It remains to be seen whether it will rank with Sir Geoffrey Howe's 1981 budget, which supplied the armoury for the destruction of British industry and was acclaimed on that account, or with Nigel Lawson's 1988 budget, which destroyed Margaret Thatcher instead. But already the storm clouds are gathering over Great George Street. The trouble is that the inhabitants of the Treasury can do little to disperse them. The higher the pound soars, the darker they become.
Mr Tony Blair said last week that there were all kinds of things the Government could do to restrain the rise. What precisely they were, he perhaps prudently did not specify. But he gave us to understand that he and Mr Brown were fully in control. They could command the money markets, and the markets would obey, whoosh, just like that, as the great Tommy Cooper might have expressed the matter. It was only the production of unfortunate and undesired side-effects, again unspecified by Mr Blair, which prevented him and Mr Brown from taking the necessary corrective action.
It is all great nonsense. They have very little power to affect the course of events. Since 1972 the pound has floated except in the 1990-92 period, when we were members of the exchange-rate mechanism of the European Monetary System from which we were ignominiously expelled.
A floating pound does not, as its proponents optimistically imagined in the 1960s, necessarily protect the country from financial crises such as we had suffered under Labour governments operating fixed rates in 1931, 1947, 1949, 1966 and 1967. James Callaghan and Denis Healey were to find this out for themselves in 1976. In that year the government was punished for having been bad: today it may be punished for being too good to be true.
The one weapon it had at its disposal - the control of interest rates - has been handed over to the Bank of England. This is the Government's most significant action to date, comparable to Sir Geoffrey Howe's abolition of exchange controls in 1979, which inaugurated the era of the sovereignty of the money markets.
Indeed, much of the heated discussion of sovereignty and where it lies - at Westminster, with the judges or among the bureaucrats of Brussels - is now beside the point, of interest to students of constitutional theory rather than to practitioners in political reality. Sovereignty is in the hands of a lot of men and slightly fewer women sitting before flickering screens and pressing buttons. There is little any government can do to control their decisions. Governments frequently get it wrong when they anticipate how the market will behave and act accordingly.
In 1966, for instance, Harold Wilson sought to ingratiate himself with foreign opinion by "standing up to the unions" in the seamen's strike, making copious use of the security services in the process. The operation had completely the opposite effect to that intended. Far from being impressed by the Labour government's firm resolve, the bankers concluded that it had lost any influence it might once have had with the brothers from the branches, who were now clearly out of control. Having fomented the strike for his own purposes, Wilson then had the cheek to say to the House of Commons on 20 July 1966: "Sterling has been under pressure for the past two and a half weeks. After an improvement in the early weeks of May, we were blown off course by the seven weeks seamen's strike."
Likewise, if Mr Brown had raised taxes, as the prig press was urging him to do, the screen-watchers and button-pushers would not have concluded that a prospective rise in interest rates, which partly accounts for the popularity of the pound, was accordingly unlikely. Not a bit of it. They would have said instead: "This Brown, he is a tough fellow and no mistake. I tell you, Dr Schroder, to punish his own people he is not afraid. Cash into his country we must now put." And so the pound would have risen even higher, owing to Mr Brown's manifest virtue.
We do not need a specially long political memory to recollect the time when Lady Thatcher and Lord Lawson were confronted by the same difficulty of a rising pound. The then chancellor took the view that he was perfectly entitled to fiddle with the exchange rate - indeed, would have been negligent if he had omitted to do so. The principal means he adopted was by "shadowing" the German mark. His prime minister maintained subsequently that she did not know of this policy and that, had she known, she would have stopped it.
Alas, she was fibbing. She knew perfectly well what young Nigel was up to. Nevertheless she disapproved of it. She believed it was impossible - more, it was wrong - to try to "buck the market", as she put it. Besides, she approved of what was happening despite Lord Lawson's endeavours. She confessed that she liked a strong pound. It was a sign of success, of the regard in which this country was held by the foreigners. As for the pound being "overvalued", as well say that Georgian houses in Islington are overvalued! Value is here equivalent to price: what a commodity will fetch in the market.
There is no sign that relations between Mr Blair and Mr Brown are as wary as relations between Lady Thatcher and Lord Lawson. I am not sure how well Mr Blair understands these difficult matters. To the extent that he does, I would expect him to incline more to Lord Lawson's interventionist position, and Mr Brown more to Lady Thatcher's. It really depends on what Mr Ed Balls thinks. Whatever they think, they have even less power than the government had in the mid-1980s.
At this period the dispute was not purely economic. Personal factors came into it. In politics they usually do. Lord Lawson believed that Lady Thatcher was afraid he would supplant her as prime minister. Even if he exaggerated his threat in her eyes, he was certainly the only minister who was prepared to stand up to her. Mr Blair may see Mr Brown in the same light. However, if it is of any comfort to him, he can note that no Labour chancellor ever became prime minister and only one of the previous seven, Hugh Gaitskell, became party leader.
What is the solution? It is, I am afraid, to behave with complete irresponsibility. There must be vast projects of public works, in addition to the Millennium Dome. I do not see, incidentally, why these should have to include a spanking new, architect-designed building for the Welsh Assembly. My objection is not so much that I am opposed to the assembly (though I am) as that the old coal exchange in Cardiff was set to become the headquarters if my fellow-countrymen had voted for an assembly in 1979, as they did not. If the coal exchange was right then, why is it wrong now?
This apart, the Government must spend much more on health and education and allow public expenditure to climb completely out of control. Then the pound will come down soon enough.Reuse content