Category: Chancellor (1989-1990)

The text of Mr Major’s speech to the 1990 Conservative Women’s Conference, held at the Royal Horticultural Halls in London on Friday 22 June 1990. The speech was issued as a Conservative Party news release, reference 455/90.

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CHANCELLOR OF THE EXCHEQUER:

Earlier this week, some of you may have seen Neil Kinnock on television. I did not myself see him since he clashed with the football. It was a difficult choice and Mr Kinnock lost. Nonetheless, I read the transcript. I found that he had got his facts wrong, as he always does. And John Smith had to issue a hasty correction, as he always does. And this added to the confusion, as it always does. It’s nice to know – in a changing world – that some things never change.

But despite this carnival the truth remains as it always was. Labour cannot hope to honour their spending promises without increasing tax for a great many basic rate taxpayers. It simply cannot be done. Fourteen out of fifteen taxpayers will not pay the same as now. They will pay more. There are only two conclusions. Either Labour know their plans will put up taxes and are trying to hide it – if so, that is simply deceit – or they haven’t costed their plans and they don’t know the implications of them. That is simply incompetence. Either way it is no recommendation for Government.

But I don’t want to spend time this morning talking about the deficiencies of the Labour Party. I have, after all, only twenty minutes. I do want to talk about where Britain’s economy has come from and what its prospects are. And in particular, I want to talk about inflation, savings and the present marketing of credit.

The economy generally is the most important issue for us to face. Important not simply in terms of material wealth – for that is by no means all we care about – but important because without economic growth our long term plans for social and other improvements simply cannot be achieved. As Iain MacLeod once memorably put it: “Money is the root of all progress”.

We should not underestimate what has already been done. In the 1980s we have seen enormous changes. Many problems that seemed insurmountable ten years ago have been swept away:

– We have a proper balance in trade union legislation;

– We have introduced the most far reaching corporate and personal tax reforms this century;

– We have deregulated and hugely improved the supply side of our economy;

– Investment has been growing on an unprecedented scale;

– And these days, far from being a debtor constantly borrowing to finance spending, we have actually been able to pay back a large proportion of the debts accumulated by Governments over the last two centuries – over £25 billion repaid in the last three years.

Whatever short-term difficulties now confront us, these are enormous achievements.

But, the question for the future is clear: how do we build on these achievements? What are the essential prerequisites for further success?

In essence we have one problem, inflation. But the question must arise:- why has inflation proved so stubborn? Why, indeed, has it actually risen recently, despite our anti-inflation credentials and our real determination to reduce it? I believe this genuinely puzzles many people and is a legitimate question we must answer.

Whatever our critics might say, the problem does not lie in any relaxation of policy before or after the 1987 Election. On the contrary, it was in many ways the very success of our policies which caused the problem.

We saw a tremendous surge in confidence in 1987 and 1988. Confidence on the part of industry, resulting in a 40 per cent increase in business investment in the three years to 1989. That investment was very welcome because it will lead to an increasingly effective industrial sector. But the scale of it did add to demand.

And just as businesses felt confident and invested, so did millions of individuals. And they invested too – in a new house, a new car or some other expenditure. And that created a further bubble of demand. The combination of such strong growth of business and consumer investment was unprecedented in the last 50 years. And that is what created the growth of demand that is at the root of our present inflationary problem.

As it becomes apparent what was happening, we responded by tightening policy. But with hindsight, we can see that our response underestimated the problem. But that was clear only with hindsight. It was not clear at the time when almost all outside commentators underestimated the extent of the inflationary pressures we faced. We need to reduce these pressures and that is why we have had to maintain a tight fiscal stance, with high interest rates.

And we must continue that policy until we get inflation down. And when we have done so we must keep it down. It is not proving easy; certainly I know it is not painless; and it is slower than we had hoped. But that cannot lessen our determination.

So our opponents misjudge us when they suggest we will engineer what they call a short-term pre-election boomlet. We will not. What we will do is to maintain a long-term attack on inflation so that we can build on the progress of the past decade and take up the opportunities of the present one.

There are two over-riding reasons why we must defeat inflation – the first familiar, the second perhaps less so. The first is the damage that inflation does to our industrial competitiveness. This cannot be disguised. The higher inflation is, the less competitive our goods are in international markets; and if that continues, in due course, inevitably our relative standard of living will fall.

The second – perhaps less often stated reason – is the social damage done by inflation. Inflation does most damage to those who are least able to protect themselves and often those who have contributed least to the problem.

And the damage lasts. I suspect there are many elderly people today who are on social benefits – not because they failed to save and prepare for their retirement. They did – often from modest incomes. No, they are on social benefits because Governments failed to control inflation which destroyed the value of the savings on which they were expecting to live in comfort in their retirement.

I have no intention of taking any risk of that happening again. We cannot have a society where saving is penalised in this way. For saving is vital. Vital to the economy. Vital to finance investment. And vital for individuals too.

Too often as individuals we spend too much and save too little. And often that which we spend is from money that is borrowed and not saved.

But those who have savings – and even more, I am afraid, those who do not – know only too well that savings provide security. To have money put by cushions people against the unexpected; it gives them freedom to make choices. It puts families in a position to take the opportunities that are available to them.

These are the reasons we have consistently encouraged savings, throughout our time in Government. And also why, in this year’s Budget I introduced the new concept of a tax exempt special savings account, or TESSA, which will start next January. This is a five-year savings plan with a bank or building society in which everyone is entitled to save up to £9,000. And provided the capital is left untouched for the whole five years the interest will be completely free of tax. Early indications are that this scheme will be hugely popular. It is a tax incentive for the modest saver.

In April of this year independent taxation for married women began. Your Committee campaigned for that for years, and rightly so. And one of the greatest benefits of this change is it removes the iniquitous penalty on married women’s savings. For the income from a wife’s savings, whether she had other income or not, used to be added to her husband’s income and taxed at his rate. From April this is no longer so. Nor, indeed, need she any longer inform him of how much she saved unless she chooses! Independent taxation means that 3 million married women will pay less tax, of whom two-thirds have incomes of less than £5,000 a year.

But in this year’s Budget I also dealt with a further anomaly thrown up by these changes. Under the composite rate tax arrangements, those who save with banks and building societies have tax deducted from the interest they earn, which cannot be reclaimed. That deduction was automatic. But many of these wives, and pensioners and children too, had incomes below the tax threshold. That is why I decided to abolish composite rate tax from April 6 1991 – the earliest date that such a big change could be made. The principle was that tax should not fall on those who are not liable for it. From next April, it won’t.

Taken together these changes represent a milestone in the taxation of savings; and they remove a number of anomalies that were particularly unfair to women. I would like here to pay tribute to the help I had last year – and that I know Nigel and Geoffrey had before me – from your National Committee. Their realistic submissions on budgetary matters were enormously helpful and played an important part in the final decisions we took. They should start work now: it is not too early to be thinking about the next Budget!

I know too how worried many of you have been about the pushing of easy credit, particularly at the young and at those who may be tempted to incur debts beyond their capacity to repay. I share that worry, and I believe we should address the problem.

Of course the vast majority of those who borrow are aware that interest rates can rise as well as fall and they can borrow responsibly. And those who offer credit usually look carefully to see that they do not grant credit beyond a person’s capacity to repay. But that is not always the case.

And I believe there are worrying trends in the way some providers of credit market their products. Too often the implication is that further borrowing is a good idea for all regardless of their income or their existing level of commitments.

That is why I have asked the financial institutions to reconsider their policy in this area and the banks and building societies to cover this in the code of good practice which they are drawing up. We shall look very carefully at what they propose to see whether it is sufficient, or whether any further action is necessary.

For I believe there is a lot that lenders can do to improve the information available to potential borrowers, and to improve the tone of their marketing. For example, quoting a particular interest rate often does not bring home to people the full impact of their commitment. That impact ought to be made wholly clear to borrowers, in readily understandable terms. People need to have a full understanding of what it is they are taking on, and what the main terms and conditions of the loan are.

And I would urge lenders – all lenders – to be conscious of the distaste many people feel for indiscriminate mailshots and credit advertising. Many people do not like unsolicited offers of free gifts and other inducements to borrow. They are an irritation when they arrive with the morning post – frequently sent to people who do not wish to borrow or who are in position to do so. I wish too that lenders would not constantly stress, as some do, that potential borrowers have instant and easy access to credit. This sort of approach contributes to the impression of carelessness in lending.

Responsible lending is the flipside to responsible saving. In the Budget I announced changes which should give a real boost to saving in its most accessible form – in banks and building societies. I hope that the banks and building societies will put as much effort into marketing saving vehicles and their attractions as they have put into marketing loans in recent years.

And since the Budget we have improved the return on National Savings products too. All these forms of savings are very desirable – low in risk, and for many people they are the essential first step towards share ownership or building up the capital to branch out on their own – start a new business or become self-employed. For at every level thrift and enterprise are closely related. And that is why, at every level, we shall continue to promote them.

Madam Chairman, I have referred to inflation, which we must keep down. To savings, which we must increase, and to credit, which we must handle responsibly. These are all important policy ingredients as we continue to build a stronger economy.

I have no doubt that we have the policies to keep Britain’s economy moving forward. The policies that will bring inflation down and keep it down. The policies that will promote saving. The policies that will allow enterprise to flourish, and the policies that will enable British businesses to take advantage of the opportunities before them.

And as we look down the next decade these opportunities are enormous. The coming years will see great changes. The realisation of the single market in Western Europe. The dramatic opening up of wholly new trading opportunities in Eastern Europe. A wider and more prosperous world market. It will be a world in which British businesses can prosper and grow and help build a greater prosperity for all our citizens. After the economic changes of the ‘80s, we are formidably equipped to take advantage of the ‘90s. We start from a sound base, and with a determination to build on it. Provided we persevere, and stick with the policies we believe in, then our prospects for the future are bright indeed.