POLITICS
Clarke goes for giveaway pre-election Budget; that is next year
PETER OBORNE
It was the eve of Mr Major's speech to the Tory party conference at Blackpool. The very senior Cabinet Minister drained a glass of wine, and leant across the dinner table. The result of the next election, he declared, hangs on next month's Budget. It needs to be something very special. Judged by that exacting standard, the Chancellor hopelessly failed on Tuesday night. In ordi- nary times Mr Clarke's Budget would have been fine — cautious and thoughtful, if a little unoriginal. If Mr Clarke's Budget had been an exam paper, it would have scored beta double-plus.
But, as that senior Cabinet Minister noted, this was no ordinary year. With the election just 18 months away, the Tories trail by 30 points in the polls. Something remarkable was needed. In the view of some senior Tories, Mr Clarke has just thrown away the last, best and only hope of victory at the general election. Mr Clarke was once spoken of as a political Chancel- lor. There was little sign of that on Tues- day. Instead, he looked in thrall to his Treasury officials. Wilfully perhaps, he pro- vided none of the drama and the daring that the Tory party had been yearning for and Labour had been dreading. Rarely has a tax cut been heard in such ponderous silence from the Tory benches as Mr Clarke's 1p off the basic rate on Tuesday afternoon. There were long Tory faces as the Chancellor sat down after his speech. Afterwards, when he made the traditional private address to backbenchers in a Com- mons Committee room, he was poorly received. One senior Tory backbencher, Sir Ivan Lawrence, criticised him to his face for failing to deliver.
On Tuesday the Chancellor was forced to decide how he wished to go down in histo- ry. Was he Roy Jenkins, whose economical- ly prudent Budget condemned Labour to defeat in the 1970 general election — though Lord Jenkins has always attributed that defeat to other reasons — but has been held up as a model of fiscal virtue ever since? Or was he prepared to gamble all on one single throw of the dice that could turn him into a hero for winning the general election but might leave his reputa- tion in ruins? Mr Clarke could not make up his mind.
The Chancellor's problem was that he was addressing two audiences in the Com- mons on Tuesday night. There were the Chancellor's political taskmasters the Tory back-bench mob, screaming for red meat, terrified of losing their seats at the election. On the other hand, there were Mr Clarke's financial taskmasters in the City. He paid homage to both and ended up pleasing nei- ther. The backbenchers were disappointed, but sterling and gilts fell sharply both dur- ing and after the speech. Little has been gained politically, but Mr Clarke's failure to hammer public spending harder means that, if anything, an interest rate cut will be more difficult, not less, after this Budget.
Mr Clarke and his dapper henchman Mr Waldegrave immediately sought sustenance in the dubious claim attributed to Ian Macleod, the hero of One Nation Tories, that Budgets which work well on the day look sickly later on and vice versa. It was a good try but doesn't really wash. It works for really bad Budgets like Lord Lawson's giveaway disaster in 1987. And it works for really courageous Budgets like Lord Howe's 1981 triumph (and on Tuesday night Mr Clarke was ludicrously comparing himself to Lord Howe in his prime).
But the Macleod rule does not apply to ramshackle efforts like this one. The one concrete achievement of Mr Clarke's third Budget is to transform the short-term out- look of British politics. Until Tuesday the conventional wisdom in the Tory high com- mand went like this. Only the 1995 Budget could restore Tory fortunes because any- thing else would look like blatant pre-elec- tion bribery. In any case, no tax cuts in November 1996 would reach the voters' pockets before an election. So it was all down to a spectacular in 1995. Now that Mr Clarke's lion has roared only to bring forth a mouse, the conventional Tory wisdom has been blown apart. Some hasty rethinking has been going on. Next year's Budget is being looked upon in a kindlier and less dismissive light. In other words, Mr Clarke and the Tories are going to have to try again next year. 1996 might provide the opportunity to deliver the riches that Mr Clarke for the best of reasons failed to bring off this time round. For the first time, the party high command is narrowing its options by ruling out an early general election. They are explicitly saying that they are aiming to cling onto power to the last possible moment in the spring of 1997, if they can. In other words Mr Clarke's Budget is a jam tomorrow Budget. The talk is of a 20p basic rate of tax for all in 1996. Nobody, least of all the Chancellor, can say that out loud. But, as baffled Tories whistled to keep up their spirits in the wake of the Chancellor's speech, it was being spoken of by some as a done deal. The underlying theme of this year's Budget, so it was being said by well- connected figures, was a three-pronged attack on that elusive 20p.
It is being approached from above, by cutting the basic rate by 1p. It is tackled from below, by expanding the 20p tax band. And it is being addressed sideways on, with a new 20p rate for savings. Senior Tory sources were pointing out, as an academic curiosity, you understand, that it would have cost the Exchequer £9 billion to slash the basic rate to 20p on Tuesday afternoon. This time next year, it would cost just £6 billion. It is a beguiling prospect, and most probably a mirage. For Mr Clarke should not be judged too harshly for Tuesday afternoon's whimper. Probably even an economic genius, which the Chancellor emphatically is not, would have found cir- cumstances beyond him. This year's prob- lems are not really down to Mr Clarke. They are down to the economy. The recov- ery is faltering, and that has dramatically constrained Mr Clarke's freedom of manoeuvre. Had last year's 4 per cent growth rate been sustained, the Chancellor could have done it all: slashed taxes, cut borrowing and been hailed as a conquering hero. Perhaps the most worrying thing of all about Mr Clarke's Budget speech was his breezy confidence that the economy will come right next year. Not many in the City, or even at Westminster agree with him. If it doesn't, he's had it. The case for an interest rate cut is compelling.
Peter Oborne is political correspondent of the London Evening Standard.
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