The Rt. Hon. Sir John Major KG CH

Tag: Adam Smith Institute

  • Mr Major’s Speech to the Adam Smith Institute – 16 June 1992

    Below is the text of Mr Major’s speech made to the 15th anniversary Adam Smith Institute dinner at the Banqueting House, Whitehall, London, on Tuesday 16th June 1992.

    PRIME MINISTER:

    THE NEXT PHASE OF CONSERVATISM: THE PRIVATISATION OF CHOICE

    I am delighted to have the opportunity to talk to you this evening about our domestic agenda for the years ahead. It is, of course, as Private Eye or The Guardian would have me say a time ‘of not inconsiderable interest in Europe’. But this evening my theme is domestic.

    After our fourth General Election victory in a row, Conservatives might be forgiven for thinking that the Millennium had arrived a little early. They may even be forgiven for thinking we’d reached an end to politics, with the final demise of Socialism, and the Conservative philosophy of choice, of opportunity, of responsibility and ownership triumphant.

    Such complacency would be wholly wrong. Complacency usually is. The good politician treads the waters like a duck. Unflurried calm above water and paddling like hell beneath it. But Socialism as a philosophy has been defeated and discredited. We should remember why. It has been defeated because of its intransigence and inflexibility. The attempt to marry 19th century political theory to late 20th century realities carries no conviction any more. Socialism has passed its sell-by date.

    CONSERVATIVES: THE PARTY OF EVOLUTION

    The real lesson is this: it is dangerous to get stuck in old ways. Conservatives, thank goodness, no longer debate the merits of the Corn laws. Yet Socialists still agonise over public ownership. To live, a political Party must always be examining and reexamining. It must listen and adapt to peoples’ changing needs. That is what this Party will always do.

    The greatest strength of the Conservative Party is that we look to the future. We move with, and help to mould, the spirit of the time. We choose policies which break down barriers to personal achievement wherever we find them; we are ready to take on vested interests; we take our stand in defence of the interests of the ordinary man and woman.

    Now, as ever, that means change. Not challenging the basic instincts of the individual – we will always go with the grain of human ambition. But answering better the aspirations of individuals. Opening up new doors and wider avenues so that their instincts and ambitions can be realised.

    Let us leave the Socialists to defend the status quo and the collectivist past; we are on the side of individuals, of innovation and of reform wherever it is needed.

    LISTENING TO PEOPLE

    Some were apparently surprised that we won the General Election. Some commentators wrote us off well in advance. I am not by nature vindictive. But I was able to bear the sight of them with more egg on their faces after the campaign than I had during it. I can only suggest that next time they look for opinions a little wider than the chattering classes of W8 and NW3. Perhaps they should try the real world. What they totally fail to appreciate is how deep the Conservative revolution is sending its roots. Just how total is the resection of the ‘State knows best’ assumptions of Socialism.

    THE DEVOLUTION OF FREEDOM

    We live in a new country. People have greater self confidence, independence and ambition. Forelock tugging belongs to yesterday. Living standards for the average family have risen by over a third since 1979. Millions of families now enjoy the freedom of ownership; ownership of shares, pensions and homes. We achieved an enormous amount in the 1980s. But that was only the beginning of what must be done. Now we must spread freedom and opportunity ever wider and ever deeper.

    The instinct for independence is a basic human instinct. Any parent knows that. During the 1980s that instinct was reasserted throughout the world. Yet old habits die hard. Among too many people in this country – people who take the easy choices of prosperity and privilege for granted – there is still an arrogance which assumes that people who have little, or are dependent on public services cannot be trusted with choice. Over the years, government at all levels has been stiff with that attitude. But not only government. It can still be found in some of the professions, in universities, and in the media.

    Well, I was brought up among people who had little. Yet they – we – were no different from the next man or woman. We had our own ideas, our own hopes, our own ambitions. Just because you have little money, it does not follow that you need little choice, that you are fit only to follow where others lead. People in those circumstances long to have choices. They want to be independent, not dependent on town hall or benefit office. They want a share in this country – a hand up, not a hand-out. They want to earn more, to have more, to build up the dignity of ownership and to leave something for their children. They are fiercely proud. How many do I remember from my childhood with little payments made weekly to the Tally Man to ensure they had enough to be buried with dignity. And some say such people do not want choice; do not want independence. And I say they are wrong. They do. And they want to feel that they own a piece of Britain and have a stake in its future. And we must make sure that they have that chance. Because if the Conservative Party doesn’t, no one will.

    TRUST THE PEOPLE WITH CHOICE

    If you stifle freedom; if government always ‘knows best’, you sow the seeds of resentment. I believe that it is the arrogance of central planning over many decades that lies at the roots of much unnecessary social division. Some express their instinct for independence in anti social ways. They reject the values of a society which gives them no voice. It is one of Marxism’s many ironies that wherever it has been tried, it produces a deeper sense of alienation from authority than capitalism ever has. We now see the anarchy that underlay the Soviet totalitarian state. Burke said ‘Freedom and not servitude is the cure of anarchy’. Give people more choices and responsibility; trust the people, and you will have a more just and ordered society.

    REMOVING OVER-GOVERNMENT

    We have made great progress. But we have no reason to be smug about it. Despite all the advances of the last thirteen years, one of the most over-governed nations in Europe. What do I mean by that? Well, first we have too many layers of Government. We intend to remedy that. That is why we have asked John Banham and the Local Government Commission to review local government structure. Local government should reflect the identity and interests of local communities. And, if that means bringing back some ancient authorities with which people still identify, that we shall do. But one thing we will do – add new tiers, permit the building of new bureaucracies. We will have no truck with regional assemblies and all the other jobs for the boys in the public sector unions that littered the manifestos of our opponents.

    But over-government means more than that. Too often choice in public services is exercised by people who do not have to stand at the receiving end or anywhere near it. For many people lack of choice in public services is merely a minor irritant in their lives. But for those who depend on those services, it can be a source of bitterness and even despair.

    THE NEXT PHASE: THE PRIVATISATION OF CHOICE

    This then must be the next phase of Conservatism: To shift the balance of choice in Society more radically than ever before into the hands of ordinary people. We have made a start.

    We have privatised State-owned industries. We have cut taxes. We have liberated businessmen and investors. We have deregulated and opened markets. We have spread wealth and we have spread ownership. We have seen a phenomenal growth in personal pensions and savings.

    There is no going back on this. We will continue to take the State out of the market place. We will privatise coal. We will bring private operators onto our railways. We will not go back to the corporatist days. No picking winners. No lame ducks.

    We have been accused on occasions of wanting to centralise – to take powers from others to exercise it from Whitehall. But it is not the civil servant who decides who should buy their council house. It is the tenant. No bureaucrat decides whether a school should apply to become grant-maintained. It is the governors and parents. It is not the man in Whitehall who decides that a hospital should apply for Trust status. It is the hospital. It is the people most closely involved.

    In the 1980s we opened doors. Those choices which used to be the monopoly of the State – in housing, in schools; and in daily life through high taxation – we gave them back to the people. People with enterprise flocked through those doors with enthusiasm. But others felt that opportunities were not for them. Perhaps they were not encouraged enough. Perhaps they were afraid of the attitudes of Socialist councils and unions. In the 1990s we mean to widen the avenue to choice and freedom. We mean to empower not just the enterprising, but people – the least well-off – those most dependent on public services as well.

    That must be the story of the 1990s. Where once Socialism nationalised or municipalised personal choice, taking it away from the individual and the family, we will give choice back to them and extend it further. Of all the privatisations that this Conservative Government conducts, the greatest and most far-reaching and the one to which I am most committed is the privatisation of choice.

    A RADICAL PROGRAMME OF REFORM

    That is the message of the reforms which make up the Citizen’s Charter. It is the most radical programme of reform of public service at all levels that we have ever seen. Yet thus far it has barely begun.

    It starts with Government. Already, we are acting on our Manifesto commitment to open a wide range of central government services to competitive tender. I want to bring to central government the benefits which contracting-out has brought to local government. Whitehall Departments, Next Steps Agencies, other parts of public service – all these must look at how bringing in outside skills could improve the standards of service on which the public depend.

    MORE OPEN GOVERNMENT

    I also want to see a significant change in the role of the State. Whitehall should not be so inward-looking as it now is. It should be more open in its procedures and already we are beginning to change it to bring that about. People need to feel greater- ‘ownership’ of their government, to see it as less austere, less remote. I want people to respect the considerable skills, the commitment and professionalism of public servants. But those skills are too often hidden from view.

    LIMITING THE ROLE OF THE STATE

    Adam Smith believed that the State had a responsibility for reform, to remove impediments to natural liberty and to facilitate the development of services like basic education for all.

    I agree with Adam Smith. It is a little over two hundred years since he wrote the ‘Wealth of Nations’. In the intervening years the State has arrogated to itself more and more powers. The wheel is now coming back full circle. For an increasing number of public services the State should be an enabler and facilitator. Adam Smith believed that in providing services, the State should simulate market conditions wherever possible. It is a pity he is not alive to advise us on the Citizen’s Charter. No Adam Smith perhaps. But at least we have Madsen Pirie, who sits on my Advisory Panel.

    EMPOWERING THE USER

    Let me give you four examples, in key areas of Conservative policy, where we must work to empower the user better in the course of the 1990s. In education. In housing. In law and order. And in health.

    CHOICE IN EDUCATION

    In education, I have a simple dictum – the best for every child, the best from every child. I make no apology for our insistence on higher standards, on testing, and on a return to basics in our schools. It is what parents expect and deserve. And it is what parents and pupils will get. Education is the key to the opportunity society. We mean to end for good – and I mean for good – the giant Left-wing experiment in levelling down. This will not only help the gifted but, perhaps most importantly, the less gifted and the deprived as well. Nothing is more patronising or more damaging than to lower the expectations you have of pupils simply because they come from a less advantaged background. They too, have the right to be challenged, stimulated, and stretched. And encourage them we will.

    Mr Chairman, we will extend further choice for parents. The introduction of open enrolment and Grant Maintained Schools is already beginning to have a dramatic effect on standards and attitudes in Schools. Where are all those people who predicted it wouldn’t work because parents would not be interested? I’ll tell you. They are the people who are now complaining that parents’ determination to choose the best for their children is cutting across the educationalists’ plans. Imagine: parents having the effrontery to cut across educationalists’ plans. Whatever next? Well, All I can say is: ‘About time too’.

    Why – last week I even heard that Labour now intend to ‘soften its approach to opt-out schools’. Isn’t amazing what an effect a caning at the ballot box can have? Jack Straw says Labour still oppose opting-out. But he admitted Labour had to recognise – and I quote – ‘Parents are bound to make decisions as to what is best for their children’. Well I never. What a painful admission for a Labour politician after decades of Socialist educational theories. Parents want the best for their children! It’s the Socialist world order turned upside down.

    We are extending parental choice everywhere. But I can tell you today that we will go further. It is all very well if you live in an area where there is a choice of good schools. What if you don’t? In too many deprived inner city areas, where councils are dominated by the Left, there is still too little choice. Many of these schools still provide standards of education which are inadequate. A choice between the bad and the barely tolerable is no choice worth speaking of.

    We cannot leave this as it is and we won’t. We intend to take powers to set matters right. I want to see good schools grow and bad schools improve or close. I want to expand opportunities for new schools and new types of schools to develop. And where our new independent Inspectorate finds that standards are unacceptably low, I do not believe that Government can stand indefinitely by. If the governors or the local authority are unwilling or unable to put things right, then we must find ways to raise standards for the children in them. Children’s needs come first that is why John Patten will be producing new proposals to tackle the worst schools in his White Paper later this summer. They will be radical. They will be controversial. And they will be absolutely in the interests of the pupils.

    CHOICE IN HOUSING

    In housing, we have brought about a revolution in the years since 1979. Millions of people are now homeowners who never thought it possible. And we have given tenants new rights in place of the old rules laid down by Council housing departments. Here, too, we must now take our programme further. To create more new owners with the Right-to-Buy and with the new Rents-to-Mortgages scheme. To give further new rights to those who rent- the right to repair, and a new right to benefit from improvements they have made. And, as we have just announced, to crack down on Councils that patronise their tenants. Councils will now have to put housing management out to tender and to bring in managers who can provide a better service for tenants.

    We also want to take further steps to improve the availability of housing in the private rented sector. Our ‘rent – a-room’ scheme will enable home owners to let rooms to lodgers without having to pay tax on the rent they receive.

    BETTER POLICING

    In upholding the law we want a return to the old approach to policing. 130 years ago, a Russian coming to Britain said; ‘Until I came to England the appearance of a police officer always produced an indefinable disagreeable feeling and I was at once morally on my guard against an enemy. In England a policeman at your door merely adds to your sense of security’. People should feel that the priorities of the police are their priorities. There should be a policeman passing your door regularly, and not just when the burglars have called. People in our cities should not be afraid to walk the street or open the front door.

    We will back the police. We always have – and we always will. But we will back the policemen on the beat by insisting on better management, on greater flexibility, on greater attention to the concerns of the public with more use of civilian staff and community policing. Ken Clarke’s review of the functions and structure of policing will ensure that we have a modern, efficient and fully responsive force – one which meets the needs of the public, and which retains and returns the public’s respect.

    AN NHS FOR PATIENTS

    In health, we have won the battle of the health reforms. Look how many hospitals applied for trust status before the election, despite all Labour’s threats to the jobs of those who appeared too enthusiastic. Trusts and their equivalent in primary health care, the GP fundholders, now have an unstoppable momentum – north of the Border as well, as I discovered on a visit to Scotland two weeks ago. Why? Because they know that they can provide better standards for their patients and more fulfilling careers for themselves if they run their own show.

    In GP surgeries and in hospitals, our reforms are working. They are strengthening the health Service and extending the frontiers of free modern patient care. They are here to stay.

    CITIZEN’S CHARTER: CONTINUING PROGRAMME OF CHANGE

    Our Citizen’s Charter is about choice, competition, management change and responding to the users of services. The Charter will be at the centre of all our decision-making. Pushing forward market-testing. Setting and reporting on service standards and performance against them. Widening choice and competition. Enforcing higher standards where choice and the market cannot fully operate.

    That does not mean excessive new regulations. We are not giving people more choice in some areas, just to see it removed by over-zealous and over-detailed regulation in others.

    So central and local government alike, be on your guard. We have a new commitment to deregulation. It was set out loud and clear in our Manifesto. And over the next few months we will be relaunching that drive.

    But if we are to achieve the standards we want in key services – in schools, in social work, in policing, fire services and probation – I believe that rigorous independent inspection is crucial.

    That will mean reform in present arrangements. We have begun in education. But the inspection of key public services must – and will be – independent of the services they inspect. I do not accept that schools can only be inspected by educationalists, social work by social workers. There is room for good, old-fashioned commonsense, for the outside view, and for other professional skills. We need and we will deliver, independent scrutiny from outside.

    The Citizen’s Charter is no blueprint for those who want to push the public spending ratchet up a few notches. No one who uses public services can fail to be aware that within any given level of resources, standards and efficiency can improve. There will be no let up in my personal determination to keep public spending under tight control, no matter how difficult the choices will be. Better value for money is part of better public service – and we will continue to work for it.

    A CONSERVATIVE VISION OF SOCIETY

    The Citizen’s Charter is about giving power to the people. And that is fundamental to my vision of the society I want to see develop in the 1990s. I have said I want a ‘classless’ society. I do not mean that in the sense that people should all be part of some amorphous mulch. Of course society forms itself into groups of people who share attitudes and interests. There is nothing wrong with that. And there will always be snobbery, no matter how much I personally deplore it. I cannot legislate to change human nature, nor would I want to.

    What we can do is give everyone a better opportunity to make the most of their lives. That is one more reason why we will continue to ensure people keep more of what they earn. We will help millions more to obtain personal pensions, so that they will have extra security when they retire. And we will ease inheritance tax to enable every family to pass on to their children what they have built up in a lifetime of work. The politics of envy have no place in my view of the future this country.

    I want to do away with the old divide between those who choose and those who have to take what they’re given. I want to do away with barriers to achievement. Too often people give up. They turn against those who slam doors in their face. Those doors should be open. I want a country where achievement is not resented because everyone feels they can achieve things too.

    Reform starts at the top. We are chopping Goliath down to size. We are giving people the slings and stones to do it. I don’t want to hear any more carping about the faults of the dependent. Who has made people dependent? We have. By ‘we’, I mean Governments, planners, those who think wrongly that they have a monopoly of wisdom. We have done it not because we provide the welfare and the services, but by denying people the basic human dignity of independent choice in the way they are provided.

    Michael Oakeshott wrote of ‘human beings impelled by an acquired love of making choices for themselves’. Yes, it should be their decisions which shape our society. He said ‘we know as little and as much about where it is leading us as we know about the fashion in hats of twenty years time or the design of motor cars’.

    I agree. Some would criticise us for that. I take it as my starting point. The past 200 years has been the story of the evolution of democracy. The progressive extension of the franchise. The extension of wealth. The extension of choice. In the 1990s, I want the privilege of ownership and the luxury of choice to be no longer a privilege. No longer a luxury. I want them to be for all. To be as universal as the franchise itself. But just as individual and just as personal. For, like the right to own, the power to choose is not something which we kindly permit every four or five years. It should be the birthright of every citizen of every part of every corner of this country. And it should be there every day.

    We are determined it will be.

  • Mr Major’s Speech to Adam Smith Institute – 27 June 1989

    The text of Mr Major’s speech to the Adam Smith Institute on 27th June 1989, entitled “Adam Smith and the Public Sector”.

    CHIEF SECRETARY TO THE TREASURY:

    If I am allowed to start a memorial lecture for Adam Smith by mentioning Keynes, I think we should recall his famous remark that, in reality, all practical men are the slaves of some long dead economist. When Keynes said that, he cannot have imagined that the long dead economist whose ides would dominate the practical and successful policies of the 1980s would be Adam Smith. But Adam Smith is the man of the 80s. The renewed acceptance of the benefits of competition, of private enterprise, and the recognition of the dangers of monopoly, owe an enormous amount to the influence of Smith’s works, promoted to assiduously and successfully by your Institute.

    In recent weeks I too, have re-discovered a lot about Adam Smith. He was certainly no entrepreneur – indeed it has been said of him that “he never engaged in any sort of trade and would probably never have made sixpence if he had”.

    And quite apart from the never engaging in private enterprise, the apostle of the free market had a dark secret. He worked for the Government. Worse, he was no political adviser urging radical ideas. He was an official in Customs and Excise! Incidentally, that is a distinction he shares with a number of other great men including Robert Burns, Geoffrey Chaucer, Daniel Defoe, Horace Walpole and Sir George Downing. And whilst he was there he did not, as far as I am aware, address his formidable intellect to the thorny problem of managing Customs collection although he did utilise his forensic skills to express highly radical views on public services. He was insistent that some form of primary education should be provided free, by the State – a proposal which probably reflected his Scottish background and took a century to be implemented.

    And Smith also thought that road transport should not be in the hands of the private sector – a point where, to some extent at least, we are now moving away from his prescription and encouraging private capital into road transport development. This is happening on an increasing scale – the Channel Tunnel project being the most dramatic example. To encourage more such projects we have now retired the Ryrie rules – not before time in my view – and confirmed that the acid test is whether private sector involvement means better value for money. Where it does, we have also given the assurance that private road schemes will generally be additional to the existing planned public road programme.

    Although much of his wisdom is timeless, Adam Smith lived in a different age when the public sector barely existed and when its 20th Century growth could not have been imagined. Government simply was not responsible for the vast range of activities it provides today. Taxes existed to pay for the armed forces and a minimal government machine and that was that. But Smith’s philosophy raises an interesting question. What would he have thought and said about the kind of public sector we have today? How would he have applied his principles to the management of public service? And what public spending policies would he have advocated to promote those principles?

    Unlike Adam Smith I am not a moral philosopher. Nor an economist. Nor an intellectual. I am a practical politician and for me the allocation and management of public expenditure is a practical business, not a matter of ideology. But I do believe that his ideas have both a very great appeal and practical relevance for governments today. We should start from the presumption against intervening to hamper or replace free markets. Indeed we should look for ways of extending the market sector, and this we are seeking to do. First by reducing the relative size of the public sector, and second by using market mechanisms within the public sector as far as we possibly can.

    The fact that Eastern bloc countries are beginning to introduce free market policies is the clearest indication that the planned economies of socialism are in retreat. It is not necessary for political philosophers to prove that free enterprise economies are superior to planned economies. History has done that and the political judgement of eastern Europe, is starting to endorse it. Their people too, have observed that political freedom and economic freedom are indivisible.

    The appeal of Adam Smith persists because he put the interests of individual citizens at the forefront. Consumer power is an economic expression of individual freedom. A key characteristic of centrally planned economies is that they are driven by producers for producers, whereas the characteristic of a free market economy is that the consumer has primacy. So the first objective is to increase as far as possible the area in which the market economy operates.

    It follows from this that, while we do not have a rigid doctrinal view of the ultimate size of the public sector, controlling and reducing its expenditure as a share of the national income is vital to our economic policy. We have now eliminated the structural budget deficit which we inherited from the 1970s and we have the prospect of our budget continuing in balance for the future. But we now need to maintain our policy of restraint in public expenditure in order to produce a sustained reduction in the burden that taxes impose on wealth creating activities. As Adam Smith said, “that burden may obstruct the industry of the people, and discourage them from applying to …. business which might give employment to great multitudes”.

    We have achieved considerable success in checking the upward trend in public expenditure which was such a pronounced feature of the post war period right up to the early 80s. Indeed, in proportion to national income public spending is now at its lowest level since the 1960s.

    I was glad to see that in his recent book Madsen Pirie recognised the progress we have made:

    “What had seemed until 1979 as perhaps an inevitable and remorseless growth of the public sector has been sent into sharp reverse. The speed with which this was achieved in Britain has been astonishing”

    And he goes on:

    “and so has the speed with which the rest of the world has taken up the example”.

    Madsen is right. But we cannot relax. The pressures for extra spending are always strong and sometimes individually may seem compelling. Unless we are vigilant in sticking to a policy of prudent fiscal management, there is the risk that the public sector will again start to pre-empt resources needed in the market sector of the economy. Thus the progress we have made so far is constantly under threat. This problem was addressed explicitly in your Institute’s Omega report on Expenditure and Taxation Policy.

    This report posed some tough questions. How to achieve the objective of increasing the entrepreneurial sector in the face of the strong pressures for growth in public expenditure, and against any change? How to identify waste “in a system that separates costs from benefits?”. How to cut waste in the face of public sector producer interests? How to motivate public sector administrators to improve efficiency?

    Our approach has consisted of four elements:

    – Above all, top down pressure on cash spending. This means setting expenditure totals for each year which reflect a realistic view of the prospects for the economy; if we have a wish list of desirable policies that we fund irrespective of affordability then we will simply ignite inflation.

    – Within the totals there must always be a rigorous assessment of priorities.

    – Efficiency and value for money must remain an absolute obligation for the public sector.

    – And we must wherever possible open public services to competitive pressures through market oriented policies.

    These points now sound very familiar – almost truisms. But that is a measure of how far we have come over the past ten years. You only have to take a moment to think back to the mid-1970s to appreciate how much of a change there has been.

    If we are to apply Adam Smith’s principles in setting priorities within the public sector we must face the problem that we do not have the invisible hand, that interplay of individuals pursuing their own interests, through free exchange, which promotes both the increase of wealth in society and its wider distribution. The great attraction of this force is that it is both benign and uncontrolled. It works through people having freely and spontaneously. And, as a result, Adam Smith gives us a prescription for a society which maximises both freedom and prosperity.

    That inter-play is missing in the public sector above all because there is generally no real price mechanism. And the surrogates for it are at best imperfect. Decisions on resource allocation have to be taken centrally. Economists are always looking for theoretical answers to the question : how do you allocate public sector resources rationally? Politicians must address the same question. The answer of course is that there is no objective system for weighing the demands of different public services. There is no escaping political responsibility. In an open, democratic society, decisions made by the political process will always be fought over. Planning and controlling public expenditure is intrinsically a contentious business. In short, instead of the invisible hand, we have a very visible hand – that of the Government. And, to the extent that anyone in Government has the responsibility of operating that visible hand at any one time, it is the holder of my present job.

    When you look at the past 10 years it is clear that the political commitment to market oriented policies of the sort advocated in the Omega report has in fact influenced the distribution of public spending quite dramatically. Subsidies to industry and housing have fallen, spending on health and law and order have increased substantially. We have pressed for, and obtained, reform of the Common Agricultural Policy and made substantial reforms to the SERPS scheme. In recent years we have seen a dramatic fall in spending on unemployment benefits, and correspondingly remarkable increases in benefits for the elderly and disabled.

    This switch in resources reflects a combination of economic growth, privatisation and political choice in response to public concern. There is no doubt that pressure for higher spending on priority areas will continue and intensify. To meet them means not only avoiding wasteful and ineffective programmes but also means spreading out the timing of some desirable spending so that more resources can be provided for priority services at a pace which the economy is capable of sustaining. Hard choices are unavoidable and we must be prepared to make them.

    It also means improving the performance of the public services. To achieve this I believe it is both logical and desirable that this approach that is making the private sector work better should also be applied to the public sector. The public sector must be part of the general improvement in the supply performance of the economy. We insist on excellence in the private sector, so we must achieve the best possible value for money in the public sector too. We owe that responsibility to the taxpayer. And that depends on applying the market principles of choice, competition and high quality service, more widely throughout the public sector, wherever we sensibly can.

    The simplest and most effective way to subject public enterprises to the invisible hand is of course through privatisation. We are introducing the stimulus and discipline of the market place, not only by privatising nationalised industries, but also, for example, by transferring the main responsibility for housing from the public to the private sector. On top of the gain in efficiency, and responsiveness to consumer choice, these measures are having an enormously beneficial impact in widening ownership across the board. Home ownership would not have grown from 55% in 1979 to 65% now without the policies we have followed.

    Where complete privatisation is not possible, or desirable, and it often may not be, the discipline of the market place may be introduced in other ways. Services previously performed directly by central or local government can be opened to competitive tender, in which the existing organisation may still compete with commercially provided services. Competitive tendering has already released for better uses some 170 million pounds a year across the public sector. In this way the invisible hand can still have its influence on the efficiency with which services are delivered.

    There is of course room for endless debate about the scope for privatisation and the ideal size of the state sector. Beyond those inescapable duties such as defence and law and order, there seems no theoretically tidy state/private distinction. Taking a practical rather than a philosophical view there is no doubt that a substantial number of activities will remain in the public sector and financed from taxes.

    The scope for positive policy choice in allocating resources is increased very substantially by better efficiency and value for money. This is a continuing crusade. Not a gimmick. It may be unglamorous and undramatic but it is essential and the rewards are considerable. By eliminating waste and providing services at lower cost we are releasing substantial resources for allocation to improve services or meet priority needs.

    The scale of savings is substantial. In the Civil Service, for example efficiency scrutinies and other management improvements have already saved 1.25 billion pounds a year, including last year a quarter of a billion pounds from better purchasing alone. In local government, authorities are estimated to have implemented already more than 300 million pounds of 900 million pounds annual value for money improvements identified by the Audit Commission. And in the NHS the cost improvement programmes are expected to yield cumulative savings this year approaching 900 million pounds – the cost of 20 District General Hospitals or 70,000 nurses’ salaries.

    How is this being achieved? First, by comparing costs and benefits seriously, putting effort into stating clearly the objectives of programmes, setting targets for their effects, and measuring their success. We now have literally hundreds of value for money targets covering each and every spending programme.

    Second, and just as importantly, by decentralising decision making and by motivating public services managers to improve efficiency. After two years as Chief Secretary is has become increasingly clear to me that anyone who seriously wants to improve the service to the consumer must give priority to pushing decisions down to the individuals who can best take them. For the quality of service depends ultimately on individuals working in the health service, in local authorities and in the local offices of central government departments and agencies.

    They are the people who are close to the problems and who should know what the needs are and how to use resources most effectively to meet them. Ministers still need to set objectives and decide on the allocation of resources to meet them. But with that essential constraint, managers should have the greatest possible incentive to maximise performance. I do not believe that incentive means financial reward alone. The incentive, and ability, to provide a better service is a vital motivating force. If it operates effectively individuals enjoy greater job satisfaction and perform better. In this way the requirements of efficiency and better service come together.

    At the same time, service managers need to be set sharper targets for their performance, and will be more accountable for the efficiency with which they deliver the services. To do this, they will need better management systems, and more timely information about what they are achieving and how their targets are being met. They will be helped in this by the rapid advances now being made in developing and applying information technology.

    Managers and those who provide services will also need to respond to the challenge of greater choice and competition which we are introducing across the public services. The public are right not to accept shoddy services and we are giving them the opportunity to press directly for higher standards and better value for the money they provide as taxpayers. In the health service, it will be much easier for patients to choose the GP who provides the best service. And the GPs who attract more patients because they provide a better service, will be rewarded for doing so. In education parents will be able to exercise greater choice upon which school their children will attend. The establishment of TECs means that the needs of employers will have a greater impact on training and enterprise grants. The funding of universities and polytechnics will reflect students’ choice of course. And so on. We are constantly seeking opportunities to extend choice and make the public services more responsive to consumers’ needs. These are development very much along the lines of the Omega report.

    I want to stress tonight that all this is not an easy or comfortable process. The need to restrain overall government expenditure, to set priorities and improve value for money is always acute as the understandable aspirations of society – for better health, for better education, for better environmental standards – rise and the pressures for more spending intensify. Such pressures are particularly acute this year. To some extent this is a response to the demands and expectations of a more successful economy. But it also reflects the belief that expenditure levels do not matter so much if there is a large budget surplus to fund them. Such thinking is seductive but it is unacceptable for any Government that regards control of inflation as paramount.

    The fact is that a budget surplus is right for the present circumstances. We are running a surplus because, in his Budget, only three months ago, the Chancellor judged it prudent to do so. Nothing that has happened since then casts doubt on that judgement, on the contrary, events have shown just how right he was. It is true that we have been more successful in containing public spending than we have in reducing the burden of taxation. But that does not create a presumption in favour of higher spending, rather one of lower taxes, when it is safe to do so. But so long as inflationary pressures remain strong, we must be cautious. Of course better infrastructure and better services are important but they are something we must tackle sensible, not rush into with our cheque books flapping.

    Our existing public spending plans already incorporate substantial increases for priority programmes. Over the last 5 years the Government has increased its own spending on roads by over 10% in real terms, and on rail by over 75%. And our plans provide for further dramatic increases over the next 3 years – 25% for roads and nearly 50% for rail. Also, in terms of spending on welfare services, benefits for the sick and disabled have risen by nearly 40% in real terms and are expected to rise by more than 25% over the next three years. Spending on the NHS has risen by 15% in real terms in the last 5 years and is planned to rise by 5.5% in the next three years.

    In weighing up demands for extra capital spending in particular, we must look not only at the increases already built into the plans, but also the capacity of the supplying industries. There is no point in public spending plans that are over ambitious and unrealistic, either individually or in total. There is no sense in planning increases on a scale that will not only bid up prices and earnings and add to inflationary pressures, but also fail to provide extra roads or extra hospitals on time. That only wastes money, and risks squeezing out private investment which is rising strongly reflecting business confidence in the Government’s performance and policies. We certainly cannot do everything at once. Rome was not built in one financial year. Nor in one survey!

    Ultimately the scope for increasing public spending depends on growth in the economy and can only depend on that. It is possible to grow your way into spending by you cannot spend your way to growth. We have discarded the discredited assumptions of the 60s and 70s when well meaning Governments intervened here there and everywhere, inexorably spending more than they were prepared to raise in taxes. This pushed up inflation with all its socially divisive effects, and severely damaged the supply side of the economy. Steady growth led by a strong supply performance is the precondition of public spending. To achieve that growth we must continue to hold down taxes and borrowing. Non inflationary growth encourages social possibilities.

    I have said a great deal about the financing and management of public spending in a sustainable way. Here I have clearly taken to heart the words of Adam Smith:

    “The uniform, constant and uninterrupted effort of every man to better his condition… is frequently powerful enough to maintain the natural progress of things towards improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

    I can promise tonight that we will continue to resist the extravagance of government – but you will not expect me to promise to eliminate all errors of administration!