Donald Macintyre: Who should Mr Blair turn to for economic advice?

'The First Lord of the Treasury is entitled to hire someone who can strengthen and flesh out his arguments'
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The Independent Online

When the Bank of England's monetary policy committee meets today to decide between the conflicting fears of a manufacturing-led recession on the one hand (pointing to a cut in interest rates) and consumer-led inflation on the other (pointing to a hike), it will be hard not to think of Gordon Brown. He will not have anything to do with the decision. But that's just the point. First, of course, the fact that the meeting matters so much is a tribute to his stunning decision immediately after the 1997 general election to make the Bank of England independent.

It's as apparent as it has ever been that removing monetary policy from the short-term temptations to which politicians are prone was the right course. Secondly, a by-product – and, to be fair, that's exactly what it was – of the decision is how well it has served his party. Just as the bank, in 1997, could take responsibility for the interest-rate rises that Gordon Brown knew would be necessary, so, if the bank calls it wrong today, it will be the bank that will get most of the blame.

That said, the third reason for thinking of Gordon Brown is that the fineness of the bank's decision is also a reminder that recession, if it happens, will have political as well as economic consequences. The wise money appears to be on the bank deciding on no change today. But whether it does or not, a recession would, to put it mildly, pose new challenges for the Government. At worst it could call into question the Chancellor's claim to have abolished "boom and bust". Moreover, to sustain spending on education and health at current levels after the first three years, the Government needs rapid growth, not a slowdown. Spending might have to be cut or taxes increased.

To assume that Mr Brown alone would take the political hit for the worst-case scenario is to misread the current political constellation. He has huge political capital to expend, and he will have great resourcefulness when it comes to seeking to ensure that he and the Government weathers the storm, if there is one. Of course he could be dented. But so could the Government as a whole, including the Prime Minister.

Which raises an interesting question. Who if anyone, will be giving the Prime Minister economic advice from inside 10 Downing Street? As it happens, this isn't entirely academic. The Prime Minister's chief economic adviser, outweighing all possible rivals to an unprecedented extent, is, of course, the Chancellor. It's become a cliché, but a true one, to liken the relationship to a marriage: tempestuous, often dysfunctional, but very close, close enough to repel the presence of intervention from outside the relationship. So much so that some might question whether Mr Blair needs anyone else.

That said, a vacancy, perhaps even a vacuum, is likely to arise later this year for two reasons. One is that Jeremy Heywood, Mr Blair's Principal Private Secretary and head of policy, a former high-flying Treasury civil servant and highly qualified in economics, is moving on, via a period of paternity leave. The other is that Derek Scott, the Prime Minister's personal economic adviser, is also expected by Downing Street to take his highly marketable talents elsewhere, after a stretch of more than four years.

There is a further, more sensitive, issue. Mr Scott, is instinctively a strong opponent of EMU entry. If Mr Blair is as favourable to euro entry as he indicates to supporters of British single-currency membership, might he take the opportunity to engage someone more favourably inclined towards his views?

To some this issue may seem absurdly nerdy. I suspect the ghosts of Mr Blair's predecessors – not to mention the four who are very much alive – wouldn't think so. For there is nothing new about prime ministers having a complementary source of economic advice, on occasion quite high-profile ones. Of the post-war prime ministers, four had themselves been chancellors (and therefore knew the Treasury from the inside): Churchill, Macmillan, Callaghan and Major. Of the other six, the first three were special cases.

In Attlee's time, the Treasury was still recovering from its temporary loss of pre-eminence during the Second World War; Eden (who, incidentally, woefully underestimated the terminal threat to him from Harold Macmillan) and Home (who was insouciant about his own economic ignorance) were short-lived as premiers.

But Edward Heath used both Lord Rothschild and even more so Sir William Armstrong as a source of in-house economic advice. Harold Wilson (who so regretted not having been a Treasury minister that he told Denzil Davies, when appointing him as one, that he "envied" Mr Davies) had his famous Hungarians, Tommy Balogh and Nicky Kaldor.

But it's the final example that has the most neuralgic resonances. For it was Margaret Thatcher's insistence on keeping Sir Alan Walters in such a role that forced Nigel Lawson's resignation in 1989 (and, as is more often forgotten, that of Walters himself). Anything that smacked of a repeat would horrify the present Chancellor – and rightly so. The Walters affair can be misunderstood, however. As Lord Lawson recounts in his memoirs, when in 1988 Mrs Thatcher brought Walters back, he made plain to her that he had no objections to her appointment of a personal economic adviser. But he had every objection to her appointment of one who had repeatedly attacked his stewardship of the economy in public. As well he might.

Any idea that Mr Blair should – or would dare – appoint an equivalent of Walters is absurd. Walters spoke frequently to journalists, on and off the record, in a way guaranteed to undermine the Treasury, since he openly disagreed with the Chancellor on monetary policy. A Blair equivalent could be pro-EMU, provided he accepted the need for economic convergence before a decision in favour was taken.

But he would have to be Trappist; he would have to build a working relationship with the Chancellor and his own chief economic adviser, Ed Balls. And he would require tact, diplomacy, and a certain self-effacement, qualities largely foreign to Walters.

That said, even when a Chancellor is as all-powerful as Gordon Brown, precedent suggests that the First Lord of the Treasury is entitled to hire someone who can strengthen and flesh out his own arguments when he deals with the department next door. Nobody knows what the two most powerful men in Britain really think about the question of EMU entry. But were they to disagree, in circumstances in which the Chancellor would be powerfully placed to exercise a veto, Mr Blair would need all the help he could get.

To appoint as economic adviser, when the moment comes, an outside economist broadly in favour of single currency entry, as indeed Mr Brown is on record as being when the circumstances are right, would not necessarily mean that Mr Blair will take Britain into the single currency in this parliament. But to appoint another figure of pronounced Eurosceptic views to the job would send out a pretty clear signal that he won't.

d.macintyre@independent.co.uk

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