CITY AND SUBURBAN
Kenneth Clarke's policy comes up against the limit of what his people will stand
CHRISTOPHER FILDES
Robust, genial and combative, the Chancellor of the Exchequer was more than a match for his Prime Minister. As their government drifted sideways, the two of them drifted apart. A barrister by train- ing, a tax expert when briefed but a politi- cal animal by instinct, this cheroot-smoking Chancellor laid down that ministers exist to tell the Civil Service what the public will not stand. He was Sir William Harcourt, as featured and quoted by Kenneth Clarke on the Treasury's Christmas card. Now we can see what they meant. There are limits to Mr Clarke's policies, they are set by what people in and out of Parliament will stand; and we have come up against them with a bump. That is the point of his decision, at his meeting with the Governor of the Bank of England on the day after the local elec- tions, to leave interest rates alone. No doubt the minutes of this meeting, when they come out in six weeks' time, will be suitably toned down. No doubt Mr Clarke could take heart from the usual suspects who have been telling him, ever since he took office, that if he tightened policy he would stop the recovery in its tracks. They have been proved wrong, so far, for two tax-raising budgets and three increases in interest rates. Never mind: this time they suited his book. It would be astounding if they suited the Governor's book. He had said, when the two of them last met, that the pound was looking shaky and that if it got worse, rates might have to be raised without waiting for the next meeting. The pound got worse, the Chancellor and Gov-. ernor met, nothing happened, and the pound got worse still. If they were bluffing, the markets have called their bluff. Mar- kets have a way of doing that. The two will find it harder to make themselves believed next time round. That is a price that Mr Clarke seems to be prepared to pay.
Pincer movement
THE SIMPLEST account would be that the elections were too much for him and for his uneasy partner next door. When the Conservative Party had its power base in local government reduced to a few sandcas- tles, could its remaining supporters stand for more bad news on the next morning? As against that, there was much to be said for getting the bad news out of the way at once:
The stocks were sold, the press was squared, The middle class was quite prepared.
Three jolly days of sunshine and celebra- tion would follow and we would all have the chance to get over it. The people who can- not bounce back from an electoral rebuff are those who stand to lose their seats in Parliament once the electors catch up with them. They have Mr Clarke under attack from two flanks. The hardliners want him to take a mighty axe to public spending. Then, they say, he could (almost) stop bor- rowing, and start cutting taxes, and think about cutting interest rates, and, while he is at it, stop playing footy-footy with the European single currency — or move over and make room for someone who will.
Crest fallen Chancellor
They are at least consistent. The softliners are muddled. They blame Mr Clarke for lis- tening to all those horrid people from the City, like that oner with the square glasses — George someone, Eddie something? If it weren't for them we could have tax cuts and cheaper money and rising house prices, just like in the old days. All this and the Fort William sleeper, too. We must not skimp on the provision of our public ser- vices, or what would the voters think? Poor Mr Clarke — he inherited an obligation to borrow a billion pounds a week and hopes this year to bring it down to half a billion. Borrowers still can'.t be choosers. He seems, all the same, to have got to the lim- its of what his people will stand. It has hap- pened suddenly. A month or two ago, one of his predecessors could speak of this Chancellor surfing along in his insouciant style: 'He hasn't fallen in yet but that's an , occupational hazard.' 'It is indeed. Last week a tricky undertow (mortgage protec- tion insurance, of all things) left him trying to improvise policy through mouthfuls of salt water. Now he has let interest rates knock him off the crest of the wave. He might say that they do not lend themselves to fine tuning, that one-half per cent either way is not the end of the world, and that if they are to go up, June might be as good a month as May. That, though, does not square with what he has said already. His case has been that this recovery, unlike so many of its predecessors, would not be allowed to end in boom and bust — infla- tion, followed by correction, followed by recession. To be sure of that he would make his moves in good time, in his own time, taking no chances, not waiting for events to fore his hand. His decisions would be franked by an independent-mind- ed Governor who seemed to hit it off with him. Even on those terms he has had some narrow squeaks, but he has carried the mar- kets along with him in a willing suspension of disbelief. It would be much easier to believe in a weak government trying to claw its way back from the brink. It would be so easy as to be positively tempting.
Franc fort, livre faible
MY HORSE came galloping home in the Grand Prix de l'Elysee. Jacques Chirac seemed to me (as I was saying when it was still a three-horse race) the best hope for those of us who want to go to France and buy a drink without having to take out a mortgage. A bas le franc fort! His quarrel with Jean-Claude Trichet at the Banque de France showed, I thought, great promise whichever of them won, the currency was sure to lose. Unfortunately, Kenneth Clarke has got there first with le livre faible. Still, if M. Chirac happens to mean what he says about measuring every decision by ref- erence to its effect on France's unemploy- ment, the decision to keep the franc up to the mark will be tested — and if that proto- type for monetary union blows up, Mr Clarke and the rest of us, with varying emo- tions, can forget about the real thing.
A wasting inheritance
HARCOURT WAS Chancellor in Rose- bery's unhappy government. Churchill was to call it a bleak, precarious, wasting inheri- tance. A hundred years ago it drifted onto the rocks and foundered. Harcourt, in opposition, led his party, but neither he nor his Prime Minister ever held office again.
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