CITY AND SUBURBAN
Someone to blame it's a credible role for the incredible Chancellor
CHRISTOPHER FILDES
Norman Lamont on his way to 11 Downing Street looked a happy man. Lunching at the Savoy on that November day in 1990, I bumped into him as he bus- tled down the long corridor, "grinning all over his face — and there, I thought, goes a man who has been given the job he always wanted. What a Greek gift it was. The recession had arrived, credit was drying up, sterling was shaky, and we had just joined the European Exchange Rate Mechanism — the coup that was to restore confidence in British policy and make the next election winnable. It backfired. His first forced move in the Treasury was to threaten to raise interest rates in defence of our ERM commitment, hoping that the threat would suffice to cow the markets. He played this old gambit so often that when he finally had to put rates up, on 'Black Wednesday' nine months ago, no one believed him — and rightly, because he brought them down again next day. He talked at first of a reces- sion that might be short and shallow. I warned of a ferocious cash squeeze on business, saying in February 1991 that it was about to get worse. Next month came his first Budget, marred by disturbing signs that the public finances were slipping from the Treasury's grip. This was a year of bankruptcies and bad debts, and the false dawn by whose light he saw green shoots in the autumn was the cruellest illusion of all. It seemed to me that his policies, so far from curing the recession, were making it longer and worse. 'First the binge, then the hangover, then the medicine — we have had enough of them all,' I wrote in January 1992 — the recession was driven by debt, and dear money was perpetuating it. We had, though, put our monetary policy out to contract to the Bundesbank, through the ERM, and were stuck with the conse- quences.
Major's Selwyn Lloyd
OF MR Lamont's pre-election budget I remarked that he must run for his life or be turned into dog-food. He outpaced the hounds, then, but at the price of planning to borrow £28 billion. He had, I wrote, not one sound economic policy but two wrong ones — a lax fiscal policy and a tight mone- tary policy, with the Treasury hoping that they would cancel one another out. Mone- tary policy cracked first, as the recession
entered its third year, and the strain of keeping the pound up to the mark became extreme. Mr Lamont once again tried to get through on his face. At every opportu- nity, in fierce declamation and in careful argument, he proclaimed his utter commit- ment to the ERM and to the exchange rate at which we had joined. The Chancellor', so I wrote in July, 'has staked his job on it. He should be worried to see the market take his bet and raise the stakes. So should the Prime Minister.' August took him on holiday, and I imagined him dreaming by his Tuscan poolside: 'I'm not going to be stuck with a passive policy of hanging on and hoping or can-carrying — the Selwyn Lloyd of the Major government. . . 'I took him to have made the ERM commitment a resigning matter. We soon found out. 'Black Wednesday' saw his policy destroyed in the markets — a total defeat, no less costly and humiliating if the policy was, as I thought, wrong. I assumed that the Chan- cellor would go with it.
Chippy and chirpy
I, THOUGH, was off to Washington for the International Monetary Fund meeting, where I found to my astonishment that Mr Lamont would be joining us. There he was, his usual chippy and chirpy self, perched in the rose-garden of Dumbarton Oaks, singing (so he told us) in his bath, blandly explaining that he would now set his policy by what was happening in the British econ- omy. Over a glass, an old colleague of his sought to justify him — the ERM policy had been the Prime Minister's, Mr Lamont had never much liked it but had loyally car- ried it out. The excuse, I thought, com- pounded the offence. 'What Mr Lamont's new policy needs', I wrote, 'is a credible Chancellor.' That remained his trouble, and the Government's and the economy's troubles, to the end. He cut interest rates. He got past the Conservative conference by wrapping himself in the Union Jack. He announced a strategy for growth (what a novel idea) and a target for inflation. What we needed, I thought, was a policy to make devaluation work, but that would mean aus- terity —Stafford Cripps's watchword and his style, but not really Norman Lamont's. He went gaily on to unveil public spending plans which would mean borrowing £44 bil- lion. He had tackled the easy option, cut- ting interest rates, but left the hard one, cutting spending, for another day and, as it proved, another Chancellor. By Budget- time this year, the deficit had swollen up to £50 billion — one more year, I wrote, of liv- ing now and paying later: 'These are the finances of the poorhouse. It has got to stop. Now would not have been too soon.' Time was already running out for him. Last month I found myself drafting a job specifi- cation for a sit. which would soon become vac. — a financial director to take responsi- bility for a budget of £290 billion: 'The last two appointments to this key position have been internal promotions, but the need now is for a strong external candidate, who will not be the captive of his staff and will make changes of his own. Nor will an inof- fensively safe pair of hands suffice for the hard and unpopular choices that will have to be enforced. This is a job for a bruiser.' Now we have one. What he has to do is evi- dent. Mr Lamont, even if he had the will, no longer had the clout to do it. Kenneth Clarke is a luckier man. He will find that he has scope, which Mr Lamont doubted, for further cuts in interest rates. Best of all, he will have what Mr Lamont never had — a predecessor he can blame. That is the out- going Chancellor's last service, and the cur- tain-line in a small personal tragedy.
They shot our fox
'THERE had been mistakes. The Govern- ment wanted to start afresh. For some time there had been a need for a victim. The neatest, cleanest and most convenient sacri- fice became that of the Chancellor.' This was Hugh Dalton, Attlee's fallen Chancel- lor, as seen by his biographer Ben Pimlott. Dalton's opponents — as distinct from his enemies, who, like Norman Lamont's, were in his own party — made the point more directly. 'Good God!' shouted Nigel Birch from the Tory benches. 'They've shot our fox!' It seemed unsporting.
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