But the comments, which come in Memoirs of a Tory Radical – a reworking of his 1992 autobiography, The View from No. 11, with an extra look-back chapter included – could just as easily have come from the mouth of the current holder of that role, George Osborne, who entered the House of Commons in 2001, and took the second-highest elected office in the land following the May election.
“I think it’s been very difficult for them [Osborne and David Cameron] as they’ve not done anything before of this kind,” Lawson explains. “I did have ministerial experience before I became Chancellor... and I think that was useful. But nevertheless George has to do the best he can, and I think on the whole he is doing a good job.”
Such praise, given Lawson is the one former Conservative party Chancellor Osborne is understood to really take advice from, is perhaps not surprising.
But as his young successor begins what could prove to be the most pivotal week in his relatively short political career – announcing the cut-laden Comprehensive Spending Review on Wednesday – Lawson is not short of advice when it comes to cuts, something he himself was never shy to put in place.
“The public sector doesn’t have to be shrunk in absolute terms, because if you have a growing economy... then the public sector can be part of that growth. But it must not be out of proportion, which is what has happened, therefore cuts need to take place.”
In spite of the current parlous state of the British economy, he is also vehement that Osborne must seize the opportunity to act decisively. “It’s absolutely the right time. It’s the only time,” he says when asked if it might not be sensible to let the economic recovery strengthen before putting tens of thousands of public sector workers out of work. He also argues that not only is a government’s political authority strongest just after it has been elected, but that the financial markets expect a consolidation of public finances given the current deficit.
“It is absolutely imperative that George makes a start now. A big start. As big as he can. There is always of course a limit in a democracy as to what is politically possible so you have to respect that limit. But in my experience governments tend to be too timid.”
“As I say in my new final chapter [of the book] one of the things we did in the Thatcher government was to push forward the bounds of the politically possible and that is what I think this Cameron/Osborne government is going to have to do as well.”
Lawson dismisses suggestions that the UK, or indeed the world, economy is facing a double dip, and as such – although he acknowledges that growth may slow – he does not believe that should prevent the cuts from going ahead.
“I hope he will be bold. But of course his programme is a programme for the parliament, not just for one year,” with reference to Osborne’s five-year plan for cutting the ￡149bn deficit he inherited from Alistair Darling and Gordon Brown.
When asked where the cuts should come, the noted climate change sceptic – he has written a separate book on the subject –perhaps unsurprisingly points to the government’s climate change principles and the potential cost that has to the public purse.
Although he won’t be drawn on other areas, he does note that in spite of the reaction to Lord Browne of Madingley’s report on university spending this week, he would one day like to see more public funding for the higher education sector, but only “once the economy has expanded sufficiently to make it affordable”.
Speaking with eloquence and the benefit of hindsight, Lawson notes that during the 1979-1983 period, before he entered No. 11 Downing Street, although cuts were not made as swiftly as had been hoped, it still allowed him when in office to generate a budget surplus at the same time as cutting spending by eight percentage points.
He cautions that Osborne should stick to his guns, and not be put off by the reaction from economists – referencing Geoffrey Howe’s 1981 emergency budget in which public expenditure was slashed, personal and indirect taxes were increased, and a levy on bank profits and North Sea oil was introduced. A group of 364 economists famously signed a public letter criticising the budget, saying in Lawson’s words that the government was “condemning the British economy to a self-perpetuating downward spiral.”
“But nothing of the sort happened. In fact that was when growth resumed,” he points out.
Lawson’s strident belief in the essential workings of the free market continues unabated, noting in the final chapter of the book – which is being published by an imprint owned by Conservative blogger Iain Dale, who persuaded him to revist his memoirs – that “neo-Keynesianism is a beautiful theory wholly devoid of empirical support”.
As he talks, it is clear that he is fond of Osborne – in a fatherly way – and has spent time discussing the challenges he faces today, and extrapolating examples from his tenure as Chancellor to assist his successor but five.
But it is not just in pure economics that he is ready to share his views. A fan of America’s Glass-Steagall banking act of 1932 – which enshrined the separation of investment and retail banking until its dissolution in the late 1990’s – Lawson argues that he “put in place an improved system of regulation for the banking sector which Gordon Brown destroyed” during his time in office, noting that the British banking system had historically not needed regulation to separate, due to the very separate workings of commercial banks and merchant banks.
Lawson argues that rather than be told what to do, the banking industry should revert to the old model. “I think we do have to look at this again and try to recreate that. I am not sure that we will... as you’ll get all sorts of objections from the banks themselves to being split up and so on. I see separation as a means of avoiding over-regulation. Because if you have a separate investment banking sector which cannot bring down the core commercial banking sector you don’t need to regulate it so heavily.”
He argues that this sort of bank-led self-regulation should also be applied when it comes to bonuses. Although he points out that bankers shouldn’t be “so sensitive” in the face of negative comments from “populist politicians and populist newspapers”, he says that Osborne’s recent threat of a second round of taxes on bankers’ bonuses may have been more bark than bite.
“I haven’t recently discussed this with George but what I suspect is he doesn’t really want to introduce new taxes [on bonuses]. But I think he is trying to say to banks unless you are going to behave with more sensitivity on this issue then you might well have to pay higher taxes. ”
His fear of over-regulation – something which haunted the early Thatcher years as the Cabinet stripped away not only government regulation but also the power of the trade unions and high levels of taxation – is something that clearly concerns him now, noting that it is his biggest fear for the global economy and the UK.
“In the 1930s it was the outbreak of protectionism that made the 1930s slump as long as it was. We must not go down that route.
“Yes, the regulation of the banking system [ahead of the recent financial crisis] was wholly inadequate. There’s a danger now of going from inadequate regulation to something that is over-regulated and would be damaging for the world as a whole and particularly for the UK, as financial services is something in which the UK is right at the top.”
“It’s very important we don’t strangle it with over-regulation. We have to make a lot of changes but we mustn’t overdo it. If the world is trying to do something stupid, we are not going to follow. We are going to do what we think is right,” he asserts.
The same is true when it comes to increased pressure on Beijing to revalue the yuan, something he argues will only lead to a slowdown in the process that has already begun, calling on the US Congress not to place further pressure on the Chinese.
“If the American Congress decides to take protectionist measures against China, the Chinese will retaliate and it will be a real threat to the global economy,” a real threat that could make the lasting effect of Osborne’s swathing comprehensive spending cuts pale into insignificance.
? Memoirs of a Tory Radical, published by Biteback Publishing, is available now, price ￡14.99
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