Parliament and Politics: Maastricht treaty: Battle against inflation 'still top priority': Price rises take precedence

THE GOVERNMENT'S goal of 'low inflation and a prosperous economy' remains the same now Britain is outside the European exchange rate mechanism, John Major insisted yesterday.

But the Prime Minister's failure to mention zero inflation, or, as in his Glasgow speech 10 days ago, to stress that Britain's present inflation rate is still above that of key international competitors, led yesterday to speculation - denied by his officials - that further significant falls in inflation were no longer a target. Non-inflationary growth remained the goal, they said.

Writing in the London Evening Standard, Mr Major said he would go on giving 'top priority' to the battle against inflation.

'If inflation were to get out of control, then everything we have worked for would be lost. I will not allow that to happen,' he said. Britain had to control its costs to compete with its European partners, he said, repeating that Britain could not return to the ERM until it had been reformed.

Meanwhile, Douglas Hurd, the Foreign Secretary, speaking in New York, reiterated the Government's criticism of the Bundesbank, but said Britain was far from alone in believing that changes needed to be made to the ERM.

'We have a criticism against the way in which the Bundesbank and its chairman handled the events of last week,' Mr Hurd said. 'But whatever one's view of German policy, clearly the currency mechanism is in a bad way, and many heads of government, several, asked the Prime Minister to call a summit on that subject.'

Mr Major said: 'We shall not go back into the system until the flaws have been put right. We need to ensure that the ERM will be run to reflect the interests of all its members. That is the issue Norman Lamont will be addressing with fellow finance ministers.'

The Prime Minister's insistence that his Government would not allow the gains of the last few years to be 'thrown away' outside the ERM came as Gordon Brown, the Shadow Chancellor, accused the Government of returning to 'the monetarist and isolationist excesses of Thatcherism'.

Mr Brown said he feared a new round of spending cuts. The monetary targets that Mr Lamont was now proposing to ensure that inflation was controlled 'are little more than a return to the old failed targets of Thatcherism', he said.

Mr Lamont had to explain, he said, why a policy of cutting loose from the ERM and slashing interest rates, which only days ago he had said would be grim for Britain, was now good for Britain, 'and why the policy he said was disastrous for inflation is now the policy he is pursuing'.

The Government should 'refuse to return to the policies of Thatcherism which have failed', he said.

Instead of spending cuts that would damage the economy, the Government should produce a programme for national recovery alongside 'renewed efforts at co- operation in Europe'.

(Photograph omitted)