................................................................................ ON THE RECORD RECORDED FROM TRANSMISSION BBC-1 DATE: 23.2.97
................................................................................ JOHN HUMPHRYS: Good afternoon. The government's message on the economy has yet again been overshadowed by arguments over a Single European Currency. I'll be asking the Chancellor Kenneth Clarke whether the Conservatives can convince the electorate they have a coherent policy on either. And the Labour Party has been cozying up to the bosses - has the old mistrust really gone away? I'll be talking to the Shadow Industry Secretary Margaret Beckett after the News read by CHRIS LOWE. NEWS HUMPHRYS: Tony Blair has spent an awful lot of time since he's been Labour leader meeting and greeting Britain's bosses. He says Labour's policy towards business really has changed. I'll be asking Margaret Beckett how much. But first the economy and the Single European Currency. Mr Major and Mr Clarke have been trying to persuade the country that only the Tories can be trusted with the economy, but this week the message was again obscured by a change in position over the Single Currency. The Government's policy on whether Britain should eventually join in or stay out is negotiate and decide, or if you prefer, wait and see. In other words it was open-minded or neutral on the principle, but on Wednesday morning the Foreign Secretary Malcolm Rifkind told me that was not the case, that on balance the Government is hostile to a Single Currency. According to the Chancellor that was a slip of the tongue, but was it? When I spoke to the Chancellor earlier this morning I asked him if the Cabinet's attitude to a Single Currency is hostile? KENNETH CLARKE: The Government's policy is the Government's attitude. You can't have a government that runs on any other basis, and the aim of good government is to have a clear position to stick to it consistently and apply it in the national interest, and what we're doing is, we're approaching it in a cautious and sensible way, we're waiting to see whether it happens at all, and we're saying when it goes ahead, when we know more details, then we will make up our mind on a judgement of British jobs, British prosperity, British interests. Now, we repeat that policy over and over again. We confirm it over and over again, and the excitement's usually caused by people who think it should be something else, but I think that policy is eminently sensible, supported by the great mass of British business and overwhemingly in the national interests. HUMPHRYS: But the excitement was caused in this case because somebody, to wit the Foreign Secretary, told us it was something else. He said as you well know, that on balance - on balance the Government was hostile towards a Single European Currency. Now, I didn't know that was your view until he told me. CLARKE: Well, that was a phrase in the middle of a lot of other answers he gave to your question. HUMPHRYS: He said it twice. CLARKE: It was typical of the sort of rather bizarre, obsessive excitement that gets turned on this subject. Malcolm went off to Germany, I went off the open a building - by the time the two of us got together as appears to be well known, over a glass of Glenfyddic (phon) in the evening, we had no difficulty in sorting out a policy which the Prime Minister then re-confirmed, and we must stop having this excitement, the country has to be clear about its attitudes to Europe. It's overwhelmingly an interest to be involved in the European Union; a very large number of jobs, a great deal of our prosperity, a lot of inward investment is based on our being a leading player inside our giant market. It's - the idea we might detach ourselves from the European Union is completely off the wall - it would do great damage to this country politically as well as economically. The Single Currency is a big issue at the moment which we're approaching cautiously and responsibly with a clear policy which actually although it got less attention, the Prime Minister, the Foreign Secretary and the Chancellor of the Exchequer all repeated last week. HUMPHRYS: Well, let's have a look at whether they did or not, and let's first have a slightly closer look at what Mr Rifkind said, not I'd have thought in the heat of the moment. I merely suggested to him as a sort of conversational gambit really, .... CLARKE: Well, it depends whether you regard the Today programme as the "heat of the moment". It is sometimes. HUMPHRYS: Oh, on the contrary - on the contrary, intellectual copy to the nation. But what I suggested to him was that the Government's attitude was neutral towards the Single European Currency - wait and see - in the meantime while you wait and see it was neutral. He said, "No, no, it is not", he said, "we are on balance hostile", and he went on to say, "You have to think very carefully about these matters", which is what you yourself have said (sic). Then he went on to say, "Before you rule it out completely". Now, if that isn't a shift in approach, in attitude, heaven knows what is. CLARKE: It's one of the curses of modern politics not confined to radio and television, very much in the newspapers, that people go in for copious textual analysis of interviews. When I appear on the Today Programme the one thing that annoys me sometimes afterwards is when I find in the newspapers that half a sentence is taken out and loaded with a significance that it didn't occur to me I had at the time. HUMPHRYS: Except I wasn't doing that then. CLARKE: Well, Malcolm was not making new policy. I'm afaid I heard him say afterwards that if he wished to make new policy he wouldn't, with the greatest respect to you, have chosen the Today programme to make it. HUMPHRYS: No, what he said was that he was stating the Government's position. That, as far as he was concerned was the Government's attitude, which as far as he was concerned was that on balance that the Cabinet was hostile. CLARKE But he said a lot of other things entirely consistent with the policy as well. What he didn't like was the word neutral. I'm not neutral about British interests, and there (INTERRUPTION)... ... we're both hostile to the idea of it going ahead on a non-convergent basis. That's not .... HUMPHRYS: That's not being argued. CLARKE: But John, in the real world, and if our ordinary conversation - if you and I were sitting on a bus together and having a conversation we'd be furious if afterwards somebody said to one or other of us, "Do you remember three minutes into that conversation you phrased it this way. That must mean you mean something different to what you were actually saying". What all three of us said last week, which is what the Government's been saying for some time, is what the policy is. We're not neutral about British interests, we think it's necessary to be involved. We call the policy "negotiate and decide". I don't like it being described as "wait and see",
which is a disparaging attitude. I'm not neutral, I'm passionately interestd in making sure that we have the most successful major economy in Western Europe, and that involves putting a big British input into these discussions, being hostile to it proceeding on a non-convergent basis which will destabilise the whole market, and reserving the right to decide whether or not it's in British interests to join if they go ahead and if they get it sorted out on a proper basis. HUMPHRYS: I agree... that sort of conversation. CLARKE: Now you'll ask me another question and you'll try and get me to phrase it a different way, and then you'll say I've changed the policy. HUMPHRYS: Heaven forefend (sic) that I should try and trick you in any way, and I wasn't with Mr Rifkind on Wednesday morning. I merely stated what I thought was the Government's position - he then corrected me, not once but twice, and you say: Well of course you can go onto a programme and you can say something and it can be misconstrued - on the other hand if you're the Foreign Secretary, a very clever Foreign Secretary at that who thinks very carefully about the words he uses - he is a lawyer after all, he's a very very clever, thoughtful man, and you say quite calculatedly as he did, "This Government is hostile on balance", not towards Britain - we're not talking about Britain's interests, we're talking about a particular bit of policy very, very, very importantly, that is the Single European Currency, he is clearly delivering a message isn't he? So to dismiss it as one of things you just pick up out of the air, out of an unguarded moment, I don't think so, and a lot of other people didn't think so. CLARKE: Well, the logical reply to what you say is, hostility to the Single Currency is not the government's policy, as we all confirmed afterwards. Here you are several days later busily sort of.... HUMPHRYS: But you didn't confirm it afterwards, that's my point. CLARKE: Yes we did. The Prime Minister the next day made it clear it was open - the Foreign Secretary and I put out a statement saying we agreed, there was no change of policy, and the statement of policy is I think, subject to what clever textual analysis somebody in some newspaper produces yesterday - tomorrow, is what I what I was saying to you a few minutes ago. HUMPHRYS: Well, let's have a look at that then, whether that is actually what happened. What actually happened was
he made those comments on the Today programme. You then popped up in front of the cameras and said it was a slip of the tonque. He then popped up again on the World at One, and said, "No, it wasn't - I was actually stating what I understood to be the Government's policy". You both then - you and he - you had your noggin, and you issued that statement to the Reuter's Press Agency. Now, you didn't say: We are not hostile to a Single European Currency or anything of the sort. What you said is, "We don't like the idea of a fudged currency". Well, of course you don't. It's like saying: We don't have babies boiled for breakfast or something, or ......of course you didn't say that. CLARKE: This is all terrible media hype - it's - you know how these stories run. You I think, interviewed the Foreign Secretary when he was getting into an aeroplane. He was at Heathrow I think at the time, and he came out with this remark - that was suddenly shock horror news. HUMPHRYS: He didn't make any statement, precisely. CLARKE: I wind up, I wind up opening a building which otherwise would have attracted little interest in the morning, but find the nation's media jamming into the building to get my comments upon it. Malcolm later is getting off the aeroplane and is interviewed again at the World at One, and a whole edifice is constructed that's sort of meant to be a change of policy. By the time we get together in the evening, we issue a statement, the next day at Prime Minister's Questions the Prime Minister repeats the policy, and in the world of media hype nobody takes quite so much from this. There are more serious things you could report and the key thing... HUMPHRYS: Oh, nothing's much more serious than the Single European currency. CLARKE: Precisely. so why don't we concentrate on the virtues of the attitude we're actually taking towards the Single Currency. HUMPHRYS: Because .... CLARKE: There's people's jobs, people's investment in this country and prosperity depends on getting it right. HUMPHRYS: Because it's precisely that - it is the attitude that you're taking, and that's what I'm trying to nail down. But let me just.... CLARKE: Well, let's discuss our policy then. ... about the policy, as opposed to having this silly game of pretending that the policy is on the move again. We've been repeating this policy for about the last six or twelve months. HUMPHRYS: Except that it appeared to change on Wednesday, and since then, (INTERRUPTION).. Well, in that case why didn't your statement on Wednesday night after your couple of noggins, or the early hours of Thursday morning, say, :We are not hostile towards a Single Currency? It didn't say that, it said : We are not hostile towards a Single Currency that's been fudged. Well now, we knew that, but you didn't correct - neither did the Prime Minister in Parliamentary - in PMQs on Thursday afternoon, neither did the Prime Minister clear that point up - and that is crucially important. CLARKE:P The policy is that we're hostile to a Single Currency proceeding on a so-called fudged ... HUMPHRYS: Of course, we always have that, that's right, and everybody was... CLARKE: And that's what Malcolm and I repeated, and now you say shock horror. HUMPHRYS: No, no, because that is not shock horror. CLARKE: Malcolm Rifkind and yourself repeated the Government's policy, and ... HUMPHRYS: But that is not what the Foreign Secretary said on Wednesday morning. CLARKE: With the greatest respect we are spending this interview talking about your attempts to claim that our policy is not the policy we have always stated, in the teeth of the fact that what Malcolm and I have put out together and what the Prime Minister said was the policy has not changed. Now I prefer to advocate the virtues of that policy. HUMPHRYS: Right. CLARKE: I think our relationship with Europe is an extremely important issue, I think we have to get it right, I think we're doing terribly well inside the single market at the moment and we have to try to preserve the conditions where we carry on doing well for the next five or ten years. HUMPHYRS: Okay. CLARKE: And what people want is common sense about this. HUMPHRYS: Absolutely. CLARKE: And not all this extraordinary passion about non-events which are interpretations of what people are saying on their way to an aeroplane. HUMPHRYS: Well look I'll you want then. If you can reassure us this morning, that the Foreign Secretary's attitude is not hostile towards a Single Currency, not towards a fudge currency, of course we know you're all hostile towards a fudge currency, obviously you are, it goes without saying. But if you can tell me that he agrees with you, that you are not hostile towards a Single Currency, well I suppose that sorts it out. The trouble is he said his statement on Wednesday stands. And people like the Party Chairman say that it represents Government policy. So that's all you've got to do, is say look: over that noggin, Malcolm and I sorted things out. He didn't in principle, we are not hostile towards a Single European Currency. That's it. CLARKE: I firmly believe he's not hostile to a Single Currency. HUMPHRYS: Did he say that? CLARKE: Because he's signed up to this particular policy which...he's rather closer to me on Europe than most members of the Euro-Sceptic tendency... HUMPHRYS: I thought you were going to say most Members of the Cabinet for a momenet there. CLARKE: No, no. He's not a Euro-Sceptic... HUMPHRYS: That's why it was so surprising to hear him say this on Wednesday. CLARKE: I think that's why he was so surprised it was suggested he'd changed a policy to which he'd agreed and which he'd announced with me in the...only two or three weeks before, he says he wasn't changing it. The policy is not based on hostility to a Single Currency. It is based on a belief that we should defend British interests by keeping a very close involvement with what's going on. Making sure that we don't go ahead, nobody goes ahead on a basis where there are such differences between the economies, it will create strains, tensions, instability if it happened, but reserve the right to say "yes" or "no" depending on a judgement to British interests if a group of countries go ahead. Now, I repeat the policy again. That is the policy that the Foreign Secretary, Prime Minister, the entire Cabinet have subscribed to and I think people listening to that policy realise it strikes a cord. It has commonsense. It is put...a patriotic rather than a nationalist interpretation on British interests in all that. And when you look at how well we're doing inside the European Economy as a whole at the moment, you've got to keep hold of that and pursue our interests sensibly. HUMPHRYS: Right, so neither you nor the Foreign Secretary, nor anybody else in the Cabinet is hostile in principle, on balance to a Single European Currency. That is the position. CLARKE: So far as I am aware because the Government's policy is not based on hostility..they've obviously kept it to themselves the Government's policy.. HUMPHRYS: Who have? CLARKE: Anybody who shares those views. The Government's policy.. HUMPHRYS: Except for the Foreign Secretary. CLARKE: The entire Cabinet. The Foreign Secretary does not put the weight on his remark that you put upon it. He left you, he got onto the aeroplane blissfully unaware that he'd made any news at all. HUMPHRYS: And then repeated it two hours later. CLARKE: He was by then wandering round being told, no doubt by journalists, what was going on back home. We gave a considered statement in the evening, Malcolm and I had together announced the Government's policy and neither of us believes for one instant that the Government's policy was on the move that day. I won't repeat the policy yet again. I wish for the time when we have the fastest growing major economy in western Europe. Our unemployment's coming down and their's is not. When we're attracting the lion's share of all the investment from overseas that's coming here because this is the best base for the European market. We could just have a sensible, a less obsessive political debate in this country about the Single Currency. It's a big subject, it's a big economy subject upon which we have an important judgement to make but we need to make that judgment, we know a lot more about whether it's going to happen at all, how it's going to happen and when we could make a serious, informed decision about British interests. And all this, I expect a lot of palaver before an election but all this carfuffle
before the election, it's in danger of getting in the way of a really clear judgement, on a very serious matter that effects certainly the medium term, long term future of all the younger, middle aged people in this country. HUMPHRYS: So your own attitude then towards the Single Currency as we speak, on balance, it's not hostile clearly, you've said so - is what - not neutral. CLARKE: My own view's not neutral. My own view is it's an interesting idea, it's plainly one that's planned to happen. It's therefore one of which we need to form an informed judgement. It could have considerable advantages. There are...the reason we've kept the option open, all the way from Maastricht is it could have considerable advantages for the UK Limited and for jobs and prosperity in this country. But on the other hand at the moment it's surrounded by doubts. I was actually the first person in this country to start saying openly that I thought it was very unlikely it would go ahead the 1st January 1999. And it's surrounded by doubts at the moment and I think we should make a cautious and prudent view. The irony is that it may go away. But the irony about the other problem is that it might happen quite quickly, in which case we do need a little less sort of heat and a little more light in the debate on the merits and demerits of it in this country. HUMPHRYS: Just to finish with this whole thing about the hostility and all the rest of it. It's been reported this morning that Smith's Square, Tory Party Central Office, was very concerned about what might happen as a result of the Foreign Secretary's comments and that they were afraid that you would contemplate, or had indeed contemplated resignation. Anything in that? CLARKE: Well again, this is a classic sort of interview problem for a politician where you fire at me something about which I known nothing at all. HUMPHRYS: It was in the paper this morning. CLARKE: Well that doesn't make me believe it necessarily either. The idea that Conservative Central Office starts putting out lines which contradict what the senior ministers in the Government are saying is total nonsense and the only thing that arose last week was attempts by senior ministers who unfortunately were all on the move in different parts of the Continent to pour water over a false fire that had flared up. We settled this policy a long time ago, we keep reconfirming it. HUMPHRYS: So no contemplation of resignation. CLARKE: I have been the foremost advocate of the policy to which the Government has stuck unswervingly. I happen to be also very much party to the policy on the Inter Governmental Conference, I've very much based my view of Europe on the partnership of nation states. I don't believe we want an extension of the veto, I think we should have subsidiarity so that nation states do those things that they should and you only do things at continental level, which are better done at continental level and so on. All that gets subsumed in all this weekly nonsense about the Euro.. HUMPHRYS: Right, so the answer to the question is no. CLARKE: The answer is no. HUMPHRYS: Right, okay. Is it not inconceivable, bearing in mind everything you've said this morning, that a new Conservative Government, another Conservative Government could take us in to a Single European Currency. CLARKE: The option is based on the whole principle that a Conservative Government could or could not take us in. The reason why we actually say at this stage we are negotiating, at this stage we're not deciding is as I've already said, we don't even know it's going to go ahead at all. We don't know when and we don't know who the other countries would be and we don't know whether they would even have the necessary conditions inside each country for anybody to make a success of it and I have serious doubts about whether on the present timetable it would be wise for anybody to go ahead and I do think caution, commonsense, would be a sensible attitude to be taken by politicians across the Continent. We firstly have got to make sure the public are not left behind by the political class if they do anything but the political class have got to decide whether it's sensible to go ahead in this timetable anyway, when there were such problems in western European economies. HUMPHRYS: So, in a sense, the whole thing, could be academic, the whole discussion, could be academic couldn't it, because what..when we look at what is happening in Germany it rather implies that the whole thing is going to be terribly delayed doesn't it. CLARKE: Certainly but yes at four and a half million unemployed it's a disaster, it's an extremely serious problem for German politicians and if it drives up their fiscal deficit, as our fiscal deficit was driven up in the last recession then they can't be convergent and you don't require ex-members of the Bundesbank as one of them said, to say that Germany should not join on that basis. The outlook for the French economy looks quite good this year but is by no means certain. All across western Europe people do have to reflect on the view again, I've always put forward but so have other finance minister, that convergence, which means - a silly word meaning all the economies sitting together with the right healthy economic conditions, is far more important than the rather artificial timetable that got bunged in at the last moment in the Maastricht Treaty when it was being drafted. HUMPHRYS: So delay's inevitable. CLARKE: Not inevitable but it's likely in my view. HUMPHRYS: Could it go ahead without Germany? CLARKE: No, I see absolutely no prospect of anybody going ahead without the particiption of Germany and likewise I see no prospect of anybody going ahead without the participation of France. It simply doesn't make any sense and wouldn't be contemplated by any other members if that were to happen. If Germany and France were to participate then the British and the other participant, the other one of the big three...in the modern European economy, are better placed than the other countries. The others are slightly bound by treaty to go in with the Germans and the French, we're not, we have a choice and also because we're one of the big three we have an opportunity to have a lot of influence on the whole discussion and a lot of influence on how it should happen anyway. We can't just ignore it because if they were to go ahead it would effect the European Single Market which is key to our prosperity and we have to be immersed in the way in which that market works because a lot of people looking at this programme have jobs that depend on it. HUMPHRYS: Is it better? Is it more, therefore - if you add all those bits together - in Britain's interest that there should be a delay - you mentioned a member of the German Bundesbank earlier. I take it you're referring to the guy who said this morning that there is, actually, fudging going on in Germany, at the moment. There is no way they could qualify on the basis of the convergence criteria - the way things are going in Germany at the moment. Would it, therefore be in Britain's interest if Germany were to be forced to say - as you indicate they may be - we can't make it, therefore, the whole thing is going to be delayed. CLARKE: I don't think - I mean, I'm now quoting a member of the Bundesbank as indirect as through a newspaper. I know you said he's being fudged in Germany. HUMPHRYS: He said that was the great suspicion, that that is what is happening and that's the only way they could actually get in. CLARKE: I see. Well, at the moment, let's wait and see. The Government's claiming - the Government of Germany's claiming - they're going to have a deficit of two point nine per cent. I mean, I, you asked me for my personal opinion, without being hostile to the Government of Germany, I think that's a bit unlikely, if they're running four and a half million unemployed. But, we must wait and see. As a Chancellor of the Exchequer here, I've had my forecasts, have had doubts cast on them for most of the last four years and I cheerily claim that more of my forecasts have come right than the forecasts of my critics. But, you don't know what else the Germans are going to do. It would only be as this year goes on that we will see not what the forecasts are but what's actually happening in the Western European economies and what the governments are doing in response the the pressures they face. And, only then will it become clear really, whether or not it's going to proceed on a proper basis. The arguments about fudging here are slightly all over the place. No doubt, people do try and fudge their public finances. It's not unknown amongst Western democratic governments. But, you can see it when they do it. Now, the fact that some statisticians in Brussels tell you that they'll accept it is absolutely beside the point. These things aren't decided by Eurostat. People like me, and the other Finance Ministers, will have a look at these figures and fudging, you know - taxes that aren't taxes and pensions transfers that are reduced to borrowing - they won't count. It's the underlying reality - what we call the 'structural deficit' that's got to be right. It's got to stay that way. And, these all call for hardheaded judgments. Not the daily hysteria that surrounds the thing in this country, at the moment, in our political debate. HUMPHRYS: But you then, would blow the whistle - you, yourself, would blow the whistle? CLARKE: Yeah, sure, I've always said I can well foresee one of the ironies of this debate - I mean say, as is likely it heats up - it doesn't get quieter, in the next two years - is that you could well fine that I'll be one of the people saying that you shouldn't join that, in fact you shouldn't go ahead like that. On this particular issue, my views are not too far removed from members of the Board of the Bundesbank. I..strange here that I found myself in that company in every way. But, I agree we've got to be....take an extremely serious strict view of the convergence of the economy. HUMPHRYS: So, any fudging....if Germany did try to get in by fudging that would be a disaster, from your point of view? CLARKE: Yeah, I don't think Germany will....I mean I'm very surprised at allegations being hurled against the Federal Republic for fudging. They are pretty open in their public accounting. Indeed, it's the way in which they have accounted for the costs of East Germany, which is one of the things that's causing them trouble. They've made no attempt to disguise or cloak their figures. One or two of the other countries plainly do go in for presentation of the accounts in a way which I couldn't care less whether it satisfies Eurostat in Brussels - it don't satisfy me. HUMPHRYS: Right. CLARKE: And they may be relevant to the underlying deficit. HUMPHRYS: So, you would, therefore, welcome, if that were happening - if that would seem to be happening - you would welcome a legal challenge? CLARKE: Well, I'm not au fait with German Law sufficiently to say whether a legal challenge is the right way about it. I'm very surprised you think ... a legal challenge on that because the process is a European one, set down in the Treaty. All I can say that my role, I hope, will be as someone who says my opinion as a politician, my opinion as Chancellor is these countries are not generally convergent. If you go ahead on this basis, you will have serious troubles in several of these countries and you will cause instability, lack credibility - all the things that are harmful for investment, harmful for business, harmful for the expansion of trade and, therefore against it. But, the good thing about the whole pressure of the Single Currency is these countries are all tackling their fiscal problems. Now, they are all talking about making their labour markets more flexible, they are moving nearer to the British model, which produces jobs and reduces unemployment. But, my only scepticism was I am extremely doubtful about whether they're all going to manage that by the 1st January 1999. HUMPHRYS: You've been talking about the pound a great deal this morning. Sterling has gone rocketing up. Are you worried about that, because of the damage it's doing, threatening to do now, anyway, to British industry? CLARKE: I have to take a lot of notice of it because it's one of the things I have to bear in mind when selling monetary policy, trying to judge what's happening in the British economy. If the pound depreciates by over twenty per cent against the Deutschmark in just twelve months, I can't ignore that. It has a very anti-inflationary effect and I'd much prefer a stable currency. I mean these rapid fluctuations in foreign exchange markets are the case for the Single Currency but what has to be decided is whether a Single Currency can be devised which doesn't have more problems than the Exchange Rate fluctuations. But, people's...Germany is our biggest market in the world - it's the country to which we export more of our goods than any other and it's a bit of a blow to an exporting company in this country when the value of your price plunges by twenty per cent because of foreign exchange markets. HUMPHRYS: So, you prefer the pound at a lower level, then? CLARKE: I'm-It's not within my gift. HUMPHRYS: No it's your own personal gift. CLARKE: As I said when we came out of ERM, you either have a managed exchange rate or you have a floating exchange rate. You either have a Single Currency or you have separate sovereign currencies all being traded on frenetic markets and I..the only influence I can bring to bear, in my opinion- HUMPHRYS: Is interest rates. CLARKE: In my opinion, the only influence I could bring to bear as Chancellor is sensible, economic management. Now, I'm not-I do not think it's wise to reduce interest rates, to try and bring down, devalue your own currency. I think, particularly, when you have a strong recovery, that would cause high inflation. Indeed, that, I think, is one of the most serious mistakes made in the late 1980s when, at the moment, the Pound is, as you know, worth about 2.74 against the Deutschmark. In the late Eighties, it was going up to three Deutschmarks and the, then-our Government, then, reduced interest rates to try to weaken the Pound against the Deutschmark. It was one of the things that caused hyper-inflation. We're not going to make that mistake again. So, I just stick at producing the soundest economic situation this country's seen for a generation. And, I think, the best in Western Europe. That, in itself, is bound to make our currency rather stronger, actually because a strong economy gets a strong currency. But, I.. it should keep it stable as well so far as anybody can keep today's Foreign Exchange market stable. As you know, a lot of... Foreign Exchange market is a lot of guys in bright braces suddenly surging one way or the other. And, they look at fundamentals but they're over-correct and they swing about, all the time. HUMPHRYS: But, the danger-It is a vicious circle here, though, isn't it? Because, as you say, it's not good for British industry. A strengthened-a too strong pound is not good for British industry. CLARKE: Not good for export. HUMPHRYS: Indeed. That is going to effect growth. That's going to effect the whole plank - the biggest plank, in a sense, in your Election platform, which is to say that we've done very well with the economy and because of that we're going to be able to carry on the way we've been doing - reducing taxes, and so on. Isn't the reality that you're actually having to hide from us the fact that if you were to get back in power you would have to put taxes back up again, precisely because you cannot carry on like this? CLARKE: No, that's totally untrue. Firstly, so far as addressing the Electorate's concern against the background of things like the strong Pound, our case to the Electorate is that we're providing, I'm providing strong, decisive management for the British economy. HUMPHRYS: Yeah, but what I'm suggesting to you- CLARKE: And, as the Pound- the strength of the Pound, as you quite rightly say, tends to slow up the growth of manufacturing economy, it has a deflationary effect because the cost of things we import, including raw materials goes down. That has to be one of the things that I, helps me try to get these difficult judgments right - about how to get as much growth as we can whilst hitting low inflation. Now, taxes must go up - nonsense, absolute nonsense. HUMPHRYS: But, you are spending more than you're going to have to spend more rather than you say you're going to have to spend and that's the biggest problem. Well- CLARKE: I have absolutely no intention of allowing my colleagues to spend more - not saying they're going to spend. The Borrowing Requirement I've set is consistent with getting down to a balanced Budget and the latest figures show... HUMPHRYS: Half per cent per annum over the next three years. That is completly unrealistic. CLARKE: It's not really unrealistic. It requires very strong government. But, one of the things when you- HUMPHRYS: But you've had very strong government,
you would tell me, for the last several years and it's been going up to three times that much. CLARKE: I think you....you hurl this at Gordon Brown, if you had him here. HUMPHRYS: He hasn't got a record to challenge. CLARKE: It is true. He certainly hasn't. Well, they have got a bit of a track record on promises made which they're now trying to get out of. HUMPHRYS: Well, that's different. CLARKE: Well, going back to my red book. Let's stick to my spending plans, that you were quite right, for the next three years, we have set extremely challenging spending plans. HUMPHRYS: Realistic was the word I used...people like Andrew Dilnot at the Institute of Fiscal Studies. CLARKE: This is what people first said when I set out our approach to Public Sector pay. This is not unrealistic. This is-It would be unrealistic in the bad old days. This is what a modern economy has got to be like and people have said that my public spending plans were unrealistic every time I produced a Budget and we've always hit them. We missed a little bit out of BSE but, really, we've always .... HUMPHRYS: But in the last five years, Public Spending has gone up by almost three times as much as this half per cent that you're forecasting. CLARKE: Public Spending has not gone up faster than I planned. It's not-We have not broken our spending totals. We're delivering tight Public Spending and we're getting better at it because we keep putting more money into the hospitals and schools, the Police Service, the key priorities and we're still firmly on course. We're borrowing down to a balanced Budget. HUMPHRYS: The Treasury Select Committee doesn't believe your figures, it's not just people like the Institute of Fiscal Studies, they themselves are saying virtually everthing tells us that spending is going to have to rise much higher than you predict. CLARKE: Well they are all elected politicians and they may wish to go back to the good old.... HUMPHRYS: Well many of them Conservatives who'd like to see .... CLARKE: It's the good old days when all the spending departments have a go at the Chancellor..... HUMPHRYS: But we're talking about mostly Conservatives here. CLARKE: No no no slight majority of Conservatives, what I am talking about is the reality of how we keep the present good situation going, I mean, I hope we can get re-elected on the basis that we've got unemployment coming, we've growth, we've rising prosperity, we've low inflation and so on but and I can look backwards and say we've not had anything like this for a generation. What matters is looking forward and it's no good Gordon Brown saying he'd stick to these spending plans for two years.... HUMPHRYS: Forget Gordon Brown, I'm talking about you.... CLARKE: We've got to stick to this kind of profile, we've got to get the amount the State takes out of the economy below forty per cent of the total economy.... HUMPHRYS: Exactly and you yourself have said it is.... CLARKE: We've got to keep taxation down. HUMPHRYS: You yourself have said it's a tall order, that's to say your forecast, a tall order requiring good luck and a following wind, well, come on... CLARKE: What I'm saying is a tall order which is different to what you are saying it's impossible. I mean, the doubters would have said four years ago when we started the message, before that to be fair, Norman Lamont started a lot of this off as well, when we started on it people were preaching doom and disaster, if when I took over from Norman I'd said, you know, we are going to have a far better situation than the French and Germans in three or four years, we're going to control public spending, this Red Book I produced in my first budget, that is the real spending plans and we're probably going to tighten them later, nobody would have believed me - but now they believe me because I've done it, the sceptics are now are saying you've got to put taxes up after the Election, I am not laying these plans to put taxes up after the Election, I'm aiming to reduce taxation only when we can afford it and the background to that has got to be UK limited with jobs, prosperity, competing in the Single Market in a kind of European Union that we've tried to make, the right kind for our industrial and economic needs. HUMPHRYS: Chancellor, thank you very much indeed.