Labour rift opens over economic policy: Smith and Brown urged to aim at full employment and to adopt alternative economic policy including devaluation of the pound

A GULF between the Labour frontbench economic team and rank and file MPs threatened to open up yesterday as a backbench member berated the leadership for adopting monetary policies barely distinguishable from those of the Government.

The outspoken attack by Brian Sedgemore, a member of the Commons select committee on the Treasury, was accompanied by a call to John Smith, the Labour leader, and Gordon Brown, shadow chancellor, to press for a 12 per cent devaluation of the pound within the European exchange rate mechanism.

A speech aimed at the respective jugulars of Mr Smith and Mr Brown to party members in Mr Sedgemore's Hackney South & Shoreditch constituency last night contained the thinly- veiled threat of an open backbench rebellion if the leadership fails to adopt an alternative economic policy and revive the commitment to the concept of full employment.

Mr Sedgemore, an ardent pro- European, told the Independent he believed the speech reflected the views of the bulk of Labour MPs. 'The backbench has suffered in silence,' he said. 'We have become so respectable and have shut up about these issues because we wanted to win the election.'

Deriding the Labour front bench's 'unexceptional' proposals to regenerate the housing market, training and investment as no consolation for its 'blunted' critical faculties on macro-economic policy - issues such as exchange and interest rates - Mr Sedgemore told his audience: 'Why should devaluation be a word that dares not speak its name for Labour?

'The Tories in the midst of their own creation are not being put under real pressure.'

Mr Sedgemore said devaluation would not provide a complete economic cure but was a necessary step on the road to economic recovery. Neil Kinnock's idea of a realignment of all currencies within the ERM would be blocked by the Germans. There would also be opposition from other EC countries to the proposal by Robin Cook, shadow trade and industry secretary, for a co- ordinated reduction in interest rates.

Of the Labour front bench, only Bryan Gould, national heritage spokesman and unsuccessful contender for the leadership and deputy leadership, has broken the line by effectively urging devaluation, although he has also hinted that Labour calls for 'co-ordinated' action across Europe on interest rates are code for the same thing.

Mr Sedgemore urged Labour to come up front yesterday and argue for the pound to be set at DM2.50 to 2.60, accompanied by entry to the ERM narrow band to show Britain was serious about staying in the mechanism.

'Since it was the Government that took Britain into the ERM at the wrong rate (DM2.95) it is difficult to see why Labour should wish, at the expense of the British, to defend so doggedly this Tory mistake,' he said. 'This Tory mistake is helping to create unemployment and reduce output and prosperity in Britain.

'Labour should also be pointing out that by leaving the currency overvalued in the ERM the Tories have provided anti-Europeans with a powerful weapon.'

Turning his fire to modern Labour-media relations, Mr Sedgemore claimed: 'Not so long ago a senior Labour back-room adviser told the press in a contemptibly patronising statement that Labour would not talk about the future of the ERM because this subject was too difficult for the public to understand. Instead it seemed that Labour politicians were to be asked to look to their next sound bite, their next press release, and their next predictable outburst of impressionable outrage as the Government once again got it wrong.

'Let the day of the sound bite be over: may our front bench economic team now get down to real work and come up with practical and radical solutions to difficult problems,' he said.

Mr Sedgemore said no political party in Britain was committed to policies that could bring about a return to full employment or anything approaching it. It would remain an aspiration unless Labour's treasury team could be convinced of the need for changes in policies on exchange and interest rates, in fiscal and interventionist policies and in policies related to Labour's 'current adoration' of the working of free markets.

(Photograph omitted)