Mr Major’s Comments on Labour’s Economic Policy – 22 May 1990

Below is the text of the press release, 377/90, issued by Conservative Central Office on Tuesday 22 May 1990. It was titled, “What are Labour’s Plans for the Economy?”.

CHANCELLOR OF THE EXCHEQUER:

I’m looking forward with keen anticipation to the launch of the Labour Party’s policy document.

I’d like to pose some questions which they ought to answer in it, but almost certainly won’t.

Are we going to hear at last Labour’s plans for the economy? Will they explain how their policies would control inflation? Will they tell us the cost of their spending plans? Will they reveal the levels of taxation necessary to finance them? These are vital questions but to none have we so far had an adequate answer.

They say they would control inflation by introducing credit controls and joining the ERM. What sort of credit would be restricted? What sort of controls? How could credit controls work in the context of the Single European Market when intermediaries like shops can easily arrange credit through a European bank? Would they exclude mortgage lending, or would they create mortgage queues? And if they exclude mortgage lending how would their controls be effective, when 85 per cent of credit is for house purchase?

Labour say they would join the ERM. But that doesn’t remove the need for responsible economic policies. The ERM is a commitment to a stable exchange rate. So what do Labour mean by a “competitive” exchange rate? Is this pre-emptive devaluation? And, if so, how does it square with membership of the ERM? The truth is that Labour use the ERM as a fig leaf to cover their lack of a credible inflation policy.

Neil Kinnock accuses me of “clobbering the economy with 15 per cent interest rates”. And Labour say that they would use every economic weapon against inflation except interest rates. That is, they would use every weapon except the one that works. Every other country uses interest rates to control inflation, even the Labour Government in Australia. Only Labour plan to reduce inflation by lowering interest rates and stoking up demand.

The truth is that Labour have no credible strategy for controlling inflation. None whatsoever. And though they pretend they have only two spending commitments, every Shadow spokesman gives the lie to this statement. Last Friday, in Wales, Neil Kinnock himself either explicitly or implicitly called for more spending on health, social security, education, transport, roads and training. Just as John Smith calls for additional spending on training, regional development and support for industry every time he speaks. Their spending plans are limitless.
They fool no-one with their pretence that they are committed only to “an increase for pensioners and an increase in child benefit”. The fact is that Labour have a massive spending programme which can be paid only by increasing taxes or higher borrowing or a combination of both. As John Prescott has said, “it is not credible for Labour to suggest that our policies can be financed on a programme of low taxation”. For once he has hit the nail on the head.

Labour try to hide the effect of their plans on tax levels. They will abolish the upper earnings limit on National Insurance contributions, adding 9 per cent to the tax bills of almost three-and-a-half million people. People earning just over £18,000 before tax don’t regard themselves as rich, but they will be hit. They admit they will phase out the married couple’s income tax allowance, affecting 11 million taxpayers at every level of income. They admit they will re-introduce a surcharge on what they call investment income and ordinary people call savings. How does all this square with Neil Kinnock’s statement that Labour tax plans won’t hit the huge majority of basic rate taxpayers? The truth is it doesn’t – and it can’t. Millions of people will pay more tax to finance Labour’s plans and nothing can hide that fact.

No-one should believe the Labour Party have changed. They haven’t. They have no policy on inflation, they have no will to control expenditure, they have no idea how to run the economy. All they have to offer is debt, devaluation and decline.