The Rt. Hon. Sir John Major KG CH

Prime Minister of Great Britain and Northern Ireland 1990-1997

Chief Secretary (1987-1989)

Mr Major’s Response to the Autumn Statement Debate – 12 January 1989

The text of Mr Major’s response to the Autumn Statement Debate, made on 12th January 1989 in the House of Commons.

The Chief Secretary to the Treasury (Mr. John Major) We have had a wide-ranging and occasionally baffling debate in which several hon. Members, particularly those on the Treasury and Civil Service Select Committee whose report has so well informed this debate, have made excellent and interesting contributions.

My right hon. Friend the Member for Worthing (Mr. Higgins), who ably chairs that lively assembly that I occasionally have the pleasure of appearing before, raised, as did my hon. Friend the Member for Slough, (Mr. Watts), the question of official statistics. My right hon. Friend reiterated strongly the Committee’s worries about the current state of economic statistics. The Government share that anxiety, which is why last year my right hon. Friend the Chancellor of the Exchequer set up a review to examine the present arrangements for producing them and to make recommendations for improving them. That scrutiny has been completed and the Government are now considering it. As my right hon. Friend the Chancellor intimated earlier, we shall in due course publish a comprehensive report as a result of that inquiry.

In the closing remarks of his teach-in, the hon. Member for Vauxhall (Mr. Holland) was pessimistic about our prospects and painted a picture which I suspect few would recognise. In his analysis of the economy it seemed that he missed some of the ingredients that many other less learned people might conceivably think important. He omitted the fact that capital investment is growing at more than twice the rate of consumption, that private investment is at its highest level since records began – he expressly stated the contrary – that manufacturing output is at its highest ever level and growing fast, and that non-oil company profitability rose by about 10 per cent. in 1987 [Interruption] The hon. Member for Workington (Mr. Campbell-Savours) should wait a minute as he will hear something that will interest him. Non-oil company profitability is expected to be higher in 1988 than at any time since 1960. It may be that the hon. Member for Vauxhall thought that unimportant and he is not alone in that, for the hon. Member for Dunfermline, East (Mr. Brown) also failed to mention many of those facts.

Mr. Holland Will the Minister give way?

Mr. Major In one moment. Neither did either hon. Member mention that unemployment has now fallen for 28 successive months. Perhaps that is because in 1986 the hon. Member for Dunfermline, East said: there would be no fall in unemployment”, and the hon. Member for Vauxhall only last March said: The reality is that unemployment will get worse. It is now two years since the hon. Member for Dunfermline, East made his prediction and 10 months since the hon. Member for Vauxhall made his. In that time, unemployment has fallen in every month and in every region.

Mr. Holland First, one point is missing from the catalogue given to us by the Chief Secretary and that is that the balance of trade is an imbalance. Secondly, what matters is not the profits that companies have in their pockets, but how they invest them and how competitive we are. Our productivity recovery is nothing compared with the higher levels of other countries. Thirdly, if the Government had not changed the unemployment figures 23 times, we would be more persuaded. The Chief Secretary should learn that real jobs cannot be stimulated by massaging the figures.

Mr. Major If the hon. Gentleman intends to talk about catalogues, I shall deal with the catalogues of the hon. Member for Dunfermline, East in a few moments.

Both hon. Gentlemen, and the Labour party generally, still predict gloom with avid glee. That is the central part of everything that Labour Members say. The Labour party has been predicting a slump for a considerable number of years, although it stubbornly refuses to appear. With characteristic inhibition, the Leader of the Opposition, who is temporarily absent, predicted in 1983 a super-slump and forecast that the Government’s promise of a recovery was “a mirage.” The only mirage was the right hon. Gentleman’s forecast of a super-slump. Since then, we have had steady growth and we are entering our seventh successive year of it.

Both the hon. Gentlemen and others raised matters to which I shall turn in a few moments, but my right hon. Friend the Chancellor promised earlier that I would deal with the public expenditure aspects of the Autumn Statement to which the hon. Member for Berwick-upon-Tweed (Mr. Beith) devoted a considerable amount of time. The House will of course have a further opportunity to discuss the spending plans in detail next month.

The most important part of the public expenditure survey to note is the fact that we have been able to hold spending for next year unchanged at the total of £167 billion. That means that we have been able to meet two separate but important objectives. The first has been to reduce overall spending as a proportion of national income, so that we can maintain a strong fiscal position and, when it is prudent to do so, reduce taxes as well, because Conservative Members believe in lower taxes.

Over the past four years, public spending has fallen, from over 46 per cent. of national income –

Mr. Leighton Will the Minister give way?

Mr. Major The hon. Member for Vauxhall took a considerable amount of the limited time available and, if the hon. Member for Newham, North-East (Mr. Leighton) will excuse me, I shall not give way.

Over the past four years public spending has fallen from over 46 per cent. of national income to less than 40 per cent. It is set to fall further to the lowest level since 1966 by 1991.

For the future, our plans provide for spending on programmes to grow by an average 3 per cent. in real terms over the survey period. But the reduction in the burden of debt interest means that total spending is set to grow by less than 2 per cent. a year on average in real terms. That means that we shall continue to have firm control of total public spending as well as real growth in priority services. In the total for next year, we have achieved substantial savings through the rapid fall in unemployment, which cut spending on social security benefits by £1.5 billion a year, the success of the right-to-buy scheme, which has been tremendous, and far better performance by nationalised industries. Those are the direct results of the success of specific policies and together they provide substantial savings that we can redeploy to priority services.

Those savings, together with a rigorous reassessment of priorities that we made in the public expenditure round, have meant that we are now spending money where we choose to spend it and not where circumstances dictate. That is the second objective that we have met, and it is very welcome. Let me illustrate why it is so welcome. It has made possible an unprecedented increase in resources for the National Health Service of over £2 billion next year and over £2.5 billion the year after. That will offer real service growth, as the hon. Member for Dunfermline, East, even with his perverted statistics, must know. It has enabled substantial increases for roads, the police services and the development of a modern prison system.

The science budget, mentioned by a number of hon. Members, will be over 16 per cent. higher next year. There is substantial extra investment for the water authorities to reduce both sea and river pollution, as was mentioned in the debate. In direct response to the hon. Member for Berwick-upon-Tweed, I should point out that extra investment by British Rail and London Transport will improve safety and services for passengers.

All in all, the increase in total capital spending for next year is about £2.25 billion. I cannot recall, and neither can any other hon. Members, when there was last such an increase in capital public spending in a single year. We should compare that with Labour’s record on public sector capital investment. Total public sector capital investment under Labour fell by 12 per cent. in real terms. What did that mean for the services about which they claim to care? National Health Service capital spending went down by 30 per cent. in real terms. We have increased it by 40 per cent. Spending on roads fell by 40 per cent. in real terms and we have increased it by 30 per cent. We need and will accept no lectures from Opposition Members about proper capital spending and public services.

As a result of sound management, public finances are in better shape now than for a generation. For the past two years we have managed to reduce taxes, increase spending in key areas and repay the national debt on an unprecedented scale.

My hon. Friend the Member for Horsham (Sir P. Hordern) regarded the fiscal surplus as a great achievement by my right hon. Friend the Chancellor, and I agree with him. Over the past two years my right hon. Friend will have secured a net repayment equivalent to 8 per cent. of the total outstanding stock of Government debt. That means that we are the first tax-paying generation for more than 50 years to stop the growth of debt and to start repaying it, so relieving the burden that future generations would otherwise have to face.

The hon. Member for Dunfermline, East was his usual self this afternoon – lucid, forceful, aggressive and a purveyor of more doubtful material than Arthur Daley. The hon. Gentleman has a way with facts that I have rarely seen equalled and he should spend tomorrow having a painful interview with his research assistant who presumably provided them.

The hon. Gentleman wriggled like a fish on a hook when challenged by my right hon. Friend the Chancellor to set out his policies on taxation and public expenditure. He repeatedly failed to give them. He left the impression with me, and I suspect with most hon. Members, that he did not respond because he had no ideas what those policies were. It would be tiresome and time-consuming to correct all the hon. Gentleman’s fanciful howlers, but I will deal with some of them.

The hon. Gentleman said that inflation was at the European average when the Labour party left office. He is wrong. In May 1979 the European Community average was 8.8 per cent. and United Kingdom inflation was 10.3 per cent. He also said that inflation was on a declining trend, but it was not. It was on a sharply rising trend. In January 1979 it was 9.3 per cent., in February 9.6 per cent., in March 9.8 per cent., in April 10.1 per cent. and in May 10.3 per cent. Even the hon. Gentleman cannot say that there was a declining trend when the Labour party left office.

The hon. Gentleman also said that overall investment as a share of GDP was never lower than it is now. He is wrong again. I gloss over the fact that the figures for the current year, which has been a dramatic investment boom, are not yet available, so the hon. Gentleman cannot know the position. Even on the figures that are available, I suspect that he is wrong.

The hon. Member was also pressed to reveal his fiscal strategy and he gave a remarkable answer. He announced that he would – at one and the same time – reduce inflation, allow interest rates to fall and reduce the balance of payments deficit. In other words, he would loosen monetary policy, expand fiscal policy and expect to reduce inflation. That is an interesting trick if he can do it, but he would have to defy most of the known laws of economics to achieve it. It that is the best that the hon. Gentleman can do, I understand entirely why he failed to answer the direct questions that my right hon. Friend the Chancellor asked him.

The hon. Member for Dunfermline, East also told us that he would increase spending on training, the environment, science, the regions and technology. He did not explain how increasing that spending would help to reduce inflation. What the hon. Gentleman effectively proposed was fiscal laxity – not a fiscal strategy That is precisely what we expect from Labour spokesmen, because that is what we get from Labour Governments when we are unfortunate enough to have them.

We did learn something about the Opposition tax strategy, and very interesting it was too. The hon. Member for Dunfermline, East said that it was unfair to tax any form of saving and he specifically instanced building society investments. I assume therefore – I will give way to him if he wants to respond – that he would abolish the composite rate of tax, at a cost of around £3 billion in the short term and far more in the long term as people switch from shares into deposits. That is what the hon. Gentleman said and implied.

Some time ago, the right hon. and learned Member for Monklands, East (Mr. Smith), whom we all look forward to welcoming back, said that he was careful about making pledges, because the Conservatives added up their costs. I may tell the hon. Member for Dunfermline, East that that is exactly what I shall do, because the Opposition are racking up the cost of their programme again and again. We shall keep a very close check on what they say.

The hon. Member for Dunfermline, East dismissed a reminder that the man on average earnings is £45 per week better off now than when the last Labour Government left office. He implied that living standards automatically rise. I remind him that under the last Labour Government, real take-home pay fell by more than £1 a week for a married man on average earnings. That is the record of shame which must be compared with the increase of £45 per week that has taken place as a result of the present Government’s policies.

The hon. Gentleman implied that the period at the end of the last Labour Government was a golden age, so I looked it up. To be strictly fair to the hon. Gentleman, I picked precisely today’s date 10 years ago. I also picked the only newspaper that happened not to be on strike that day. I shall read the headlines to the hon. Gentleman. Under the headline “Regional ‘trouble shooters'”, it reports: The Prime Minister held back from declaring a full State of Emergency last night…Instead, the Government is setting up regional emergency committees. Is that the hon. Gentleman’s idea of regional policy? It continues: Apparently, they will not have the power themselves to order the use of troops. That power at least stayed with the Government.

Other headlines include: Grocers may close as stocks dwindle. and: Walk-out hits water supplies. That report continues: Water supplies and sewerage services covering 750,000 people in central Lancashire will be hit by an unofficial strike. On that same day 10 years ago, in that golden age, an emergency was declared in Ulster, and British Airways pilots were on strike.

However, those were not the main headlines. Those were the secondary stories. The main headline was: Nation on precipice, says Healey. Union spurns Cabinet plea. Lorry strike made official: food stocks ‘will run out’. That is the record of the golden age to which the hon. Gentleman refers. Those were the policies he advocated again today, however he described them. That would be the result of those policies, and that is why the country will have nothing to do with them.

Mr. Holland Which newspaper was that?

Mr. Major It was The Daily Telegraph, which was the only newspaper not on strike that day, so good were the activities of the Labour party. Those were the headlines of 10 years ago.

Many right hon. and hon. Members concentrated their remarks on their concern about inflation. I can understand why, and I reiterate the Government’s well-known view that the reduction of inflation is the priority to which our policy must be directed, and that it will continue to be directed at that priority in the future. The Opposition’s apparent policy of lower interest rates, lower exchange rates, more public spending and more public borrowing is a lethal concoction which is bound to lead yet again to spiralling inflation.

My right hon. Friend the Chancellor of the Exchequer set out the economy’s outstanding success over recent years, with growth of more than 3 per cent. per year in each of the last four years, investment rising faster than for years – and faster than consumption in six years out of the last seven. Both company profits and productivity have reached their highest levels since the 1960s.

Nor is there any doubt that supply-side reforms and the knock-on effect of the present investment boom will improve capacity and profitability in future. At present we face the particular problem of excess demand. That must and will be overcome with a strong fiscal position and a strong monetary policy to ensure that we do not jeopardise what has been achieved and our prospects for the future.

But Labour Members seem not to understand what our policy is achieving. For some years our policy has been to seek a progressive reduction in inflation together with steady and sustainable growth, and we are achieving that with the right mix of monetary and fiscal policy.

Our present fiscal position is extremely strong – a large budget surplus and no increase in planned public expenditure. Therefore, the right method to deal with excess demand is short-term interest rates. The right, most appropriate and most effective method is short-term interest rates. I have no doubt that they will work on this occasion as they have done in the past.

In the odd world in which he lives, the hon. Member for Vauxhall may not have noticed that there is an investment boom this year and every projection shows that it will continue next year.

Mr. Holland What about small business?

Mr. Major Every week 1,000 new firms are being registered net of those that close down. When did that happen under the previous Labour Government?

There are already signs that house price rises are being curbed, that the demand for mortgages is falling and that consumer spending is slowing down. That is what we seek and that is what we need to see in the next few months.

Despite out lack of success when pressing the Opposition earlier, we now have some clues to some of the hidden policies that they have but choose not to talk about. For example, we know that they wish to reverse higher tax cuts, because they frequently tell us so. We know that they wish to increase basic rate taxes, because they regularly vote against reductions and pledge themselves to expenditure that would raise taxes. We know that they have traditionally been proud – boastful even – to be the high-tax, high-spending, high-borrowing and high-inflation party.

Inflation during our period of office has never approached half of the average it was under the Labour Government.

Mr. Holland rose –

Mr. Major The hon. Gentleman has already taken up far too much of the time of the House.

Mr. Holland rose –

Mr. Speaker Order.

Mr. Major We know too that the Opposition want credit controls because they tell us so frequently. But that is all we know, because beyond that one needs second sight to divine their policies. What policies they do have are concealed with misleading language.

Conviction has been replaced by camouflage in the Labour party’s vocabulary. Nationalisation is out. That has now become social ownership, courtesy of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). Devaluation is out. That is now called seeking a realistic exchange rate, courtesy, I think, of the hon. Member for Dagenham (Mr. Gould). Government intervention and regulation is now out in the Labour party. That is now called supply-side Socialism, courtesy of the hon. Member for Dunfermline, East.

The Labour party is in hock to yesterday’s ideas. They have different packages, but they have exactly the same poison in them that they always had.

The concept of supply-side Socialism is breathtaking plagiarism; another piece of yuppy camouflage by the hon. Gentlemen. It is about as realistic as horse-drawn hang gliding. The idea was first mooted by the hon. Member for Dunfermline, East, but no one has since come forward to claim credit for it. Frankly, I am not surprised, because higher taxes, more taxes and credit controls are an odd policy to encourage the supply-side. I will tell hon. Members what it is. It is a supply of Socialism, not a supply-side policy. It is also a gimmick, an idea, a jumble of words which do not add up to anything.

The Opposition claim that they want to help the poor, but they have no policy for inflation. They want to help the low paid, but they vote against tax reductions. They hope that they will get power without policy, but they Will not, because people understand the improvements in Britain. They know that the economy has been transformed and they want to keep it that way. That is why they will support the need for policies to achieve growth without inflation. The Autumn Statement is central to that and I commend it to the House.