Clarke gets B+ for inflation and A for style

'It might seem pernickety to mark him down when, as he so rightly points out, inflation has been lower for longer than any time in the past 50 years. But the scoring is for skill and judgement as well as luck'
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The inflation target has been the centrepiece of the Conservatives' economic policy since Britain was unceremoniously kicked out of the ERM in September 1992. The time has come for an end-of-term report on Kenneth Clarke's achievement.

Successful as he seems to have been in reducing inflation, the Chancellor does not get full marks. It might seem pernickety to mark him down when, as he so rightly points out, inflation has been lower for longer than any time in the past 50 years. But the scoring is for skill and judgement as well as luck, and Mr Clarke has had to rely a lot on the latter.

So, deduct 10 for the technicality that the target measure of inflation has not fallen below 2.5 per cent by the end of the Parliament. This version of the inflation target was, rightly, changed when economists pointed out that it was absurd to focus on inflation at one point in time rather than continuously. But the Government never abandoned the first version altogether.

Deduct 20 for the fact that inflation has not been on target for well over two years. It was December 1994 when the target measure was last 2.5 per cent or below. It might make it for a month or two this year, but thereafter it will be heading up again.

Finally, another 20 points lost for the fact that the UK has not exploited a worldwide fall in inflation as effectively as most other countries. Britain's inflation performance remains in the bottom half of the international league table, and one of the worst in Europe.

Still, luck is no bad thing, and Mr Clarke has done well to make the most of being Chancellor at a time when world inflation has been low. He has balanced the need for prudence against the normal desire of an unpopular government to bribe the voters with economic growth. He has raised interest rates at a time when a really blatant political manipulator would have avoided it.

Furthermore, he deserves admiration for having retained the affection of his officials while ignoring their advice. All round, a beta plus for the inflation record but an alpha for style. What a shame we won't be receiving him back next semester. A career in the City or Europe would no doubt be his for the taking, should he so wish.

Labour's Post Office denial is not a denial

The Labour Party yesterday issued another of its ritual denials - this time that it intends to privatise the Post Office. This is standard policy during the election campaign for any piece of information which has not been officially authorised by Peter Mandelson and news-managed through the Walworth Road machine.

It was what is known in the trade as a non-denial denial. This newspaper reported that Labour was examining plans put forward by the Post Office for its partial or even full privatisation. Labour replied that it had "no plans" to privatise the Post Office, which is not the same thing and leaves open a whole host of possibilities.

What is clear is that in his determination to fill the "black hole" in the public finances Gordon Brown is considering what for Labour would, until recently, have been some unthinkable ways of raising revenue. He calls it a review of national assets. Most other people would call it privatisation or something close.

Labour has already conceded that it is looking at air traffic control - having rejected privatisation out of hand only a few months ago. The Tote has been put back on the list, notwithstanding Robin Cook's attempt to remove it. Labour has also said it will consider Parcelforce, which is the arm of the Post Office which delivers parcels.

It is now clear that the rest of the Post Office, Royal Mail and all, is somewhere on the agenda too. Labour prefers to call it "commercialisation" but where that ends and privatisation starts stretches the art of semantics to its very limits. John Prescott's plans for an injection of private- sector funds into the Tube push the concept of public ownership and control to breaking point. Kim Howells, the Labour front bencher who has the Post Office as part of his portfolio, makes some in the Tory party look left wing.

What is undeniable is that the Post Office makes a tempting target. This year the Government will milk pounds 270m out of it through the PSBR. Next year the target is pounds 330m. An outright sale, on the other hand, could raise pounds 4bn.

When Mr Brown has used up the proceeds of his windfall tax he will be looking for other ways to rustle up cash. If part privatisation can be presented as a way of liberating the Post Office from the dead hand of Treasury control and the External Financing Limit, then a sale of say 49 per cent might be to hard to resist. Just remember, it was a Labour government that first started selling shares in BP. Labour's denial should not be taken at face value.

Lloyd's proposals make a lot of sense

Having wiped the slate clean of its pre-1992 liabilities, it was only right that Lloyd's should turn its attention to ensuring that the structures were in place to ensure a similar catastrophe never happened again. Yesterday's proposals to require Names to top up the capital that backs their underwriting commitments goes a long way to achieving that aim. It also has the added attraction that if they choose to leave their exposure to Lloyd's unchanged, accepting a lower capacity to underwrite premiums as a consequence, they will neatly reduce the capacity that has left rates looking so soggy.

Some Names will object to changes in the rules that limit the cavalier way in which they can gear themselves up to the hilt, bringing them in to line with Lloyd's new corporate members. But few would argue that levelling the playing field in this way is a rather more sensible approach than allowing limited liability members the latitude to write premiums to the same dizzy multiples as individuals have enjoyed.

Lloyd's is also right to recognise that it would never match up to its competitors if it failed to tighten up its risk assessment and improve both the quantity and quality of the assets with which it backed its policies. An impending credit rating assessment no doubt concentrated the mind, and if a few members' noses are put out of joint in the process, well so be it. Ostensibly a consultation document, yesterday's proposals are couched in no uncertain terms as a take-it- or-leave-it deal.

Yesterday's proposals will help ensure that the gruesome spectacle of hopelessly naive people losing their homes is at least reduced. A few good years of easy pickings, however, will mean the market will continue to be backed by too many unsophisticated people who do not properly understand what unlimited liability means.

The risks involved in that outdated concept made sense perhaps in an 18th century coffee shop when capital was managed by its owners. These days it is not and the marginalisation of individual Names, few of whom properly understand the dangers, is as desirable as it is inevitable.