Interview: Third time plucky: With Tuesday's critical Budget looming, Donald Macintyre finds the beleaguered Chancellor, Norman Lamont, neither singing nor resigning

IF Norman Lamont had listened to his wife, Rosemary, in October 1991 he would never have said the fateful words 'green shoots' at all. Mrs Lamont warned him against it, as the Chancellor admitted last week, on the entirely reasonable grounds that it was the wrong season for green shoots.

That single phrase - Mr Lamont had detected that 'the green shoots of economic spring are appearing once again' - drew an 80-second ovation from his audience at the Tory party conference. When the recovery failed to happen it came back to haunt him - the press, in its campaign of criticism, never let him forget it.

And this has been no ordinary criticism - it has probably been greater and more consistent than any faced by a senior post-war politician, including Sir Alec Douglas-Home and Harold Wilson at their worst moments. A steady drip, drip of highly personalised attacks, punctuated by regular calls for his resignation from papers he might in better times have counted on, such as the Daily Telegraph and the Sun. On Tuesday, he presents his first Budget since Black Wednesday - and it is doubtful that any Chancellor has given his Budget speech against such a hostile background.

So, I asked in his Treasury office on Friday, how wounded has he been by the criticism? 'Obviously it has been difficult, but my family have been extremely supportive. I get upset when they are upset but I have had a job to do and I've expected to be criticised. I think people do like to have someone to blame almost for everything.' He added: 'I find I get a perfectly friendly reception from the public wherever I go, which just shows a lot of words are written and printed and have not much effect.'

The press attacks have been a 'very unreal experience in some ways. But it's been interesting and I do strongly believe that you learn from experience. Perhaps that's a part of my Scottish upbringing.' (With somewhat self-deprecating irony, he adds: 'Most people would be rather surprised to know that I've got a long tradition of Church of Scotland ministers in my family.')

Many politicians believe that they cause growth and that recessions come from abroad. 'The truth,' Mr Lamont admits, 'lies somewhere in between.'

'What I have been trying to do,' he said, 'is to keep inflation down and steer the economy through a very nasty recession. What governments do is to look after the public finances and keep inflation down. Whether the economy grows at 2.75 or 1.75 per cent short term cannot be achieved by governments.

'This is the bedrock of Conservative economics . . . I think this country is a bit of an alibi society. They want to think it's someone's fault or there are buttons to be pressed. The performance of the economy depends on the performance of managers of firms, of individuals, the skills and quality of the workforce. That is what competitiveness is about. The idea that you press a few buttons and the economy behaves in a particular way should have gone out of the window many years ago.'

EVERY Chancellor has a favourite drink to sip from at the dispatch box. When he rises to deliver his third Budget at 3.30pm on Tuesday, Lamont will have a glass of Highland Park whisky heavily diluted with Highland Spring water. It will be one of his few comforts. For any Chancellor it is a lonely moment; for Lamont especially so.

For a start, the Budget judgement would be exceptionally difficult even if Lamont were a popular Chancellor. On the one hand, he is under pressure from the markets and many Cabinet colleagues to show that he is serious about curbing a deficit projected to reach about pounds 44bn in 1993-4. On the other, he is under pressure not to choke off what almost every minister believes is a nascent recovery. Squaring that fiscal circle would have been difficult at any time in the past 13 years; with a government majority of only 21, the problem is compounded by the prospect of a Tory revolt over the Finance Bill if he gets it wrong.

But, on past form, his resilience will see him through any crisis. Shortly after Britain withdrew from the exchange rate mechanism on the traumatic day of 16 September, Sir Terry Burns, the senior Permanent Secretary at the Treasury, remarked how struck the civil servants had been by Lamont's ability to maintain his cool. Jim Callaghan was - temporarily - broken by devaluation in 1967. Last week, Lamont seemed like a man looking forward to his Budget speech.

Here is the Lamont paradox: both his previous Budgets were signal political successes. The first unexpectedly used an increase in the rate of VAT to reduce levels of poll tax. He thus secured the biggest switch of taxation from local to central government since the war, while neutralising the poll tax as an issue in its last two years. The second - in his words - lured Labour 'into a trap' by cutting tax to 20p in the pound for people on the lowest incomes. It helped win the Tories the election. Indeed, he persuaded his colleagues to put tax cuts at the centre of the pre-election agenda.

He has also been innovative. He has ended higher-rate mortgage interest tax relief (succeeding where Nigel Lawson failed); and unified (from this year) the spending and budget processes. Further, he has kept expenditure to the limit set by the Cabinet last July.

He has been a lightning conductor. But he now clearly believes that with the improvement in the British economy he can win through. 'The real measure of the Chancellor's credibility is people's opinions not about him but about the economy. There is only one measure of confidence - the confidence that businessmen feel. Every survey, the CBI, Institute of Directors, the Chambers of Commerce, the purchasing managers, all show confidence at a high and rising level.' Most of his colleagues share his belief that Britain is now heading for a 'period of normal and sustained growth'. They accept his contention, 'my record on inflation speaks for itself'. Yet most equally believe he is fighting for his political life.

SO scrupulous is Lamont about pre- Budget secrecy that it was hard to get him to talk even about future economic prospects for fear it might pre-empt his speech. But did he now regret the 'green shoots' phrase at his 1991 conference speech?

'The fact is, and you can see it in the statistics, that there were encouraging improvements in confidence, in optimism, in some of the indicators. It was extremely firm. I was not alone in what I said. Many people said it at the time - many economists, many businessmen, and even I may say, a number of journalists, though they choose to forget it now.' The false dawn, he argued, was an international phenomenon. 'Alan Greenspan, the chairman of the Fed (the US Federal Reserve Bank), told me he went through exactly the same experience in the autumn of 1991 and so did the Canadian finance minister. There's no denying that there were grounds for optimism.' But, he insists, he never said the recession was over.

What about April 1992? Wasn't the election fought on the false promise that a Tory victory was a necessary and sufficient condition of economic recovery? 'Immediately after the election there were some encouraging signs and there was an increase in activity, but it wasn't maintained and what I think happened last year was that the situation deteriorated very much internationally. In Japan there were falls in asset prices - and a fall in the total economy. And Germany now looks headed for a serious recession.'

Why, then, had he sung in his bath after being forced to withdraw from the ERM? The true story is as follows. In Washington, the second weekend after Black Wednesday, Lamont was caught, after several attempts, by the television reporter Hugh Pym who told him he seemed cheerful. 'Do I?' replied the Chancellor. 'Well, my wife says I've been singing in the bath.' It was less a comment on economic policy than a mere statement of fact. He had, if nothing else, been released from the enervating hour-by-hour task of monitoring the pound's every oscillation.

Should he not, nevertheless, have resigned after such a reverse for his policy? 'What happened in September and August was not just a British phenomenon. Four other countries chose to float at the same time, two others devalued and one of them devalued unsuccessfuly and then floated. This was a pretty international phenomenon. There is this view about ERM that what happened happened only to Britain and didn't happen to any other country. What about Spain, Portugal, Italy, Sweden, Finland, Ireland? They all went through the same experience. All failed to maintain their policy because it was a unique situation.'

But wasn't ERM a cornerstone of government policy? 'It was a very considerable setback indeed, but we did succeed while we were in the ERM in getting inflation down. This wasn't a wasted time. We had to do it. Even if we hadn't been in the ERM we would have had to have had high interest rates in order to get inflation down. Some critics of this period seem to think it was unnecessary. It wasn't; we had to do it. And we succeeded in it.

'It would have been easier for me in many ways, far easier, to resign.' The Prime Minister made it clear he did not want this. 'I felt that I had a job to do, to reconstruct policy to get us back on to the path of recovery and I think we've done quite well in formulating a new policy . . . The last thing I did was just cling to office because I wanted to.' He stayed 'because I thought it was the right thing to do, and I believe that was the unanimous view of my colleagues in Cabinet'.

So is he distracted by talk of a reshuffle? 'Only when people like you ask me about it.' How does he feel about two of his friends from Cambridge University being touted for his job by their Tory supporters? 'Nothing of this kind would ever lead me to quarrel with my friends. Michael Howard and Kenneth Clarke are two of my closest and oldest friends and their friendship matters just as much as any job.'

If he was moved from the Treasury would he take another job in the Cabinet, or would he return to the backbenches? 'I'm interested in this job and I have an immense amount to do and my mind is not on any other job.'

And how is his relationship with John Major? There have been persistent rumours - which Lamont dismisses out of hand - that Major has been pressing his Chancellor to cut interest rates faster than he would like. 'My working relationship with the PM is excellent . . . I was here as Financial Secretary when he was Chief Secretary, I was Chief Secretary when he was Chancellor. He chose me to be his Chief Secretary. He chose me to run his campaign, chose me to be his Chancellor. We have worked together for quite a while.'

LAMONT is famous as a Cabinet Euro-sceptic. Negotiating the opt-out of the single currency at Maastricht, he walked out when the Dutch finance minister demanded line-by-line debate of the British protocol. Indeed he would have slammed the door too, if, as he cheerfully recalls, the heavy metal hinge had not prevented him.

But he and Major got what they wanted. 'The Maastricht Bill will be ratified, and although I am well known to be sceptical on Europe I think it must be ratified for two reasons. First, it is central to the Government's own programme, and second, I believe that, if it were not ratified, President Mitterrand and Chancellor Kohl, who made very considerable concessions, would feel that Britain is no longer interested in Europe. There might even be calls for us to leave the community.

'I am very strongly against anything that tries to create a European state. I believe we should fight those developments, but I don't think we should turn our backs on Europe or be thought by others to turn our backs on Europe.' On the prospects for a single currency he says pointedly: 'They have receded hugely. The only country that meets the convergence criteria, Denmark, has ruled out the single currency.'

The protracted divisions over Maastricht may actually help Lamont since, in the current fevered Tory climate, they make it harder to replace him with a Chancellor from either the pro-European or anti-European wing. In any case, his supporters insist that he has more backing from MPs - many of whom have been enjoyably lunched at No 11 in recent weeks - than his opponents imagine. But the Budget is a high-wire act if ever there was one. He can be a formidable Commons performer when he is up against the ropes - as he was in the debate after Black Wednesday. Lamont himself brushes aside further talk of reshuffles, saying that, above all, he has a job to do.

'I care passionately about the future of this country and the economy of this country. I desperately want it to be right for everyone, and as long as I'm here I'll continue to do my best and it's my duty to do it.'

(Photograph omitted)