Leading Article: How Ken could leave Gordon in the lurch

He is rapidly becoming the lone voice of sanity in the Conservative Party. But his grip on that title is far from secure. Yesterday Chancellor Kenneth Clarke attempted valiantly to counteract the bellicose tone of the Government's statements on beef and Europe. However this great Europhile has still compromised enough to go along with the Government's official hostile line. Even he is not immune from the political pressure from the loonies on the party right.

Of equal concern and interest to the voters is whether Mr Clarke will display the same tendency to compromise in his day job: running the economy. He still makes all the right noises in all the right places. We hear him warn against tax cuts if the public finances will not bear them. Yesterday we discovered that he told the Governor of the Bank of England, Eddie George, that he was prepared to raise interest rates if the economy grew too fast later in the year.

All very admirable. But the pressure from colleagues anxiously eyeing their majorities ebb away is for Mr Clarke to engineer a feel-good boom with low interest rates and tax cuts in the run-up to the election. We can be pretty sure what a Conservative government would do if it cut taxes in the run-up to the election. It would blithely put them up again afterwards. That is what it did last time, a betrayal that Labour has exploited to the full. Yet this time around Labour is almost certain to be the biggest loser from pre-election tax cuts. If tax cuts worked, the Tories would be back in power leaving Labour high and dry. If they did not work, Labour would be in power but with the unenviable task of clearing up the economic mess, in particular a ballooning public sector deficit, left behind by Mr Clarke. Labour's Shadow Chancellor, Gordon Brown, should be watching Ken Clarke's with extreme trepidation.

To be fair to the troubled Chancellor, he has done pretty well in maintaining a steady recovery. His predecessors Lawson and Lamont were each guilty of irresponsible opportunism with the public finances as they pushed the economy from boom to bust. Kenneth Clarke has resisted the temptation to do either.

He took a lucky punt on interest rates last summer, by cutting them against the advice of the Bank's Governor. His judgement that the economy was slowing down was proved right. At the moment, as the Bank's recent inflation report pointed out, growth is threatened in the short term by recession in Europe cutting our exports. As a result, interest rates need to stay low. But in the longer term, as consumption grows, fuelled by tax cuts and payouts from building societies turning into banks, inflationary pressures may build.

Mr Clarke's stated willingness to raise rates later in the year shows he is aware of the risk. The real test is yet to come: does he have the stomach to put rates up just before an election? We still do not know. But it is the temptation of tax cuts for Mr Clarke that should worry Mr Brown most. Here, Mr Clarke has had rather less luck. He raised taxes to sort out the pre-election mess created by Mr Lamont. He resisted the clamour from his backbenchers for more dramatic tax cuts last November. But he should never have cut taxes at all. He has been disingenuous about the scope for spending cuts without radical restructuring of the welfare state. And he has grossly misjudged his tax income. Forecasts for this year's government borrowing requirement are already running pounds 8bn higher than his Budget projections. The shortfall, it seems, is structural not cyclical; a wise Chancellor would sort it out fast.

Sensible as Mr Clarke has often been in the past, it is probably too much to expect him to claw back tax cuts, or deliver genuine spending cuts. His record is one of basic sense tempered by optimism, with a few lucky bets thrown in for good measure. The chances are that he will again over-estimate his room to manoeuvre on the fiscal front, and cut taxes or indulge spending at least a little in the run-up to the election. We can only hope that he will resist the demand for further tax cuts from his colleagues. History will judge him better for it.

Still, even a little fiscal frivolity by Mr Clarke now could make life hard for Gordon Brown should Labour win the election. For a start, Mr Brown will want to start tackling those underlying economic problems that trouble him so much: low skills, lagging investment and long-term unemployment. All of these will need cash. Meanwhile the clamour for extra spending on health, education and welfare from the rest of his party will not stay long subdued - as the recent controversy over the Jobseekers' Allowance has revealed. At the same time, if Mr Brown wants to keep open the option of joining a European single currency early on, he will need a low borrowing requirement in order to meet the Maastricht criteria. (Although a high deficit inherited from the Tories may provide Labour with the perfect excuse for avoiding a choice about joining a single currency.)

A Labour government's fiscal freedom to manoeuvre will be extremely limited. So what should the party do? Unless they are prepared to debate higher taxation with the voters, they will have to debate spending priorities within the party. Although Tony Blair and Mr Brown claim that no spending commitments are to be made, the entire party needs to face up to the reality of the state of the public finances and avoid raising expectations early on. If they are unhappy with Mr Brown's proposals to abolish child benefit for over-16s, they should come up with spending cuts of their own.

The two chancellors, one in waiting and the other in office, are in similar situations. They differ on important issues: Clarke favours deregulation while Brown favours investment in education to stimulate the supply side of the economy. Yet they share considerable ground on economic policy, they are often out on a limb from colleagues and they are both singing tunes which their parties ignore at their peril.