Sir John Major’s Interview on the Andrew Marr Show – 14 December 2008
The text of Sir John Major’s interview on the BBC’s Andrew Marr show, broadcast live on 14th December 2008.
ANDREW MARR:
Now then, a falling housing market, rising job losses, the pound plummeting, high borrowing. Well life goes on after that, even political life, as the former Prime Minister John Major can witness. But he’s described the current Prime Minister Gordon Brown as having “as much financial blood on his hands as any banker”.
Well Sir John Major is here now. Welcome, Sir John.
SIR JOHN MAJOR:
Good morning.
ANDREW MARR:
Let’s start with the sort of parallel, with the early 90s before your General Election victory, when in many respects things were the same: we had negative equity, we had all sorts of problems in the economy, and as Prime Minister, you were seeing job losses, more announcements of factory closures coming across your desk day after day. What’s it like to be in that position?
SIR JOHN MAJOR:
It’s pretty awful. I mean I became Prime Minister at a time when a recession was certain: interest rates were 14%, unemployment was rising very rapidly, and the economy was heading clearly for a recession. And it is very painful, and anyone who believes people don’t suffer from that – by people I don’t just mean the people in the country who lose jobs and lose security – but anyone who believes those who are in government don’t suffer as a result of that are quite wrong. It was extremely painful and even now I remember the difficulties that one felt and the helplessness sometimes one felt. But it was a very different form of recession from this one. The recession in the early 90s was once again an inflationary recession.
For 40 years we’d had inflation bedevilling the British economy and we needed to get inflation down, so it wasn’t open to us to spend a lot of money, to spend our way out of it because it would have just put inflation back up and so we looked particularly heartless sitting there. But I look back and I can tell you why we did it, exactly why I did it. As a boy, I remembered what it was like when the week lasts longer than the money. And that is what happens when you have a recession: the week lasts longer than the money.
ANDREW MARR:
And it’s happening to a lot of people just now.
SIR JOHN MAJOR:
Well it had happened repeatedly between 1950 and 1990 and I was determined then to stop it. So we looked very heartless, we paid a very heavy political price for it, but we did kill inflation for a very long time and the British economy subsequently benefited. But today we have very different circumstances. We have two things in fact: we have what I suppose, without wishing to downgrade it, is a communal garden recession. And on top of that, we have a credit crunch, and the two things have interleaved to make it very complex.
The Government concentrate on the credit crunch and blame the international community, whereas in fact the domestic recession is entirely as a result of domestic policy.
ANDREW MARR:
Because there’s been too much borrowing?
SIR JOHN MAJOR:
Because there’s been too much borrowing. If you look, we’ve had 15 years of growth now, 15 years of very strong growth. It didn’t start with the Labour Party; they inherited it.
As Derek Scott, Tony Blair’s adviser said, “Gordon Brown inherited the best economy of any Chancellor in living memory”, and so he did.
And they’ve squandered it. They have spent and spent and spent.
ANDREW MARR:
Well except that I mean it could be said that the Conservatives in your day went through a big, long boom, very strong economy, and then it turned to bust. Now it’s happened again.
SIR JOHN MAJOR:
Yes.
ANDREW MARR:
Isn’t that just a kind of natural part of the cycle?
SIR JOHN MAJOR:
Well it ought not to be. It usually follows policy mistakes. I don’t think anyone denies that there was too much of a boom in the late 80s and we paid the price in the 90s. What has happened here…
ANDREW MARR:
And then another kind of boom in the 20s.
SIR JOHN MAJOR:
What has happened here is continual expenditure above and beyond that which we can afford. We should have been repaying debt. We’ve been adding to it. The Government say they’ve repaid debt, but the only time they did that was when they were following our spending plans in 1998 and 1999.
Since then, they’ve built up debt. We now have, well we now pay – here’s a horrifying thought – we now pay every day £262 million in interest alone on the debt, and the debt is set to double over the next few years. It’s a frightening scenario.
ANDREW MARR:
And what do you think, as an old-fashioned guy, of a government that is saying to people we must go out there and spend more to get ourselves…
SIR JOHN MAJOR:
Well it’s curious.
ANDREW MARR:
I mean I’m talking about personal debt.
SIR JOHN MAJOR:
Well, I think personal debt’s very high. I mean personal indebtedness has risen by 70%, after you discount inflation, in the last 10 years. We have the highest level of personal debt in Europe. We have the highest level of government debt in our history. It’s set to double and the cost is going to be absolutely horrendous. I think that is wholly wrong.
You’ve seen over years these very distasteful television advertisements – at least I find them distasteful – where you say people are asked to consider are they in debt? Yes. Would they like to roll it up and reduce their outgoings? Well of course they do, but at a higher rate of interest and for a longer period. And it builds up indebtedness and
ANDREW MARR:
So?
SIR JOHN MAJOR:
So? This is economically disastrous.
ANDREW MARR:
So how bad do you think things are going to get? I mean you know we think about Japan, we think about deflation, we think about possibly quite a long period of depression.
SIR JOHN MAJOR:
Well it isn’t depression, it isn’t 1929 to 33. I mean in 29 to 33, you had a national income in America fall by over 50%, you had unemployment go up from 3% to 25%. We’re not in that ballpark.
The depression oratory has been used to justify some areas of expenditure – unjustifiably so in my case – so it’s not, it’s not a depression.
ANDREW MARR:
So you think ministers are scaring people too much?
SIR JOHN MAJOR:
I think they are. I think they’re overcooking it because they’re concerned and they wish to justify the amount of debt they’re getting us into. I think that is a mistake for a raft of reasons. I don’t downplay the seriousness of this.
I think this is the worst situation we have had since the Second World War, and after 12 years of Labour government we now have a level of national debt that is the same as we had after 6 years of world war. That is the scale of the indebtedness and the problem we’re in.
ANDREW MARR:
We’re going to see unemployment rising, sadly, very sharply?
SIR JOHN MAJOR:
Well I’m very sniffy about the unemployment figures. The claimant count is said to be 1.84 million, rising to 2 million, and most people think it will hit 3 and above, which is dreadful. It’s happened before. We got very close to that in the early 90s and it is awful for everyone concerned. But in fact the situation may be worse than that.
We have a total of 5 million people on out of work benefits of one sort or another. Nearly 2 million show as unemployed. But there’s another million at least on invalidity benefit whom the Government themselves say could and should be working. So the unemployment figures are actually far worse than they immediately appear, and I fear we’re going to have an avalanche of job losses in the first three or four months of next year.
ANDREW MARR:
And yet in all of this, the Labour Party’s opinion poll rating has improved; Gordon Brown’s personal rating has improved; and your party has perhaps been easy to caricature as a party which simply says, “We don’t have a response to this”.
SIR JOHN MAJOR:
Well there are.
ANDREW MARR:
At least Gordon Brown is saying something.
SIR JOHN MAJOR:
Well there are some ironies here, aren’t there? If the burglar has ransacked your house, you don’t normally invite him back to fix the security locks. The concept that Gordon Brown, who’s been Chancellor for 10 years and Prime Minister for one and presided over this train wreck, is the person to put right what he’s got wrong strikes me as being ironic, to say the least.
As far as what ought to be done, it’s very easy to give an impression of action. The question is is the action wise? Now I don’t think most of the Government’s actions are wise. Recapitalising the banks – I agree with that. I think it was inevitable, I think it was right to do it. I congratulate the Government on doing that. That was fine.
But I think since then, they’ve got their policy badly wrong. The reduction in VAT, you might as well have burnt the money and thrown it away, frankly. I don’t think it’ll do anything that is credible at all. There are two things that we need to address: firstly the credit crunch; and, secondly, the recession, if I might draw that distinction. On the credit crunch, we need to get credit moving. David Cameron’s proposed a National Guaranteed Loan Scheme. Now it is a very big scheme and I think it is exactly the right way to go.
If we can guarantee the credit, then the banks will lend. I think one thing David might wish to look at in future is incorporating housing within that scheme, so that the banks and the building societies might safely advance say 75% of a £150,000 loan and have that guaranteed as well. I think that would help the housing market.
ANDREW MARR:
So you’d help the housing market.
SIR JOHN MAJOR:
And I think the other thing we might look at beyond that which has already been proposed – and I think David Cameron’s plans to freeze council tax, that sort of thing, I absolutely support them – the other thing I think we may have to look at in the future is the position of savers.
They are being appallingly treated at the moment. There are millions of people who have saved for their security to supplement their pension in retirement. And what has now happened – those who have been prudent and saved for their retirement are now finding the amount they’re earning in interest on their savings has dropped dramatically because we’re in economic difficulties.
ANDREW MARR:
But sorting that out would be hugely expensive, wouldn’t it?
SIR JOHN MAJOR:
No it wouldn’t, no it wouldn’t. What I would suggest we do is exempt from tax the first £5,000 worth of savings income each year. That would help those people who’ve seen interest rates drop in their lifetimes preparedness for retirement. I think that would be a help and I think it’s also socially just. At the moment policy helps the imprudent, but it penalises the prudent. I don’t think that’s either socially just or economically wise.
ANDREW MARR:
If you’re against the fiscal stimulus, as it’s been called, aren’t you and your party also saying that President-elect Obama is 100% wrong, that the European Community is wrong, that everybody else is wrong?
SIR JOHN MAJOR:
That’s the Labour argument. You’re quite right, that’s the argument that’s being put to us, so let me actually address it. Everybody else, America is a case in point. The dollar is a different proposition from sterling. America is a case in point. Beyond that, there are many very good authorities pointing out that you can only put in a fiscal stimulus if you have the right strength of reserves in order to do so. We don’t. We have spent it.
ANDREW MARR:
So we’re in a different position?
SIR JOHN MAJOR:
We’re in a wholly different position. But let me run forward 3 years. If we continue borrowing like this, the world will be coming out of recession. We will have a huge amount of borrowing which will force up interest rates.
In 3 years time, as the world comes out of recession, in the United Kingdom we’ll have higher interest rates, we’ll have higher national insurance contributions because the Government have already implemented that, and we’ll have higher taxes. Are we going to come out of the recession with everybody else, with higher interest rates, higher taxes and higher national insurance contributions? I think not. What the Government are doing now with this appearance of action, often misplaced action, is ensuring that our recession is longer and deeper than anybody else’s.
ANDREW MARR:
All that being the case, isn’t it astonishing that they’ve become more popular, not less? And isn’t it also clear, I think a senior Conservative said David Cameron and George Osborne haven’t had a good war.
SIR JOHN MAJOR:
I think there are two reasons why that’s happened.
ANDREW MARR:
So you’d accept it as an analysis?
SIR JOHN MAJOR:
Not entirely, no, because I think you have a good war if you win in the end; not if you win the first skirmish. And I think there’s always a tendency to grab hold of nurse for fear of something worse. Uncertainty always drives people back to the Government. But I think as they analyse what has happened, I think they will see that the Government are leading them into a deeper problem, not leading them out of the problem. And the analogy I gave of the problems we’ll have in 3 years time is a case in point. The biggest idea actually that has yet emerged after the recapitalisation of the banks is the National Loan Guarantee Scheme and I think people need to understand what that means.
ANDREW MARR:
OK.
SIR JOHN MAJOR:
It will get the lifeblood of industry flowing to industry.
ANDREW MARR:
Would you like to see… Sorry, we’re running out of time. Would you like to see Ken Clarke coming back? There have been a lot of rumblings about that. Michael Portillo in the papers today is talking about that.
SIR JOHN MAJOR:
I’m not going to pick David Cameron’s Shadow Cabinet. I had long enough picking my own. I know the difficulties with that. I’m certainly not going to touch that. He’s a very able man, he’s certainly there to help and be very supportive, but I’m not joining this general clamour for change.
ANDREW MARR:
You’ve been in the world of international finance and so on really for the past 10 years one way or another. When did you start to see that something badly was going wrong on the banking side? Was there a sort of moment of revelation?
SIR JOHN MAJOR:
No, there wasn’t a single moment of revelation. It’s simply the general aggregation of debt. There has been a belief that the economic cycle had been abolished, we have finished with boom and bust. Well fooey! We’ve certainly finished with boom and we’ve got a huge, great bust.
And when you see debt piling up year after year, just as with an individual – if you, if you and your family piled up debt year after year after year, there would come a reckoning, you would have to pay it back. And that is what Gordon Brown and the Government have done.
They have piled up debt and now is the reckoning. Let us not pretend that it is all external factors. External factors are creating the credit crunch. External factors emphatically did not create the domestic train wreck and recession that we now have. That was domestic policy and it has been building up for some years.
ANDREW MARR:
Sir John Major, for now thank you very much indeed.
SIR JOHN MAJOR:
Thank you.