Mr Major’s Lincoln Breakfast Speech on the Economy – 1 June 1995
Below is the text of Mr Major’s speech to business people in Lincoln before breakfast on Thursday 1st June 1995.
PRIME MINISTER:
[parts of original recording were of poor quality]
What I would like to do over the next hour and a half or so is just talk a little about where we are in terms of economic recovery, what is happening in terms of industrial, commercial and economic policy and the prospects that lie immediately ahead of us in the next two or three years and perhaps a bit longer.
Let me firstly just trace back over some of the difficulties that we have had and try and explain to you where we are and why we are precisely where we are at the moment.
I don’t think that anyone would dispute the fact that the recession lasted longer across the whole of western Europe than we thought it would and was sharper and harsher than we thought it would be and it was a different sort of recession than many people had seen before. We have long been accustomed in western Europe to recessions extending particularly to the manufacturing industry. This recession was a “white collar recession” in a way we had not seen before and it was for that reason in many ways more difficult to understand and more difficult to deal with.
Essentially, the problem arose on the back of so many people investing so much in the housing market. I recall the rather crazy situation that existed in the housing market towards the end of the 1980s [indistinct] house prices went spiralling upwards and it was always likely that that was going to stop at some stage [indistinct] by the time it stopped an awful lot of people had committed themselves [indistinct] with mortgages that were a good deal bigger than ideally they would have had but inflation began to take hold, interest rates began to rise, mortgage costs began to rise, house prices stopped rising and fell and the negative equity trap which has done so much to damage confidence [indistinct] began to hit them. Because of our very high levels of owner-occupation and our particular affinity for home ownership in the United Kingdom, it hit many people rather hard at first.
What about the economy generally? We came out of recession technically and the economy began growing again almost three years ago. As we have seen in recessions in the past, when you come out of recession it isn’t immediately apparent and people will say two or three years after the recession, technical as it is, that they don’t think it is finished and it is still going on. But yet for three successive years we have had growth. We had growth of over 4% last year, we will have growth probably of over 3% this year and if the forecasts are correct, growth of over 3% next year so for three successive years we will have had growth well above the trend average in the United Kingdom, well above that of any of our European partners probably and for the first time probably in the lifetime of most of the people sitting round the table we will have had a three-year period in which the growth of the economy has exceeded inflation. That isn’t typical if one looks at the performance of the British economy since the Second World War.
So we have certain factors which for our economy are unusual at the moment. We have growth significantly above trend, we have inflation well below the European average, we have unemployment well below the European average, indeed, only one western European country has unemployment below us, only one country of any significant size and all the others have unemployment higher than ours. No other country in western Europe is seeing unemployment falling as regularly as we have and no other country in western Europe has also seen such a growth in exports or such an increase in investment.
If you put those things together, it does begin to produce an economic scenario, provided we can build on it, that we haven’t seen for a very long time. I will tick the points off:
Inflation: very low, below the average.
Unemployment: falling.
Investment: still continuing steadily
Exports: growing at record levels; nine times in the last fourteen months we have hit new export levels.
Competitiveness: growing.
Those are a combination of circumstances we haven’t seen for a very long time. We are still attracting in the United Kingdom around 14% of all the external investment that comes into the whole of western Europe and we are doing so for the sort of reasons that were evident in the OECD report just the other day that our supply side and economic measures are more effective and more efficient than elsewhere in Europe, that we have fewer employment on-costs than most of our European partners and that don’t find ourselves tied to many of the social and other employment costs that so many of our European partners do.
Those are great advantages. It is for those reasons that Jacques Delors I recall said something of great wisdom on this particular occasion when he said that without the Social Chapter we would become a paradise for investors and he was speaking relatively on western Europe and on this occasion I think he was correct and I think increasingly that [indistinct].
Those are the economic circumstances that we have. They are as clement as we have had for a very long time. We look as though we are heading for a classic economic recovery. When we came out of recession in the early 1980s, we immediately had a great boom in wages, indeed right the way through the 1980/82 recession wage increases never fell below 7.5% even in the depths of the recession when unemployment was rising, the pound was at extraordinary levels and all sorts of other major [indistinct] happened and that has always led to an uncompetitive [indistinct].
Three years after this recession technically ended, we have wage rises running at about 3.5%. That may not mean a great deal of what people these days loosely call the “feel good factor” – and indeed it means [indistinct] — than they otherwise would have been – but it does mean that our industry and commerce are infinitely more efficient, effective and competitive than otherwise they would have been.
When people say to me: “Where is the feel good factor?”, I think I would see it this way: The feel good factor in the last two years has been wrapped up in increased competitiveness and increased jobs and the people who are benefiting from it are 600,000 people who were on the unemployment register two years ago and who are now in work. It hasn’t been dissipated across the country at large with great increases to everybody; it has wrapped up in fresh interests, fresh jobs and 600,000 have benefited from that and are back in work whereas elsewhere in Europe they are either increasingly becoming unemployed or staying unemployed.
So that is the background about which I thought we might talk over breakfast. I thought we might talk about future policy, particularly for small and medium-sized firms and what the prospects might be for us in the years ahead.
In simple summary: unless we throw away the gains that have been so far made, the prospects for continued growth with low inflation and the sort of stable environment that you need as businessmen and employers are extremely good unless we are silly and throw it away and I have no intention of doing that.