Ken Clarke: “We’ll never return to a golden age”

If the Conservatives return to office next year, they will “have to be the most pro-business government Britain has had since the war,” says shadow business secretary Ken Clarke. “The major task for a new government will be trying to nurture and strengthen a very feeble recovery.” Priorities would include tackling public sector debt and the banking crisis “in ways that don’t damage the interest of business”, creating an environment to stimulate business growth, start-ups and job creation, and looking at how to free up access to credit for small and medium-sized businesses in particular.

The former chancellor is in particularly combative form when asked if the Tories’ commitment to withdrawing the UK’s various economic stimulus packages as soon as possible could harm the economy further, given the latest fall in GDP. “We haven’t got any economic stimulus packages apart from the VAT cut and [car] scrappage,” Clarke says. What about quantitative easing? “That would be for the Bank of England. I wouldn’t withdraw quantitative easing at the moment. I don’t regard it as a desirable policy, but it’s a necessary policy in an emergency.”

He attacks the prime minister for creating what he calls a “fictitious debate about how the wicked Tories will slash fiscal stimulus". "The origin of this is that we have been saying that cutting the fiscal deficit as a whole should be started as quickly as possible because it’s completely out of control. In 2010-11, the government is proposing to increase public spending and the deficit by £30bn. And because most of it is pre-election spending, the prime minister refuses to touch it. I think that’s irresponsible.”

At the party conference, shadow chancellor George Osborne set out £7bn in potential savings. But far deeper cuts will be needed. So where are the Tories in terms of identifying them? Clarke is non-committal. “We acknowledge the need for spending cuts, and I can’t remember a shadow chancellor setting out samples of the kind of cuts he would contemplate before an election. We’re getting across to people that we’re behaving honestly and in a straightforward way. Sensible people must realise this needs to be done because of the huge burden of debt. But it is difficult to debate it properly in the face of Gordon Brown.”

The Tories have pledged to dismantle the Financial Services Authority. Clarke argues that the tripartite regulatory regime established by Labour has failed. “The starting point is that the regulatory system, here and in the US, was clearly useless. Nobody was doing macro-prudential regulation on the banks. “There was nobody with responsibility for financial stability who was stepping in and querying the business plan, business model and risk management of the major banks, to see whether this posed a systemic risk.” Instead, he says, regulatory oversight of the banks must be more powerful and be headed by the Bank of England and its governor. “You can’t do it overnight, because you’ll create a lot of uncertainty, although I think that’s being exaggerated in the press at the moment by people lobbying against the change. But George has said he’ll make sure it’s a managed and controlled process.”

He says that he doesn’t see narrow banks as a possible solution, arguing that banks from Bradford & Bingley to Lehman Brothers were caught up in the crisis and that it would be impossible to return to a “golden age”, particularly with companies demanding a wide range of sophisticated services from their banks.

Politicians should take suggestions from the City that extra regulation would undermine London as the financial capital of Europe and see “all our star players immediately flood to somewhere boring like Frankfurt, and all the rest of it" with a pinch of salt, he suggests.  But he argues that the consolidation of the UK banking industry in the wake of the credit crunch has been bad for competition in the marketplace. “In any ordinary circumstances, Lloyds would not have been allowed to take over HBOS,” he says. “I’m delighted that [EU commissioner] Neelie Kroes is having a look at this.”

Now Clarke is targeting the regulatory burden faced by business. At the Conservative conference he pledged to create a “star chamber” cabinet committee to approve new laws based on a system of regulatory budgets, together with a sunset clause that would apply to all regulatory agencies and quangos.  He acknowledges business is entitled to be a little cynical about “bonfires of red tape” and says it will be up to him and shadow business minister John Penrose to “produce a process which makes a reality of this”.  

Deregulation, trade policy and climate change are all areas where the party will want to “get down to the real practical issues of the market and the economy because we’re all going to be struggling to recover from a recession”, Clarke says.   

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