Mr Major’s Speech to the Scottish CBI – 10 September 1992
Below is the text of Mr Major’s speech to the Scottish CBI at the Forte Crest Hotel in Glasgow on Thursday 10th September 1992.
ALISTAIR MCCALLUM:
Prime Minister, President, My Lords, Ladies and Gentlemen, welcome to CBI Scotland’s Annual Dinner. I hope you’ll have a very happy evening. The Grace will be said by Dr. William Morris. The Rev. Dr. William Morris.
THE REV. DR. WILLIAM MORRIS:
Let us pray.
Oh, Lord, since these good things are of Thy giving
Help us to use them all for wiser living
Each use restraint, reduce inflation
To be a slimmer, fitter nation
And not be sunk in deep depression
When waist and hairlines face recession
Oh, Lord Thou dost with steady interest wait
Which of Thy family will devaluate?
Lord, guide us in our problems from on high
And, for this evening, bless the CBI
Amen.
THE PRIME MINISTER:
Alistair, thank you very much for your kind words, and perhaps first I can offer my thanks to you and your colleagues in the CBI for your hospitality here this evening. I knew when I arrived a couple of hours ago that this evening was going to be a special evening [Laughter] and so, for one reason or another it has so far proved. I was piped in, I was offered what I was told, in that lovely bowl, was a half glass of whisky. If that was half a glass of whisky, I’m half a Dutchman. [Laughter].
Then we had what I can only call a rather novel Grace from Dr. Morris …., [Applause]. It’s always good to see the Church join the State in a little battle against inflation [Laughter] so the CBI has lost none of its originality, and none of its hospitality, and then when Alistair and I stood up for the Loyal Toast a few moments ago, you may or may not have noticed, but a part of this platform nearly collapsed. I felt rather like the Nationalists on Election night [Laughter] but let me turn from the ridiculous to the relevant.
I want, if I may, Chairman, to speak tonight about the economy of our Country, the whole of our Country, every part of it, its role in Europe, and its future prospects, and they’re big subjects all of them, but what I want to seek to do this evening is to put them into proper perspective because far too often comment on the economy is partial, and is narrowly focused. It takes no account of the wider domestic and international scheme. It’s a snapshot, not a portrait; a detail, not a landscape. It’s too often darkly lit because too many always think it’s fashionable to be gloomy about our future. They forget what we’ve achieved so they underrate what we can do.
Chairman, it’s only two years ago that business was demanding two things from the Government, and, as Chancellor at that time, I remember the insistence of business, and I remember well what they were seeking from the Government. Business wanted a stable pound, and it wanted lower inflation, and it wanted this, I think, for good reasons. Inflation robs people of their savings.
It impoverishes those on fixed incomes. It wrecks profits and investment. If Britain has higher inflation than our competitors we lose competitiveness and we lose jobs. Inflation loads the scales against us, and business wanted stable exchange rates because it wanted certainty. It wanted a climate in which it could plan for the long term. I believe that business was right to demand low inflation, and stable exchange rates. They are the essential preconditions for sustained economic success.
Two years ago, before we joined the Exchange Rate Mechanism, inflation was over 10% and seemed to be rising. We forget too readily the alarm that that caused. Now inflation is 3.7% and falling, and we overlook too readily the opportunities that that offers. We saw such figures before. We saw them briefly in the mid-1980’s but they didn’t last. This time I am determined that that regime of low inflation will last [Applause] and as it does so wages are moderating as well. There has been a crucial change in the inflationary climate in industry. Growth in underlying earnings is down to 6%, the lowest that we’ve seen for a quarter of a century.
We forget also that, two years ago, exchange rates against our European trading partners, where 60% of our trade now goes, exchange rates against our European trading partners were uncertain and volatile. Now they’re kept within a 6% band in the Exchange Rate Mechanism, and, in due course, will move to the two and a quarter per cent band. Sterling still fluctuates, of course, against the dollar and other currencies, as we’ve seen all too vividly in recent weeks, but it does now have a fresh and certain stability against the currencies of our main trading partners.
Chairman, as the fear of inflation and exchange rate instability has diminished, so the cry of many of the Government’s critics has changed. Now, we have the inevitable chorus of quack doctors peddling their remedies. There is, I think, a difficulty with these remedies. As we’ve learned from experience, miracle cures simply don’t work, never have, and never will. We need to face our problems squarely. It’s too easy to regard Britain’s problems as unique, or to blame them on the Exchange Rate Mechanism. Neither point is true. The problem of slow growth, a difficult problem, one we face at present, the problem of slow growth is not peculiar to Britain. It is, at the moment, a worldwide problem. We’ve seen the same chain of events in the United States, in Canada, in Australia, in New Zealand, and elsewhere, and in all those Countries, not just in the UK, in all those Countries businesses and individuals took on too much debt in the late part of the 1980’s. Asset prices, especially property, rose sharply on the back of that, and general inflation began to accelerate. Eventually, of course, as interest rates rose and debt burdens became intolerable, people’s top priority was to reduce their debts, and, as a result, businesses stopped expanding, and consumers stopped spending. Some of those Countries have lower interest rates than Britain, but as the United States has illustrated in recent months, the problems of adjustment are just as difficult.
Equally, I dare say any businessman returning from Continental Europe will have become only too well aware of economic difficulties faced there – weakening activity, low confidence, and rising unemployment, so the process of adjustment has been painful everywhere, but it is necessary, and it is not something that Governments can simply wish away. Improvement rests critically on the decisions which individual businessmen and consumers have to make about how they adjust their own finances.
I will tell you what my conviction is. My conviction is that adjustment is best managed within the framework and the discipline provided by our membership of the Exchange Rate Mechanism. That discipline ensures that we keep in line with our major competitors in Europe. One thing is certain. If we have inflation around 4%, and our principal competitors have inflation around 2%, then we will lose markets, competitiveness, jobs, and prosperity. It would, at this moment, be madness to let our competitors steal the edge on inflation. I am absolutely clear that for us to compete effectively in Europe, we would need our present policies, whether or not Britain was a member of the Exchange Rate Mechanism, and as we have seen in Scandinavia this week, it is a cold world outside the Mechanism for many Countries that one day wish to join it.
I was pleased to note, Chairman, that the CBI, in your August Economic Situation Report, firmly endorsed the view that our exchange rate against European currencies, is an exchange rate at which industry can compete successfully, and Howard Davies repeated this very clearly when he addressed the TUC this week. I am sure that that is the right view. As the Chancellor has made crystal clear, there is going to be no devaluation, no realignment, and the export performance of many British, and notably many Scottish companies, provides convincing evidence of our current competitiveness.
I know that things are not easy, even in Scotland – even in Scotland, which has outperformed so much of the United Kingdom in recent years, and sometimes I think we perhaps overlook, pass along and miss the remarkable changes that have come about in many parts of the United Kingdom, not least in Scotland. Anyone coming back, as I’ve done today, to Glasgow, and remembering the Glasgow of 15 years ago, would not recognise the same City, so great have the changes been [Applause] and then for the first time since records began, Scottish unemployment is below the average for the United Kingdom as a whole. Too high, I know, and I wish to see it lower, but when last was it ever below UK average? Never before. It is now as a result of the changing prospects in Scotland, and the enterprise of the businessmen in this room, and their predecessors in recent years in Scotland, so let me take this opportunity tonight to pay tribute to the response that industry has already made, and continues to make, in adjusting to the new disciplines of the Exchange Rate Mechanism. Costs have been brought under control. Exports are at record levels, and so is manufacturing productivity. Those are real achievements, and quite apart from being genuine achievements, they are the surest possible foundation for the future. Of course, there are problems caused by the weakness of the dollar, a dollar that has fallen by over 20% against the Deutschmark, and if that weakness were to persist, it would have damaging consequences, not least the distortion of international trade and investment.
Let me say this to you, Chairman, for it is something that I believe passionately – all my adult life I’ve seen British Governments driven off their virtuous pursuit of low inflation, by market problems or political pressures. I was under no illusions when I took Britain into the Exchange Rate Mechanism. I said at the time, that membership was no soft option. The soft option, the devaluer’s option, the inflationary option, in my judgment that would be a betrayal of our future at this moment, and I tell you categorically that is not the Government’s policy. [Applause].
All too often at difficult times in the past the solution was the same. Let the exchange rate go, and every time, sooner or later the result was the same – rising import prices, rising wages, rising inflation, and a long term deterioration in Britain’s competitiveness which offset any short term gain that there had been. Look for example, at the formal devaluation of 1967. The pound devalued by 14%. Did that lead to a sustained improvement in the UK’s competitiveness? It did not. A brief flurry only. Retail price inflation doubled over the following year, and any improvement in competitiveness swiftly ended. No greater competitiveness, and doubled inflation. What sort of target is that for British industry?
Since the late ‘60’s the pound’s external value has halved. There were some who saw that as a way to steal a competitive advantage. They were wrong. Maynard Keynes, whom I have to tell you I don’t often quote – Maynard Keynes was right when he said, and I quote “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”.
There is a question, a question we might usefully ask ourselves – let me ask it, Chairman. Why is the Deutschmark so preeminent in the currency markets of Europe? It’s not because of current German economic performance. It is because the Deutschmark has an anti-inflation record, and maintains its value. Those who want freedom from the influence of the Deutschmark should realise that they can best get it from matching the Deutschmark’s anti- inflation record, and that is what we are determined to do in this Country. [Applause].
We shouldn’t expect the road to permanently low inflation to be quick or to be easy, and we still have some way to go. Our inflation is above that of France and Germany, our most important competitors. Well over half our exports go to Countries with lower inflation than ourselves, so we must bite the anti-inflation bullet, or accept that we will be forever second rate in Europe. I refuse to accept such a future for this Country. We face difficulties, I know, but we have the prospect of non-inflationary growth, sustained non-inflationary growth in our grasp, and I am not prepared to let it go. There should be no doubt in anyone’s mind, the Government will stick to its policies, low inflation, free markets at home and abroad, low taxes, and firm controls on public spending. Those policies are good for business, and good for Britain, and they are our policies.
Let me turn to something else that I believe is good for Britain, and good for business, and that is the Government’s European policy. In December, the Heads of Governments of the 12 will meet at Holyrood House in Edinburgh, the high point of the British Presidency. I’m delighted that so important an occasion will take place in Scotland, and I hope the famous, or perhaps in Glasgow I should say, the infamous Edinburgh climate will be benign.
Earlier this week I spoke at some length about the Maastricht Treaty. Tonight, I would add only this. Britain stayed firm at Maastricht, firm in its determination to resist the encroachment of European regulations into the workplace. We rejected completely the Social Chapter, and we did so because our ambition is to free industry to compete on its own terms in the widest possible market for its products. Free trade is the route to growth. Free trade is the way out of recession, and to our Presidency of the European Community falls the task of completing two great efforts to liberalise international trade, the single market of the European Community, and the Uruguay round of negotiations under the General Agreement on Tariffs and Trade. When completed, the single market will be the biggest free trade area in the world – 340 million customers. A vast opportunity right there on Britain’s doorstep, right there on Scotland’s doorstep, and to us, the British Presidency, comes the responsibility for bringing it about, so we will be working hard for liberalisation, liberalisation in areas like transport and energy, removing barriers wherever they remain, seeking a level playing field for British business, making sure that the single market becomes a reality and not a slogan, and as we do so, we’ll be working at something else no less important, working at the ambitious task of completing the GATT round, and here agreement depends, not just on 12 Nations, but on over 100 Nations from every part of the globe. Nevertheless, progress is critical to the recovery of the world economy. It’s important to Britain. There are still far too many Countries, even rich, developed Countries, which maintain high tariffs against our manufactured goods. We need the new opportunities a GATT settlement could bring to our service industries, and a growth in world trade that a GATT settlement would bring about is a growth that the world in its current economic situation cannot afford to turn aside. The sooner we have that GATT agreement, the better it will be for every Nation in the world. [Applause].
So, it’s not only our self interest that’s at stake. A GATT agreement already, in my judgment, long overdue is vital to the developing world, it’s essential to the survival of a world trading system that’s far too vulnerable to national protectionism. It is, that GATT agreement, one of the engines to restore growth. Negotiation of this in Europe, is a matter for the Commission, but we, the British Presidency, will press them, help them, cajole them, until that settlement is reached, but that is only part of our European agenda.
We’ve already agreed far-reaching plans to reform the Common Agricultural Policy. We’ve agreed to liberalise air fares, to prepare membership negotiations for the EFTA countries, to put subsidiarity, that principle of minimal interference in national matters, and turn it from a slogan into a reality in practice. We have resisted extravagant plans for increasing the Community’s budget. All these bear tribute to Britain’s influence, an influence, I tell you frankly, that would not have been possible if we had sat carping on the sidelines rather than moving our Country into the very heart of the European Community …..[Applause] and only by that policy, by placing us where we can best maximise our influence, only by that policy can we maximise our influence and our control over decisions that affect our Continent and people. There is no other way, and to those who say, sometimes directly, sometimes subliminally, to those who say, “Withdraw from Europe”, “Pretend it doesn’t exist”, I say to them ,”Where have you been, Rip Van Winkle, that you ignore the largest market for our goods and a principal source of our future prosperity?”. I have not a shred of doubt that if we are to build the prosperity for this Nation that we need, then we need that British influence in the heart of the Community to build the sort of Europe, and the sort of Community that we wish to see: free, open, liberal with trade, and respecting the national identities and cultures of each of its member States. That is the ambition we have for the Community, and that is what we shall press for in our Presidency, and long beyond it. [Applause]
Chairman, I want to conclude by looking at a different Union, a special Union, that very special partnership between Scotland and England. We should never express the value of that Union in purely economic terms. By the start of the 18th Century we had already shared a Monarch for a hundred years. Since your Stuart King, James VI, went South to succeed Queen Elizabeth, the last of the Welsh Tudors, that Royal bond, that military strategy formed good reasons for a closer Union, but it was the economic opportunities that persuaded many Scots of a necessity of Union with England in 1707, and that economic Union has prospered, and today Scotland can justly claim to have one of the most modern and diverse economies in Western Europe, and since 1707 Scotland and England, with Wales and Northern Ireland, have carried out a remarkably successful joint enterprise. It is the Union, with Scotland’s distinctive contribution, which has made all of this possible. It is since the Union, and because of the Union, that Scottish values, Scottish traditions, the Scottish Church, are to be found around the whole world.
I believe the result of the General Election showed that there remains in Scotland, a strong desire to keep Britain united. [Applause]. I believe that when Ian Lang and I made that a central plank of our General Election campaign, we reached out above the normal issues of inflation, and mortgages, and education, and health, and touched something that is a very basic instinct for people in every part of these united Islands of ours and I don’t believe it was an accident that while all the other Parties suffered reverses in Scotland, the Conservatives defied the polls and the pundits, and won both seats and increased our share of the vote, but that is in the past. We must look to the future, and now we must uphold, develop, and strengthen that remarkable magical Union that has lasted for so long, and that in essence, Chairman, is what taking stock is all about.
Ian Lang and Peter Fraser have already met a wide range of groups and individuals, each of whom has a special interest in and particular perspective on the role of Scotland within the United Kingdom. Their door will remain open to anyone with a genuine commitment to the integrity of the Union, and with ideas for making it work better. When I come to Scotland, or when I see Scots South of the Border, I will always be receptive to proposals designed to strengthen Scotland’s place in the United Kingdom, and it is as part of that continuing process of taking stock that I have invited a number of leading Scots from a variety of walks of life, to come and meet me in Edinburgh tomorrow so that we can exchange and generate ideas. I know that what they say will be immensely valuable. I’m looking forward to what I hope will be a wide ranging and productive discussion, and I want to hear myself, personally, from Scots, how they believe we can build up and strengthen that Union. These are matters of immense importance, not just to Scotland, but I think to every part of the United Kingdom. Sometimes I think the debate in Scotland has not focused on a wide enough canvas. It isn’t just a question of keeping Scotland in the United Kingdom. It is not just a question of that. It is a question of the contribution and the importance of Scotland to every single part of the United Kingdom. We would not have the United Kingdom without the support and the strength of each of its component parts. It is that capacity of each of the parts of the United Kingdom to come together with common aims, common purposes, common beliefs, but retaining the distinctive cultures of the English, the Welsh, the Irish, and the Scots, that makes this such a remarkable United Kingdom. We propose to strengthen it and build it.
Chairman, in the few moments I’ve had this evening, I’ve taken the opportunity to touch on a number of important subjects – inflation, our position In the European Community, our future, and the constitutional links of such vital importance between the component parts of the United Kingdom. I’ve spoken about our policies, our strategy for the United Kingdom, but that strategy is something we can only make together – make together in partnership between Government and industry, Scotland and England, Britain in Europe, Britain and Europe. Those are the partnerships that matter. Those are the partnerships that will build, for this generation and the next, a higher quality of life, a higher standard of living, a more secure present and future than ever we have known at any stage in the past. Those are the ambitions we have. They are ambitions, I believe, that are shared, not just in the instincts of Government Ministers, but in the instincts of businessmen, business women, individuals up and down every portion of our land. Together we can make sure that those instincts can build a better future for all of us.
Chairman, you are our host, and I have both the privilege and the pleasure of thanking you not only for an excellent dinner, but for a great occasion, and the very great privilege also of inviting everyone to join me in proposing a toast to our hosts this evening.
The toast – the CBI, Scotland. [Toast]
The CBI Scotland. [Applause].