KENNETH CLARKE yesterday sought to reinforce his reputation as a cautious Chancellor, insisting he would act 'in good time' to raise interest rates if the economy looked like overheating.
The Government would make tax cuts 'as early as we can', but only when steady, sustainable growth and low inflation coincided with healthy public finances, he said in evidence to the Commons Treasury and Civil Service Select Committee.
'Tax cuts have got to be made at a time when it makes economic sense to make them,' he said. 'The biggest obstacle lying in the way . . . at the moment is the borrowing position. Plainly we have got to make a lot more progress on paying back the debts of the recession than we so far have.'
Sticking doggedly to the anti- boom-bust line in his recent Mansion House speech, Mr Clarke said that if Britain 'suddenly goes into a roaring rate of economic growth and that wipes out the PSBR to a greater extent than we expected, that will not be as a result of intention on my part'.
While refusing to be drawn on the timing of any base rate rise, he implied that that point was still some way off because of spare capacity in the economy.
He emphasised the quest for 'steady, sustainable' growth, saying British industry would have to adjust unrealistic expectations on investment returns to a low-inflation economy. The view of some economists that inflation was 'a bogey we have got rid of' was not one to which he subscribed.
Cross-examined over the Treasury's summer economic forecast last week, Mr Clarke brushed aside concerns about growth depending on reduced personal savings, but admitted that the housing market had flattened and that a million people still had negative equity in London and South-east England.
But he insisted the market had not gone into reverse. Any house price boosting measure would mean a surge in inflation - a 'quack remedy' offering only temporary relief.
Mr Clarke said economic growth alone was not enough to bring down structural unemployment. It had to be tackled with education and training, and an economic policy that encouraged small and medium-sized enterprises and emphasised deregulation and flexibility.
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