Newspaper article The Evening Standard (London, England)

Clarke's Recovery Route Can Work for Us Again; Escape Artist: Ken Clarke Said Public Finances Were the Key - and Was Proved Right

Newspaper article The Evening Standard (London, England)

Clarke's Recovery Route Can Work for Us Again; Escape Artist: Ken Clarke Said Public Finances Were the Key - and Was Proved Right

Article excerpt

Byline: CHRISTOPHER FILDES

IT ALL sounds familiar. Recession in the air, negative equity, banks with burned fingers, credit still very tight and getting tighter, the pound under pressure and the Chancellor of the Exchequer preparing to borrow a billion pounds every week...

What a lethal mixture but haven't we been here before? How did we get out of it last time? Welcome back to the 1990s. When they began, inflation had returned, house prices swelled up and went pop, money was scarce and dear, Barclays went into the red and recession set in. The Chancellor urged us to spot the green shoots of recovery, while his own borrowings set new records, meaning that policy was lax at his end of town and tight at the Bank of England's.

He was trying to manoeuvre while balancing on a trapdoor. We had joined Europe's exchange rate mechanism the euro's precursor and were stuck with the consequences. He kept on explaining how good this was for us, until one September day the trapdoor opened and sterling fell through.

This humiliating collapse turned out to be the best thing that could have happened.

Outside the ERM, we had room for interest rates to come down. We might then have simply imported inflation, but confidence was too weak and the economy was too depressed.

Producers looked abroad and found that their goods and services were now competitive. Against all the odds, we had fluked our way into a successful devaluation of sterling. After a while, the pound rallied.

By then we had a new Chancellor.

Almost everyone told him the CBI loudest of all that he must not abort the recovery by spending less money or by raising taxes. He replied that he had to put the public finances in order, and until they were right, nothing else would go right.

This was Kenneth Clarke, and events bore him out. So what chance do we have of a repeat performance? …

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