Kenneth Clarke described John Redwood's promise of pounds 5bn in tax cuts, made in the leadership election, as over-optimistic. He said he would cut taxes only when it was prudent to do so: that meant when spending, borrowing and the overall interest of the economy justified it.
The Chancellor was sceptical about fiscal measures to kick-start the housing market. What was wrong with the market was not the cost of mortgages, which tax changes might affect, but "consumer confidence above all else". He would judge any proposals to boost the market by their impact on boosting consumer confidence.
Acknowledging that the spending round now beginning was "not by any means an easy one", he also pointed out that broadbrush fiscal measures to revive the housing market would be very expensive. He made clear his commitment to maintaining high-quality public services and said there were "always unavoidable pressures" on public spending.
The Chancellor used the occasion to try to address widespread concern in the City that he and the Governor of the Bank of England are at odds over the inflation target. He insisted that the target remained quite clear, namely to achieve a rate of underlying inflation of 2.5 per cent or less, and policy would be set at all stages to achieve that target.
Asked about the row over interest rates in his meeting with Eddie George on 5 May, Mr Clarke said the key disagreement he had was in the assessment of the strength of the economy. "The biggest difference really was that I was more satisfied than he was that activity had slowed down", such that it would bear down on inflationary pressures.
Mr George, Governor of the Bank of England, said in a speech yesterday that his disagreement with Mr Clarke in May had been narrow. But he repeated his warning against the danger of relaxing at all on the inflation target.
In his evidence to the committee, the Chancellor was keen to convey that he was not indifferent to a fall in sterling.Reuse content