Below is the text of Mr Major’s speech to business people at the Ritz Hotel in London, given on Wednesday 7th December 1994.
Let me turn straight to contemporary events. I don’t propose to mince my words this morning. You wouldn’t expect it and frankly I’m not in the mood to do so. Last night we lost a vote on a tax measure. I don’t take that remotely lightly. Taxes tend to be unpopular. They usually are. The first popular tax has yet to be invented and I don’t think Norman Lamont or Ken Clarke have yet found it. But I know of no tax that has been so misrepresented in such lurid and emotional terms as the tax upon which we lost the vote last evening.
What has been said about it, frankly, is a travesty of reality and I will tell you who the great gainers are from last night’s vote, it’s you. It isn’t the pensioners, it isn’t the people in particular difficulties, it’s people who will now not be paying the increased tax on energy. I think it was a mistaken vote last night. You’ll be unsurprised to hear me say that. I hope you will be unsurprised to hear me say also, that the Chancellor will come back to the House on Thursday and he will repair the fiscal position that was damaged by last night’s vote. There should not be a shred of doubt in anyone’s mind about that. We set out the fiscal position, we’re determined to bring down borrowing, we’re determined to sustain recovery, we are going to take no risks with the recovery whatsoever and so on Thursday the Chancellor will set out an alternative measure of ensuring that the fiscal position is unaltered as a result of last night’s vote.
So let me tell you why I feel very strongly about that. If I may take you back a few years. On the first day I became Chancellor, I said at the time – looking at positions where we were clearly heading into recession, where inflation was still going up quite rapidly, where unemployment was clearly on a very rapid rise and we were clearly on the top of a hill that was undoubtedly going to head down – that if it isn’t hurting it isn’t working. What I had in mind was the problem that we had repeatedly faced since the early 1950s. Time and time and time again, we see the economy looking set fair for some time and inflation has just driven us off course. The consistent low inflation economy that we’ve seen in Germany for so many years with the industrial and other benefits that have necessarily followed it.
I am sick and tired of time and time again seeing us driven off course by inflation. Not just the social consequences. It’s all very well for economists and statisticians to regard inflation as a phenomenon. An economically interesting phenomenon. For ordinary people, if you have to pay bills at the end of the week and you can’t pay them, that is what inflation means and that is the misery that lots of individuals face when inflation remotely begins to get out of hand. From your point of view it means you aren’t going to be able to compete with the French, the Germans, the Japanese, Pacific Basin countries and the United States unless our inflation record as a nation is at least as good as those of our competitors abroad. We are determined that that is the bedrock upon which economic policy is to be built. A bedrock of low inflation. And once people understand that that is the basis of what we are about, they may understand a great deal else that’s happened in the last four years or so.
I remember very well the period running up to the last General Election. All those seductive voices saying to me, well the economy’s clearly in a downturn. Bring interest rates down speedily. A little extra help here, a little extra help there. Well maybe. I can see the short term attraction for that. But would it have delivered a position where conceivably we might break the inflationary psychology that has damaged this country for so long? That was the prize that we have been pursuing and that was right up to and during the General Election. We ignored the voices encouraging us to buy a little popularity by reducing interest rates and loosening economic policy.
So I hope no one doubts the determination of the Government to obtain an anti-inflationary strategy and to ensure that the opportunity that I now believe lies out there in the economy, is not an opportunity that is thrown away. Let me just say a word or two about the recovery. Where I think we are. What I think is happening. Some of the down sides of what’s happening and where I think we’re going. I don’t have a shred of doubt that, providing we continue to pursue the right policies we have a series of unprecedented opportunities in front of us.
Growth over the last twelve months is higher than we expected. Higher, I think, than is sustainable. 4 per cent is not sustainable and our forecasts are for lower growth in the years immediately ahead. But it isn’t only the 4 per cent growth. We have 4 per cent growth with 2 per cent underlying inflation. Some would argue even less in reality. Now, not for decades have we seen a position where growth is double the rate of inflation. Now that is extremely attractive in many ways. Certainly extremely attractive for Great Britain plc. I think there’s not a shred of doubt about that. Greatly attractive for industry.
Less attractive I think for the retail sector. I don’t think there’s any doubt that the retail sector often is more buoyant when it has an inflationary position. When people are getting large wage increases. When they can see prices rising, then there’s a propensity to spend and spend quickly before prices go up. That is undoubtedly the case. How long that tradition, that transitional instinct, will occur amongst the British purchaser I can’t say. But I am clear that for the country as a whole, a low inflation and high growth strategy is the right strategy for this country.
We’ve seen unemployment fall quite dramatically over the past twenty months or so. If I can draw a parallel, I suppose the European economy closest to ours is the French economy. They have unemployment at around 12.8 per cent. We have unemployment at just under 9 per cent and falling. Unemployment has fallen, is falling and I believe will continue to fall.
But not only is it coming down, but the proportion of our adult population in work is second I think only to Denmark, maybe third behind Portugal. Right the way across Europe and certainly far better than our natural comparators in Europe, Germany and France. We have a remarkably changed circumstance. Particularly in manufacturing industry. Exports are hitting record levels. If not quite every month, certainly on a regular basis. If one looks back over a few years. British Steel, a basket case ten years ago. I recommend anyone who hasn’t been to the Port Talbot works to go there and have a look for themselves at the remarkable change there has been there. Anyone attending the Motor Show would see again, an industry if one goes back a few years to Red Robbo, Long Bridge.
Go and look at what is actually happening to the British motor industry and if you had meetings with a large number of Heads of Government in Budapest, what they had to say about the British economy, British exports and the British capacity to perform, then you would wonder what sort of world many of the critics of British industry and of this Government are actually living in.
You see the determination they have to attract British investment into their countries, to attract British skills. The belief that they want British products because they are delivered on time. They are as good as anybody else and at the moment we are probably the most competitive industrial nation in Western Europe. They understand that out there and I think it is about time some of those people who seem to pervade a pall of gloom over everything that happens in the British economy began to recognise it in the United Kingdom as well. Is this just a normal recovery? I don’t believe that it is because there are elements of this recovery that are sharply different from those we’ve seen on previous occasions.
Now it isn’t all that long ago since those wise and gloomy people were telling me, that when you come out of recovery, you’re going to have to balance the payments crisis. If I heard that once, I’ve heard it a thousand times. We are patently out of the recession, have been for two years. We have not got a balance of payments crisis. The balance of payments is actually narrower. You’re going to go straight into an inflationary spiral they said. Well of course we must keep our thumb on inflation and we will. Of course, the natural laws of economics aren’t suspended as you recover. You’re going to have keep a firm hand on inflation.
But there’s no risk of spiralling inflation wrecking this recovery and they were wrong again about that. And then there were the people who said after the ejection from the Exchange Rate Mechanism that all this devaluation is going to work through the competitiveness advantage. It’ll go straight into wages and as ever the British economy will see it all slip away after devaluation. I do actually see that devaluation having worked its way through into profits, not necessarily all distributed in dividends. The profits going back into reinvestment and it certainly has not gone straight into wages and out to the people. If it had the Government might be a bit more popular.
I can tell you one thing, anybody who thinks that low inflation is politically popular, wants their political bumps felt. It may be right for this country and I passionately believe that it is. But it certainly doesn’t make the Government popular. People like large wage rises. They like large rises in social security benefits. They don’t like it when they get 2 per cent or 3 per cent or less. They don’t like it because there’s an instinct after years and years of high inflation and having large money increases in their pockets, and the fact that prices aren’t going up is little political consolation to them. How many people out there in the country actually realise that energy prices have been falling and falling consistently? Go out there and ask them. They will look at you if you say that as though you are stark staring bonkers. So low inflation is right, but it isn’t popular politically and you can very clearly see that.
Now let me turn to another matter that I think is fundamental. Fundamental because to the difficulties the Government has been facing and fundamental to the prospects of this country. There are three views about our membership of the European Union. There is the view that it is the best thing that ever happened and nothing that can happen in Europe can be wrong. There is the view that it is the worst thing that ever happened and nothing that happens in Europe can ever be right and then there is a sane and logical view, which is where in reality 90 per cent of the British nationals truly lie. And that is the belief that our economic and other interests mean we must be in Europe. We must play a central part in Europe. We can only build the sort of Europe that we feel comfortable with if we are in the middle of it pitching for the sort of Europe we want. It is about time we stopped having the argument conducted at extremes with the viewpoint of the vast majority of the people apparently being swept aside as though it was of no consequence.
I find it immensely frustrating that the argument on Europe only seems to be carried out by the people on either extreme of the argument. You don’t have to be an extremist to have conviction and passion about what is right for this country is Europe. And I don’t have a shred of doubt that our interests are for us to be in the European Union, building the sort of European Union we want. Where would so much of your trade be if we were not? What would be the position if we found ourselves outside real influence? What would happen in terms of the regulations and directives is that they will have taken place and affected us whether we liked it or not. If we were not in there pitching.
Would you have had a single market across Europe? But for the British you would not. Would you have had a reform, of the common agricultural policy? But for the British you would not. Would you have had the beginning of large scale deregulation across Europe? Emphatically you would have not. Would you have had subsidiarity and a repeal of one quarter of unnecessary European legislation if we hadn’t fought for it at Maastricht and afterwards? You would not. Would you have known about fraud in Europe if we hadn’t demanded extra powers from the Court of Auditors in Europe and got them and published their report so people could see what was happening? You would not. But why do we not get these things presented in a practical and honest way?
I saw these reports about 6 billion pounds worth of fraud in Europe and the Court of Auditors. But I’ll tell you this, that 6 billion pounds figure wasn’t in the Court of Auditors. I think it was some professor in France who dreamed that up some time ago. How it crept into the Court of Auditors report I don’t know. Of course there’s fraud there. We’ve known there’s fraud there. No Government has done more than this Government to attack that fraud problem in the European Union. I reached an agreement with Mitterrand and Balladur at Chartres, three days after all those headlines about fraud. How much publicity was there for the agreement we reached to take further action on fraud starting with discussions at Essen this weekend? Well, you needed a very long telescope to find it in newspapers of any colour.
But let us look at the argument as it really is. Should we be in Europe? Yes. Should we fight against some of the things that happened in the European Union? Emphatically we should. Every other nation does and so should we. It’s only because of the absurdities of the way the argument is carried out in this country, that we are deemed to be anti European when we express our view in Europe – though I’m bound to say Mr Balladur’s grand new gesture sounds remarkably like my Leiden speech of some months ago and I’m delighted to see that that is the case.
Look at what is at stake. I have to say to you here, Peter was talking about the sheer size and scale of the industrial and commercial enterprises that you know. Well, I doubt there’s more than a handful, if even a handful of people in this room, who don’t believe that our interests lie in Europe, and emphatically lie in Europe. If I may say so at the risk of infringing your hospitality Peter, it is about time some of you got up and said that. It is about time you started saying that loud and clear. It is about time you stopped having this debate run by a handful of people who are fundamentally opposed to Europe and who will seem to turn every part of the debate against what is happening in Europe. Of course, we argued about the things that are wrong and we must, but it is about time we looked at their real interest. Why do we get so much investment in this country from abroad? Is it the Government’s popularity do you think? Is it our climate? Is it the excellence of the management of British industry or perhaps men of charm, skill, discretion? Wonderful businessmen no doubt.
But it just might possibly have something to do with the fact that we are the most deregulated on trade to the richest market the world has ever seen. Ask Robin Cook what he would have done without NEC in his constituency. Prescott said the other day, holding up his telescope to his Nelsonian eye “I see no companies rushing to invest in this country”. He should have had a word with Tony Blair sitting next to him and ask him where Black and Decker had gone, and why they’d gone there. If he sees no investment running into this country, I just wonder precisely what he can see. Because there’s a vast weight of investment coming into this country. We’re getting more United States and Japanese investment than France and Germany added together. NEC, Samsung, Black and Decker. The list rolls on. Not just the list of some years ago, but the list of actual contemporary inward investment as a result of our domestic policies here and the fact that we are the most attractive market in Europe for those international companies who want to be part of the European market.
Now let’s be in no doubt about the importance of that. And let us be in no doubt about the fact that the Government’s policy is to remain a full and complete part of Europe, but that we will be determined to fight against the things in Europe that we believe are premature or wrong. It’s because I believe the Social Chapter was wrong that I refused to accept it at Maastricht. It’s because I believe a single currency is premature – I believe will remain premature for many, many years to come – that I am also determined that we should not be committed to that in the Maastricht Treaty and I believe that that is right. Were we right on the Social Chapter? Self-evidently right. When Jacques Delors said it would make this country a paradise for inward investment, I could have hugged him. I didn’t. But he was absolutely right.
Let me just touch on the Budget. Just elaborate on some of the things I’ve been saying. We need to safeguard the recovery we’ve got. That’s why we need to keep public finances under very tight control. That’s why the public spending plans were cut by, more I think on this occasion than any time since the Conservative Government has been in office since 1979. That’s why there were a whole series of supply side measures to help people out of dependency and back in work. Particularly those who’d been unemployed for a long time. And that’s why within the resources available, there was more help for business and industry. But frankly I don’t think you need a lot more help. I think we just need us to produce the right macro economic framework and the minimum amount of regulation so you can get on with your own work. We’ve at last got through the House of Lords the Deregulation Act. The Act gives the capacity to deregulate in many areas by secondary legislation rather than by primary legislation. Now, don’t let me fool you. Deregulation isn’t easy to achieve. For every piece of deregulation we want, there is a lobby determined to oppose it. That has been the position and will remain the position in the future, but I think it is absolutely vital that we deregulate and we intend to.
I said some time ago, that I regarded education as being right at the top of the priorities. I don’t just see it as a social matter. It’s a supply side measure for industry as well. That is the raw material upon which you would build your enterprises in the next 20 or 30 years. And I’m not satisfied with what is emerging from British schools. It is getting better. But while we find ourselves still behind in qualifications, still behind much of what is happening in South East Asia, we can’t possibly be satisfied. That is why we put the reforms in place, long term reforms, not short term reforms, not day to day management, but long term reforms on testing, on performance tables, on a slimmed down national curriculum, on inspection. To make sure we really know what is going on in the education system, because without that how can we put right the things that don’t seem to be going right.
We wanted one in three in further education. We had one in eight in further education in 1979, we anticipated one in three by the turn of the century. We will reach that this year, nearly one in three of our young people going into higher education. Now these are remarkable changes. Bit by bit our political opponents, who opposed us bitterly, have clambered on board the sledge and acknowledged that those education reforms are right and those education reforms will continue and entrench, because we need to ensure the best possible education in future.
Let me just summarise briefly. We will take no risks, whatever the political unpopularity may be, with the recovery that I believe is now firmly established. We want a consistent, sustained, low inflationary recovery with growth at trend or above trend level. We wish to see unemployment continue to fall and I believe it will. We wish to continue to deregulate, to clear the ground for business and industry to maximise their penetration of world markets. There’s no doubt out there across the world there is a great demand, great opportunities for British goods. We may never be certain, we may be on the way to cracking the inflationary psychology that has done us so much harm in the past. Look at the opportunity that is beginning to become apparent in this country. It can be thrown away if we’re forced off course. It can be thrown away if you have policies of minimum wages. As John Prescott engagingly said “any silly fool knows that it will cost jobs”. The Social Chapter, with all the dangers, would do. If you look at costs in this country and compared them to costs in the rest of Europe, you see a significant competitive advantage because we are not piling extra costs on employers and as a result of that we have had more people in employment.
I see no morality in providing extra benefits to people in work and condemning those out of work to stay out of work. If there’s a moral argument about unemployment between ourselves and our political opponents and ourselves in Europe, I believe we have the moral high ground in terms of trying to price people back into jobs, rather than electorally by favours from those in jobs and to hell with those who are out of jobs who would then never get back in. You of course want the lowest possible tax structure and I have to say to our opponents that a training tax, a windfall tax, a carbon tax – it sounds astonishingly to me like that VAT I have to say – those taxes will do precious little good to British industry. Nor would levelling out corporation and other taxes across Europe which our political opponents regard as their policy.
Development tax, extra regional assemblies. I cannot think of a policy more irrelevant and more stupid and more damaging and more dangerous than to say you’re going into large scale constitutional change just at the moment when we ought to be concentrating on entrenching for good the economic and other changes that have taken place in this country. And as for closing massive tax loopholes, Howard Davies said they’re not closing loopholes, they disguise fresh taxation on business and nobody should be in any doubt about that.
So the choice is clear. For those people who think there is no difference. There may even be some journalists here who think there’s no difference between the Parties. I suggest they lift their eyes and actually look at the clear distinct differences in economic and industrial policy between the two major Parties. I’m happy to fight on that. It isn’t always a popular message to preach prosperity in the long term, but I’ll tell you this. It is the right message. It is the message that is actually going to improve our living standards, not just tomorrow, but for a long period ahead. I believe it is the right policy. I think industry knows it’s the right policy and if industry wants to protect that policy, I hope industry will take the opportunity and speak out and say that it’s the right policy.