No change in Labour's tough policy on inflation, says Byers

STEPHEN BYERS, chief secretary to the Treasury, defended the Government's tough stance on inflation last night in a speech outlining the "Third Way" for the nation's economy.

As manufacturers called for greater support to stave off crippling interest rates and a high pound, Mr Byers warned there could be no change on monetary policy and that "difficult" decisions had to be taken to ensure long- term stability and growth.

In his first speech since his promotion to the Cabinet last week, the chief secretary said the economy had to be slowed to avoid a return of the boom and bust days of the late 1980s and early 1990s.

Mr Byers told Labour party members in London that the decision to give the Bank of England power to set interest rates was vital to achieve the low inflation which would enable individuals, families and businesses to plan ahead.

The former schools minister reiterated the Chancellor's call for pay restraint for directors, saying that rising wages would hamper efforts to keep the economy on a stable footing.

A recent survey showed that boardroom pay increases are running at 18 per cent.

"All of us, starting from the boardroom outwards, must now show the responsibility that the country needs" said Mr Byers.

"It would be the worst of short-termism to pay ourselves more today at the cost of higher interest rates, fewer jobs and slower growth tomorrow."

Mr Byers said that with Parliament in recess it was now time to get away from the trivia of politics and consider instead "the big picture".

He added: "Our approach is often termed the Third Way. It needs to be made clear that the Third Way is not about somehow trying to split the difference between the old Left and the new Right in an attempt to find a messy compromise located somewhere in the middle ground of politics.

"The values of the Third Way are those which underpin a better society - decency, fairness, liberty and self-fulfilment. With regard to the economy, our Third Way is designed to combine dynamism with equity."

Initiatives such as the New Deal to get people back to work, tax and benefit reforms, cutting corporation tax and setting clear rules for fiscal and monetary policy bore out this balanced approach, he said.

Mr Byers hit back at Tory attacks on the Government's policies, saying shadow Chancellor Peter Lilley had taken "the fifth amendment" on the Tories' proposals for interest rates.

It is hard to take seriously the criticism of the shadow Chancellor seriously, given that while he was a minister at the Treasury in the early 1990s, he saw interest rates rise to 15 per cent, let inflation rise to 10 per cent and tolerated borrowing to begin its rise to pounds 50 billion, its highest ever level.

"John Redwood, whilst being critical of the present level of interest rates simply refuses to answer when asked what level he believes they should be at."

But Mr Redwood had repeated his claims that the Government had hit manufacturing hard while failing to meet its inflation target for every month of its office but one.

"Labour has as much chance of abolishing the trade cycle as they have of persuading Mr Prescott to travel everywhere by push cycle," said Mr Byers.