THE ECONOMY
Why No. 10 should not become a seminary
JOCK BRUCE-GARDYNE
0 ne of my memories from my stint in HM Treasury is of an occasion when I was asked to an impromptu luncheon at No. 10. After lunch two of the most senior Treasury mandarins and I were bidden to stay behind. Our hostess gave us an earful about what the forthcoming Budget should contain. One of the mandarins, braver than the rest, strongly demurred at one of her suggestions. He was promptly threatened with transfer to a vacancy then approaching (at the Ministry of Defence, if my memory serves me right). And then the Prime Minister asked a rhetorical question. `D'you know', she asked us, 'what is written on the door downstairs?' Without waiting for the answer, she supplied it: 'it says "First Lord of the Treasury"."Well, Prime Minister,' I ventured `perphaps you should deliver the Budget.'
As soon as we departed the other man- darin turned upon me. 'You really mustn't say things like that to her. She might do it.'All was well. She didn't. But the inci- dent came back to me last week. We hav t all — apart, one presumes, from M Lawson, that is — enjoyed the table talk of Sir Alan Walters. The paparazzi have had a ball: when the Chancellor arrived to deliver his grand lecture to the Institute of Economic Affairs last Thursday evening he might have been involved in some exotic sexual scandal, judging by the number of television cameras and boom mikes await- ing him at the Queen Elizabeth Confer- ence Centre in Westminster. Yet in truth it was rather thin gruel, was it not? We are, I think, entitled to ask whose idea it was to spread the word around that Sir Alan was — maybe — homing back to Downing Street sometime late in 1989, by which time the world could well have been turned upside down by the arrival of Governor Dukakis at the White House, not to mention the departure of our Chancellor for lusher pastures in EC1 or EC4. Mr Bernard Ingham? Surely not. In any case the asides of a jolly fellow who may conceivably be dropping in to No. 10 from time to time next autumn hardly constitute the materiel for a full-blown crisis about the management of the economy. What caught my eye was a small paragraph in the Financial Times. 'Mrs Margaret Thatcher, the Prime Minister', it read — where do they think we've been all these years? 'has signalled her intention to hold regular high-level seminars with the Treasury and the Bank of England to ensure full agree- ment within the Government on economic and exchange-rate policy.'
Has she, indeed? Now that is heavy metal. Forgive another memoire: of an occasion when I was summoned, as a junior Treasury Minister, to sit in on precisely such a seminar at No. 10: Chan- cellor, Governor, supporting cast and all. On that occasion the Governor was blown clean out of the water. The Chancellor endeavoured, like Lytton Strachey, to interpose his person as a buffer, and was soundly buffered for his pains. We now have a different Governor and — more to the point — a different Chancellor. 'Regu- lar high-level seminars', could spell serious trouble I would have thought. But then intentions can become unsignalled.
Let us hope so. First because Mr Lawson isn't in the buffer business. On the con- trary, he is probably the only minister since 1979 with whom the Prime Minister could not afford a show-down. But secondly, and more to the point, it would be a fight without an argument. The EMS enthu- siasts picked upon the Chancellor's robust defence of exchange rate management in his lecture to the Institute of Economic Affairs as evidence of allegiance to their cause.
But the passage about exchange rate management was an apologia pro vita sua, not a guide to his current and future behaviour. Indeed the more contradictory passage was surely the veiled warning that `in the unlikely event' of the trade deficit failing to correct itself 'over a sustained period . . . it would be warranted for the Government to intervene by deliberately generating additional public sector sav- ings'. Why additional tightening of a fiscal surplus would be the 'warranted' response to over-borrowing, at home and abroad, he no doubt wisely did not tell us.
That is some way in the future anyway. Professor Walters may be home, and Chancellor Lawson away, by then. The markets surely read the immediate mes- sage from the Queen Elizabeth Conference Centre correctly. Domestic conditions re- quire dear money. If the Japanese and Germans and others with surplus savings lying heavy on their hands consequently pick on sterling as a short-term punt, that is their affair. Dearer pounds will help to put the frighteners on the CBI. Before the Confederation's President, Sir Trevor Holdsworth, again goes ape about the impact of our interest rates upon 'our nexus into the outside world' — ie the trading price of sterling — he might perhaps have a word with his West Mid- lands director, who describes 'the early indications' of what this autumn's pay round has in store as 'very worrying'. Budget-time expectations that the eco- nomy would cool off of its own accord have turned out to be as imaginative as they sounded at the time.. Dearer money should in due course attract us back to saving, while at the same time — this was the Chancellor's theme — abating the invest- ment boom.
If, in the interval, enthusiasm for sterling further stimulates our appetite for imports, tant pis. That is part of the cure. Perhaps the most significant item in the Queen Elizabeth Conference Centre speech was, as so often is the case, what it did not contain. There was no reference to the level of the pound being 'unsustainable'. Not because it is sustainable — if the June trade deficit is anything to go by, some managed correction is likely to prove un- avoidable — but because exchange rate management has, quite rightly and proper- ly, ceded pride of place to domestic infla- tion control.
So there really is no longer anything of substance between the Chancellor, the Prime Minister and Sir Alan Walters. Except, I suppose, intervention. Last week the Prime Minister was too busy covering the Chancellor with brilliantine to notice what the Bank was getting up to in the foreign exchange markets. But when the Tory backbenchers, who have suddenly formed a 'hands off Nigel' fan club (led by some of those who perceived his appoint- ment to the Treasury in 1983 as proof positive that Mrs T had lost her marbles) disperse to the beaches this weekend, transatlantic telegrams from Sir Alan Wal- ters to 10 Downing Street could cause trouble.
Well, I recall the last time Sir Alan parachuted into Downing Street, in 1981. He rapidly convinced his patronne that monetary policy was irresponsibly severe. The Treasury, which, at official level, had long been of that view anyway, heaved a sigh of relief and let credit rip. The credit boom which now so much disturbs Sir Alan duly followed. He really should not rush to judgment.
Previous page
