour Party.
HUMPRHYS: Well let's forget the Labour Party for a
moment, let's even forget Eddie George for a moment though we might possibly
return, let's turn to Margaret Thatcher. Now, she thinks you're making a mess
of it, if we're to believe what she said in her book 'unnecessarily worsening
the recession and so on and so on' pretty powerful stuff isn't it?
CLARKE: Well I'll do her the courtesy of reading
the book and reading the quotes in context because at the moment they are
trying to sell the book and so you take out nice juicy extracts and I'm sure
I'd sell more books if I comment just on those extracts.
HUMPHRYS: Not very helpful though is it?
CLARKE: Well the reporting is not very helpful
but as I say I'll do Margaret the benefit of waiting to see it all in context
as I complain so often that what I say is taken out of context. But I was a
minister throughout the Thatcher years which were extremely successful years
when we did a lot of the supply side things that Labour now claims to support,
I mean, with the trade union reforms, the biggest supply side change we ever
made and I don't think the Labour Party would keep that intact, but anyway you
keep stopping me going back to that, so far as otherwise things have turned,
the recession, the origins of the recession which happened in every other
Western country came when we got monetary policy wrong. We carried on relaxing
it in the late 1980's when we had a very successful growing economy, we relaxed
it for too long and it became highly inflationary and then we had the boom
followed by the bust. Every other country practically did as well because the
1980's were somewhat awash with credit throughout the world.
HUMPHRYS: So you are telling me that the mistakes
happened during Mrs. Thatcher's as she then was, was during Margaret Thatcher's
own reign.
CLARKE: Well if you look back at the battle of
the memoirs, which Margaret and Nigel have already engaged in, it's obvious to
be fair to Margaret they were engaged in an intensive debate about interest
rates in the late 1980's, again, I must mention the Labour Party they were dead
wrong, I mean they just thought we were running too tight a policy and all you
got out of the then Shadow Chancellor was, Labour would reduce interest rates
even lower, which would have made things a lot worse, but Margaret and
Nigel were busily arguing about interest rates and they obviously allowed the
whole thing to get over heated and to take off, as did other western countries
as well.
HUMPHRYS: So it's not John Major's fault, it's
Margaret Thatcher's fault?
CLARKE: It was during Margaret's time in
Government that it happened and I think, I mean, I am not going to start
attacking Margaret's government, I served all the way through it, it was a damn
good government, I think if Margaret was in office now she would on the whole
be complaining about people reminiscing and slightly re-writing what happened a
few years ago and wanting us to look forward, actually concentrate on attacking
the Labour Party and not each other and concentrate on taking apart this rather
fragile act that Blair and Brown have put together. One thing Margaret can
take comfort from I do agree with you, is that it is the result of Margaret
Thatcher and John Major and all the years we've been in office that the Labour
Party could be led by two people getting up who are clearly saying socialism is
dead, even if they don't understand what the alternative to it is.
HUMPHRYS: Well let's, one final thought then and
let's sort of briefly return to Eddie George because I quoted the bit about him
being kept awake at night worrying about inflation whatever the reason for that
may be, he's going to have nightmares isn't he when he hears you promising to
cut taxes, promising to cut taxes, not whether but when, now how responsible is
that?
CLARKE: It's very responsible when you again put
it in context and say I say it's a question of when not whether but cutting
taxes...
HUMPHRYS: Well you didn't say that did you?
CLARKE: Cutting taxes, I also say, usually in
the same breath, cutting taxes goes with controlling the level of public
spending..I shall only cut taxes, I shall only cut taxes when it's in the
interests of the economy to do so.
HUMPHRYS: But you are contradicting yourself
aren't you because if it isn't in the interests of the economy, of the country,
to do it, then you can't do it, so it is when and not whether.
CLARKE: I will not cut taxes at a time when it's
not in the interests of the economy to do so.
HUMPHRYS: Right so it's when.
CLARKE: I have not helped put together the
healthiest economic recovery that Britain's seen since the war in order to kill
it off myself by changing policy or handing it over to the Labour Party before
it's even begun to get through to the ordinary lives of men and women up and
down the country.
HUMPHRYS: So you need to re-write that sentence
don't you and say it is whether and not when because those circumstances may
not apply, as you yourself say, you can't forecast it, and if they don't you
won't be able to cut taxes because that would be irresponsible.
CLARKE: But I have clear medium term aims you
have to have as I keep saying to Tony and Gordon...
HUMPHRYS: You can't guarantee it will come true
though?
CLARKE: No, no, I believe the State should take
less than forty per cent of gross domestic product, I think that borrowing
should be reduced and...(talking together)....
HUMPHRYS: You haven't done it in sixteen years
have you?
CLARKE: A balanced budget in the medium term,
all my policies are directed towards that. I also think the healthy economies
of the future will be low tax economies, we must not go back to the days of
high taxation, high public spending, high borrowing, that throughout all the
sort of synthetic verbiage is where I believe the Labour Party would take us,
that's where I'd never go and within that context there will come a stage when
low taxation is in the interests of the British economy, because it provides
incentives, stimulates the performance and we've got the public finances
healthy enough to stand it.
HUMPHRYS: Chancellor, thank you very much indeed.
CLARKE: Pleasure.
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