Sir John Major’s Comments on the Economy – 5 July 2009

July 5, 2009 admin 2009, David Cameron, Economy, Taxation

The text of Sir John Major’s comments on the economy, made in an interview on 5th July 2009.

SIR JOHN MAJOR:

[Sir John was asked how deep the recession is].

I think it’s as deep as I can ever remember. If you look at the contraction in the economy which is close to 5% on a year on year basis and then look at the size of the deficit, which is 175 billion or thereabouts on best estimates, about 12% of GDP, that’s a territory we have never before been in in peace-time, so this is about as bad as it has ever got, so I think the recovery pattern, you may get a small dead cat bounce here and there, but I think the recovery pattern will be very slow, and the pace and strength of the recovery may well depend on decisions yet to be taken about public expenditure and tax.

[Sir John was asked about stories of severe public service cuts].

I’m unsurprised by that story, I would be very surprised if departments up and down Whitehall and local authorities up and down the country weren’t looking at very significant reductions in expenditure at the current time. It would be remiss of them not to do so.

I think one just has to look at the figures. If you’re talking of a public sector deficit of 12%, let us make the happy assumption that half of that may be wiped away by growth over the next few years, I think it’s questionable that it will, but on happier assumptions, it just conceivably might. You’ve still got a public sector deficit of around 90 billion, even that is over twice as high as we have ever had before, at the worst of any recession, even assuming we have that growth.

Either we deal with that with public expenditure reductions or we deal with it in tax rises, or more likely a mixture of both. Let us assume for a moment that the Prime Minister’s plan not to cut public expenditure significantly holds steady. If that is the case, then you are then beyond a shadow of doubt facing very significant tax increases. Now difficult to be precise of how big, but I think we can begin to make a guess.

[Sir John was asked whether taxes could only be on the rich].

No, well of course, there’s already been an increase in the upper rate of 10% from 40% to 50%, but the rich can’t remotely provide the sort of money we’ll be needing, that’s relative petty cash of what we’ll be needing.

So you’ve had an increase of 10p in the upper rate for the rich, I think you may well get 5 pence on the standard rate, you might well get VAT at 20%. Even if you got that, you would not begin to bridge the gap that must be bridged. So it would be significantly larger than that, on the assumption you aren’t going to make public expenditure reductions.

So I think the debate needs now to concentrate on the reality of where we are, and it doesn’t matter who is in Government now, this mess isn’t going to change with a change of government, someone, whoever is in Government now or later, is going to have to correct the public finances. And if they don’t, if they just continue with the finances of this huge deficit, at some stage our national credit rating would collapse, if that happened, sterling would be in difficulty, if that happened you’re get soaring interest rates and all the good done in the 90s when we took a lot of pain to get inflation down would have been thrown away.

So the situation we are now in is pretty serious and has been built up over many years. Normally in years when you have a good economic record, you begin to repay debt and you bring the deficit down. What has happened, particularly since 1999, is that even in good years with a boom, the debt has risen. Now of course the boom has gone, we have the debt, and we have the problems of recession, adding to that on a daily basis.

[Sir John was asked if he spoke to current Conservative leaders].

My conversations with current Conservatives is private and I have my own views, and I speak for myself and no-one else.

I think the public really need to understand how deep this is. These silly exchanges about “Mr 10%”, and things of that sort, totally under-rate the difficulties that we are now facing. People need to understand that this is an unprecedented situation. We have never seen anything like this in your lifetime or mine.

[Sir John was asked about whether politicians can now talk more about tax increases].

It may well be if you talk about cuts you get punished by the electorate as you did in the past. There are two things crossing over here, there is the question of whether you can talk about cuts and the question of trust. Trust has been eroded over a long period and I think the present Government have done a great deal of damage to trust in Parliament and to trust in Government. But now, the public are going to find out in the next few years exactly how serious what is now happening will be.

I think the party that tells them the truth, in the most explicit terms, will be the long-term gainer. Whether they will be the immediate short-term gainer in the battle of oratory between now and the General Election I can’t say, but in the medium and long term, the party that tells the public how deep the problem is and what needs to be done about it is the party that will earn the respect of the public and the trust of the public and the party that will be the long-term gainer, in my view.

I think we have to address the reality, you have a deficit of 180 billion;

Can you continue with that? No.

Have you got to narrow it? Yes.

Can that be done solely by growth? No.

So how do you bridge the gap, and what are the implications of that?

And there are some opportunities here. When people think of cuts, I would argue that we are a heavily over-governed nation. When you have subsidy to some parts of the country greater than that is provided in Cuba, you realise you are beginning to become a bit of a nanny state.

There is an opportunity not just to deal with the problem, but to downside the sum total of Government, which I think we should do. And by downsize the sum total of Government, I don’t just mean reduce the number of MPs, although I think that is right. I do mean reduce the size of the Government machine, we have no need for a 120 Ministers and 60 PPSs, and you could reduce that by a third quite comfortably, and

I’d happily explain how.

And then when you’ve done that and down-sized Parliament in that respect, I think you downsize what Government does. You can’t forever have the Government increasing its role at the expense of private endeavour and the private sector. It is a route that ends eventually in national bankruptcy, which is where the Government are heading us.

So I think there is a philosophical opportunity to reshape the country as you deal with the problem.

[Sir John was asked whether this was a 1979 moment].

I very much hope that will be the case, though in many cases the problems now are more serious than 1979. 1979 was very bad, and it was only because of the disaster of the 1970s that the reforms of the 1980s were politically possible.

I think now, with the problems we’ve got, that there is scope for bigger and more fundamental changes in the next Parliament and beyond.

[Sir John was asked whether David Cameron was a Margaret Thatcher politician].

I think he’s a David Cameron politician. No-one can know what someone is like until they’re in the position. And often events make people. And I think he’s going to face some very uncomfortable decisions in the future. I think he’s done a remarkable job of changing the Conservative Party in the right direction for the last two or three years, so I have a very high opinion of him and I very much hope he can do what still needs to be done.