Kenneth Clarke: The once and future Chancellor?

Kenneth Clarke made his name clearing up after Black Wednesday. Now Britain's elder statesman of finance is back with a plan to save the country

He bursts out laughing when I ask if he is the one to replace George Osborne should the shadow Chancellor be forced overboard by the Yachtgate affair. Still chuckling, Kenneth Clarke replies: "No, no, I'm not going down that route."

For now, though, the punters reckon that Clarke or William Hague, the shadow Foreign Secretary, are the two most serious contenders to succeed Osborne if the Conservative leader, David Cameron, decides he is too damaged to continue. Cantor Index, the City's top spread-betting firm, has Hague as the favourite at 9/4 while Clarke is 3/1.

A comeback by Clarke would be the most extraordinary turn of events for the 68-year-old MP, who made his name as one of the country's most successful chancellors after John Major promoted him to clear up the mess created by the UK's humiliating exit from the exchange rate mechanism on Black Wednesday. Clarke is credited with bringing recovery to the country, and with laying the foundation for the stability inherited by Labour for its first term in office.

We meet on Tuesday – the day the Osborne story breaks – in his offices at Portcullis House next to the Commons, where he has represented Rushcliffe, in Nottinghamshire, for an astonishing 38 years. He's on good form, clearly delighted that the gag on the Conservatives criticising the Government over the financial crisis has been removed, and wastes no time in attacking the Prime Minister.

"It would be completely irresponsible if Gordon Brown turned to more big spending plans to get us out of this crisis. It would be disastrous for the UK in the long term, building up even more government debt, bad for the economy and bad for sterling," he declares. Since we met, the pound has plunged to $1.52 in its biggest one-day fall in 37 years.

With customary precision, Clarke says that if Brown is going to invoke John Maynard Keynes, the economist who recommended spending your way out of a slump, then he should get his facts right. "Keynes would have encouraged governments to run a budget surplus at times of growth so that they could afford to spend their way out of a recession.

"If you were a political cynic, you could take the view that Brown's only answer to the problems is to pump more public money into the economy, so he leaves behind a poison-pill for the next government. Brown now wants the banks to go back to lending at 2007 levels, to bring back the punch bowl into the party. That seems folly to me."

Clarke has become gloomier as the seriousness of the downturn has emerged. "I am much more pessimistic about the world economy, particularly for the UK, than I was only a few weeks ago. Next year is going to be distressful and painful for many people. Unemployment is shooting up and consumer confidence is very low."

It's not just the depth of recession that worries Clarke, but whether the government bailouts of banks around the world will succeed. "We don't yet know if the recapitalisations and guarantees will work. If it doesn't, say by next week, then there will have to be more of the same. The Bank of England will have to keep putting liquidity into the system, taking whatever collateral it can, to get us out of this dreadful mess. The financial crisis will only be over when normal lending resumes to households and businesses."

What really riles Clarke is how Brown is taking credit for the bailout. "It's astonishing how he can claim to have saved the global economy. From what I hear, it was his indecision which held the plan up for so long. It was only when the markets crashed two weeks ago that he decided to allow the Treasury to go ahead with the recapitalisation and guarantee package. The first statement in Parliament by Darling didn't help either, when he merely kept saying in general terms that the Government would do everything it could to avert crisis. The next day, the markets were in freefall again and ministers were finally pushed into action."

Clarke says he first came up with the "No return to boom and bust" line when he was Chancellor from 1993 to 1997, and that Brown stole the phrase from him. "I have never believed you can abolish the economic cycle but the aim of policymakers should be to take the top off the upswing, to give you a cushion on the downturn."

While Clarke blames Brown's profligate spending for the bubble, he has harsh words for the tripartite system of regulation between the Bank of England, the Treasury and the Financial Services Authority, which took away the Bank's supervisory powers. "We had enough regulations in place to prevent this, but we just didn't have regulators who were up to it." If the FSA had been more closely in touch with the banks, he says, its staff could have spotted that the business models practiced by Northern Rock and Bradford & Bingley were flawed.

He argues that if the Bank of England had maintained it's banking supervisory powers, it would have seen and controlled the excessive lending by the banks. The FSA failed because it never really got into supervising the banking system. "All the Government's rhetoric was for a lighter touch. But the FSA is not there to be loved by bankers and ministers. It must be made of sterner stuff. It's too easy after the event to cry out for more and new regulation when, in most cases, it's already there."

Nor does he have any time for Brown's call for a better global "early warning system" for future financial crises. "It's really ironic for Brown to say this. We already have one – the International Monetary Fund actually warned us 18 months ago that the UK was heading for a housing bubble and a fiscal problem with potentially disastrous consequences. The Government ignored the warning."

Giving in to populist demands, such as curbing bankers' bonuses or banning short-selling, would be foolish, he argues. But it would be equally wrong to let the bankers drop the mark-to-market accounting standards that were introduced to allow a more transparent pricing of risk. "That would be a terrible mistake and a step back. It's the bankers, particularly the Europeans, who are trying to wriggle out of the mess they have got themselves into and blame something other than themselves."

Defending regulated free markets is not the easiest task right now: "We need to have the courage to stand by our views and make sure politicians around the world don't try to over-regulate. That could be detrimental to potential recovery and growth. Hopefully, once the hysteria dies down a bit from politicians and the media, the regulators and politicians can take a look at what needs to be done in a calm and sensible manner."

However, Clarke does want the hedge fund industry and the shadow banking system, such as the derivatives market, made more transparent, taxed and better regulated.

And to prevent overheating in the housing market, he suggests tougher limits on mortgage borrowing. Lending should be held to 90 per cent of the house value, people should not be allowed to borrow more than three times their salaries – or thereabouts – and there should be stricter checks on self-certification.

Clarke may be gloomy about the economy, but you sense that he is enjoying himself, too. Who could blame him? As the Chancellor who cut taxes, halved the budget deficit and reduced the share of GDP consumed by government spending, he has been a vocal critic on the back benches of this Government's imprudent spending, off-balance sheet as well as on, and predicted the housing bubble was exploding some 18 months ago.

Colleagues say there is a spring in his step again, as he's been sought out by TV and radio to give his views as the elder statesman on the world crisis. There's a jolly side too: "You can sense the ghost of Harold Wilson and Tony Crosland in the air. It's been rather fun – sparring with Frank Dobson on the Banking Bill while Labour attacks the City as a bunch of spivs and speculators again.

"Bringing back Peter Mandelson and Alastair Campbell is all about Brown needing to reunite the old New Labour coalition. It reminds me of fading football stars being brought back to fight off relegation."

He's as enthusiastic about Europe as ever, praising Mandelson for defending open markets during his time in Brussels as Trade Commissioner. Thankfully, he says, there is a political consensus in the UK on free trade. "That's about the only thing we do all agree on. The danger in the current crisis is that the world becomes protectionist again. Even Barack Obama, who will win the US election, has been playing the protectionist card– even though, I think, he is actually in favour of free trade. Let's hope so."

What would he do, either as shadow Chancellor or for real? He hesitates, but not for long. Keep free trade flowing, defend globalisation, bring in new fiscal rules for spending, incentives for small business, and ensure tough but fair regulation of banks. "Over the last 20 years, the human race has enjoyed the most incredible prosperity it has ever seen. This was achieved through globalisation and regulated free markets. It's helped reduce poverty, raised living standards everywhere, and brought tremendous growth to emerging economies in most parts of the world. We need to keep that going."

When I try again to fish for Clarke's view on Osborne's chances of survival, he laughs some more, adding: "I'm sure George would be thrilled to hear this!" That's it, matter closed, although he does give his take on the affair: "This looks to me like a classic piece of chattering-class gossip."

Quite.

Kenneth Clarke

Born in Nottingham in 1940 and named after Pittsburgh bebop jazz drummer Kenny Clarke, he was educated at Cambridge, where he became chairman of the Conservative Association and later president of the union.

He was elected to Parliament in 1970 as MP for Rushcliffe in the East Midlands. Despite opposing Margaret Thatcher's leadership bid in 1975, he grew to prominence in her government, eventually rising to health secretary in 1988 and taking over at education two years later. Clarke was the first cabinet minister to tell Thatcher to go prior to her resignation in 1990.

Subsequently, he became one of the country's best-regarded chancellors, appointed in 1993 to pick up the pieces after the Black Wednesday currency collapse. Although popular with the "wet" wing of the party, Clarke's pro-European stance cost him leadership elections in 1997, 2001 and 2005.

A cigar lover, he was made deputy chairman of British American Tobacco in 1998, earning more than £100,000 a year. He is also a non-executive director of Independent News & Media, owner of 'The Independent on Sunday'. Appropriately, given his namesake, he is renowned as a jazz fan.

Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' embraces politics, religion, warfare, courage, love and loyalty, say creators
Sport
Sergio Romero saves Wesley Sneijder's penalty
world cup 2014But after defeating the Dutch, Lionel Messi and Argentina will walk out at the Maracana on Sunday as underdogs against Germany
Sport
Scoreboard at the end of the semi-final World Cup match between Brazil and Germany at The Mineirao Stadium in Belo Horizonte
Sport
'Saddest man in Brazil' takes defeat with good grace, handing replica trophy to German fans
PROMOTED VIDEO
News
peopleThe Game of Thrones author said speculation about his health and death was 'offensive'
Arts and Entertainment
Martin Freeman and Lauren O'Neil in Jamie Lloyd's Richard III
theatreReview: The monarch's malign magnetism and diabolic effrontery aren’t felt
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Arts and Entertainment
Miley Cyrus has her magic LSD brain stolen in this crazy video produced with The Flaming Lips
video
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
In his own words: Oscar Wilde in 1882
theatreNew play by the Oscar Wilde's grandson reveals what the Irish wit said at his trials - and what they reveal about the man
News
people
Arts and Entertainment
Unless films such as Guardians of the Galaxy, pictured, can buck the trend, this summer could be the first in 13 years that not a single Hollywood blockbuster takes $300m
filmWith US films earning record-breaking amounts at the Chinese box office, Hollywood is more than happy to take its lead from its new-found Asian audience
News
The garage was up for sale in Canning Place Mews for £500,000
newsGarage for sale for £500,000
Life and Style
tech
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Financial Planning Manager, Qual Accountant, £380

£300 - £380 per day: Orgtel: Financial Planning Manager, Banking , London, £30...

Business Analyst - Financial Services, Trading Systems, Agile

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fina...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil