Below is the text of Mr Major’s speech to the Edinburgh Chamber of Commerce on Friday 25th May 1990.
CHANCELLOR OF THE EXCHEQUER:
Far too many people have no conception of the health and strength of Scottish business today. But you have in Scotland a very strong and active business community and a growing one, and I am delighted to see it so well represented here today.
Ten years ago – even five – I think few people would have been bold enough to predict the dramatic improvement there been in the prosperity and strength of Scottish businesses. That is understandable, for in many cases it must have been hard to see beyond the short traumas of change to the longer-term rewards. But change had to come and now we can see how it cleared the way for a whole new generation of Scottish entrepreneurs, many of them in new and growing industries such as electronics or financial services. I have no doubt that they in their different fields have the ability to equal and surpass the successes of their predecessors.
This revival of the spirit of enterprise is, of course, a nationwide phenomenon, and in my view it is one of the most important developments of the last ten years. More and more people have seen through that intensely damaging myth that profit was somehow not quite respectable, and that an enterprise society must by definition be a selfish society, and a materialistic one. It is not – and profits are the motor of prosperity. Adam Smith pointed out the folly of that attitude 200 years ago.
But the simple truth is that the only way to make the improvements in quality of life and public services that we all want to see, and the only way to sustain them, is first to generate the resources to pay for them. You can’t do it by wishful thinking. You can’t do it by piling higher taxes and more regulations on business, because that destroys business and impoverishes the nation. And a poor nation cannot afford anything other than poor public services. No, if we want good services and high living standards as a nation, we have to be able to afford them. We can’t do that without a successful performance from business and industry, and that is one of the principal reasons why business success is so critical for us all.
I know that some of you, inevitably, must be concerned about the health of business today, and worried that the present level of interest rates may put it in jeopardy. That is a natural concern. I understand it. Of course, other things being equal, we would all prefer interest rates to be lower. But the harsh truth is that if interest rates were lower, other things would not be equal. Most notably, so far from reducing inflation and getting it under control, we would see it racing ahead to levels that are simply unacceptable in today’s world – unacceptable in a whole variety of ways.
Perhaps some people may have forgotten the damage inflation does. I do not want all of us to have to relearn it by a painful return to anything like the levels of inflation we saw in the ‘70s. For it is not just the damage inflation does socially – to the weakest in our society, to pensioners and others on fixed incomes. It is also that inflation damages business – indeed it destroys business. It destroys investment, it destroys competitiveness, and it is pure poison to industrial relations.
For all these reasons, inflation must be forced out of the system. But it has not got any easier to do so: if anything, it has become more difficult. One reason for this is that, quite frankly, the economic success we have enjoyed in recent years has engendered a level of confidence amongst both consumers and industry which is hard to rein back. This has been compounded by the increasing shortcomings of our official statistics, which have at times given a less than clear basis for policy decisions.
The consequences of this are well-known. At a crucial period, in the wake of the stock market crash, we did not appreciate fully the buoyancy of the economy, and interest rates were too low for too long – as we can see now, with hindsight. The result is what I have called an inflationary hangover, and that will take us a time to work off. But we must work it off, however long and painful the cure. For business’s sake, particularly. For in all other respects, British industry is well placed to benefit from a decade which offers enormous opportunities for businesses of all kinds. But we will not benefit from those opportunities as we should, if we continue to labour along under an inflation handicap.
But that is the position at the moment: although the RPI overstates the extent of our inflation problem, particularly in comparison with our competitors, that does not alter the fact that inflation is clearly too high, and must be forced down. Our tight policy will do that, and is already turning a whole series of indicators in the right direction. But not enough of them, and as yet not far enough, I am afraid.
The interest rate consequences of that assessment are clear. I am not in the business of overkill; but I can also assure you that I have no intention whatsoever of giving inflation a second chance. So, although there are plenty of signs that the economy is righting itself, there need to be a great deal more before anyone should anticipate interest rates being relaxed.
So what does all this mean for Scotland? Sadly, there are far too many people who are prepared to run down Scotland’s prospects for the future – the old notion that when England sneezes, Scotland catches pneumonia. To my mind, that view is not only outdated, it is extremely patronising. And it is just plain wrong.
For today, in many ways, Scotland has been enjoying better economic fortunes than other parts of the UK. Unemployment has been falling faster in Scotland than in the rest of the UK, and fell again last month. Self-employment, which has been growing very fast throughout the UK, has in recent years grown faster still in Scotland, rising by almost a fifth over the last two years. Business start-ups are buoyant, and all the signs are that output has been growing faster than in the rest of the UK in 1988 and 1989. There is no reason why this cannot continue in the coming years.
There is nothing freakish about this at all. It demonstrates two things very clearly. First, that the improvement in Scotland’s economic fortunes is no nine-day wonder. And second that the interest rate weapon is, as we always maintained, well targeted on the problem we have to tackle. For it was not in Scotland, but in the South East of England that correction was most needed; and because house prices, and hence average mortgages, are so much higher there, that is where the correction will inevitably be focused. Unwelcome as high interest rates are – here, as South of the Border – it should be remembered that they seem to be having far less in the way of unpleasant side-effects for Scotland than many predicted.
Another thing that will be of relative advantage to Scottish businesses is the fact that on average, Scottish manufacturing exports more per employee than the UK average. I am pleased to see from recent Scottish business surveys that the future outlook for exports continues to be optimistic. At a time when home demand is cool, a sustained export drive is just what we need. I hope that firms elsewhere in Britain will emulate your example, and indeed that both you and they will do even better in the years to come.
No one knows better than you do that Scotland has faced some hard times over the last ten years. But in the last few years, the Scottish economy has been reaping the long-term rewards – more jobs than ever before in Scotland’s history, the highest growth rates in 15 years, and a flood of inward investment. I believe that will continue while overseas investors retain confidence in the British Government.
The success story of Scotland is something in which all of us, whether we live in Scotland or not, take pleasure and pride. It is not something the Government will take any risks with. Above all, it is an achievement that we are determined to protect from the destructive power of high inflation. But Governments on their own cannot ensure the success of business. That depends on all of you, and the decisions you make every day as you run your businesses.
This year, some of those decisions will be difficult. It is not going to be an easy year. Indeed, it cannot be, for we need a period of slower growth while we work off our present problems. But the short-term outlook has to be set against the longer term prospects, which are very bright indeed. The ‘90s bring the opening up of two enormous new markets – one, in Western Europe, which we have all been working towards for years; and one in Eastern Europe which has opened up in an utterly unexpected and dramatic fashion. The combination of the two represents an unprecedented opportunity; and it is a powerful reason for everyone in business today to look to the future with confidence, and plan for it. It won’t be easy. We will have to compete for these new markets. But so long as businesses control their costs at this crucial time, so long as they look ahead and make the right investment decisions for the longer-term, then our chances are very good indeed.
You face some ambitious challenges ahead, but you have some considerable achievements behind you. You have every reason for confidence, and every expectation of success.