The Conservatives in Brighton: Walters scorns 'fudged' speech

SIR ALAN WALTERS, economic adviser to Margaret Thatcher when she was Prime Minister, yesterday described Norman Lamont's speech as a 'fudge with serious consequences'.

As an advocate of market economics and a free-floating pound, he said that Mr Lamont was wrong to say he would go back into the exchange rate mechanism when the time was right. 'There is no right time, and there are no right reasons,' he said. 'I suggest that, in six months, we will be shoe-horned back into the ERM, and back on to the roller-coaster, with serious consequences for Britain, for Europe and beyond.'

Sir Alan applauded the Chancellor's intention to have a target for the monetary supply, but said it was wrong to have a target figure for inflation. The Chancellor was right to take notice of house prices but he was wrong to say he would support the pound if its fall was jeopardising his anti-inflation policy. Mr Lamont would not let the pound float freely. The money markets would still be able to start a run on the pound, knowing that the Government would intervene eventually to prop it up.

Addressing a fringe meeting held by the free-market Selsdon Group, Sir Alan said that he had been a critic of the ERM since 1982. Britain had only joined in 1989 because by that time Mrs Thatcher had lost control of economic policy to other ministers.

Sir Alan said that the Chancellor 'knows the ERM is a disaster', and would not wish to rejoin in its present form. It was neither a floating currency, nor a fixed rate, either of which can work, but an idea of clever economists and 'politicians like Michael Heseltine' to 'have a bit of both'.

In fact, the result was the worst possible, and not only because Britain went in at too high a rate. Britain had effectively gone into the ERM in 1987 when the then Chancellor started pegging the pound to the German mark. At that time Britain had gone in at too low a rate, and to stop the pound strengthening against the mark, Nigel Lawson had been forced to cut interest rates, fuelling inflation, particularly house price inflation.

Overall the Chancellor's economic policy was a curate's egg: 'But I wouldn't wish to try to separate the good parts,' he added.