Simple rate rise, complex plot

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The Independent Online
'THANKS a bundle, Ken.' Yesterday's interest rate rise, and the Chancellor's blunt dismissal of November tax cuts as 'not serious politics', are hardly what John Major would have wished for ahead of a difficult Tory conference. It will whip up yet again the Whitehall gossip about deteriorating relations between the two men.

That being so, the first thing to make clear is that Major's attack on the 'yob culture' last week was not a coded criticism of Kenneth Clarke. I have that on good authority. On the other hand, there are too many indications of difficulties between the Downing Street neighbours for complacency. There is no evidence of a row. But fuel is being stockpiled.

First, let us turn to the crudest version of the story. It paints Clarke as being hyper-cautious on taxes despite good public borrowing figures, while Major is nervily keen for income tax cuts as soon as possible. Funny that, since Clarke is meant to be rash while Major is meant to be the puritan, obsessed with inflation and spending.

But the explanation, according to conspiracy-peddlers, is that Major wants tax cuts to stave off a challenge for his job this winter, while Clarke wants to rule them out in order to help provoke one. The worse the timing for the Prime Minister, the better the timing for his ambitious Chancellor. And this black deed is made all the blacker because the Chancellor is using Major's own cherished rhetoric about low inflation. This is, in short, one of those happy occasions when political assassination can go out dressed up as fiscal prudence.

This is so attractively neat a story it fair makes my eyes water to disbelieve it. It belongs to a Westminster of simple-minded rapacity and two-dimensional ruthlessness which television dramatists and pulp novelists are fast making familiar. But in the real world motives are just a little more complex, and the plots more muddled.

In this case, the momentous nature of Northern Irish politics makes the idea of a putsch against the Prime Minister now seem absurd. It is true that Mr Major desperately needs a success, and that enemies on the right of the party would move against him extremely fast if events in the Province started to unravel. This, not a Commons defeat, is the hold the Unionist leader James Molyneaux has over Major. But there is no sign yet that the Ulster issue will damage him by the time the Tory hunting season closes.

Despite the opinion polls, despite the grumpiness of Tory activists and, yes, despite yesterday's interest rate rise, the Prime Minister is in a stronger position in September than he was when Parliament rose in July. He has no pressing reason to demand mid- term flightiness from the Treasury and indeed his whole pitch to the country (grit, determination, the long view, judge us on the whole five years) requires the opposite.

Similarly, one cannot wholly discount the view that politicians sometimes try to do the right thing and are capable of learning lessons from past mistakes. There was a coded criticism of the Lawson boom in Clarke's statement yesterday and it is clear enough that he is trying to position the Government for an election in 18 months' time - which means that any tax cuts will come in November 1995 at the earliest.

The Chancellor is not, I think, a figure in the mould of Roy Jenkins, whose austere approach to the 1970 Budget was widely blamed for Labour's subsequent defeat. It is hard to imagine Clarke looking back and writing, as Jenkins rather touchingly did, that he regarded a give-away Budget as 'a vulgar piece of economic management well below the level of political sophistication of the British electorate'. One can, however, imagine Clarke ridiculing the idea of a give-away two years before the voters are in a position to return any favours.

Finally, there are far better reasons for the interest rate rise than the personal ambitions of ministers. As Hamish McRae explains below, these are matters now driven more strongly by the market than by politicians. And even within the narrowed scope left for national manoeuvre, the Chancellor has handed over to Eddie George, Governor of the Bank of England, far more power than is generally recognised. Just contemplate the market reaction if, in six weeks' time, the published minutes of last Wednesday's meeting showed George warning that it would be irresponsible not to raise rates, and Clarke refusing to listen.

The shift in power to the Bank was intended to reassure the markets that monetary policy would be no longer dictated by short-term political considerations. The timing of yesterday's move confirms it, with knobs on. Clarke took responsibility for it in the old way. But the apparently modest business of publishing a report of a meeting is, it is becoming clear, a major constitutional change. It cannot be long before Tory parliamentary traditionalists start to ask themselves whether this famously political Chancellor has not demoted himself to the level of Eddie George's PR man, the Max Clifford of Threadneedle Street.

This was, in short, more about new realities of economic power and the electoral cycle than about old political rivalries and the conference season. That does not mean, however, that the Clarke-Major axis is secure. The longer the huge polling gap between Labour and the Conservatives continues, the greater the temptation for No 10 to loosen policy.

Already yesterday there was a division between Conservative Central Office (Major's men) and the Treasury about the possibility of further interest rate rises. Clarke, accumulating his powder for 1996-97, is unlikely to be sympathetic to any early or dramatic move on taxes either: he wants to win the election but he doesn't want to go down as just another crude, cynical fiscal mechanic. So the worse the polling gap, the greater the tension between the men.

That would be a low-priority worry were they closely bound together across the rest of policy. But they are not. Clarke was not consulted before Major adopted his aggressively anti-centralist rhetoric during the European election campaign (nor, by some accounts, was the Foreign Secretary). However Thatcherite his economics may have become, European union remains a cause very close to the Chancellor's heart and he would find it difficult to be a main participant in a Union Jack election. On the most sensitive issue, monetary union, one can detect just a slight rime of frost between Numbers Ten and Eleven.

This is a matter of nuance and mutter. Clarke is not out to 'get' Major, and Major has not 'lost patience' with Clarke. There is no conspiracy gathering pace.

No grand confrontation on Thatcher-Lawson lines is yet visible. But that, too, was about Europe: both men would do well to tread carefully, for the old fault-line is still there, lying much where it did.

(Photograph omitted)

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