Prime Minister changes his economic line: Anthony Bevins finds that comments by John Major and his Chancellor show an apparent shift in policy

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The Independent Online
THE LINE from Whitehall yesterday was that there had been no change in economic aims, a view belied by the Prime Minister's statement on Tuesday night: 'A strategy for growth is what we need, a strategy for growth is what we're going to have.'

But that statement has to be measured against what John Major and Norman Lamont, the Chancellor of the Exchequer, were saying earlier this year.

Take Mr Lamont, who said during an interview with BBC Television's On the Record during the election campaign that in last year's 'budget for the recovery' he had sought to ease some of the costs that were being carried by business through the uniform business rate, and the halving of car tax. He repeatedly emphasised that he had done enough to prepare the ground for economic recovery.

As Mr Major said at a Conservative rally on 7 April: 'All that Britain is waiting for to achieve recovery is the confidence a Conservative victory will bring. So vote Conservative on Thursday and the recovery will continue on Friday.'

There was, however, one other ingredient in the Government's policy that appears to have slackened over the last few days: inflation. Although Mr Major talked of the importance of maintaining the pressure against inflation in the Commons on Tuesday, the word did not pass his lips in his later News at Ten interview - remarkable enough given his earlier dedication to maintaining it as his paramount political purpose.

Opening his election campaign in Torquay on 14 March, Mr Major said: 'I don't want a little bit of inflation. I don't want a modicum of inflation. I want to end inflation . . . I know the fear, the despair that inflation brings to everyday lives - the raw misery when the bills at the end of the week are bigger than the pay packet, or when the value of savings melts like snow in spring. Inflation is a curse. We've got to beat it. We've got to get stable prices - and do everything we can to keep them there.' That target, at that time, was zero inflation.

It was for the same cause that Mr Major took sterling into the exchange rate mechanism (ERM) in 1990 - and subsequently rejected all talk of devaluation. Interviewed on TV-am's Frost on Sunday, on 5 April, Mr Major said: 'What happens if you're prepared to let the exchange rate fall? What happens is that you suck in inflation. You get lower interest rates today and the price is higher inflation tomorrow.

'And what happens when you get higher inflation? You have to put the interest rates back up again. It's exactly the sort of short-term economic problem that has led us into boom and bust, boom and bust, boom and bust right the way through since the war.' The same view persisted to Black Wednesday on 16 September, and the 'suspension' of sterling from the ERM.

In a speech to the Scottish Confederation of British Industry in Glasgow on 10 September, Mr Major said: 'All my adult life, I have seen British governments driven off their virtuous pursuit of low inflation by market problems or political pressures.

'I was under no illusions when I took Britain into the ERM. I said at the time that membership was no soft option. The soft option, the devaluer's option, the inflationary option would be a betrayal of our future; and I tell you categorically it is not the Government's policy.

'All too often in the past, the solution was the same - to let the exchange rate go. And every time - sooner or later - the result was the same: rising import prices, rising wages, rising inflation, and a long-term deterioration in Britain's competitiveness which offset any short-term gain.'

But the heart of that speech came later, when Mr Major said that the key to sustained growth was non-inflationary growth. If he was right, and the devaluation that has followed Black Wednesday eventually sucks inflation into the economy, then the recovery will not be sustained.

Yet Mr Lamont confessed in Washington on 21 September - just five days after Black Wednesday: 'My wife said she's never heard me singing in the bath until last week.'

He also said: 'Our policies will continue to be directed at achieving the objective of sustained non-inflationary growth over the medium term.' Mr Lamont subsequently reinforced that view, in a letter to the Commons Treasury Select Committee earlier this month, when he said: 'The only lasting basis for sustainable growth and secure employment is low inflation.'

Facing the Commons the following week, Mr Lamont married his bath-time hopes with Exchequer prudence, saying that while determination to bring inflation down to the lowest levels in Europe remained: 'Now that sterling is floating I have been able to take advantage of the greater discretion we now have, to make what is a prudent reduction in interest rates and which is wholly appropriate to Britain's domestic situation.'

When Mr Major was asked for a message on recovery in a Sunday Express interview on 4 October, he said he was not indifferent to the problems people faced. 'Prick them and we bleed. But there is no magical way of suddenly lifting away a recession that is lingering on because people are choosing not to spend their money.' It was out of his hands, and he did not offer any hope that he could do any more to generate growth.

(Photograph omitted)

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