City & Business: Honeymoon with the economy is over for Blair

The honeymoon is over, so what now? For headline writers the question is obvious. It refers to the Government, Bernie Ecclestone, Formula One, tobacco, and Labour Party funding. But it might equally refer to the Government and economic policy.

Until the past few weeks, Blair has had it all his own way economically. The domestic and international economic cycles have been benign - with the result that unemployment has shrunk and people have had money in their pockets. In spite of the furore over EMU and Treasury spin doctors among the elite, the public has continued to view Blairism as the best of all worlds: Thatcherism with a human face.

Inevitably, however, Blair's luck has run out. UK economic growth looks set to weaken in 1998. As it does, criticism of Blair's economic policies is likely to increase. Even the revivified special relationship with the US offers diminishing comfort. As Hamish McRae points out on page 5, economic power is moving east. Washington and Wall Street look less in control of events than they used to.

The F1 tobacco affair may keep minds off economics. Saddam Hussein's antics and Christmas will provide other distractions. After the turn of the year, however, the public may look around and well conclude that the promised land of prosperity with social justice is just as distant as it was during the Thatcher/Major era.

None of this is startling. Downing Street is no doubt preparing politically for the eventuality. But the signs are these preparations could take us in the wrong direction. In response to the F1 tobacco affair the Government has offered a resounding 'no comment'. On Newsnight Jeremy Paxman has revelled in showing the empty chair not occupied by the minister invited to answer questions about Bernie Ecclestone's contribution to the Labour Party.

The right direction would be to open up debate on further economic reform. Let the Tories and the left of the Labour Party have their say about economic policy without being shouted down or gagged.

In any event, economic policy brilliance is only going to get UK plc so far. Now that the Government is bumping back down to earth, the cultural forces obstructing economic progress are becoming visible. Take the City and BT. Last summer the City could have given the green light for BT to buy its American partner MCI at the full price asked rather than insisting that BT chivvy MCI shareholders down. Once BT had knocked the price down, the City suffered a loss of confidence in BT's management; this allowed World- Com to swoop and steal MCI.

No doubt the City has arguments to account for itself. But it is hard to avoid the conclusion that, riddled with penny- wise, pound-foolish Micawbers, it focused on BT's financial statements, not on its strategy, and let the company down.

The point here is not to berate the City, but to say that this is the kind of painful debate the Government will have to open up if it is serious about improving the prospects of UK plc. Without going for the sacred cows of the British economy Blairism as an economic programme is likely to fizzle out.

In this regard, the publication last week of the DTI's research on how UK plc stacks up against global competition is heartening. Commissioned by the Blair economic team, the report is just what the doctor ordered. No flannel. No spin. No easy read, either. Instead, a dense but rewarding compilation of facts offering a snapshot of UK plc today.