Mr Major’s Speech in Northampton on Economic Policy – 27 October 1989

Below is the text of the press release, 231/89, issued by Conservative Central Office on Friday 27 October 1989. The text is of the speech made by Mr Major in Northampton, his first speech as Chancellor of the Exchequer.

CHANCELLOR OF THE EXCHEQUER:

I understand the difficulties that many face with high interest and mortgage rates. But they – and the resulting slowing of the economy that we must see – are the means by which we will cure the problem. They are not the problem.

The problem is inflation. I have no doubt that the central task before us is the reduction and the elimination of rising prices.

Not only does this objective remain the same, but so do the policies needed to achieve it. I was fully involved as a Treasury Minister in setting economic policy barely three months ago. I have not changed my views over those three months.

Many think a little inflation does no harm. I do not share that view.

For some people, inflation may seem a cosy companion. But for others it can be disastrous. Those on fixed incomes see savings eaten away, and security destroyed. For those without savings and on low incomes there is the nagging insecurity of falling behind and losing the dignity of self-sufficiency. These fears were real for millions when inflation took over in the 1970s. We must not let this happen again.

And for businesses inflation is the same unpleasant brew. It destroys competitiveness, damages industrial relations, undermines investment, and savages profits.

So inflation must go. Ending it cannot be painless. The harsh truth is that if the policy isn’t hurting, it isn’t working.

I set out these truths to make one central point. All aspects of policy will be directed to bringing inflation down. Reducing it is never easy, but it is absolutely necessary.

I know that there is a difficult period ahead. But the important thing is that we cannot and must not fudge the determination to stop inflation in its tracks. I won’t fudge it.

The economy is not regulated by interest rates alone. Government income is many billions of pounds greater than expenditure. We are repaying our debts. And this is underpinned by firm control of public expenditure. So the Government’s financial position is very sound.
High interest rates are working exactly as intended. Spending is slowing down – we can see it in housing and in the shops. As a result the shortages which were driving up costs in industry are easing.

Interest rates also affect the exchange rate. A declining exchange rate pushes up prices, so I favour a firm exchange rate. The budgetary position and the present level of interest rates are such as to keep the exchange rate firm. And our tactics in the foreign exchange markets are designed to check fluctuations which are of no economic significance.

We have had some fluctuations over the last twenty four hours. That is hardly surprising as people round the world react to an event which they were not expecting. The resignation of a Chancellor of the Exchequer is not an everyday event. But the policies I have described were the right ones before this event. And they are the right ones now.