............................................................................... ON THE RECORD RECORDED FROM TRANSMISSION: BBC-1 DATE: 21.5.95 .............................................................................. JOHN HUMPHRYS: Good afternoon from Nottingham - stamping ground of the Chancellor of the Exchequer. I'll be talking to him live about how we're ever going to feel good again when the old enemy inflation maybe threatening to rear its ugly head once more. That's after the News read by MOIRA STUART. NEWS HUMPHRYS: Mr. Blair will tell the nation tomorrow that he will be tough on inflation and tough on the causes of inflation. That, not growth, is his priority. And that makes it difficult for the Conservatives to attack him. What's more, Mr. Blair and his colleagues have no track record - no form. It's much easier to attack a Party that's been in power for nearly sixteen years - and does have a record. With me is the Chancellor Mr Clarke. Good morning to you - good afternoon to you. What does it feel like to be on the left of the Labour Party. KENNETH CLARKE MP: I don't think I am quite there, but I look forward to Tony doing the Mais lecture tomorrow. I did it last year but it sounds like Tony Blair's going to be bambied, pretending to be Monarch of the Glen. I mean, there is no substance in all this, and what I do find intriguing is, I must be the first Chancellor who has a Shadow Chancellor who isn't criticising what I'm doing. I mean the problem that Gordon is really in, is not the City and the markets and all that, he's not responsible for that at the moment. His problem is that he thinks what I'm doing is working. He hasn't actually for some time opposed anything I've actually done, and the most recent decision I took which was a little controversial not to raise interest rate about ten days ago, we've gone I think the best part of a fortnight now, and he won't say whether he agrees with it or not, and the problem from his point of view is he knows that it's working. He knows that he couldn't do any better, he know's I haven't persuaded the general public of this yet but he believes that over the next two years this might get very worrying indeed and mainly what he's doing is abandoning the Peter Haines of this world, and the old bits of the Labour Party, but if you look at his sppech and I'v tried to analyse it in the Sunday Times this morning for the the sort of business audience who are interested, who want to read the News Review, it's vacuous, it's empty, it isn't the economics of Margaret Thatcher of Nigel Lawson, or the economics that I follow, because times have moved on, but it is just empty, empty. HUMPHRYS: I thought you just said he wasn't.... CLARKE: No, I said he's not opposing me. What he does is produce impenetrable prose, - Gordon Brown I'm talking about, last week, I haven't seen Tony's yet - fourteen, fifteen pages, at the end of which insofar as you could find any content, it was a softening of policy compared with my own. He does vaguely talk about borrowing more money, he says for public investment, it doesn't define that, he obviously is giving himself to allow to spend more than I would. He makes very very important sounding statements about debt GDP ratios, actually what he says is rather more relaxed than the course that I'm on, but (interruption) but basically other than that, what he doesn't say is what his inflation target is, says he'll have one.... HUMPHRYS: Oh, he says he'll have one, a very strict one. CLARKE: Yes, but mine's one to four per cent, bottom half of that by the end of this parliament. Why doesn't he have one. What's his? HUMPHRYS: Because he doesn't know the state of the books yet. CLARKE: Of course he knows the state of the books, going back to the interest rate charges, he's got the monetary report, he's got the bank's inflation report, he's got every commentator talking under the sun about it, and he won't tell me whether he agrees with it or not. Public spending, he has no target for public spending. Taxation, he has no proposals whatever. This isn't an economic policy, it's a lot of guys who realise that tax, borrow and spend failed every time Labour's been in office, they realise that poor old Peter Haines is still believing. I mean Peter believes it, that Neath would benefit from an attempt to go back to Wilsonian economics which didn't do Neath any good at the time, and Brown and Blair are saying nothing. Most remarkably they're not even opposing me. We've got the strongest economic recovery in western Europe, we're keeping inflation down, we've got unemployment falling, and we therefore get these wordy lectures, rather than opposition. HUMPHRYS: But it's a bit silly to criticise him for not giving us his tax ratios isn't it. I mean you won't give us - if I said to you, "Give us your budget for two years hence for November '97", you'd say, "You're barmy, of course I can't do that". Why should you expect them to do that? CLARKE: But I have a target, I have a target of twenty per cent - twenty p standard rate, when it's in the interests of the economy to do so. I frequently say that the successful modern economies are going to be low tax economies, I say that to have a low tax economy you've got to control public spending. HUMPHRYS: He said all that. CLARKE: No, not ...... HUMPHRYS: ...we will not tax for the sake of taxing, how many times have you heard that? CLARKE: Yes, that's very very good, and then you ask him, - try to get him remotely, remotely clear about the higher rates of taxation. HUMPHYRS: But he can't do that. CLARKE: Who's going to pay the higher rates of taxation. HUMPHRYS: You can't tell me what the higher rate of taxation's going to be two years from now, and they're not going to be in power, if they are in power for two years from now. CLARKE: But I've given you my medium term aim the twenty p standard rate. I've actually said and demonstrated how, with public spending control we're going to pursue the aim of a low tax economy, as a way of succeeding. He always votes against my tax increases, I'll give him that, he always votes against any spending controls I introduce. How on earth that matches these bold words about public borrowing I haven't the first idea, but it isn't a policy, and it isn't just you know - I'm delighted they're not attacking what I'm doing at the moment, and I'm not very interested really in some of this rather empty rhetoric they come out with. It is actually dangerous. Here am I putting together I think a healthy economic recovery and these guys are running an ad-man's campaign when there's nothing inside it - no policy. HUMPHRYS: You say that, you say it's dangerous, but it's proving very effective isn't it, and that's the problem from your point of view. He is persuading the city that it's going to work under a Labour government. The chief economist for Goldman Sachs said just the other day, "There is less risk as we see it now from a Labour Government going mad than there is from a Conservative Government, this Conservative Government running a loose policy". So they're actually more scared, many of them, of you staying in power, than they are of a Labour Government coming into power, and that's a turn up isn't it? CLARKE: Well, firstly I haven't heard that quote, and you're building an awful lot on it. HUMPHRYS: There are all these other quotes, I'll give you much more if you like. CLARKE: The City are not persuaded by Gordon Brown. HUMPHRYS: Oh, many of them are. CLARKE: And - I simply do not believe that, the chap from Goldman Sachs if he said that - over the last two years we've achieved an inflation record, with inflation below three per cent underlying inflation, for nineteen months now which is the best we've had since 1961. Since I've been Chancellor I have absolutely scrupulously pursued a policy aimed at my low inflation target. I have tackled the deficit we have in public spending and the public borrowing that the recession caused more determinedly than any other finance minister in western Europe - it's working. The trouble in Neath is of course the message in Neath has not got across. That is why
unemployment is down by six hundred thousand since the peak. That is why we're creating new full time jobs in this country and I can say to Goldman Sachs, that is why we are actually achieving a stable environment for businessmen, industrialists out there, steadily getting a healthy recovery in place. Now that is substance, that is real substance compared with what the Labour Party are putting forward which is as I say, very very wordy, somewhat impenetrable, and when you try to touch it, vanishes to nothing in your hand. HUMPHRYS: But you I see, I quoted a banker to you a minute ago, I could have quoted Howard Davis to you, Director General of the CBI, now Deputy Governor, (interruption) - exactly... of the Bank, appointed by the Treasury presumably, by your own government. CLARKE: Appointed by the Queen actually on the advice of the Prime Minister who was advised by me. HUMPHRYS: Precisely, and he believes that the Labour Party has changed. He's impressed by what they're saying. CLARKE: Well, I'll discuss it with Howard when next I meet him. But we at the moment have four per cent growth, falling unemployment, low inflation, a very strong export performance. Now, I don't need to look back to old Labour because that is now extinct, but if you... HUMPHRYS: You accept that do you? Do you acccept that old Labour is extinct? CLARKE: The ideas are bankrupt, they've failed. We haven't had a Labour government since the war that didn't leave higher unemployment when it had finished than when it arrived. But they're out there, alive and well on the bank benches of the Labour Party in parliament. HUMPHRYS: But you accept that this is a new Labour Party that's being led by Blair and Brown? CLARKE: Blair doesn't believe any of that stuff and Brown doesn't believe any of that stuff. What I press them for is what is new Labour, it's new Labour which is synthetic. HUMPHRYS: New Labour is restrained, new Labour is not allowing inflation to run away. New Labour is not Keynesian. CLARKE: When I first became Chancellor, when Gordon hadn't got into post-Keynesianism and androgynous growth theory and all that sort of stuff ... HUMPHRYS: We haven't heard that one... CLARKE: He's given that up, but when I first came in he was always urging me to lower interest rates, but I wouldn't. When I began to actually get things under control and began to reach the problems of a recovery growing which I now had to keep non-inflationary, Gordon at first week in week out, saying he'd reduce interest rates. Now we are in the situation of delicate judgement. The man at Goldman Sachs and the man out there trying to earn his living in a business and the man out there hoping that his job's going to become more secure have now got to watch us deliver low inflation whilst the recovery goes on, and what does Gordon Brown say about that when I have a difficult controversial decision? Two weeks after the decision he cannot say whether interest rates are too high, too low, remain the same, he went off into irrelevant criticism, his speech last week produced nothing, nothing on monetary policy, except he was going to create a committee. I mean he criticised the Ken and Eddie show, I think the Ken and Eddie show has got a good track record, and Ken and Eddie are not only agreed on the policy objective but we deliver it very consistently. What does Gordon say - he's going to have a committee with trades unionists on both sides of industry to advise Eddie, who is going to advise him. These are not real people with an economic policy. Labour is pretending, it has an economic policy whilst it doesn't actually oppose mine at the moment because it's working. HUMPHRYS: Well let's move away then from the Gordon and Tony show if you like, to the Ken and Eddie show which you introduced yourself. One of the worries there in the City and in many other areas is that you are now actually playing fast and loose with inflation for political reasons, and that's why you didn't put interest rates up the last time you were... CLARKE: Well both Eddie George and myself went out of our way to emphasise that that was not the case, that the two of us are totally committed to the same policy. Both of us believe, I think, we have the best chance we've had since the war of combining economic growth with low inflation. You'll have to find out what he actually advised when the minutes come out, what he's actually said ever since, as I have said ever since is that we have a commitment to precisely the same policy objective. When I took the decision last time, which was the day after elections, rather than before election, so there was no politicking, it was after the election, people had already voted, I was free to make an economic decision. I gave a press conference precisely to explain my reasons for the decision, my reasons were based on the data showing that I have succeeded in slowing down the growth of the economy to a more sustainable rate, that the figures that we had were inconsistent, parts of the economy seem to be doing well, parts not so well. The evidence for inflationary pressures from consumer demand or pay was non-existent and that it was therefore a finely judged decision that in my opinion the policy could be pursued without raising interest rates. HUMPHRYS: That wasn't the opinion of the Governor of the Bank of England? CLARKE: Well, wait and see. HUMPHRYS: But you're not going to deny that there was a difference of opinion. CLARKE: It's the opinion of most of the commentators and what I... HUMPHRYS: You're not suggesting to me that you listen to the commentators rather than you're own Governor of the Bank of England? CLARKE: No, I don't. HUMPHRYS: You'll be listening to us next! CLARKE: What I do and on the evidence so far, I really do not believe that Gordon Brown is capable of doing, is actually making my own decisions based on my own judgements, policy objectives that I'm committed to and which for two years I've been consistent about and which for two years I've explained with as much clarity and candour as I can, to the British public. And what I'm pursuing is a policy of combining growth with low inflation and we're combing that better than any British Government since the war. HUMPHRYS: And you've created a real rod for your own back here haven't you, by giving the Governor of the Bank of England a much greater role, much more transparency as you say, and everybody says that's a good thing and economically perhaps it is, (a) so long as you listen to him and (b) so long as you do what he says because if you don't do what he says - you didn't do it the last time - if you don't do it the next time they're going to say "hello, what's going on here?" CLARKE: I deliberately made the changes, I sort of made it more transparent, I gave him a bigger role, we're open with genuine minutes and genuine meetings about our decisions, the inflation report that the bank puts out is not edited by the Treasury anymore - that was my decision. As far as I can gather, I don't think Gordon opposes any of that anymore. HUMPHRYS: No. CLARKE: It's taken him about eighteen months to decide that perhaps they are going to do that, what Gordon now says is that he wants to surround all this with another of these committees. I mean I gather.. HUMPHRYS: Yeah but I mean you're moving back to Gordon Brown now, I'm trying to talk about you and Eddie George... CLARKE: What I'm saying about myself and Eddie George, is that the two us, you could not have in Eddie George and myself and Howard Davies as well I believe, three people more committed to the idea of enabling British industry and business to maintain a sustained recovery, one that will last, without being destroyed by low inflation and I don't think the mimicry of the Labour Party of that, has anything like the substance you're trying to give him. HUMPHRYS: Well why in that case do we have Eddie George saying things like: "I lie awake at night worrying that it's all going to be thrown away". CLARKE: Yes well that was... HUMPHRYS: By whom? CLARKE: That was...well he didn't say by whom? - he wasn't..(both talking at the same time)..he was gloriously misreported. I mean you and I handled this on your programme you know every morning during the week, you have great long question and answer questions and then you find the newspapers have picked bits of it out. Eddie made a speech last week as consistent as my speeches, he actually answered questions where he was addressing an audience and people took out phrases and tried to pretend it related to me. ...the Governor of the Bank of England and the Chancellor of the Exchequer currently have in common is we're both confident we can deliver sustained recovery with low inflation and we're both determined to do so and I..not only have I spent two years doing that but I'm not a guy who changes his mind easily and I am a guy who can take decisions and back judgement. HUMPHRYS: But he and many of his professional advisors are worried that you're not going to do that, that you're not going to hit those targets. You didn't like the Eddie George quote, let me give you one from the Bank's economics director, Mervyn King: "The Chancellor will have to climb down, sooner rather than later." CLARKE: Well again I've not heard that quote and I'd like to see whether it's accurately taken from context and so on. With Mervyn King and Eddie George, we all have discussions on the basis of hitting the inflation target. Everybody - widely excited when the bank's inflation report which thanks to my decision now goes out without the Treasury can see it - shows that we were half a per cent, in their opinion - above my target. HUMPHRYS: And heading in the wrong direction. CLARKE: There's a lot of criticism of the bank because none of these inflation forecasts are ever spot on, indeed most forecasters have got inflation wrong, year in year out for some time now, since I've been Chancellor most forecasters have spent their time over estimating inflation. HUMPHRYS: Yeah but you've got to listen to somebody haven't you. CLARKE: Half a per cent. I mean here was the Treasury's inflation forecast, three per cent by 1997, half a per cent above the target we're aiming at and the report itself said this is very uncertain stuff. If the British economy can carry on having a recovery of the strength that we have now, and in 1997 inflation is three per cent or as I believe in the lower half of my target range two and a half per cent or below, that would be a fantastic performance compared with the British economy since the war where the ruin of Neath in part stems from the repeated history of throwing it all away in tax, borrow and spend. Now that's where Labour....these guys are not going to stand up to all the pressures if they ever get into power. HUMPHRYS: But you began the sentence with the word if and of course it's an a big 'if' as you say forecasts are invariably wrong, but if you're not going to listen to the Bank of England, when they fire all these warning shots across your bows (sorry about the mixed metaphor but you know what I mean) then who are you going to listen to and are you saying that next time you meet Eddie George and once again he wants to put up the rate of interest, the interest rate, are you going to say 'well...exaggerating it" because if you do say that then the markets are going to really get worried. CLARKE: I do listen to them, I have established in a different and more transparent way than ever before, a clear constitutional position, the Chancellor decides but it does so on the advice of the Governor of the Bank of England... HUMPHRYS: But having opened the books now, if you ignore that advice we will know that you have ignored that advice... CLARKE: That is right.. HUMPHRYS: And people are going to get worried and then people are really going to start selling the pound. CLARKE: No two people ever agree, if you get two economists, no two economists ever agree one month to the next exactly what to do. So when I started the system up, I think I said at press conferences, I certainly did to Eddie, the test of the system will come when we disagree and you'll have to find out whether we're disagreed last time and people will have to wait and see. We're not disagreed on the objective of policy and the discussions are certainly not as you describe. I mean British journalism in general I would say they're not ready for open government because they never even read these minutes and they still invent fiction about what actually happens. When we sit down and have these discussions with Treasury advisors, Bank advisors, my junior ministers and myself, we all discuss the policy I've laid down, the inflation target, we discuss the data, the statistics on British industry. I'm glad to say we talk about real industry, what's happening in the labour market, what's happening in the different sectors of industry as well as the monetary aggregates, the exchange rate, all these other things and in the end the judgement is - do we need to change interest rates this month or not. Some months it's easy. I mean the last minutes we produced showed...well the last meeting but one, they were out in the public domain last week, showed it was very straight forward, there was no case for raising interest rates. Others are more difficult and finely judged. I keep putting up interest rates when I have to, before the Party Conference I put them up. HUMPHRYS: I remember, I remember. CLARKE: I put them up in December, and again in February (talking together)...... HUMPHRYS: But you daren't do it again, now look at the state of the housing market, Easter is supposed to be a time when the housing market goes ike this, last Easter it went like that, you've got a real problem there haven't you? CLARKE: What I have to dare to do is deliver sustained recovery with low inflation and every time I take an action to deliver that I get not a word from Gordon Brown, not a word from Tony Blair, I get confusion from the financial commentators and look at the track record, nineteen last year four per cent growth. Inflation below three per cent all the time, good balance of payments and a boom led by manufacturing and exports and people..all the complaint people could find against it was consumers don't feel good, for years we have wanted manufacturing and exports to create a healthy recovery and what the public really want is one that will last and it will last with us - it won't last with the Labour Party. HUMPRHYS: Well let's forget the Labour Party for a moment, let's even forget Eddie George for a moment though we might possibly return, let's turn to Margaret Thatcher. Now, she thinks you're making a mess of it, if we're to believe what she said in her book 'unnecessarily worsening the recession and so on and so on' pretty powerful stuff isn't it? CLARKE: Well I'll do her the courtesy of reading the book and reading the quotes in context because at the moment they are trying to sell the book and so you take out nice juicy extracts and I'm sure I'd sell more books if I comment just on those extracts. HUMPHRYS: Not very helpful though is it? CLARKE: Well the reporting is not very helpful but as I say I'll do Margaret the benefit of waiting to see it all in context as I complain so often that what I say is taken out of context. But I was a minister throughout the Thatcher years which were extremely successful years when we did a lot of the supply side things that Labour now claims to support, I mean, with the trade union reforms, the biggest supply side change we ever made and I don't think the Labour Party would keep that intact, but anyway you keep stopping me going back to that, so far as otherwise things have turned, the recession, the origins of the recession which happened in every other Western country came when we got monetary policy wrong. We carried on relaxing it in the late 1980's when we had a very successful growing economy, we relaxed it for too long and it became highly inflationary and then we had the boom followed by the bust. Every other country practically did as well because the 1980's were somewhat awash with credit throughout the world. HUMPHRYS: So you are telling me that the mistakes happened during Mrs. Thatcher's as she then was, was during Margaret Thatcher's own reign. CLARKE: Well if you look back at the battle of the memoirs, which Margaret and Nigel have already engaged in, it's obvious to be fair to Margaret they were engaged in an intensive debate about interest rates in the late 1980's, again, I must mention the Labour Party they were dead wrong, I mean they just thought we were running too tight a policy and all you got out of the then Shadow Chancellor was, Labour would reduce interest rates even lower, which would have made things a lot worse, but Margaret and Nigel were busily arguing about interest rates and they obviously allowed the whole thing to get over heated and to take off, as did other western countries as well. HUMPHRYS: So it's not John Major's fault, it's Margaret Thatcher's fault? CLARKE: It was during Margaret's time in Government that it happened and I think, I mean, I am not going to start attacking Margaret's government, I served all the way through it, it was a damn good government, I think if Margaret was in office now she would on the whole be complaining about people reminiscing and slightly re-writing what happened a few years ago and wanting us to look forward, actually concentrate on attacking the Labour Party and not each other and concentrate on taking apart this rather fragile act that Blair and Brown have put together. One thing Margaret can take comfort from I do agree with you, is that it is the result of Margaret Thatcher and John Major and all the years we've been in office that the Labour Party could be led by two people getting up who are clearly saying socialism is dead, even if they don't understand what the alternative to it is. HUMPHRYS: Well let's, one final thought then and let's sort of briefly return to Eddie George because I quoted the bit about him being kept awake at night worrying about inflation whatever the reason for that may be, he's going to have nightmares isn't he when he hears you promising to cut taxes, promising to cut taxes, not whether but when, now how responsible is that? CLARKE: It's very responsible when you again put it in context and say I say it's a question of when not whether but cutting taxes... HUMPHRYS: Well you didn't say that did you? CLARKE: Cutting taxes, I also say, usually in the same breath, cutting taxes goes with controlling the level of public spending..I shall only cut taxes, I shall only cut taxes when it's in the interests of the economy to do so. HUMPHRYS: But you are contradicting yourself aren't you because if it isn't in the interests of the economy, of the country, to do it, then you can't do it, so it is when and not whether. CLARKE: I will not cut taxes at a time when it's not in the interests of the economy to do so. HUMPHRYS: Right so it's when. CLARKE: I have not helped put together the healthiest economic recovery that Britain's seen since the war in order to kill it off myself by changing policy or handing it over to the Labour Party before it's even begun to get through to the ordinary lives of men and women up and down the country. HUMPHRYS: So you need to re-write that sentence don't you and say it is whether and not when because those circumstances may not apply, as you yourself say, you can't forecast it, and if they don't you won't be able to cut taxes because that would be irresponsible. CLARKE: But I have clear medium term aims you have to have as I keep saying to Tony and Gordon... HUMPHRYS: You can't guarantee it will come true though? CLARKE: No, no, I believe the State should take less than forty per cent of gross domestic product, I think that borrowing should be reduced and...(talking together).... HUMPHRYS: You haven't done it in sixteen years have you? CLARKE: A balanced budget in the medium term, all my policies are directed towards that. I also think the healthy economies of the future will be low tax economies, we must not go back to the days of high taxation, high public spending, high borrowing, that throughout all the sort of synthetic verbiage is where I believe the Labour Party would take us, that's where I'd never go and within that context there will come a stage when low taxation is in the interests of the British economy, because it provides incentives, stimulates the performance and we've got the public finances healthy enough to stand it. HUMPHRYS: Chancellor, thank you very much indeed. CLARKE: Pleasure. ...oooOOOooo...