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 Comments During the Budget Debate – 14 March 1989

The text of Mr Major’s comments during the Budget Debate, made on 14th March 1989.

Mr. Kinnock I begin with customary felicitations and, on this occasion, thank the Chancellor of the Exchequer for his reply to my private notice question. I shall try to ensure that my supplementary is not as long as the answer he gave me.

I also take this opportunity to welcome the change that the right hon. Gentleman has announced in the excise duties, a change that will promote the use of lead-free petrol. That is an entirely sensible step for the Chancellor to take. On behalf of my hon. and right hon. Friends, I further welcome the belated achievement, after 10 years in government, of the Conservative pledge to abolish the earnings rule for pensioners. It is only a fortnight since my hon. Friends on the Social Security Bill Committee sought, not for the first time, to secure that abolition. It is a shame that the Government did not see lit, even at that juncture, to make the adjustment so that at least it could have been an act of consensus, which I am sure it will be.

This is not simply an annual Budget; the occasion is becoming marked by what can only be described as the custom of holding the annual nationalist games. I hope that that custom will not last very long because it is of no use to anybody, least of all the people of Scotland and Wales. In any case, we did not have to rely on the nationalists for entertainment when we had a professional juggler right in front of us.

After nearly six years as Chancellor of the Exchequer, the right hon. Gentleman was able to stand up this afternoon and say that inflation in the second half of this year will reach 8 per cent. and that then it is expected to dip. He is so afraid of what will actually happen that he dare not raise any excise duties. He announced that growth in the course of this year will be halved and that the balance of payments deficit will stay the same this year as it was last year – that is, around about £15 billion. He said that he expected interest rates to remain high. But still, after announcing all this wonderful record of his achievements, particularly in the past 12 months, the right hon. Gentleman produced again the lexicon of clichés about an unprecedented strength in the economy.

Yet again, in the next 12 months, we shall see just how much strength the right hon. Gentleman will produce in the economy. A year certainly does make a difference. Last year we had the boom budget that made the credits spree and the trade deficit and inflationary pressures worse than they otherwise would have been. This year we have had the bust Budget – a botched attempt to make up for the Chancellor’s excesses and messes in last year’s Budget.

Last year, in his Budget forecasts, the Chancellor told us that, in 1988, inflation would be 4 per cent., but he said that that was still too high. It was 6.8 per cent. in 1988 and it is now 7.5 per cent. and he has just told us that it will rise further. Of course, it might dip a little towards the back end of the year, perhaps even as early as July, because of the arithmetic of the year-on-year calculation of inflation. The fact remains, however, that without any excuse of any major move in commodity prices and without the pressure of any major movement in oil prices such as the previous Labour Government had to put up with, this is a Chancellor who is fast becoming Mr. Inflation.

Last year, the Chancellor, as usual, missed his monetary targets – missed them by billions. In his estimate of the Budget surplus at £3 billion, he showed that he had absolutely no idea of what was happening in the economy – he was out by a factor of five. Last year, the Chancellor proved that he is to economic forecasting what Eddie the Eagle is to ski jumping.

There will, as usual, be much comment on the Budget, but I warrant this: this year no one, neither the Chancellor’s friends nor the Prime Minister – there is a distinction – will say that this Budget was quite the most brilliant we have seen After the experience of the past 12 months, perhaps the Prime Minister knows the difference between brilliance and flashiness, but the less lustrous Budget of 1989 cannot be blamed on any lack of advice. There has been no shortage in either the quantity or the quality of that advice.

The Chancellor of the Exchequer has received advice from his right hon. Friends the Members for Henley (Mr. Heseltine), for Shropshire, North (Mr. Biffen), and for Chesham and Amersham (Sir I. Gilmour) and had the benefit of advice from his right hon. Friend the Member for Woking (Mr. Higgins) – whose advice is of high quality – and he has also had the benefit of advice from his right hon. Friend in the Cabinet, the Secretary of State for Wales, but he ignored that advice as well. He has also had high-quality advice from his right hon. Friend the Member for Old Bexley and Sidcup – the good old Member for Bexley and Sidcup, say we, because he tendered very high-quality advice to the Chancellor. However. the Chancellor has dismissed all his right hon. Friends as if they were a bunch of teenage scribblers”. The Chancellor was right about one thing last year; he was absolutely right to scorn the estimates offered in July by the City analysts that the balance of payments deficit for 1988 would be £10 billion. They were totally wrong about that; it was £14.7 billion, so the Chancellor was right to scorn them. Let us hope that he does not berate them quite so frequently this year because though they were far out, they were a great deal closer than the Chancellor of the Exchequer.

There was advice for the Chancellor from this side of the House too. Sadly, he neglected that. He told my hon. Friend the Member for Dunfermline, East (Mr. Brown), who presented a series of proposals for improving the situation, that there would be no change of policy. That was the Chancellor’s absolutely unflinching announcement. He must have forgotten nine movements in the interest rate over a very short period, a kind of economic yo-yo, but he told my hon. Friend that there would be no change of policy. At all times, except when the Chancellor has faced the Prime Minister, his responses to demands and protests have been the same: “No change; I am standing firm. Read my blips.” That has been the answer he has offered this 12 months.

Let us hope there will be different responses in the forthcoming months; otherwise there may be substance in the rumours percolating that the Prime Minister might be looking for a replacement for this Chancellor of the Exchequer. We understand that her gaze has fallen favourably upon the Secretary of State for the Environment. It is only a week since she was telling us that the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) is absolutely first-class in every way,” – [Official Report, 7 March 1989; Vol. 148, c. 751.] whether in architecture, art, or civil engineering. Clearly, here we have a renaissance Cabinet Minister, with such an accumulation of talents as to make Leonardo da Vinci feel humble. So it might be that, in the course of the next 12 months, Michelangelo will replace Machiavelli. I do not know whether the country will be the better for it.

In this Budget the Chancellor did not offer anything to repair the damage done to ordinary families both as a result of last year’s giddy, give-away Budget and so much else that the Chancellor of the Exchequer has been doing. His failure to make that reparation will dismay many people in our country, but it will not surprise them. Because, for instance, of the briefing that did not take place and the tapes that do not exist, the people of Britain now know that child benefit hangs by a mere comma in the Conservative Manifesto. They also know that they have a Chancellor who believes that only a “tiny minority” of pensioners have “difficulty in making ends meet”, even though there are 6 million retired people in this country either below or just on the official poverty line.

So it comes as no surprise to the people of Britain that they have a Government who take with one hand and then take more with the other. They are a Government who give income tax cuts and then wipe out any gains with mortgage and interest rate rises and rises in other taxes, who have imposed the highest tax burden in peacetime history on the people of this country.

This Budget will not lessen the burden either on the family or on the national income. I see the Chancellor disagreeing. The fact is that, even to get back to the burden as a proportion of national income and a weight on the average family that was reached under the last Labour Government, the Chancellor would today have had to cut the standard rate of income tax by another 6p. That demonstrates how much of an increase there has been in the tax burden under this Chancellor of the Exchequer.

However, not content with maintaining that record tax burden, the Chancellor of the Exchequer has ensured that the greatest burden falls on the average family. Since the right hon. Gentleman, the great tax reformer, entered 11 Downing street, the bottom 50 per cent. of British taxpayers, over 10 million people, have received £10 billion in income tax cuts; the top 1 per cent., just 200,000 people, have been given £16 billion in tax cuts. That cannot be just, efficient or right, and it will certainly not be right when that burden is increased by the Government-sponsored price rises in water and electricity and the poll tax – no tax was ever conceived or designed to fall more heavily on ordinary families throughout the country and less heavily upon the very rich.

Not content with being a high-tax party, the Conservative party, especially under the Prime Minister and the chancellorship of the right hon. Gentleman, is also spectacularly the high interest rate party. The average mortgage rate under this Government has been at an all-time record for an all-time record period. It is not an accident. The right hon. Gentleman told us last year, and he repeated it of course this year that interest rates remain the not “an” but “the” – essential instrument of monetary policy [Official Report, 15 March 1988; Vol. 129, c. 995.]. While even he cannot have thought, when he said last year, that the essential instrument would become a 13.75 per cent. bludgeon on home buyers and a huge cost burden added to the costs of industry, it is only really this Chancellor’s usual performance.

After all, in the past six years this miracle worker has raised the mortgage rate to a level more than 35 per cent. above that which he inherited. Today, just before he sat down, the Chancellor claimed that the changes in national insurance contributions make this a budget for the low-paid. They certainly need it, because the great supply-side reform that this Government has achieved is to remove both rights and protections for the lowest paid workers in the land.

The right hon. Gentleman told us that he was going to claim credit for removing the steps in national insurance contributions. That is very interesting. We of course welcome it. We have made several demands over several Budgets for radical reform in national insurance contributions to alleviate the burden on the lowest paid workers. What has to be remembered, however, is that this man now removing the steps in national insurance contributions is the Chancellor who installed the steps in national insurance contributions and who increased the rate from 6.5 per cent. to 9 per cent. – a huge tax increase for those least able to afford it.

I wish this were a Budget for the low-paid. The truth is that the changes announced by the Chancellor today hardly touch the average family and its income, and they do not compare with the endless largesse that he was prepared to show last year to those on the very highest income. This is not a Budget for the low-paid worker; this is another con job from a low-down Chancellor.

True to form, again in this Budget, while the right hon. Gentleman was failing the majority he was favouring the minority. Even this modest Budget today brought in a few more of what are becoming known as Lawson’s loopholes. We have had them before. We had the BES and enterprise zones. Those are just two examples; there are plenty more of them. We have had various kinds of tax relief, based on the hope that if the tax obligations of those on higher incomes were reduced they would be more willing to commit their resources to investment. That has never worked, and it will not work now.

The Chancellor has announced with a little twist today that, through this Budget, he will allow previously purchased privatisation share issues to be placed in personal equity plans. It will be plain to everyone that he is doing that to give free and speculative gains on privatisation issues. That is the water privatisation bribe, and the Government will need all the bribes that they can get if they are going to make that flotation work.

Of course, trying to relieve of tax the people on top incomes to induce them to invest has not worked. After 10 years of giving away £26 billion to the richest I per cent. in our country, the proportion of total investment in GDP is lower than during any year under the last Labour Government. The savings ratio is also at rock bottom. It is historically at its lowest ever figure.

I used to think that it was the national debt which did not matter. It now appears to be the savings ratio which does not matter. That is extraordinary. If the savings ratio does not matter, why did the Chancellor put all that effort into trying to subsidise savings if it was not to try to pull up savings from the historically low level which he has managed to reach as further evidence of his brilliance?

The Chancellor’s steps today. like so many of his other steps, show his incompetence and perversity. If the fact that we have 13 per cent. interest rates does not attract savers, why should subsidies attract them? In a country in which the Government refuse subsidies to meet the environmental costs of a rail link and in which they regard subsidies for training or research as the work of the devil, people rightly ask why subsidies are right for those with the money to save and wrong for those who use railways, carry out research or need training.

The Budget contains the most indefensible of all the Government’s tax subsidies – the subsidy which they propose to give to people who buy private health insurance for the over-60s. If the Government want to give priority in the Budget to the health needs of the elderly, the answer is not tax relief on medical insurance premiums for the well-off. The answer is to provide proper funds to cut NHS waiting lists for the elderly, to increase district nursing, health visiting and chiropody and physiotherapy services. If the Prime Minister would only join the NHS queue instead of jumping it, she would know that I am telling the truth.

When I raised this matter with her, the Prime Minister said that she was surprised I was prepared to purchase a private house but not prepared to purchase private health care. [Official Report, 2 February 1989; Vol. 146, c. 424.] That is what she said to me just a couple of weeks ago. The Prime Minister is so distant from reality that she equates housing with health. If she can do that, perhaps she can tell us what are the health equivalents to rent, mortgage arrears, housing, rises in mortgage rates, overcrowding and homelessness. If the Prime Minister believes that there is an equation between buying a house and buying private health insurance, she can tell us all about it. I might even get her to rise at the Dispatch Box to answer this, who knows?

The needs of the elderly, whether they are in the private sector or on the NHS, will not be met by subsidies of this kind. When we know that the Government, according to the Chancellor, are prepared to give over £40 million – it will be a lot more than that in reality – of taxpayers’ money to the already well-off, when they are denying proper facilities to those who do not, cannot and will not pay, that is a grotesque sense of injustice.

We all know why that provision is in the Budget. It is not because the Chancellor is enthusiastic about it. It is not even, to do him credit, because the Secretary of State for Health is enthusiastic about it. That provision is in the Budget because it is one of the Prime Minister’s pet obsessions. She deludes herself, or she wants to delude others, that private health subsidies for the over-60s will somehow ease pressure on the Health Service. It cannot and will not do that.

Apart from any other considerations, private health insurers do no cover pre-existing medical conditions such as arthritis, senile dementia, loss of mobility or many of the other most usual ailments of the very elderly. BUPA offers the advice that private health insurance does not exist to alleviate long-term illness, because that is not a suitable subject for insurers.

In the Finance Bill which will follow this Budget and in many other ways, it is important that people’s attention is drawn to the basic ideology behind that proposition so that people can judge the Budget and the Government’s White Paper on “Working for Accountants”. The idea that the private medical sector can help with health needs is not the Prime Minister’s only delusion. She believes, or says that she believes, that the trade deficit is being financed by people who are prepared to invest in Britain and who have full confidence in the country’s economy.” – [Official Report, 2 March 1989, Vol. 148, c. 392.] The Chancellor said something like that again today. However, the truth is that the brilliant Chancellor has made such a botch of his job that the only way in which he can get short-term money into this country to fund his record balance of payments deficit is to offer the highest interest rates in the industrial world.

At the same time that the Chancellor is making families and businesses bear the crushing interest rate burden, he is presiding over a huge and continuing net outflow of long-term capital. Last year, about £9 billion of long-term capital came into Britain and £24 billion of long-term capital went out. Some “full confidence” that shows in “the country’s economy”, to use the Prime Minister’s words a net long-term capital outflow of £15 billion to go with the deficit on the current account of £15 billion which will stay with us again this year.

However, against that background the Chancellor expects us to stand back and admire him for accumulating a Budget surplus. Against a background of huge household debt, a rock-bottom savings ratio, a massive trade deficit and a record tax burden, the Chancellor expects the people of Britain to become positively reverential at what he calls his “prudence and caution” in using that surplus to pay back the national debt.

Before anyone becomes too impressed with the Chancellor, a few factors should be taken into account. It is very difficult for the Chancellor to claim “prudence” for accumulating the surplus when he did not plan for it and when it is five times bigger than he expected. He was the most shocked man in the House of Commons. He must be the only person who still believes in Father Christmas.

Despite all the talk that we heard again this afternoon about “prudence and caution” in paying off the national debt to “lift the burdens of the future”, the Chancellor knows that he is not using the Budget surplus because he wants to. He is using it to repay the national debt because he thinks that he dare not do anything else with it.

The Chancellor has his bonanza budget surplus – a real windfall if there ever was one – which he believes that he cannot use in Britain without sucking in more imports and sending the markets haywire. He has all this money, but he dare not use it. He must feel like the robber who opens his swag and finds that all the banknotes are marked. The robber analogy is not entirely without meaning, especially when we bear in mind the remarks of the former Prime Minister, the late Lord Stockton, about selling the family silver.

We must remember that the surplus is not the Chancellor’s. The headlines might read “Mr. Lawson’s surplus”, “The Government’s surplus”, “The Chancellor’s surplus”, “Mr. Fixit’s surplus”, “Wonderman’s surplus” or even “The Brilliant Chancellor’s Surplus”. However, as the Chancellor and the Prime Minister repeatedly and rightly remind everyone, Governments do not have their own money. Governments only have the people’s money. Governments only have the taxpayers’ money. So Governments do not have their own surpluses: they have only the people’s surpluses.

What are the people in Britain saying should be done with their surplus? In every measure of opinion, such as that in The Daily Telegraph 10 days ago and confirmed by every other source, people are not saying that the surplus should be used to repay the national debt or to spend on big tax handouts. In huge majorities, in all measures of opinion, the people who own that surplus are saying that their surplus should be used on health, education, transport, to protect the environment and to make the streets and railways safer and cleaner. The people are saying that their surplus should be used to prepare for their future and for their children’s future. That comes through strongly from every measure of opinion, and this is a day on which the Chancellor should have trusted the people.

Some of the people want their surplus used in this way because of their instinct for social justice; others because of an innate understanding that this country’s economic and social fabric has been run down and must be built up if we are to face the future. But most people, I suspect, will say that their surplus should be used for constructive reasons of the most enlightened and common-sense self-interest, because the people of Britain know that they need the National Health Service and the public education system; they need comfort and security and efficiency as they travel across the country. They know all that because, unlike the Prime Minister and most of the Cabinet, they use the public services in Great Britain.

This is the time that the Chancellor really should have trusted the people of this country, because the National Health Service lacks the resources to spend properly on its development needs. In this country, rivers, beaches and water supplies need cleansing. In this country, under this Government, local council house building has dropped by two thirds, private house building has fallen by one third and we have increased overcrowding, bad housing and homelessness. Under this Government it is a country that spends a fraction of what our competitors spend on skill training and in which investment in commercially viable research is still, despite all the oil, the tax burden and the Budget surplus, still spending 10 per cent. less on research than in 1979.

In this country, with all those needs, the Government would have to spend £14 billion in order to raise the proportion of GDP spent on public sector capital investment back to the level it was at under the right hon. Member for Old Bexley and Sidcup (Mr. Heath), or under my right hon. Friends Lords Wilson and Callaghan.

The Chief Secretary to the Treasury (Mr. John Major) He does not understand.

Mr. Kinnock Oh, I understand only too well. One only has to walk out of this place and see the filth on the streets and the railways, the schools understaffed, the shortages of teachers and the under-funding of research to know that I understand only too well.

In this country, with all these needs for repair and renovation and to face the future, a Government that use their Budget surplus to pay the national debt are like a householder who insists on paying back the mortgage despite the fact that the roof is leaking, the damp is rising, the electric wiring is perilous and the windows are falling out. This decision is justified by the Chancellor and the Prime Minister by saying that we should be paying off the mortgage, paying off the national debt, because if the people do not use their resources for that they will leave a debt round their children’s necks.

It is strange that the Prime Minister and the Government as a whole always say that they do not want to leave debts to our children. Yet they are always prepared to cut the taxes of the rich and to restrain public capital spending. They do not want to leave debts to our children, but they are always willing to preside over stagnation in manufacturing investment, always ready to leave a legacy of decay and danger because they will not undertake proper investment in the present or the future.