Blair shadows Tories with inflation pledge

Labour leader makes radical economic-policy switch that delights John Major

Tony Blair last night made low inflation the highest economic priority of a Labour government, in a lecture which overthrew Labour Party history almost as dramatically as the new Clause IV and moved his party sharply towards the Government on the key issues of economic management.

Giving the annual Mais lecture at City University in London, Mr Blair said low inflation was "the essential prerequisite" of economic growth.

He claimed to be "tougher" than the Conservatives: "The control of inflation through a tough macro-economic policy framework is even more important than the Tories have said."

It was the precondition of "sustainable economic growth on a scale sufficient to attain the social and political aims of the Labour Party, including high, durable levels of employment and rising living standards".

In reply, John Major said last night: "I am delighted to see he is moving his policies in our direction." The Prime Minister claimed that the Government had already won the battle of ideas, while the Chancellor, Kenneth Clarke, dubbed Mr Blair "Little Sir Echo".

Mr Blair's words contrasted sharply with those of his predecessor, John Smith, who gave top priority to "full employment" in September 1993, saying: "Labour's economic strategy will ensure that all the instruments of macro-economic management ... will be geared to sustained growth and rising employment."

Mr Blair reinforced shadow Chancellor Gordon Brown's proposal last week that Labour's anti-inflationary credibility could be enhanced by a more independent Bank of England.

The Labour leader said Labour would "watch the track record" of a reformed Bank "before deciding what, if any, further steps should be taken towards greater operational responsibility for the Bank in interest-rate policy".

But Mr Blair said nothing in his hour-long lecture about moves to the single European currency - which are central to the future of interest- rate management and the control of inflation.

While he did not state what Labour's inflation target would be, he said: "The idea that inflation can be stabilised at around 5 to 10 per cent, with permanent benefits to growth, is pure and dangerous fantasy."

The Government's target is to get inflation below 2.5 per cent by the end of this parliament - although the Bank of England says that mark will be exceeded.

In a survey of domestic economic policy issues, Mr Blair declared "I am an unashamed long-termist", and repeated his plans for "the improvement of human capital" through education and training. While the control of inflation was the first objective, he described growth in GDP or national income as "the ultimate judge and jury" of his economic policy.

On tax and spending, he said: "We have to recognise a much narrower range of options than before", because of the growing integration of the world economy. And he accepted that "one of the requirements of our tax structure is to attract enterprise into the UK from overseas".

He insisted Labour would control public spending, and that the party had not yet made any spending promises. He was immediately attacked by Peter Lilley, Secretary of State for Social Security, who said a new clause proposed in Mr Blair's name to the Child Support Bill would cost "hundreds of millions of pounds more of taxpayers' money". As the clause was debated in the Commons while Mr Blair delivered his lecture, Mr Lilley asked: "Have his colleagues been using his name without permission?"