Leading Article: Mr Major's vote-chasing boom too far

"Britain is booming" - it's official. The Prime Minister said so today. "But not in an unreasonable way," he was quick to add. There's an interesting thought: it's a reasonable, manicured, well-behaved sort of boom that just happens, wholly coincidentally, to come immediately before an election. A modest boom. A John-and-Ken sort of boom - a boom that should not be compared to the wicked booms in days of old.

We are not wholly convinced. Yet Mr Major and Mr Clarke have a difficult balance to strike. On the one hand sceptical voters need convincing that they are right to claim things are looking up. While Mr Major proclaims Britain's economy to be the envy of Europe, Mr Blair whispers in voters' ears that, on the contrary, we are slithering down the international league table fast.

But at the same time, the Prime Minister can't talk booming Britain up too far. The ghosts of serious economists, central bankers and voters with long memories are flapping around him, warning that the boom-bust machine has been stoked up for electoral purposes before. So what is the truth? In fact, that boom the Prime Minister is so proud of is a worrying prospect. Vote-chasing is damaging the Government's management of the economy once more. Had there been no election, we believe interest rates would now be higher.

But peering beyond the immediate debate about interest rates and tax levels, the Conservatives should be accorded credit for their economic reforms of the past two decades. Labour is right that fundamental weaknesses remain: nevertheless in many ways the Conservatives have substantially improved the way Britain does business. They have deregulated markets that were over-regulated and traditionalist, reformed the labour market, embraced the free-trade global economy and privatised once-staggering state leviathans.

As a result, according to the Conservatives, the economy is in its best state since bread was first sliced: inflation is low, jobs growth is high, taxes are falling and our long, slow, relative economic decline has been reversed. The boom-bust cycle, they maintain, has been replaced by steady, sensible economic management.

This confidence is premature. We heard something similar in the late Eighties. Now we need only listen to the Bank of England. Yesterday it emerged that the Governor, Eddie George, told Ken Clarke last month that demand was rising at an unsustainable rate: interest rates should go up immediately. But the Chancellor refused to budge. Wages suddenly shot up with the sharpest acceleration since the Seventies. House prices are spiralling - especially in the South-East. These are troubling signs that we do indeed face the familiar pre-election boom that we could pay for later on.

To be fair to Mr Clarke, he hasn't strayed too far from the mainstream of economic opinion. He has been a success at No 11. The trouble is that the mainstream, as always, has been broad, and Mr Clarke's economic fellow- travellers look as though they may have been wrong. Consummate politician as always, the Chancellor has simply pushed things as far as he could credibly get away with, at least before the election. It now looks as though he is pushing just that little bit too far: as a result, we may be about to lose our historic opportunity to change attitudes to inflation once and for all.

Rates should go up. Better still, taxes should go up - that would subdue consumer demand, and fill an overly large hole in the public finances too. What a shame neither Labour nor the Conservative have the guts to argue for this as part of a platform of economic prudence and responsibility. Best of all, they should introduce that tax increase by abolishing mortgage tax relief, thereby calming the housing market that has such a terrible tendency to exaggerate the swings in consumer demand.

The British Tory legacy is patchy, and requires that kind of toughness to preserve it. True, many of the Conservative economic reforms, opposed by Labour and now vindicated, have yet to take place across the Channel and to that extent we are indeed "the envy" (Michael Heseltine) of reforming Continental economists. But to claim we are zooming ahead of our partners, that we are in clover while they stagger through the nettles, is taking things too far.

For a start, Britain is booming because we came out of recession earlier than our colleagues. And we achieved that because we devalued against Germany, just as the Germans were starting to face up to the burden of unification. Moreover, Labour has an extremely powerful point, when it argues that one persistent weakness in the British economy remains: low skills.

Why have wages suddenly picked up, despite the fact that so many people are still out of work? Because those in work can afford to push their earnings upwards, knowing that the unemployed don't have the skills or qualifications to usurp their positions. Why are some people stuck out of work for years at a time, or trapped into cycles of low-paid temporary work and spells on the dole, while new jobs are being created all the time? In part, because those at the bottom of the heap are too poorly educated to compete and climb the ladder.

Mr Major wants voters to reward his party for those improvements it has achieved, and to trust him to deliver the reforms needed in future. So he should be calming the boom, not pretending that this time it is house- trained. But we are not surprised at his relaxed view. His real worry must be that voters will cheerily take the positive legacy of Conservative government for granted, and seek someone else to handle the problems the Tories failed to solve.