Friday, 16 December 1994


New Statesman & Society leader, 16 December 1994

The former president of the European Commission will not stand for the French presidency next year. That’s bad news

The decision of Jacques Delors not to stand as the candidate of the left in next year's French presidential election has devastated his Socialist Party (PS) colleagues. They know that, without Delors as their candidate, it will take a miracle for the left to win. The PS fared disastrously in the 1992 general election and in the 1994 Euro-elections. Apart from Delors, it has no popular leader. The question now is whether there is any future for the party that as recently as 1988 won 260 out of 556 National Assembly seats.

By contrast, John Major is crowing. In the Commons on Monday to report back on the European Union sum­mit in Essen, he appeared happier than at any time since sterling rumbled out of the exchange rate mechanism in September 1992. If there's no chance of Delors becom­ing French president, he believes, there's no chance of the 1996 intergovernmental conference on European integration coming up with federalist proposals that will split the Tory party. For Major, Delors' decision is the best piece of news he has had in a long time.

It is difficult, in the circumstances, not to share the French socialists' gloom. Although it is undoubtedly true, as Delors said in defence of his decision, that, as president, he would have faced the difficult task of deal­ing with an unremittingly hostile right-wing majority in the National Assembly, there is little doubt that he could have exercised significant influence. And, although it is true that Delors could not on his own solve the French left's crises of confidence and of ideology – they really are too profound for that – his presence in the Elysee Palace would at very least not have exacerbated them. Delors, with his emphasis on social solidarity and on the importance of the European project for the French left, comes as close as anyone to having a coherent concep­tion of how his party can rescue itself from its current dire predicament.

But it is not just in domestic terms that his decision smacks of capitulation. On the European stage, Delors has, as president of the European Commission, been one of the most consistent advocates of a Europe that is not a free-trade area of competing nation-states but a democratic federal entity capable of acting to ensure common social and environmental standards and, cru­cially, economic growth.

In league with Chancellor Helmut Kohl of Germany, Delors as president of France would have formed a pow­erful alliance to push the 1996 IGC to agree both a mas­sive expansion of the powers of the European Parliament (at the expense of the intergovernmental Council of Min­isters and the unelected Commission) and an enhanced social and economic role for the EU. Instead, with a Gaullist in the Elysee, as seems inevitable, the balance of power at the IGC will be radically different – and far more favourable to the anti-federalism of Major.

Of course, it would be wrong to claim that the French Gaullists are quite as close to the British Tories as Major would like to think. On several key questions, Jacques Chirac and Edouard Balladur, the two Gaullists most likely to succeed, differ fundamentally from the British right. They want to keep the Common Agriculture Policy much as it is, and they would prefer the Western Euro­pean Union rather than Nato to be the basis for security policy. Most important of all, they are both quite happy about the idea that a Franco-German alliance should be at the heart of Europe and are far more enthusiastic about a single currency than most Tories.

Nevertheless, Chirac and Balladur remain committed to the key Gaullist nostrum that national sovereignty should be paramount in Europe: neither is likely to back the democratisation of the EU's institutions, and the simultaneous strengthening of their powers to act, par­ticularly on macroeconomic policy, that the continent so desperately needs.

The upshot, ironically, is that Europe's best hope lies with the Tory Eurosceptics in Britain – not because of what they think about Europe, but because of what they might do. A continued Eurosceptic rebellion can only hasten a general election – and the earlier the general election,  the less likely the Tories are to win it. With Labour, or, better still, a centre-left coalition, in power in Britain, the chances of a democratic federalist outcome to the IGC would be improved dramatically. NSS wishes Teresa Gorman and company continued happiness in their independence for 1995.

Friday, 2 December 1994


New Statesman & Society, 2 December 1994

Kenneth Clarke's second budget was a bore – but the Chancellor has set himself up for massive cuts in income tax this time next year. Paul Anderson reports

It was, as the official Financial State­ment and Budget Report put it, "broadly neutral in its effects on the public finances, given the changed paths of output and inflation since last November". But Kenneth Clarke's pack­age on Tuesday is carefully designed to give him the maximum room to deliver pre-election tax-cuts this time next year.

As expected, Clarke decided not to cut taxes. Instead, he used the windfall he has been given by lower-than-expected infla­tion and higher-than-expected growth to make drastic public spending cuts in cash terms  and to revise the timetable for reducing Britain's public sector borrowing requirement. The Trea­sury believes that the PSBR should be down to zero by 1998-99, two years ahead of last year's estimate. Of course, all these projections take as given the massive tax hikes and spending cuts announced last year: as Tony Blair said in his reply to Clarke in the Com­mons, there was little in the budget to alleviate the effects of the medium-term austerity programme that is underway apart from extra cash for pensioners to compensate for 17.5 per cent VAT on fuel.

Income tax cuts were limited to small increases in the tax-free personal allowances for pensioners and a small expansion of the band on which tax is payable at the lower rate of 20p in the pound. In macroeconomic terms, the budget's measures to combat unemploy­ment are also minor, as indeed are the tax-breaks for investment in small busi­nesses and the compensation to firms hit by rate increases.

In any case, the effects of such mea­sures are to a large extent counteracted by further cuts in public spending on top of those already in the pipeline. Although Clarke decided to increase spending on the health service and the police, the more significant changes in expenditure are a squeeze on central and local govern­ment administration costs, long-term reductions in housing benefit payments to local authorities and savings from a clampdown on social security fraud. Overall, the total effect of the budget's changes amount to a cost to the exche­quer of a paltry £1 billion in 1995-96 and less in subsequent years.

In the context of the rigour of i993's austerity, Tony Blair was right to denounce this as a harsh budget. The Chancellor did nothing on Tuesday to make himself popular, and Labour will be able to milk outrage about VAT on fuel and dissatisfaction with stagnant living standards well into next year.

But the budget is not without its prob­lems for Labour. Most important, there can be no doubt that Clarke has set him­self up skilfully for generosity closer to the election. On the Treasury's figures, he should be able to cut up to 5p off the basic rate of income tax next year. And if the assumptions on inflation and growth on which the budget's projections are based are, like last year's, pessimistic, he could go even further.

The Treasury forecasts GDP growth of 4 per cent in 1994-95 declining to 2.75 per cent from 1996-97 until the end of the century. Yet the likelihood is that, with the economies of continental Europe and Japan recovering rapidly over the next couple of years, British growth rates will be sustained. On infla­tion, although the Treasury's forecast of a slight increase in 1995-96 is probably correct – due to pressures caused by falling unemployment and commodity prices rising as a result of recovery in Europe and Japan – it would be no sur­prise if the rate remains as low as it is now.

For all Blair's confidence on Tuesday, Labour knows this – and the alarm bells are beginning to ring. The Labour line that the Tories are the party that increased taxation after promising to reduce it has worked wonders so far and is not obsolete yet, but it will be difficult to sustain after November next year if Clarke is able to unveil thumping income tax cuts.

There are other, less important, diffi­culties for Labour in the way that Clarke has stolen Labour's clothes in several key areas. He made a big point on Tuesday of his enthusiasm for bringing private-sector capital into the public sector John Prescott-style, and his declaration that "in some cases, taxes actually do some good, by helping markets work better and by discouraging harmful or wasteful  activities" could have been taken out of a Labour (or Liberal Democrat) environment document.

But the most important steal was over the question of what to do about unem­ployment. The worst that Labour can say about the anti-unemployment measures announced is that they are too little, too late – for in principle they are precisely the sort of things Labour has been think­ing about itself since it joined the post-Keynesian consensus and decided (as Clarke put it eloquently on Tuesday) "that demand expansion on its own is not enough to produce a sufficient fall in unemployment".

For a start, there is a string of incentives for employers to take on people who have been out of work, particularly the long-term unemployed: rebates in employers' NICs for employees taken from among the long-term unemployed plus overall reductions in national insurance contri­butions paid by employers for low-paid workers, expansion of "work trials" schemes allowing employers to try out unemployed people for three weeks while they continue to claim benefit, grants for employers taking on the long-term unemployed. All these measures are in line with what Labour has been arguing for years.

Similarly, Clarke's ideas for using the benefit system to ease the transition from unemployment to work and from part-time to full-time employment bear a remarkable similarity to those com­mended last month by the report of the Commission on Social Justice: speeding up Family Credit and housing benefit payments to people starting low-paid jobs after unemployment, grants for ini­tial work expenses, a tax-free "back-to-work bonus" for people coming off income support after doing some part-time work, extra Family Credit for low-paid people working more than 30 hours a week, more Community Action places, a pilot scheme for a new benefit for child­less couples and single people who take low-paid work. The last of these is partic­ularly significant, because it indicates that the Tories are seriously considering responding to Labour's proposals for dealing with poverty pay by way of a mini­mum wage by extending the benefit net to those low-paid workers who can't claim Family Credit.

So although it's undoubtedly a "steady-as-she-goes" budget, and as such a grave disappointment to everyone who was hoping for some relief from austerity, it" s also extremely cunning. Clarke might not be able to prevent his party tearing itself to pieces over Europe – indeed, he could well exacerbate the divisions with his unashamed pro-Europeanism – but he's doing his damnedest to make sure that his economic policy is as suited to the Tories' electoral needs as it can be. This budget won't rescue Dudley West, but it could pave the way for a credible general election campaign.