Clarke offers growth without tears: 'I have acquired a deep and abiding respect for all those engaged in the difficult business of commerce'

KENNETH CLARKE put jobs, living standards and growth at the top of his list of priorities in his keynote 'Mansion House' speech which broke sharply with the rhetoric of the Thatcher years.

Although the Chancellor was careful to promise that he would not squander his inheritance of low inflation, he broadened the goals of economic policy beyond the sole objective of stable prices. 'Low inflation is a direct spur to growth. It means safe, sustainable recovery. It is the only way to growth without tears.'

Foreshadowing what may be a new Treasury sensitivity to business and manufacturers rather than the City, Mr Clarke said that as someone from the industrial Midlands 'I have acquired a deep and abiding respect for all those engaged in the difficult business of commerce. When I am judged in due course as Chancellor, I should like to be remembered as a Chancellor who helped British industry and British commerce through another difficult period.'

Mr Clarke was ambiguous about the need for higher taxation to tackle the pounds 50bn public sector borrowing requirement. However, he attempted to placate his audience of City dignitaries in Guildhall with a promise that he would not prejudge the debate about the independence of the Bank of England. His remarks were in contrast to the recent scepticism of John Major and his speech was notable for departing from the tradition of confining remarks to monetary policy.

Mr Clarke provided few clues on whether he thought there was room for further interest rate cuts, but went out of his way to stress his commitment to hold underlying inflation within a 1 to 4 per cent target range, bringing it within the lower end of the zone by the end of the Parliament.

However, in a radio interview yesterday, Mr Clarke had declined to rule out the possibility that the target could be breached by an upturn in inflationary pressures next year.

The Chancellor distanced himself from his predecessor and the Thatcherite tradition by saying, 'on its own, low inflation is not enough. Growth, employment and a better standard of living are the ultimate goals to which every aspect of economic policy must contribute.'

Monetary policy would continue to be based on the performance of a range of indicators, but the Chancellor appeared to lend greater weight to the role of the pound than did Mr Lamont. Outside the ERM, monetary policy 'cannot be decided purely on the basis of the exchange rate alone'.

Mr Clarke went on to disparage excessive reliance on a single indicator - a rule-based approach to policy such as setting one specific target for the money supply. Although his remarks appeared to invest the level of the pound with a new importance in setting interest rates, he ruled out early re-entry into the exchange rate mechanism.

Mr Clarke said he had three 'formidable' objectives: to hold inflation within its target; to bring the public finances back towards balance; and 'to sustain the recovery and ensure that it is a durable one'.

The Chancellor emphasised the need to curb the growth in public spending to less than the growth of the economy, so that it took a declining share of national income. The Treasury is pressing for tomorrow's cabinet meeting on public expenditure to agree to reduce the ceilings on spending from pounds 253.6bn in 1994-95 and pounds 263.3bn the next financial year.

But Mr Clarke was careful not to rule out further tax increases beyond those announced by Mr Lamont - amounting to an annual pounds 10.3bn by 1995-96. Earlier he told BBC radio manifesto pledges to lower taxation 'did not mean that every Budget necessarily had lower taxes - no prudent Chancellor of any political party should ever say that taxation never goes up'.

The Chancellor also revealed an open mind on the Bank of England after Mr Lamont's disclosure that he repeatedly attempted to persuade the Prime Minister to support its independence in setting interest rates.

Mr Clarke said that the recovery was broadly based. His remarks came after official figures showed manufacturers experienced the sharpest rise in factory output since November 1988 in the three months to April. But high street sales were only modestly higher last month.

Factory output rise, page 25

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