The Chancellors’ Tales: Managing the British Economy

Howard Davies, (ed), Polity Press, 2006, 176 pages, £12.99, (paperback).

Maurice Bowra, when asked for the collective noun appropriate to the heads of Oxbridge colleges, said a ‘lack’ of principals. Lord Lawson proposes a clutch of chancellors; maybe a drubbing of Chancellors would be better. All of the contributors to this book – all recent Chancellors since Denis Healey (1974-9) except John Major and the incumbent Gordon Brown – bemoan the political consequences of their job. They are the people who have to say no when the deformation professionelle of politicians is to want to say yes. Indeed, Healey’s chief secretary, Joel Barnett, one of the few senior Treasury ministers to emerge with his parliamentary popularity intact due to lashings of Mancunian charm, used to call himself the "abominable no-man". He is still part of Treasury legend having cut public spending in a single year by more than any Chief Secretary before or since.

This is a crucial text for those interested in British economic policy since the breakdown of Bretton Woods, but its quality is mixed in part because of the nature of the contributions, which are transcripts of lectures and question and answer sessions held at the London School of Economics. An exception is Howard Davies’s magisterial introduction. Otherwise, all the contributors have their little and not so little lacunae: Denis Healey is still in denial, it would seem, about the significance of being one of the very few developed country finance ministers ever to need the assistance of the International Monetary Fund, an innovation nevertheless relegated to just half a paragraph while blaming dodgy statistics and forecasts. Here sadly is the account of a man who, whether by lack of intellectual effort or political will, was buffeted by events rather than shaping them.

Geoffrey Howe’s lecture is far more comprehensive, but similarly lacking in an honest exposition of the right rollicking mess into which he unwittingly plunged. He had tied himself firmly to the star of broad money – sterling M3 – which promptly misbehaved in an appallingly inconsiderate manner. Meanwhile, supporters of narrow money including Alan Walters at 10 Downing Street were conducting a strong internal campaign – which extended to inviting insurgent Swiss monetarists like Jurg Niehans to seminars – to show the Treasury the error of its ways.

The 1981 budget is presented as the controversial move, but the madness of rival monetarist camps rowing about which measure was appropriate while the real exchange rate soared and manufacturing collapsed is perhaps more notable in the case for the prosecution.

Nigel Lawson can stake a claim to being the ideologist of the Thatcherite reforms, and to formulating in his Mais lecture the reversal of the previous assignation of policy: macro-economic policy should control demand and inflation; micro-economic policy should boost the supply side. In reality, though, this is merely a restatement of the age old veil of money: monetary sovereignty is a mirage, and real things are determined by reforms in the real economy. Quite how Lord Lawson squares this view with his antipathy to european monetary union is unclear.

To some extent, all the contributors to this book except Kenneth Clarke were unlucky to have to take decisions when there was such a lack of professional economic consensus about what was wrong and what should be done. It is fair to say that, as a result, they are not economists’ greatest fans. But what is also striking is how peculiarly insular all except Clarke are, despite the often dramatic incursions into their world of the markets and their evident and regular opportunities to meet their opposite numbers.

Gordon Brown finally did stumble on the institutional solution to Britain’s macro-economic instability with the independence of the Bank of England, and this book shows how we really had exhausted all the alternatives. Far from being pioneers, we were the last of the Group of Seven leading industrial countries to establish central bank independence. With a little more international awareness, Mr Brown might go on to ask now why both our short-term and long-term interest rates are consistently so much higher than those among our rivals, and what institutional fixes might be required to remedy that debilitating condition. But that is another story for another book.

Chris Huhne

Liberal Democrat MP for Eastleigh & Shadow Environment Secretary