THE ECONOMY
Mr Lawson has got us where he wants us
JOCK BRUCE-GARDYNE
By the time this edition of The Specta- tor is upon the newsstands Mr Lawson will have run the gauntlet of the grass roots in Blackpool. He has had to listen to some stern advice from Mr Michael Heseltine whose own outstanding contribution to our balance of payments was the bottomless pit of Concorde — to the effect that without this sort of state entrepreneurship we would be heading for the plug-hole. He may well have had also to listen to some caustic and rather more numerate barbs from Sir Ian Gilmour. If he is very lucky the sage of Old Bexley will have gone way over the top and sent most of the unhappy Tory backbench bunnies scuttling back into their burrows. A standing ovation may be too much to hope for this year. But after another stern lecture about the Govern- ment's determination to exorcise the spec- tre of inflation and damn the consequ- ences, he will hope to have sent the Party faithful home in a mood if not of good cheer then at least of reassurance that he knows where he is going and that it is still not too late for him to deliver the goodies in time for the next election. As to those wretched mortgage rates — well every- body's in the same boat, aren't they? When the German central bank says 'Jump' the rest of Europe has to do so.
Back at the beginning of the decade I recall keen argument between Financial Secretary Lawson and Chief Secretary Leon Brittan about the value of the Euro- pean card. Even in those days Nigel was a bit of a currency groupie. His theme then was that it would be easier for us to keep the Cabinet upon the path of virtue if we had the heavy mob from the Bundesbank flanking us on either side.
In those days Sir Leon Brittan was firmly on the other side. He insisted — with some passion, as I recall — that interference from Bonn would be positively counterpro- ductive: that colleagues would say 'Bloody hell, who won the war then?'
I imagine Mr Lawson must be saying `How right I was' this week. Could he have stood a chance of pushing the rise in rates to 15 per cent past his patronne in the week before the Tory Party conference if he had not been in a position to argue force majeure? Surely not.
Sir Alan Walters, Mrs Thatcher's private economics coach, is reported to have been saying 'stuff and nonsense'. If so he has had the grace on this occasion to keep his opinions to himself.
In fact — or so it seems to me — Sir Alan should logically have approved of Mr Lawson's actions, both last week and this, however sceptical he may be about the reasons given for them. For the Treasury was surely right when it pointed out that the continuing strength of the demand for borrowed money, regardless of its cost, provided quite sufficient justification for another point on base rates, without the need for any jostling from Bonn.
Somewhat surprisingly the Bank of Eng- land plainly distanced itself from this line of argument, implying that the real motive of the rise in base rates was to try to give the pound a shove in the backside and thus try to convince the likes of Ford that a double-figure rise for its labour force this autumn would be the death of them. It is a little difficult to see how the Bank, of all people, can genuinely believe that 15 per cent is overkill in the light of the latest bank lending figures. But then perhaps the Bank was only trying to be helpful. Whether the Chancellor will have thanked it for its pains now that the pound has turned turtle, I wonder.
But the main thing this week is that the Tory Party conference holds no terrors for the Chancellor. He has always treated the conference with no more respect than it deserves; and it is a safe bet that any rumbles of discontent which he may have had to face will have been as nothing to Douglas Hurd's troubles with the hangers and the floggers. 'Bring back the rope' makes a far better rallying cry than `Loosen monetary policy'.
That, however, is the easy part. The harder part is convincing the market practi- tioners. From their standpoint he has let the pound go sliding after months of insisting that the strength of sterling was the lynchpin of his counter-inflation strategy, designed (as the Bank reminded us) to put the fear of God into CBI members who might be preparing to con- cede double-digit wage increases to their payrolls, and after allowing the Bank to waste billions from its precious reserves in a last-ditch defence of an exchange rate of three deutschmarks to the pound. And what reason can he have for believing that 15 per cent will curb our wasteful ways when 14 per cent will not? Clearly what has happened is that the mad professor (Wal- ters) has convinced Mrs T that enough is enough, and the pound must be left to find its.level where it may. So it is off to hell in a handcart.
Well, maybe. Or maybe my old friend the Chancellor has got us precisely where he wanted us, and done it very well. We needed that extra one per cent. Having got it, and thus secured the hike in mortgage rates which had hitherto not been forth- coming because of the intensity of competi- tion in the housing market, we can risk some slippage of the exchange rate which in turn was needed to persuade our inter- national creditors that the extra turn which they can make upon their funds in London is worth the risk of devaluation. As their borrowings and their costs increase, em- ployers are going to be increasingly tough with their payrolls anyway.
This does not mean that we can blithely ignore the exchange rate, whatever Sir Alan Waters may think. There is bound to be a moment in the days or weeks ahead when the Bank of England can catch the markets off balance with a nifty piece of intervention, and thus jerk the pound some of the way back up again, and it must not miss the opportunity. But that is a very different matter to trying to 'buck the market' (to coin a phrase) with indiscrimin- ate intervention and interest rates above those required for domestic purposes.
Christopher Fildes is away and will resume his column next week.
Previous page
