Under-fire Lamont dismisses slump claim: Nicholas Timmins reports on growing criticism of the Chancellor's failure to kick-start the economy

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The Independent Online
A beleaguered Norman Lamont yesterday insisted that 'there will be a recovery' as he dismissed talk of a slump and comparisons with the 1930s as 'ridiculous' and 'alarmist talk'.

The Chancellor's defence of the Government's economic policy - 'there is no alternative' - came as Lord Tebbit, a former Tory party chairman, accused him of surrendering control of the economy to the German Bundesbank through the exchange rate mechanism.

Nigel Lawson, Lord Tebbit said, had been dubbed the 'one-club' Chancellor because he used only interest rates to control the economy. 'We now seem to have a no-club Chancellor in that he has given control of interest rates to the Bundesbank.' Germany might need high rates now, but he suspected Britain needed lower ones.

British industry, Lord Tebbit said, risked becoming anorexic, under pressure so that when a surge in demand occurred, home markets would be taken by imports 'and we will be back in the ugly old problems again'.

His comments reflect Conservative backbench criticism, which has come from beyond the traditional Euro- sceptics, for Britain to leave the ERM.

Mr Lamont underlined that would not happen, that realignment, revaluation or devaluation of the pound within it was 'not on the agenda' and Britain's current rate of DM 2.95 was 'certainly sustainable,' and 'not unbearable' for British industry.

The Chancellor's adamant refusal to shift policy was denounced as 'breathtaking and arrogant complacency', by Gordon Brown, Labour's Shadow Chancellor. Action to boost investment and jobs and to 'bring together European finance ministers' was needed, he said, adding that thousands more jobs and firms would go this summer if the Chancellor failed to act.

Mr Lamont, interviewed on BBC Radio's The World This Weekend, insisted that the Government's was 'the only policy that can be pursued. It will bring recovery, and most important of all, within this decade we will be in an excellent position against the best economies in Europe'.

Having predicted imminent recovery for well over a year, Mr Lamont said: 'I acknowledge that the recession has lasted longer than we and many others expected. But the fact that it has taken longer does not frankly justify some of the alarmist talk of a great slump; talk of comparisons with the 1930s are ridiculous'. There were 'some good signs and some bad signs which is exactly what you would expect at this stage'.

He added: 'We always said that recovery would be very jagged; that we would get good statistics and bad statistics, but that doesn't mean that one ought to assume that the policy is not working'. He dismissed Lord Tebbit's arguments about German interest rates, saying: 'The effects of German reunification would be felt by us even if there were no exchange rate mechanism. Germany is this country's largest export customer and we cannot just escape the consequences of what is happening in Germany.' It was wrong to think that markedly lower interest rates, even if they could be delivered, would change the situation overnight.

He added: 'If we were to leave the exchange rate mechanism, which we are not going to do, that would have the most profoundly damaging impact on confidence and would, I believe, result in higher not lower interest rates.' The idea that Britain should devalue within the ERM was 'curious'. Historically, devaluation was followed by higher rates, not lower ones.