City & Business: What the Treasury is really thinking

WHEN I rang Charlie Whelan yesterday for my weekly this-conversation- never-took-place session, I was told he had headed off to the Barbados for "a few days hard-earned rest" and then put through to a junior spin doctor, Tellier Trooth. Our conversation seems worth reporting verbatim.

Independent on Sunday: ... OK, then, you tell me who Gordon Brown is.

Treasury: He's a shy man who has chosen to relate to the world through the medium of political power. He's the man who has made it his task, along with Ed and Demos, to modernise Labour Party economics.

IOS: The Third Way?

Treasury: The Third Way belongs to Mr Mandelson. We're talking substance.

IOS: Substance as in the Chancellor's CBI speech and his pre-Budget statement last week?

Treasury: That's right.

IOS: What was the message of last week?

Treasury: As billed. The Chancellor believes the talk of a "global financial crisis" is seriously exaggerated. He notes that policy makers have responded effectively to the fag end of a long upturn in the economic cycle. He believes we're in for a comparatively mild economic downturn.

IOS: No deflation?

Treasury: We're not headed back to the Thirties, no. The Chancellor's more clued up on the economic situation than all his critics combined. People go on about globalisation. The Chancellor knows globalisation from A to Z. He knows what a positive force globalisation is.

IOS: Doesn't globalisation mean too much of the credit system is in the hands of too few people? Doesn't that inevitably exaggerate the effects of the herd mentality at the expense of a rational allocation of credit? Hasn't globalisation put too much wealth in the hands of too few people to sustain adequate demand to keep the engines of industry turning over?

Treasury: Tosh.

IOS: Really? How come the Chancellor's economic forecasts were derided as overly optimistic? The pundits characterised the forecast of 1 per cent growth in 1999, rising to 2.5 per cent the year after, and 3 per cent after that, as on "the outer edges of credibility". The tabloids characterised the Chancellor as "complacent" and "arrogant".

Treasury: The media wants politicians to get off the fence. Well, the Chancellor got off the fence. Either his forecasts are right, in which case he will be portrayed as a hero standing tall against nimbies like you talking down the economy. Or his forecasts are wrong, in which case the jackals will bay for his blood. You want to know what last week was really about? Last week was about the tabloids finally finding a way to personalise the global financial crisis story. Mr Brown is New Labour's Di.

IOS: Where do the Tories stand on all this?

Treasury: Nowhere. We keep waiting for the Tories to get their act together, but they don't.

IOS: You have any advice for them?

Treasury: Play the libertarian card. The one Mrs T played before she lost her patience with her social revolution and went for authoritarianism instead. The control freak charge levelled against Gordon has legs to it. The Chancellor loves the people. But he doesn't trust 'em. The Tories could say the only way to improve economic performance long term is to trust the people. Give them more money to spend. Hague could say the best way to stimulate growth is to cut taxes for the least well off.

IOS: The Tories plumping for wealth redistribution?

Treasury: Why not? They've already lost big business as a result of their opposition to the single currency. You saw that in Birmingham. Who knows what might happen if they turned their Little Englanderism into a form of populism? There's plenty of mileage in the Power to the European People theme. We tried it ourselves, remember, during Britain's presidency of the EU. But it never came to anything. Now the Government is cosying up to the new centre-left powers on the continent. One way to say that is the Government is getting sucked into the continental European establishment.

IOS: So what's the Chancellor's next move?

Treasury: He cools it. He waits for the interest-rate cuts to work. For a good Christmas for retailers. For the stock markets to continue their rebound. You know how much the Dow's down from the pre-Russia collapse level? Just 5 per cent.

IOS: What about productivity?

Treasury: He's serious about productivity. Boom or bust, UK plc is not going to compete against the Chinese on labour costs. Boom or bust, Germany is showing an impressive capacity to get its economic house in order. Look at Daimler's turnaround. Look what Siemens is doing. Boom or bust, US foreign policy - globalisation - is ultimately about advancing the interests of Monsanto, Microsoft, and General Motors.

IOS: And yet Mr Brown loves Washington so much he acts as the US Treasury's spokesman on globalisation.

Treasury: You have a point. That's where some of us think the Chancellor's being a tad naive.

IOS: So what's he going to do about productivity?

Treasury: Everything he's announced. Education, training, tax breaks.

IOS: That's it?

Treasury: A little guidance. We're working on something.

IOS: What?

Treasury: You didn't hear it from me. Even on deep background.

IOS: Fine.

Treasury: A one off. Drafts are circulating. We're working on a programme that's totally politically incorrect.

IOS: The Pol Pot Experiment.

Treasury: You know about it! You know, then, we're not going to start picking national champions again. But we are thinking of targeting information technology as an industrial sector.

IOS: What Taiwan did in the late 1970s.

Treasury: Better late than never, right? Anyway, the idea is to make Britain the European landfall for global cyberspace companies. Admin for the internet, e-mail and e-commerce has to happen somewhere. Someone's got to keep rejigging the software. Why not us?

IOS: That doesn't sound so politically incorrect.

Treasury: The money we want to plough into UK IT? It's going to come with positive discrimination attached. There's loads of programmers out there, right? All sorts of techie graduates from further ed programmes? The idea is to find the entrepreneurs among these Essex men and women and invest in them. Reach beyond the charmed circle - the people with surnames you recognise. The Chancellor thinks ours is a culture with one tiny, homogeneous elite. He thinks it is the limitations of this elite that limit the nation's productivity.

IOS: But what would the Labour luvvies say?

At this point Mr Trooth took a call from Mr Whelan. From the beach, I'm told, holding his mobile in one hand and a pina colada in the other, Mr Whelan instructed Mr Trooth to terminate our conversation.