Terrific closing session of Jon Davis’s class on the postwar history of the Treasury at King’s College London last week, with special guest Kenneth Clarke, Conservative Chancellor from 1993 to 1997. Clarke was on typical combative form, saying he had always been in favour of Bank of England independence, even when challenged by Ed Balls, one of the visiting professors, along with Nick Macpherson, the former Treasury permanent secretary, who teaches the class.
Balls pointed out that Clarke had opposed Gordon Brown's decision to grant operational independence on interest rates days after the 1997 election. Brown recalls in his memoir published last month: “Ken Clarke, by then a challenger for the Tory leadership, politely told me he would publicly and strongly oppose the move.”
Clarke said that if you studied his language carefully you would find that he did not in fact commit himself. Which means that all recent Conservative chancellors, with the exception of John Major, privately thought Bank independence was a good idea.
That left William Keegan, another visiting professor, alone in the assembly of Treasury practitioners and observers sticking to the view that interest rates should be decided by elected politicians.
Balls and Clarke also debated the euro, Balls saying that he had learnt one of his guiding principles from Clarke, which is that good economics is good politics. Why, then, asked Balls (who said as an aside that Brown had been “dangerously in favour of the euro” in the early stages), did Clarke depart from that principle in his support of adopting the euro?
Clarke said he did not deny that “my support for the single currency is partly political”. But he took a simple economic view that the single European market was a good thing, and that removing the uncertainty of the exchange rate would make it even better. “My time in politics has been dominated by exchange rates,” he said, “and the US single market wouldn’t be the same if it had floating currencies – the Texas dollar versus the California dollar.”
He dismissed concerns about sovereignty by saying: “A European superstate might happen in a few hundred years’ time, but not in my lifetime.”
In his time at Ecofin, the EU meeting of finance ministers, he said, he and his colleagues designed the euro. “I blame my successors,” he said, for the failure to ensure an enforceable system of fiscal discipline. Clarke sounded positively Eurosceptic when he complained that the eurozone had let Italy, Portugal and Greece in – that was when we knew “they were larking about”.
On Brexit, he said: “Anybody who tells you they have a pretty clear idea of what is going to happen in British politics before Christmas is deceiving him or herself. We are on a voyage of discovery.” That was sort of true, as the next morning, Theresa May announced the breakthrough to the second stage of the talks.
He also said: “Any idea that we would know were we are by March 2019 is strictly for the birds. I hope we will agree a free trade agreement which is the single market and the customs union but in different language. But that's optimistic.”
Congratulations to Jon Davis and Nick Macpherson for ending their superb course on such a high note.
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