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DERMOT MURNAGHAN: Now the Chancellor will deliver his final budget of the parliament this Wednesday and one thing you are almost certain to hear are the words ‘long-term economic plan’ but what else is he likely to announce and what calculations will he be making?  Well the last Conservative Chancellor to put together a pre-election budget was of course Kenneth Clarke back in 1997 and he joins me now from Nottingham and a very good morning to you Mr Clarke.  Well we just heard the Chancellor saying this morning there will be no give-aways and no gimmicks but he has got to signal some light at the end of the tunnel after the last five years doesn’t he?

KEN CLARKE: Well he does in terms of economic policy but yes, you always get this demand for pre-election give-away’s which apparently are going to win you votes and so on.  No sensible Chancellor has ever done that in modern times and the public are not quite as silly as some sections of the press appear to believe.  The public would be very cynical if there was some obvious vote winning attempt to buy them.  What they’ve got to do, as you quite rightly said a minute ago, is build on this slogan which Downing Street insists on using, a long-term economic plan, actually explain that George I think can claim to be one of the most successful Chancellors in modern times who has turned round a catastrophe into about the best growth in employment levels of any other Western democracy and not only has he got that behind him but only a Conservative government could actually go on to the real aim which is to restore us to a solvent, modern economy that is more competitive and will give us a lasting chance for growth and jobs and so on and that’s the message.  What will determine people’s votes is whether or not they have confidence that really the Conservatives have done sensible things that had to be done, that they do know what they’re doing, that they have been succeeding and they will succeed.  In my biased opinion none of the other parties have got an economic policy that justifies setting it out in joined up writing, you have just got a series of little statements from all the other parties, that’s the ones that try to have an economic policy.  The right wing and left wing protest parties don’t even pretend to have any views on the economy at all.

DM: So what does he do about this specific number which emerged from the Autumn Statement last year, this aspiration in terms of public spending to get it down to 35.2% of GDP, the same levels as they were in the 1930s and this is a stick with which Labour are beating him, that he wants to take us back 80 years, can’t he ease up a bit on that?

KEN CLARKE: It’s a bit feather that they are tickling us with really.  I mean the proportion of GDP is not a very, to compare it with the 1930s is rather silly because the GDP was so much smaller then.  We have been reducing public spending, it’s almost down to the level it was in the early days of the Labour government, if he succeeds in May I don't think he’ll take it down to the level in real terms when I was Chancellor, he’ll be spending more than that.   We have had 35, 36% of GDP in the early days of the Blair government, the last Labour government, so all those interpretations of this figure are silly.  What you do have to do is realise these are only forecasts.  We obviously have got to get down public spending to a level we can afford, we do need to move into a surplus because the stock of debt is too high, we’ve got to get the debt down.  Actually in practice you do that at a pace depending on what’s happening, this is a dangerous world, the Chinese are slowing down at the moment, you’ve got to have some crash somewhere and things could change.  Our present growth level looks okay, it’s getting stronger, we’re doing okay and if we carry on having strong growth then eventually you run a surplus but the year which we actually deliver the surplus has to be judged by the Chancellor to be the year when we can do that and start to get back to more sensible ways of running the national finances after the wreckage that George Brown, Gordon Brown sorry, handed on to us.

DM: And what about specific measures?  It’s been much flagged up and of course it was an aspiration, it was a policy of your party in opposition, to increase inheritance tax, the threshold, to push that up to a million pounds and perhaps beyond.  

KEN CLARKE: Well some of these thresholds you liaise every now and again because inflation means that the old cash threshold is a bit low and you can get a bit of revenue,  actually it’s quite a good little earner to keep the thresholds where they were but raising thresholds can be done from time to time.  I’m glad we’ve raised the threshold at which people start paying tax, I did that once and John Major rather grumbled to me that he didn’t think there were any votes in it.  Well actually there is quite a lot of social justice in it.  You take people with very low earnings out of tax altogether and it does help the ordinary earner and actually we’ve gone beyond, well beyond inflation, we have actually eased the burden on the ordinary rate by raising allowances as we have.  You have to do a bit of that and you should do a bit of that, there is no point in being totally hair shirted in a pre-election budget, I am not squeamish about my trade but underlying it all, what you want the public to feel when George sits down is this guy Osborne knows what he’s doing, he’s really done all right, that’s pretty fair, all that.  The elderly who can’t improve their position through a recession and have no prospects of doing so without some help, they have got a bit of help but this is the guy, this is the kind of approach we’ve got to have if we’re not to fall back into the really chaotic position of some other European countries.  We talk about austerity in Britain and these have been hard times, cutting back public spending but we haven’t seen austerity like the Greeks for example and we had a bigger deficit in relation to our GDP than Greece did when the Conservative government first took over.

DM: You talk about it not being a pre-election budget but all these changes, in particular to the pension rules and people being able to access their pots and perhaps sell or cash in their annuities, this is in actual fact robbing one generation to pay for another one and to pay for that elderly generation who are more likely to vote Conservative.  

KEN CLARKE: No, no it’s not.  I have been arguing from the back benches, when I was last in the back benches during the Labour government, a lot of people argued very strongly to get rid of this compulsory annuity rule.  Annuities frankly were a bit of a racket and in recent years people have got a very bad bargain from them.  I regard all this as very enlightened social reform to enable people to actually handle their own affairs rather better without being forced to buy very bad products in their later years and in their retirement.  He may well continue that because it is a very valuable reform, I don’t think we’ll go back to where we were although some of the pension companies are no doubt frightfully upset because annuities were a good little earner as far as they were concerned, when people had to buy them at the age of 75 and now people are being given more control over their affairs, that’s a continuing policy I think.  I’m sorry to be dampening about the pre-election thing but if you look back, there are Chancellors, I won’t name them, all of them, who started just increasing public spending suddenly on some public service.  When you get to polling day some weeks later nobody remembers all that.  I modelled myself on Roy Jenkins who had been a very successful Chancellor, produced a very statesmanlike budget in 1970.  The left blamed Jenkins for Wilson losing the election but actually he had been such a damned good Chancellor, he very nearly beat Heath and very nearly cost the election.  When I gave my pre-election budget in 1997 I didn’t have give-aways, we were miles ahead in the polls on economic policy, as we are now and our problem them was our party had destroyed its efforts of being re-elected by an internal row over a thing called the Maastricht Treaty and Gordon Brown and Tony Blair very wisely didn’t challenge economic policy so they just carried on as it had been before and take my figures.  I cite those two examples, in both cases key elections, change of power in both cases, the budget was only relevant in just asserting the government’s claim, we are the people who are best fitted to run the economy.  I think that is obvious now, most people would accept that about the Conservatives and we’ve got to persuade people it is the principle subject at this particular election.

DM: Well of course you mentioned there the rows over Europe and Maastricht back in the 90s and Europe might be a big feature in the post-election landscape.  What do you make of this from Nigel Farage and UKIP today, making very clear his price for supporting a minority Conservative administration if that’s the way the cards fall, that he would want a referendum, an in/out referendum on membership of the European Union by the end of the year?

KEN CLARKE:  I would be fiercely opposed to anybody doing any deal with a hard line right wing nationalist party that wants to blame foreigners and Brussels for all our problems, it would be an extraordinary thing to do to enter into an agreement with a party that is just angry protest.  I understand angry protest but it’s not a party that any of the serious governing parties should enter into deals with.  If we have a referendum I’d quite like it to be done early.  We’ve achieved most of the things that David Cameron set out in his Bloomberg speech when he announced his desire to have a referendum and I think having this neurotic debate with occasional interventions from Mr Farage for the first two years of the next parliament is a nonsense that no government whoever is elected would really seriously want to put up with.  We do have more important things to get on with, on the economy, on reforming the public services, on actually getting the benefits of economic growth, the spread more widely amongst the general public, doing something about the hopes and aspirations of young people who have been worse hit by this recession, although everybody has been hit, those are the serious things.  I wouldn’t do a deal of any kind with UKIP frankly and I would be rather shocked if any of the serious political leaders contemplated doing a deal with him and his party at all.

DM: Mr Clarke, thank you very much indeed, very good to talk to you.  Kenneth Clarke there, the former Chancellor.

DM: