The Rt. Hon. Sir John Major KG CH

Tag: ERM

  • Mr Major’s Article on Europe – 15 October 1992

    Below is the text of Mr Major’s article on Europe, issued on 15th October 1992.

    PRIME MINISTER:

    The futile argument about whether Britain is part of “Europe” or not has resumed here and there both in Britain and on the European mainland. It is a debate for political theorists and people living in ivory towers. It has nothing to do with historical, political of cultural reality.

    What happened on the mainland has always had an immediate impact on Britain’s domestic politics, as well as its foreign policy. Britain too, paid the price of blood in the two wars which have torn Europe apart in this century. Britain’s contribution to European literature, philosophy, political thought and practice, is an essential part of the unique civilisation of our European continent.

    It is absurd to talk as if Britain could detach itself voluntarily from the mainstream of European affairs. It is just as absurd to talk as if Britain could in some way be expelled from the European mainstream. Talk of a “mini-Europe” without the British is disreputable. Neither the Community nor any other institution can claim the “European” title if it is incapable of accommodating one of Europe’s most important countries. Britain is central to the affairs of Europe, and so it will remain. I have found no serious statesman on the European mainland who thinks differently.

    Nevertheless Britain’s postwar relationship with the rest of Europe has not been entirely happy. After the war a group of far-sighted European statesmen set up the European Community in order to ensure that the Europeans would never again try to destroy one another and their common civilisation. This was a noble objective, and it has been achieved. The British stood aside from the process in the 1950s; a mistake for which we have been much criticised ever since.

    But we learned from our mistake very quickly, and applied to join the new Community only four years after it had been founded. The Original Six then made an even bigger mistake. The British application was twice rebuffed. Britain was eventually allowed in only after twelve whole years had passed, and under financial arrangements that were patently inequitable and had to be renegotiated. It is hardly surprising that the British felt uncomfortable in a body where they were accused of being “un-European” whenever they expressed their own views about the way the thing should be run.

    We all made mistakes. I have no intention of distributing praise or blame. But the emotions generated in those years still cast a shadow. We respect the arguments of those who want to go now for the most far reaching interpretation of the goals of political and economic union. But our centuries-old experience in building a stable and peaceful political society has led us to be suspicious of attempts to force the pace of history.

    There is a metaphor that the Community is a bicycle that will fall over if not ridden full speed ahead. But if you cycle too fast you may hit a stone and crack your head and lose direction. The British believe that durable political institutions are like coral reefs; best built slowly but surely. There is nothing “un-European” about that.

    In recent months Europe has hit just such a stone. It is quite clear ordinary people – not only in Denmark and France, in Germany or in Britain – are unhappy at the pace of events. They are dissatisfied with the explanations they have been given by their political leaders. They fear they are being asked to give up their cherished national traditions and their political institutions, their freedom to manage their own affairs as they see fit. They feel they have been taken for granted, rushed by events, and bamboozled by contorted bureaucratic formulae which bear no relation to the everyday language they use themselves.

    These people are not ignorant. They are not foolish. They are not opposed to European cooperation. It is now up to their leaders to explain what they are doing, in language that the ordinary people of Europe can understand, and to carry forward the building of our common institutions at a pace and in a manner which they can accept.

    So the first lesson of the last few months is that the procedures of the European Community must be opened up and brought closer to ordinary people in all the European countries. The European Commission has an essential role in initiating proposals and ensuring fair play between the Community’s sovereign members. But it must consult those who are affected by its proposals in far greater depth before it brings its ideas to the Council of Ministers. It is the Parliaments in each member state which guarantee our national freedoms, each in their own unique way. All of us must get away from dreadful Eurojargon, the contorted language of European communiques which does little to enlighten its leaders.

    Second, we need to be much clearer about the tasks which need to be done by the European Community, and those which should be left to the legislative and executive institutions of individual countries. This is what is meant by “subsidiarity”, itself an unattractive piece of Eurojargon which nevertheless embodies an important principle.

    Above all, we need to be clear about where the European Community is going. There are those who argue that it will eventually become a Federation, a United States of Europe with a single government, a single economy, a single army. I simply do not believe it. The argument is based on a false analogy with the history of the United States of America. The USA grew out of a confederation of thirteen small colonies with a common language, common law, and a common political tradition. Even so the Americans did not establish their unity without a bloody civil war.

    The members of the Community are engaged in an enterprise unique in history; to create amongst the nation states of Europe what the authors of the Treaty of Rome wisely described in deliberately vague language as “an even closer union” of the European peoples.

    A crucial part of that enterprise is the Single Market for which businessmen throughout Europe have been pressing for many years. Our common effort to create the biggest free trade area in the world is well on its way to completion. It offers opportunities to all Europeans, to create new jobs and greater prosperity.

    The Exchange Rate Mechanism was intended as an instrument for promoting stability. But the events of the last few weeks have demonstrated beyond doubt that the ERM has been operating under excessive strains. Two of its members have had to suspend their membership. A third currency has been devalued, and exchange controls activated in three member states. Barriers to trade in Europe have gone up, not down. That is now what any of us intended. We must now take a serious look at the conditions under which the mechanism has operated. The pound will not return to it until we are convinced that the mechanism can operate in the interests of all its participants.

    Some people hope, and others fear, that the Economic and Monetary Union proposed on the Maastricht Treaty is a step towards a Federal Europe. I have already explained why I believe that the hopes and fears are unrealistic. A single central bank and a single currency – firstly under the control of all the member states – might make the conduct of monetary policy more responsive to the needs of all these states. But neither can come into being until the economies of the European countries are much more closely aligned than they are at present.

    At Maastricht I was sceptical about the timetable proposed, and determined that the final decision should be left to the British Parliament. I am not surprised that the Bundestag, too, wishes to be heard at the decisive moment. When the time comes, I would expect other Parliaments and other political leaders to say the same. That is right and healthy, the arrangements set out in the Maastricht Treaty will simply fail unless they are backed by the clearly expressed will of all the member states.

    The Maastricht Treaty is not perfect, it could not hope to be, since it seeks to reflect a consensus of twelve sovereign states. Nor does it exhaust the European agenda. There is much to do beyond our discussion of the future of Maastricht. There are tasks for the short term which will enhance our common prosperity: the completion of the single market to remove the barriers to trade with Europe; a GATT agreement to lower the barriers to international trade. But there are tasks for the long term as well. Above all, those of us who are already engaged in building a peaceful, prosperous, outward-looking and democratic Europe have a duty to our fellow Europeans who are still outside the Community.

    It is to everyone’s advantage that we should extend membership as soon as possible to the prosperous democracies of EFTA. But I go further than that. The Community has already shown what the path of cooperation meant to the new democracies of Spain, Portugal and Greece. It is our duty to bring the same benefits to the new democracies emerging from the darkness of Communism. It will be a complex and protracted task. But if we do not embark upon it, we will not be forgive by history.

    The Maastricht Treaty maps out a way forward for the Community to advance together. It sets attainable goals, and reasonable aspirations, for the years ahead. I negotiated it under the authority of the British Parliament, and it formed part of the mandate upon which I and the Conservative Party won the election last April. I shall bring it back to the British Parliament in the very near future. The debate in our Parliament will be serious, detailed, protracted, often noisy. Our Parliamentarians rightly want to know exactly what the Treaty will mean in practice for our country and out future. But I have no doubt that the Treaty will be passed.

    One thing must be clear beyond a doubt. The Treaty cannot come into force unless it is ratified by all Twelve member states of the Community. That will not happen unless all member states are convinced that the Treaty is in their interest. It is pointless to try to force any member state – however large or small – into supporting European policies in which it does not believe. To do so would be to undermine that common purpose on which the achievements of the Community depend, and without which the Community cannot stand.

  • Mr Major’s Comments on the ERM – 29 September 1992

    Below is the text of Mr Major’s comments on the ERM, made on 29th September 1992.

    QUESTION:

    [The Prime Minister was asked whether Britain would rejoin the ERM].

    PRIME MINISTER:

    It takes time. It is perfectly clear that we could not go back into the Exchange Rate Mechanism in the immediate future. I made that perfectly clear and those fault-lines would need to be addressed and corrected to our satisfaction before going back. I made that clear in the House of Commons the other day and I’m happy to reiterate it now.

    QUESTION:

    [Mr Major was asked if that was the case as the other eleven member states didn’t agree].

    PRIME MINISTER:

    That is not the case, wait and see.

    QUESTION:

    [Mr Major was asked about the personal attack on him by Norman Tebbit].

    PRIME MINISTER:

    I’m going to deal with the substantive issues in front of me, that is my responsibility.

    This is a time for a clear, cool and careful calculation of what the British interest is. I’m not going to be distracted by froth and bubble, I’m going to deal with the substantive issues in front of us.

  • Mr Major’s Commons Statement Following Ejection from the ERM – 24 September 1992

    Below is the text of Mr Major’s statement to the House of Commons on 24th September 1992 following ejection from the ERM.

    PRIME MINISTER:

    I beg to move,

    That this House expresses its support for the economic policy of Her Majesty’s Government.

    Following the developments in the foreign exchange markets over the past weeks, I thought it right to recall Parliament to debate the present position. The essential conditions for Britain’s economic success are low inflation, low taxes, free trade and freedom from excessive state interference. I am happy to reaffirm those principles today. The Government stand for a low-inflation, low-tax economy–and so, I believe, do the British people. That is why, five months ago, they made their choice and we sit here and the Labour party sits on the Opposition Benches.

    We joined the exchange rate mechanism in 1990 to help to bring down the rate of inflation in this country. British industry supported us in that decision; indeed, it urged us to join believing that, on balance, it would help to stabilise exchange rates, bring down inflation and bring down interest rates from the high British level, which then applied, to the much lower European levels. Of course, during the period of our membership, interest rates fell from 15 to 10 per cent.

    I congratulate industry on its magnificent response in the battle against inflation. I know that it has not been easy, but, against a difficult background, exports have risen to record levels, costs have been controlled and productivity has soared. It was not just industry which supported entry into the ERM–so did commerce, the City, most trade unions, the TUC and the Opposition parties in this House. The Leader of the Opposition, whom I warmly welcome to his new responsibilities, was consistent in his support of the exchange rate mechanism. When we joined it, the right hon. and learned Gentleman supported us, and agreed. When I announced the exchange rate central figure the right hon. and learned Gentleman was generous enough to agree. When, last week, I said that we needed reforms because of the fault lines that had become apparent, the right hon. and learned Gentleman agreed that reform was needed. I congratulate him on his consistency, even though on this issue the House has been not just a debating Chamber but an echo chamber.

    Now, of course, we hear most loudly from those people who were critics of the exchange rate mechanism. They come from all sides and every party. My right hon. Friend Lord Tebbit, I understand, says that the Government were, I think the expression is, “dragged in” by the then Chancellor. Now we all know my right hon. Friend Lord Tebbit. He is an old friend to us all. I admire him as a man of great courage, a fighter, a bruiser. He likes to bite your ankles, even if you are not walking up his pathway. Yet even my right hon. Friend Lord Tebbit lost many battles with my formidable predecessor. Despite this, according to Lord Tebbit, even my formidable predecessor, whose convictions and firmness of purpose are everywhere admired, was somehow dragged into the exchange rate mechanism by her new Chancellor. Ah, yes, I remember it well.

    Since we joined the exchange rate mechanism we have brought inflation, which was rising to 11 per cent., down to nearly 3.5 per cent., and falling. That is an achievement for which my right hon. Friend the Chancellor of the Exchequer deserves to be warmly congratulated, so let me do so and let me say this : I take full responsibility for the actions and policies of my Chancellor. In the exceptional circumstances of last week, we were obliged to suspend our membership of the exchange rate mechanism. In the circumstances, there was no choice. No mechanism could have survived the market’s attack on the scale that occurred last Wednesday. One after another–not just sterling–the currencies of Europe came under fire. We need to see that against the background of events world wide : a referendum in France, whose outcome was in doubt, and great economic difficulties in Germany where interest rate levels were at their highest level for a decade. Those strains were increased by a slowdown across Europe and the falling exchange rate of the dollar. That speculative attack turned first to the lira, which was forced to devalue and subsequently to step outside the exchange rate mechanism.

    It created havoc beyond the exchange rate mechanism–in the Scandinavian countries, where overnight interest rates in Sweden touched 500 per cent. The market, encouraged by injudicious comments about realignment which should never have been made, then turned on sterling. In such circumstances, there could be only one response : to defend the pound with foreign exchange reserves and then to raise interest rates. That is what we did, but the severity of the attack compelled us to leave the mechanism. Other currencies, too, have come under attack and suffered varying degrees of damage. I do not wish to understate the consequences of this event.

    Let me turn first to the exchange rate mechanism itself. I do not see that we could readily return to the mechanism without dealing with the problems that have been thrown up in the past fortnight. These need careful examination and consideration before we can decide whether such a mechanism can be made to work to the benefit of all its members. Some fundamentalists say that it cannot. Other fundamentalists say we should pop straight back in.

    Let me say bluntly to the House that I have no intention of being bound to either course without a proper examination of where future British interests lie. My expectation is that co-operation is a better way, if it can be seen to be adequate, and no one should doubt that we will examine carefully whether a reformed mechanism can be made to work. But I do not believe that we shall be able to go back into the mechanism soon, or into the same mechanism that we left last week. My right hon. Friend the Chancellor of the Exchequer has already made our criticisms very clear to other European Finance Ministers, and I will be doing so at the European summit next month. But inside or outside the exchange rate mechanism, the Government’s economic policy must retain the same objectives. Our ambitions to bring inflation down steadily but surely during the lifetime of this Parliament were spelled out in the last Budget, and that remains our strategy. Thus far, our anti-inflation strategy has succeeded more spectacularly than anyone in the Opposition ever believed possible. Outside the exchange rate mechanism, the conduct of monetary policy cannot, indeed should not, be exactly the same. We must have regard to a range of indicators of monetary conditions to make sure that our objectives on inflation in particular are not at risk. These will include our existing narrow money target, the behaviour of broad money and asset prices and, of course, the exchange rate. Nobody should believe that a floating exchange rate is a free meal, always allowing interest rates to fall to a very low level.

    Mr. Alex Salmond (Banff and Buchan) : The Prime Minister spoke about fault lines in the exchange rate mechanism. When did he first discover them? Did his Chancellor, who we now understand is a long-term sceptic of the ERM, ever inform the Prime Minister of his doubts, and if so, when?

    The Prime Minister : The speculative attack on sterling was of a size and scale that we have not seen for beyond a quarter of a century. I do not believe that any mechanism would have been able to withstand the size and scale of that. But I believe that there are other areas within the exchange rate mechanism where reform could have made it a more credible instrument for use last week. We shall discuss that with our European partners and others.

    Mr. Stuart Bell (Middlesbrough) rose —

    The Prime Minister : I shall give way later.

    Interest rates elsewhere in Europe have been driven up this summer, particularly by the strains in Germany.

    Indeed, in the last 10 days of turbulence in the mechanism, interest rates have risen in Greece, Italy, Sweden and France. In Spain they have not only devalued but have effectively reintroduced exchange controls. Ireland, too, this morning reintroduced exchange controls. Since we stood aside from that turbulence, it has been possible to reduce base rates by a full percentage point this week, and the benefit to business and to home owners will help strengthen economic recovery.

    But interest rates alone will not achieve the non-inflationary growth that we need in this country, and that point needs to be understood. That depends even more crucially on keeping firm control of public expenditure. The Government’s new system of control will allow money to be directed towards priorities, while we keep strictly within the overall limits laid down for the growth of public expenditure as a whole.

    In essence, the Government have set an upper limit to expenditure and will divide resources between priorities in the public expenditure round. That contrasts with the previous system of individual bids that were added up at the end of individual negotiations. It is a fundamentally different system of controlling public expenditure. It is tough and will be tough, but it is necessary and is an important component part of overall economic strategy.

    Mr. Stuart Randall (Kingston upon Hull, West) : Will the Prime Minister give the House some idea of the likely time scale for reforming the exchange rate mechanism? Will it be Christmas or in three of four years’ time?

    The Prime Minister : Reform self-evidently depends on negotiation with all the other members of the mechanism. At this stage, nobody can say how long that will take. As I said a few moments ago, given the turbulence that has existed–not least the money supply figures announced in Germany yesterday–I would not expect our return to any mechanism, and certainly not the same mechanism, to be in the near future. I do not believe that that will be practicable, and I must make that clear.

    Mr. Tony Benn (Chesterfield) : The Prime Minister is speaking as President of the European Council, not just as Prime Minister of Great Britain. He has repeatedly told us that his object is that we should be at the heart of Europe. Will he please explain how allowing speculators to determine our currency, German banks to determine our interest rates and French voters to determine the future of the Maastricht treaty puts this country at the heart of Europe? Is it not clear that the British, like the Danish, Irish and French, are entitled to determine what is essentially a political matter, although in a debate dressed up as an economic debate?

    The Prime Minister : I will turn directly to the question of Britain’s place in Europe in detail in a few moments. On the question of speculation, it is certainly within the memory of the right hon. Gentleman that, whether inside the mechanism or outside, inside the European Community or outside, sterling has been subjected to speculative attacks on many occasions in the past. The exchange rate mechanism offered an extra line of defence, although not a complete defence; as we have seen, and as we have always known, there could be no total and complete defence.

    Sir Teddy Taylor (Southend, East) : To avoid any possible misunderstanding, will the Prime Minister say whether it is the Government’s intention to seek to rejoin a fixed exchange rate system?

    The Prime Minister : I have explained to the House twice that we shall examine whether a system can be made credible. When we have finished that examination, we shall make our decision.

    Mr. Bell : Will the Prime Minister give way?

    The Prime Minister : I will give way to the hon. Gentleman, and then I shall make some progress.

    Mr. Bell : The Prime Minister is announcing what appears to be a very important and significant change of policy : we are moving away from the external discipline of the exchange rate mechanism and the deutschmark as an anchor to our policy of getting inflation down to an internal discipline. Are we still shadowing the deutschmark, and will there be a wages control policy for public sector employees?

    The Prime Minister : I announced to the House–for I think it has a right to know–how we shall conduct economic policy while we are not in the exchange rate mechanism. It is essential that the House is aware of how we shall conduct policy. I have said that we shall examine the practicality of returning to a reformed exchange rate mechanism and make a judgment on whether that is a workable system and then whether to join. We shall certainly undertake those negotiations.

    I turn now–

    Mr. Nicholas Budgen (Wolverhampton, South-West) : Will my right hon. Friend give way?

    Hon. Members : Give way!

    Madam Speaker : Order. The Prime Minister has made it clear that he wants to make a little progress.

    The Prime Minister : I give way to my hon. Friend.

    Mr. Budgen : I am sure that my right hon. Friend will agree that we have been discussing the details and fundamentals of the exchange rate mechanism for very many years in this House. Will he please explain to the House what are the new details that have caught him out so unexpectedly that he requires guidance on them before he can tell the House whether he intends to go back into the mechanism?

    The Prime Minister : My hon. Friend has a long-held view that the right thing to do is to let sterling float. I understand that view, but I must remind him that sterling was floating when, in 1981, interest rates rose by 4 per cent. in less than a month, and that it was under a system of floating exchange rates that interest rates rose to 15 per cent. before we were able to bring them down to 10 per cent. within a co-operative mechanism such as the ERM.

    The Government’s general policy towards Europe must be founded on a concern for our long-term national interests, and I believe that it is time that we turned afresh to face directly the whole question of Europe and our place in the European Community.

    There are broadly three schools of thought about our membership of the Community. The first–it is spread thinly across each political party–is that we should leave the Community; that we should never have joined. It is a minority view, often disguised by rhetoric affirming support for the principles of membership while actions speak the opposite. There are people who, in their hearts, would prefer it if we were not in the Community, who trade under false colours and who do not address their arguments to the implications of non-membership for jobs, prosperity and the future.

    The second school of thought is that European development is inevitable and goes inexorably in one direction : that sooner or later a centralised Europe is inevitable. Those who take that view are often the direct descendants of those who, 20 years ago, thought that socialism was inevitable, before it became completely discredited around the world.

    I do not share the belief in the desirability or inevitability of a centralised Europe. Each country in the Community at times of crisis will inevitably look first to its own national interest; each will pool some of it in the common interest, but none will sacrifice it. Just as the interests of France and Germany will always come first for them, so the interests of Britain must always come first for us. I understand the fears about a centralised Europe, but I think that they are fanciful, for we will not have one.

    The third school of thought, the one for which I stand, is quite different. It is that it is in the interests of Britain–our interests, our objectives and our prosperity–for us to be part of the development of our continent. By part, I do not mean a walk-on part; I do not mean simply being a member. I mean playing a leading role in the European Community. I mean helping to determine the direction of policy, building the policies that we want and fighting those that we do not want. We will need to compromise on some matters, but so will every national state in Europe unless we return to tribalism right across the European Community.

    This co-operation in Europe demands a wider Europe. It demands the entry of the Scandinavians and the Austrians and, over time, of the east Europeans– those newly democratic states which have every right to look to the Community and the west for a more secure future. This co-operation also requires us to deal with the concerns about the internal development of the European Community. Those concerns exist not only in this country but in every country of the Community. There are fears throughout Europe that the Community is too centralised, that it is too undemocratic and that the leaders of the Community are seeking to develop it too fast for their national Parliaments and people. The events of recent months have shown that, if Europe is to be built on a sound foundation, we cannot ignore those feelings or brush them aside as a matter of no concern. The good European does not ignore those fears. He seeks to put them right–and that is the policy we pursued up to Maastricht, during Maastricht and after Maastricht.

    The Maastricht treaty has become a totem around which those in favour of Europe and those opposed to Europe are now dancing. In truth, it is less important than the pro-Europeans claim and in no way as far-reaching as the sceptics tell us. Many of the things for which the Maastricht treaty has been criticised spring inexorably from the treaty of Rome or the Single European Act.

    One of the main criticisms of the Maastricht treaty is the move towards a single currency. The House will recall that I declined to accept that move in the negotiations because I did not believe that Europe would reach the right economic conditions to support a single currency. I have never believed–I have stated it frequently–that Europe would reach the right convergence by the mid-1990s. That is why I refused to commit Britain to a single currency.

    In the light of the continuing economic problems throughout Europe and of the currency turmoil of the past week, I must say that I was right and– [Interruption.]

    Mr. William Cash (Stafford) rose–[Interruption.]

    Madam Speaker : Order. A great many of our fellow citizens were keen that the House should be recalled, and they want to hear what the House has to say–as, I believe, do people thousands of miles away. Let us give each and every one of us a proper hearing. The Prime Minister knows exactly who is standing behind him. If he wants to give way, he will do so.

    The Prime Minister : I must tell those who have exaggerated ambitions for a single currency that it must now be an ambition postponed. In the Maastricht treaty, we safeguarded our national interest on the single currency. Elsewhere in the treaty, we secured other very important gains for Britain. I remind the House that, early in their presidency, the Dutch presented proposals on foreign policy, defence policy, immigration and justice–all of which would have been undertaken under the treaty of Rome. We rejected that. At Maastricht, we secured provision for co-operation between nation states outside the treaty of Rome, outside the power of initiative of the Commission and outside the jurisdiction of the European Court. Those who claim that Maastricht was a treaty too far should ask themselves, “What was the situation before the Maastricht treaty?” Another important achievement was the provision restricting the scope for Community action. That provision was put in at our insistence. It reflected our long-standing argument that the Community should take action only where it could do so more effectively than a nation state or more than one member state co-operating voluntarily. We had to fight hard for that provision with the support of some other countries–notably Germany–but it was a break point and we won it. It has since found an echo in public opinion in Denmark, France and right across the Community. Although the Danish people narrowly voted against the Maastricht treaty, the Danish Government have made it clear that that is not necessarily the last word. The Danish Government plan a further referendum.

    Mr. D. N. Campbell-Savours (Workington) : Will the Prime Minister give way?

    The Prime Minister : I will make some more progress.

    If, however, the Danes were unable to go back to the people, or were to lose again in that further referendum, the Maastricht treaty could not proceed. It would not be acceptable for the 11 to go ahead without Denmark, and against the will of the Danish Government and people. That cannot happen, and it will not happen.

    The Danish Government will publish a White Paper next month, at the start of a process of consultation. It would not make sense to bring the Maastricht Bill back to the House of Commons before we know clearly what Danish intentions are, and when and how the Danes propose to consult their people again. When those things are known, however, we must examine the Bill further.

    Those who assume that the Bill is dead have overlooked two things. First, there is much in it that we want; secondly, with the consent of this House of Commons, I agreed that Bill. I do not believe that it would be proper for a British Prime Minister to agree a treaty, and then come back to the House of Commons and disown it. In this country, people know that it is in our interests to be in Europe, but they fear that the Community seeks to intervene too intrusively in our national life. They fear that things that have always been dealt with by individual nation states–and should be dealt with by individual nation states–are instead gradually being drawn within the control of the Community. So we need a definition–a settled order–of what is for national action and what is for Community action. We need clear criteria by which Community proposals will be judged. When we are satisfied that such a system has been put in place, and when we are clear that the Danes have a basis on which they can put the treaty back to their electorate, we shall bring the Maastricht Bill back to the House of Commons.

    Mr. Campbell-Savours : If the French, the Germans and the Benelux countries decide to forge ahead with a Community based on greater monetary and political co-operation, will the Prime Minister be prepared in any conditions to leave Britain outside that in the Community?

    The Prime Minister : There might well be circumstances in which others would make decisions that they believed to be in their national interests; but I have said repeatedly, and agreed under the Maastricht treaty, that any question of a single currency must be determined by the House of Commons at the time when others go ahead, and I stick to that view.

    Mr. John Wilkinson (Ruislip-Northwood) : Is my right hon. Friend really telling the House that–notwithstanding the fact that two thirds of the French people did not vote in favour of the ratification of the Maastricht treaty; notwithstanding the fact that, when the question was first put to them, the Danes voted against it; and notwithstanding the fact that my right hon. Friend will not grant the British people a referendum–the House is somehow to proceed with this extraordinary process?

    The Prime Minister : We are a parliamentary democracy, and the House is the place in which to consider the Bill–line by line and clause by clause. Other nations may have a tradition of referendums : they may call a referendum, followed by a debate on the whole Bill lasting one or two days, and approve every part of the Bill immediately. That is not our parliamentary tradition, and I do not believe that it would be acceptable to the House of Commons. As for the second part of my hon. Friend’s question, I have made it clear–and I repeat again–that, when the conditions that I have set out are fulfilled–when we have moved forward on subsidiarity, and when the Danes have decided how they will proceed–I will bring back to the House the treaty that I negotiated with the approval of the House : the treaty that was approved at the general election, and on Second Reading some time ago.

    Let me repeat that, when we are satisfied that a settled order has been put in place, we will bring the Bill back to the House. That is one of the matters that are to be put in hand at the special meeting of the European Council on Friday 16 October.

    Mr. Michael Spicer (Worcestershire, South) : I am most grateful to my right hon. Friend for giving way. He has expressed the view that the House should take the final decision on the Maastricht Bill. Therefore, will he give consideration to allowing a free vote in the House?

    The Prime Minister : I believe that my hon. Friend stood at the general election supporting the Conservative manifesto, which indicated that we would bring the Bill before the House. I still support the commitment that I had in that regard in the manifesto. I said that that was one of the matters to be put in hand at the special meeting of the European Council on Friday 16 October. That special meeting will take place at the international conference centre in Birmingham.

    That European Council needs to respond to the concerns that people right across Europe have shown about the direction of Community policy, to review what is wrong with the exchange rate mechanism and how the system can be made to work better in future, to consider preparatory work to meet Denmark’s concerns and, of course, to give a further impetus to the general agreement on tariffs and trade round. During recent months, our concerns about the Community have been mirrored across Europe. The British agenda is now on the table in every country of the Community.

    It is worth reminding ourselves why the Community was built and why we joined it. Its founders wanted lasting peace in western Europe, and they achieved it. But they wanted something more [Interruption.] Yes, what about the economy? The founders wanted to build up economic prospects across Europe on a scale that no previous generation had seen, and they achieved that. They wanted the prosperity of each generation to exceed that of its parents, so that the chances for each generation would be greater and the opportunities more fulfilling. Collectively in Europe, that is what we have achieved, despite the difficulties that presently exist.

    Mr. Jimmy Boyce (Rotherham) : On a point of order, Madam Speaker. Given that the debate’s title is the United Kingdom’s economic policy, could you tell us when the Prime Minister is going to get round to discussing that policy?

    Madam Speaker : As I have not seen the Prime Minister’s speech, I can only say that the hon. Member for Rotherham (Mr. Boyce) must give the Prime Minister the opportunity to reach that point.

    The Prime Minister : Clearly, the hon. Member for Rotherham (Mr. Boyce) does not realise the extent to which our economic well-being depends on our relationship and trade with Europe.

    I have never seen our future as being a sour, isolated country off the mainland of continental Europe. That surely cannot be a way for us. Even though some will swallow hard at compromises that may need to be made, they should remember that others in Europe will need to compromise as well. The voice that is raised to say that we should look after only our own interests is the voice of narrow self-interest. Such a voice always has resonance in politics and is almost always wrong. It is a policy more certain to begin with cheers and end in tears than any other policy that has been devised.

    I have never understood why some are so fearful of our prospects in Europe–neither do I understand why those who are often most fearful are those who would claim to be most proud to be British. Why, then, with that pride do they assume that we will always lose the arguments in Europe when that has not been the Community’s history and will not be the Community’s future?

    We have the chance to build in our time, in our generation, the sort of Europe for which we have always longed; the sort of Europe that I believe its citizens want; a secure Europe of nation states co-operating freely for the common good; a prosperous Europe, generating new wealth within the biggest free trade area in the world; a free trade Europe in which Brussels is kept off industry’s back. Only one Government–this Government- -offer industry freedom from state control. Only our policies of low taxation and low inflation will allow the genius of British enterprise to flourish, and only this Government’s policies will secure for the British people the prosperity that they deserve in the ’90s and which this Government will deliver. I commend the motion to the House.

  • Mr Major’s Speech to the Scottish CBI – 10 September 1992

    Below is the text of Mr Major’s speech to the Scottish CBI at the Forte Crest Hotel in Glasgow on Thursday 10th September 1992.

    ALISTAIR MCCALLUM:

    Prime Minister, President, My Lords, Ladies and Gentlemen, welcome to CBI Scotland’s Annual Dinner. I hope you’ll have a very happy evening. The Grace will be said by Dr. William Morris. The Rev. Dr. William Morris.

    THE REV. DR. WILLIAM MORRIS:

    Let us pray.

    Oh, Lord, since these good things are of Thy giving

    Help us to use them all for wiser living

    Each use restraint, reduce inflation

    To be a slimmer, fitter nation

    And not be sunk in deep depression

    When waist and hairlines face recession

    Oh, Lord Thou dost with steady interest wait

    Which of Thy family will devaluate?

    Lord, guide us in our problems from on high

    And, for this evening, bless the CBI

    Amen.

    THE PRIME MINISTER:

    Alistair, thank you very much for your kind words, and perhaps first I can offer my thanks to you and your colleagues in the CBI for your hospitality here this evening. I knew when I arrived a couple of hours ago that this evening was going to be a special evening [Laughter] and so, for one reason or another it has so far proved. I was piped in, I was offered what I was told, in that lovely bowl, was a half glass of whisky. If that was half a glass of whisky, I’m half a Dutchman. [Laughter].

    Then we had what I can only call a rather novel Grace from Dr. Morris …., [Applause]. It’s always good to see the Church join the State in a little battle against inflation [Laughter] so the CBI has lost none of its originality, and none of its hospitality, and then when Alistair and I stood up for the Loyal Toast a few moments ago, you may or may not have noticed, but a part of this platform nearly collapsed. I felt rather like the Nationalists on Election night [Laughter] but let me turn from the ridiculous to the relevant.

    I want, if I may, Chairman, to speak tonight about the economy of our Country, the whole of our Country, every part of it, its role in Europe, and its future prospects, and they’re big subjects all of them, but what I want to seek to do this evening is to put them into proper perspective because far too often comment on the economy is partial, and is narrowly focused. It takes no account of the wider domestic and international scheme. It’s a snapshot, not a portrait; a detail, not a landscape. It’s too often darkly lit because too many always think it’s fashionable to be gloomy about our future. They forget what we’ve achieved so they underrate what we can do.

    Chairman, it’s only two years ago that business was demanding two things from the Government, and, as Chancellor at that time, I remember the insistence of business, and I remember well what they were seeking from the Government. Business wanted a stable pound, and it wanted lower inflation, and it wanted this, I think, for good reasons. Inflation robs people of their savings.

    It impoverishes those on fixed incomes. It wrecks profits and investment. If Britain has higher inflation than our competitors we lose competitiveness and we lose jobs. Inflation loads the scales against us, and business wanted stable exchange rates because it wanted certainty. It wanted a climate in which it could plan for the long term. I believe that business was right to demand low inflation, and stable exchange rates. They are the essential preconditions for sustained economic success.

    Two years ago, before we joined the Exchange Rate Mechanism, inflation was over 10% and seemed to be rising. We forget too readily the alarm that that caused. Now inflation is 3.7% and falling, and we overlook too readily the opportunities that that offers. We saw such figures before. We saw them briefly in the mid-1980’s but they didn’t last. This time I am determined that that regime of low inflation will last [Applause] and as it does so wages are moderating as well. There has been a crucial change in the inflationary climate in industry. Growth in underlying earnings is down to 6%, the lowest that we’ve seen for a quarter of a century.

    We forget also that, two years ago, exchange rates against our European trading partners, where 60% of our trade now goes, exchange rates against our European trading partners were uncertain and volatile. Now they’re kept within a 6% band in the Exchange Rate Mechanism, and, in due course, will move to the two and a quarter per cent band. Sterling still fluctuates, of course, against the dollar and other currencies, as we’ve seen all too vividly in recent weeks, but it does now have a fresh and certain stability against the currencies of our main trading partners.

    Chairman, as the fear of inflation and exchange rate instability has diminished, so the cry of many of the Government’s critics has changed. Now, we have the inevitable chorus of quack doctors peddling their remedies. There is, I think, a difficulty with these remedies. As we’ve learned from experience, miracle cures simply don’t work, never have, and never will. We need to face our problems squarely. It’s too easy to regard Britain’s problems as unique, or to blame them on the Exchange Rate Mechanism. Neither point is true. The problem of slow growth, a difficult problem, one we face at present, the problem of slow growth is not peculiar to Britain. It is, at the moment, a worldwide problem. We’ve seen the same chain of events in the United States, in Canada, in Australia, in New Zealand, and elsewhere, and in all those Countries, not just in the UK, in all those Countries businesses and individuals took on too much debt in the late part of the 1980’s. Asset prices, especially property, rose sharply on the back of that, and general inflation began to accelerate. Eventually, of course, as interest rates rose and debt burdens became intolerable, people’s top priority was to reduce their debts, and, as a result, businesses stopped expanding, and consumers stopped spending. Some of those Countries have lower interest rates than Britain, but as the United States has illustrated in recent months, the problems of adjustment are just as difficult.

    Equally, I dare say any businessman returning from Continental Europe will have become only too well aware of economic difficulties faced there – weakening activity, low confidence, and rising unemployment, so the process of adjustment has been painful everywhere, but it is necessary, and it is not something that Governments can simply wish away. Improvement rests critically on the decisions which individual businessmen and consumers have to make about how they adjust their own finances.

    I will tell you what my conviction is. My conviction is that adjustment is best managed within the framework and the discipline provided by our membership of the Exchange Rate Mechanism. That discipline ensures that we keep in line with our major competitors in Europe. One thing is certain. If we have inflation around 4%, and our principal competitors have inflation around 2%, then we will lose markets, competitiveness, jobs, and prosperity. It would, at this moment, be madness to let our competitors steal the edge on inflation. I am absolutely clear that for us to compete effectively in Europe, we would need our present policies, whether or not Britain was a member of the Exchange Rate Mechanism, and as we have seen in Scandinavia this week, it is a cold world outside the Mechanism for many Countries that one day wish to join it.

    I was pleased to note, Chairman, that the CBI, in your August Economic Situation Report, firmly endorsed the view that our exchange rate against European currencies, is an exchange rate at which industry can compete successfully, and Howard Davies repeated this very clearly when he addressed the TUC this week. I am sure that that is the right view. As the Chancellor has made crystal clear, there is going to be no devaluation, no realignment, and the export performance of many British, and notably many Scottish companies, provides convincing evidence of our current competitiveness.

    I know that things are not easy, even in Scotland – even in Scotland, which has outperformed so much of the United Kingdom in recent years, and sometimes I think we perhaps overlook, pass along and miss the remarkable changes that have come about in many parts of the United Kingdom, not least in Scotland. Anyone coming back, as I’ve done today, to Glasgow, and remembering the Glasgow of 15 years ago, would not recognise the same City, so great have the changes been [Applause] and then for the first time since records began, Scottish unemployment is below the average for the United Kingdom as a whole. Too high, I know, and I wish to see it lower, but when last was it ever below UK average? Never before. It is now as a result of the changing prospects in Scotland, and the enterprise of the businessmen in this room, and their predecessors in recent years in Scotland, so let me take this opportunity tonight to pay tribute to the response that industry has already made, and continues to make, in adjusting to the new disciplines of the Exchange Rate Mechanism. Costs have been brought under control. Exports are at record levels, and so is manufacturing productivity. Those are real achievements, and quite apart from being genuine achievements, they are the surest possible foundation for the future. Of course, there are problems caused by the weakness of the dollar, a dollar that has fallen by over 20% against the Deutschmark, and if that weakness were to persist, it would have damaging consequences, not least the distortion of international trade and investment.

    Let me say this to you, Chairman, for it is something that I believe passionately – all my adult life I’ve seen British Governments driven off their virtuous pursuit of low inflation, by market problems or political pressures. I was under no illusions when I took Britain into the Exchange Rate Mechanism. I said at the time, that membership was no soft option. The soft option, the devaluer’s option, the inflationary option, in my judgment that would be a betrayal of our future at this moment, and I tell you categorically that is not the Government’s policy. [Applause].

    All too often at difficult times in the past the solution was the same. Let the exchange rate go, and every time, sooner or later the result was the same – rising import prices, rising wages, rising inflation, and a long term deterioration in Britain’s competitiveness which offset any short term gain that there had been. Look for example, at the formal devaluation of 1967. The pound devalued by 14%. Did that lead to a sustained improvement in the UK’s competitiveness? It did not. A brief flurry only. Retail price inflation doubled over the following year, and any improvement in competitiveness swiftly ended. No greater competitiveness, and doubled inflation. What sort of target is that for British industry?

    Since the late ‘60’s the pound’s external value has halved. There were some who saw that as a way to steal a competitive advantage. They were wrong. Maynard Keynes, whom I have to tell you I don’t often quote – Maynard Keynes was right when he said, and I quote “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”.

    There is a question, a question we might usefully ask ourselves – let me ask it, Chairman. Why is the Deutschmark so preeminent in the currency markets of Europe? It’s not because of current German economic performance. It is because the Deutschmark has an anti-inflation record, and maintains its value. Those who want freedom from the influence of the Deutschmark should realise that they can best get it from matching the Deutschmark’s anti- inflation record, and that is what we are determined to do in this Country. [Applause].

    We shouldn’t expect the road to permanently low inflation to be quick or to be easy, and we still have some way to go. Our inflation is above that of France and Germany, our most important competitors. Well over half our exports go to Countries with lower inflation than ourselves, so we must bite the anti-inflation bullet, or accept that we will be forever second rate in Europe. I refuse to accept such a future for this Country. We face difficulties, I know, but we have the prospect of non-inflationary growth, sustained non-inflationary growth in our grasp, and I am not prepared to let it go. There should be no doubt in anyone’s mind, the Government will stick to its policies, low inflation, free markets at home and abroad, low taxes, and firm controls on public spending. Those policies are good for business, and good for Britain, and they are our policies.

    Let me turn to something else that I believe is good for Britain, and good for business, and that is the Government’s European policy. In December, the Heads of Governments of the 12 will meet at Holyrood House in Edinburgh, the high point of the British Presidency. I’m delighted that so important an occasion will take place in Scotland, and I hope the famous, or perhaps in Glasgow I should say, the infamous Edinburgh climate will be benign.

    Earlier this week I spoke at some length about the Maastricht Treaty. Tonight, I would add only this. Britain stayed firm at Maastricht, firm in its determination to resist the encroachment of European regulations into the workplace. We rejected completely the Social Chapter, and we did so because our ambition is to free industry to compete on its own terms in the widest possible market for its products. Free trade is the route to growth. Free trade is the way out of recession, and to our Presidency of the European Community falls the task of completing two great efforts to liberalise international trade, the single market of the European Community, and the Uruguay round of negotiations under the General Agreement on Tariffs and Trade. When completed, the single market will be the biggest free trade area in the world – 340 million customers. A vast opportunity right there on Britain’s doorstep, right there on Scotland’s doorstep, and to us, the British Presidency, comes the responsibility for bringing it about, so we will be working hard for liberalisation, liberalisation in areas like transport and energy, removing barriers wherever they remain, seeking a level playing field for British business, making sure that the single market becomes a reality and not a slogan, and as we do so, we’ll be working at something else no less important, working at the ambitious task of completing the GATT round, and here agreement depends, not just on 12 Nations, but on over 100 Nations from every part of the globe. Nevertheless, progress is critical to the recovery of the world economy. It’s important to Britain. There are still far too many Countries, even rich, developed Countries, which maintain high tariffs against our manufactured goods. We need the new opportunities a GATT settlement could bring to our service industries, and a growth in world trade that a GATT settlement would bring about is a growth that the world in its current economic situation cannot afford to turn aside. The sooner we have that GATT agreement, the better it will be for every Nation in the world. [Applause].

    So, it’s not only our self interest that’s at stake. A GATT agreement already, in my judgment, long overdue is vital to the developing world, it’s essential to the survival of a world trading system that’s far too vulnerable to national protectionism. It is, that GATT agreement, one of the engines to restore growth. Negotiation of this in Europe, is a matter for the Commission, but we, the British Presidency, will press them, help them, cajole them, until that settlement is reached, but that is only part of our European agenda.

    We’ve already agreed far-reaching plans to reform the Common Agricultural Policy. We’ve agreed to liberalise air fares, to prepare membership negotiations for the EFTA countries, to put subsidiarity, that principle of minimal interference in national matters, and turn it from a slogan into a reality in practice. We have resisted extravagant plans for increasing the Community’s budget. All these bear tribute to Britain’s influence, an influence, I tell you frankly, that would not have been possible if we had sat carping on the sidelines rather than moving our Country into the very heart of the European Community …..[Applause] and only by that policy, by placing us where we can best maximise our influence, only by that policy can we maximise our influence and our control over decisions that affect our Continent and people. There is no other way, and to those who say, sometimes directly, sometimes subliminally, to those who say, “Withdraw from Europe”, “Pretend it doesn’t exist”, I say to them ,”Where have you been, Rip Van Winkle, that you ignore the largest market for our goods and a principal source of our future prosperity?”. I have not a shred of doubt that if we are to build the prosperity for this Nation that we need, then we need that British influence in the heart of the Community to build the sort of Europe, and the sort of Community that we wish to see: free, open, liberal with trade, and respecting the national identities and cultures of each of its member States. That is the ambition we have for the Community, and that is what we shall press for in our Presidency, and long beyond it. [Applause]

    Chairman, I want to conclude by looking at a different Union, a special Union, that very special partnership between Scotland and England. We should never express the value of that Union in purely economic terms. By the start of the 18th Century we had already shared a Monarch for a hundred years. Since your Stuart King, James VI, went South to succeed Queen Elizabeth, the last of the Welsh Tudors, that Royal bond, that military strategy formed good reasons for a closer Union, but it was the economic opportunities that persuaded many Scots of a necessity of Union with England in 1707, and that economic Union has prospered, and today Scotland can justly claim to have one of the most modern and diverse economies in Western Europe, and since 1707 Scotland and England, with Wales and Northern Ireland, have carried out a remarkably successful joint enterprise. It is the Union, with Scotland’s distinctive contribution, which has made all of this possible. It is since the Union, and because of the Union, that Scottish values, Scottish traditions, the Scottish Church, are to be found around the whole world.

    I believe the result of the General Election showed that there remains in Scotland, a strong desire to keep Britain united. [Applause]. I believe that when Ian Lang and I made that a central plank of our General Election campaign, we reached out above the normal issues of inflation, and mortgages, and education, and health, and touched something that is a very basic instinct for people in every part of these united Islands of ours and I don’t believe it was an accident that while all the other Parties suffered reverses in Scotland, the Conservatives defied the polls and the pundits, and won both seats and increased our share of the vote, but that is in the past. We must look to the future, and now we must uphold, develop, and strengthen that remarkable magical Union that has lasted for so long, and that in essence, Chairman, is what taking stock is all about.

    Ian Lang and Peter Fraser have already met a wide range of groups and individuals, each of whom has a special interest in and particular perspective on the role of Scotland within the United Kingdom. Their door will remain open to anyone with a genuine commitment to the integrity of the Union, and with ideas for making it work better. When I come to Scotland, or when I see Scots South of the Border, I will always be receptive to proposals designed to strengthen Scotland’s place in the United Kingdom, and it is as part of that continuing process of taking stock that I have invited a number of leading Scots from a variety of walks of life, to come and meet me in Edinburgh tomorrow so that we can exchange and generate ideas. I know that what they say will be immensely valuable. I’m looking forward to what I hope will be a wide ranging and productive discussion, and I want to hear myself, personally, from Scots, how they believe we can build up and strengthen that Union. These are matters of immense importance, not just to Scotland, but I think to every part of the United Kingdom. Sometimes I think the debate in Scotland has not focused on a wide enough canvas. It isn’t just a question of keeping Scotland in the United Kingdom. It is not just a question of that. It is a question of the contribution and the importance of Scotland to every single part of the United Kingdom. We would not have the United Kingdom without the support and the strength of each of its component parts. It is that capacity of each of the parts of the United Kingdom to come together with common aims, common purposes, common beliefs, but retaining the distinctive cultures of the English, the Welsh, the Irish, and the Scots, that makes this such a remarkable United Kingdom. We propose to strengthen it and build it.

    Chairman, in the few moments I’ve had this evening, I’ve taken the opportunity to touch on a number of important subjects – inflation, our position In the European Community, our future, and the constitutional links of such vital importance between the component parts of the United Kingdom. I’ve spoken about our policies, our strategy for the United Kingdom, but that strategy is something we can only make together – make together in partnership between Government and industry, Scotland and England, Britain in Europe, Britain and Europe. Those are the partnerships that matter. Those are the partnerships that will build, for this generation and the next, a higher quality of life, a higher standard of living, a more secure present and future than ever we have known at any stage in the past. Those are the ambitions we have. They are ambitions, I believe, that are shared, not just in the instincts of Government Ministers, but in the instincts of businessmen, business women, individuals up and down every portion of our land. Together we can make sure that those instincts can build a better future for all of us.

    Chairman, you are our host, and I have both the privilege and the pleasure of thanking you not only for an excellent dinner, but for a great occasion, and the very great privilege also of inviting everyone to join me in proposing a toast to our hosts this evening.

    The toast – the CBI, Scotland. [Toast]

    The CBI Scotland. [Applause].

  • PMQT – 9 July 1992

    Below is the text of Prime Minister’s Question Time from 9th July 1992. Tony Newton deputised for John Major.

    PRIME MINISTER:

     

    Engagements

    Q1. Mrs. Helen Jackson : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    The Lord President of the Council and Leader of the House of Commons (Mr. Tony Newton) : I have been asked to reply.

    My right hon. Friend the Prime Minister is on his way to Helsinki to attend a conference on security and co-operation in Europe.

    Mrs. Jackson : Will the Leader of the House be so kind as to ask the Prime Minister whether he agrees that the prompt and efficient administration of public money is his responsibility and therefore, that it is his and his Government’s responsibility that many of my constituents are waiting more than six months to have their disability living allowance claims processed? Will he ask the Prime Minister to join me in commiserating with Mr. Michael Bichard who has had no fewer than 26 parliamentary questions and hundreds of letters of complaint referred to him from hon. Members?

    Mr. Newton : I am not sure that I shall invite my right hon. Friend to agree with all that, but I am sure that my right hon. Friend will agree about the duty that we all have to ensure the proper administration of public money, about the satisfaction, which the hon. Lady has not expressed, in the level of demand for the extremely successful new disability benefits, and about the Government’s determination to ensure that those benefits are effectively delivered.

     

    Q2. Sir John Hannam : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer my hon. Friend to the reply that I gave some moments ago.

    Sir John Hannam : Is my right hon. Friend aware of the tremendous success of the health service reforms, especially in my part of Devon where the general practitioner fund holdings and the trusts are working for the benefit of staff and patients? Will he welcome the changed attitude of the British Medical Association, which shows the popularity and success of the reforms?

    Mr. Newton : Yes, I very much welcome that. It reflects the fact that practical experience throughout the country is demonstrating the benefits of those reforms. There is clearly also a wide welcome for the announcement made yesterday by my right hon. Friend the Secretary of State for Health, which will build further on their success.

    Dr. John Cunningham : What reasons does the Leader of the House give for the Prime Minister’s failure to achieve his objectives at the economic summit in Munich?

    Mr. Newton : An economic summit, whether it takes place in Munich or anywhere else, is a gathering of people designed to achieve agreement on the pursuit of common objectives. No one member of such a gathering can force the others to agree. It is clear, however, that useful progress was made at Munich on key objectives relating both to western relations with Russia and to advancing the objectives of the GATT round. Progress was also made in a number of other ways.

    Dr. Cunningham : Is it not clear that no amount of vacuous communiques can disguise the fact that, for the second year running, Britain is bottom of the G7 league in relation to growth, investment and job creation? As even Lady Thatcher is now warning of economic catastrophe in Britain, is it not time for new economic and industrial policies for our country? Will the Government act now or will they simply continue to wring their hands and do nothing?

    Mr. Newton : It is clear that the action taken by the Government in recent months is creating a secure foundation for the country to emerge from the recession in the latter part of this year. If the hon. Gentleman is in a quoting frame of mind, he may wish to know that in a press release issued only three or four days ago the Institute of Directors said that half the directors questioned in June were more optimistic. That is the highest level of sustained optimism since August 1988.

    Dr. Cunningham : Twelve months ago, the Prime Minister claimed a triumph for the economic summit in London, and the Government did nothing. Will they do nothing again about the appalling misery that they are creating in this country?

    Mr. Newton : The Government will continue with the sustained application of policies which are producing the conditions for recovery, and doing so successfully.

     

    Q3. Mr. Hague : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer my hon. Friend to the reply that I gave some moments ago.

    Mr. Hague : Will my right hon. Friend join me in welcoming this week’s announcement of an order for the fourth Trident submarine? Does he agree that the three best recent additions to the future security of the nation are the ordering of the submarine, the re-election of a Government who had the consistency and good sense to proceed with the order, and the defeat of Opposition parties whose recommendations vary from scrapping this important deterrent altogether to sending submarines out to sea with no weapons on board?

    Mr. Newton : In a word, I agree with everything that my hon. Friend has said.

    Ms. Lynne : Can the Leader of the House explain how we can take the proposals on health promotion seriously when the Government are presiding over the collapse of national health service dentistry?

    Mr. Newton : It is absurd to suggest that the Government are presiding over the collapse, as the hon. Lady puts it, of NHS dentistry, given the increases in NHS treatment, the number of dentists and their remuneration over the past few years.

     

    Q4. Mr. Haselhurst : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer my hon. Friend to the reply that I gave some moments ago.

    Mr. Haselhurst : In the light of the targets set in the Government’s White Paper, published yesterday, will the Government consider removing tobacco products from the calculation of the retail prices index? If we believe that price is the main deterrent to smokers, is it not ridiculous that the Chancellor should feel any inhibition about increasing duty on tobacco products because of the effect that that would have on the cost of living and on benefits related to it?

    Mr. Newton : My hon. Friend will know that an advisory committee looks carefully and independently at the proper make-up of the RPI. I would not wish to dictate to that committee how it should do its work. I should point out, however, referring to the figures given yesterday by my right hon. Friend the Secretary of State for Health, that the increases in tobacco prices in recent years do not suggest that my right hon. Friend the Chancellor has been suffering from any inhibition in that respect.

     

    Q5. Mr. Barnes : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer the hon. Gentleman to the reply that I gave some moments ago.

    Mr. Barnes : At 4 o’clock this afternoon in the Jubilee Room the Spastics Society will launch a report on the problems of disabled people in the 1992 general election. Is the Leader of the House aware that many disabled people could not gain access to polling stations in the election and also had problems with the postal voting system? Will he ensure that the report, entitled “Polls Apart”, is studied at the highest level and that action is taken to ensure that everyone, able-bodied or disabled, who is entitled to exercise the franchise, is given access to the procedure?

    Mr. Newton : As a former Minister for disabled people myself, I would not wish to do anything with such a report other than to examine it carefully and draw it to the attention of those concerned, returning officers and others. The hon. Gentleman’s concern is legitimate.

     

    Q6. Sir Peter Tapsell : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer my hon. Friend to the reply that I gave some moments ago.

    Sir Peter Tapsell : Now that Germany has made it clear that it intends to continue for a long period in the maintenance of economic policies which are driving the rest of Europe from recession into slump, so as to re-equip its eastern provinces, is it not more than ever necessary for British Ministers to show the same resolution in supporting British industry? As this country has determined its own money supply for several centuries, why do Ministers suddenly find that they can no longer do that without having their hands held by a group of German bank clerks? Has not the time now come for us to leave the exchange rate mechanism, at least until such time as German interest rates are reduced to a level compatible with the needs of the whole of the rest of Europe?

    Mr. Newton : The British Government–with support from both sides of the House, in my recollection–accepted the disciplines of the ERM as the essential basis for a British policy designed to bring down inflation and to create the conditions for a sound economy. I see no basis for departing from that.

     

    Q7. Ms. Primarolo : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer the hon. Lady to the reply that I gave some moments ago.

    Ms. Primarolo : Will the Leader of the House explain why, under the citizens charter, someone whose train is late is entitled to claim compensation, but when the Government fail to ensure that people’s applications for disability allowances are speedily processed, those people are not entitled to claim compensation against the Government? Will the right hon. Gentleman suggest to the Prime Minister that proposals for such compensation should be produced as a matter of urgency, to ensure the efficiency of government?

    Mr. Newton : As I believe the hon. Lady knows, in certain fairly limited circumstances compensation may be payable for a failure of the Department–for negligence, perhaps. The key is to ensure, as the Department is actively seeking to do, that the high level of demand for the new disability benefits–having introduced them myself, I welcome that high level of demand–is met by the administration. That is what my colleagues in the Department are seeking to do.

     

    Q8. Mr. Mark Robinson : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer my hon. Friend to the reply that I gave some moments ago.

    Mr. Robinson : Will my right hon. Friend join me in welcoming yesterday’s White Paper on “The Health of the Nation”? Will he also welcome the fact that, at a time of vastly increased resources for the health service, the Government are pushing ahead to make further improvements to the health of the nation and will continue to do so?

    Mr. Newton : I agree with my hon. Friend. Yesterday’s White Paper is a significant development in the success of the national health service and in its further success for the rest of this century and beyond. It marks a significant move from the health service’s being, in old-fashioned terms, an illness service, to its being a genuine health service.

     

    Q9. Mr. Darling : To ask the Prime Minister if he will list his official engagements for Thursday 9 July.

    Mr. Newton : I have been asked to reply.

    I refer the hon. Gentleman to the reply that I gave some moments ago.

    Mr. Darling : Why did the Government forget to mention in their manifesto of just three months ago that they intended to privatise water supply in Scotland?

    Mr. Newton : The hon. Gentleman is aware that my right hon. Friend the Secretary of State for Scotland has had those matters under consideration. He will also be aware that my right hon. Friend will set out the basis of Government policy in the appropriate way, at the appropriate time.

    Mr. George Howarth : Is the Leader of the House aware that this is national housing week and that housing provision and the construction industry are gripped in a crisis? Would not this be an appropriate time to organise the phased release of the £7 billion of local authority capital receipts to solve the housing crisis and the crisis that the Government have engineered in the construction industry?

    Mr. Newton : I am tempted to refer the hon. Gentleman to a reply that I myself gave on that point on Tuesday. The Government are in the process of making £6 billion available to housing associations over the next three years. That will produce about 150,000 new homes for rent or low-cost ownership.

    Mr. Moate : Recalling the visit to London by thousands of fishermen earlier this week, does my right hon. Friend agree that it is wrong to ask Parliament to impose tough restrictions on British fishermen which will not be applied to Common Market fishermen–including those who fish in British- controlled waters, with some taking British quota? As the proposals are clearly unfair and will almost certainly be doomed to failure without the industry’s co-operation, will my right hon. Friend consult his colleagues about withdrawing them now and starting new consultations?

    Mr. Newton : I certainly cannot undertake to enter consultations with a view to withdrawing proposals which are most important in relation to the conservation of fish stocks and, therefore, to the long-term future of our fishing industry. Other member states will be subject to Community targets. Our aim is, and will remain, to ensure that the burden of adjustment is fairly shared.

  • Mr Major’s Comments on Interest Rates – 8 July 1992

    Below is the text of Mr Major’s comments on interest rates, made on 8th July 1992.

    PRIME MINISTER:

    If you look at the level of interest rates now, it is not materially different from the average level of interest rates right the way through the 1980s. It feels different because the asset values have fallen but it is not different and people then say that the real rate of interest is quite high yet our real rate of interest is less than in Germany. For the first time since we joined the Exchange Rate Mechanism, our rate of interest has come to within 0.25 percent of the Germany interest rates for the first time in God knows how many years – more years than I care to remember.

    They say we are bound entirely by what happens to Germany, those people who oppose our present interest rates policy. I find that very odd. In the last twenty months since we joined, German interest rates have gone up by about 3%, sterling interest rates have come down by 5%. I think that is very odd. If we are tied dot and comma to everything that happens in Germany, I think people should explain why that should be so if that has happened. The point is it is not so and so I am suspicious of the one or two percent off interest rates to kick-start the economy argument. I know of no evidence that that is the case either in this country or in the evidence of what has happened elsewhere in the world.

    We will have to take interest rates down gradually as we can safely do so without damaging the exchange value of sterling and that is so in the Exchange Rate Mechanism or out of it.

  • Text of the 1992 Budget – 10 March 1992

    Below is the text of the 1992 Budget, held on 10th March 1992 and presented in the House of Commons by the Chancellor of the Exchequer, Norman Lamont.

    Budget Statement

    Mr. Deputy Speaker (Mr. Harold Walker) : Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor’s speech, copies of the Budget resolutions will be available to hon. Members in the Vote Office.

    The Chancellor of the Exchequer (Mr. Norman Lamont) : I want to begin by announcing a far-reaching reform that will affect our entire system of public finance. Each year, the Budget for this country is presented in two parts. In the autumn, the Chancellor announces the Government’s spending plans for the coming financial year; and in March, he sets out the revenue measures necessary to pay for them. Many criticised this uniquely British institution. Elsewhere in the world, and indeed everywhere in the private sector, the meaning of the word “budget” is crystal clear : it is a schedule showing where the money is coming from, and where it is going to.

    In my view, the current system is not only illogical, it has also had a number of highly undesirable consequences. Over the years, the separation of public expenditure from taxation and the announcement of tax proposals in isolation has intensified the pressure for special reliefs and contributed to the excessively complex tax system that we have now. The time has come for reform.

    I therefore intend that next year’s Budget will be the last spring Budget. From then on the annual Budget will be in December, and it will cover not just taxation but also public expenditure. The Budget in December 1993 will contain the Government’s proposals for both revenues and expenditure in 1994-95. It will also include spending plans for the subsequent two years. The 1994 Finance Bill will be presented to the House in January rather than April.

    I am publishing today a White Paper on the mechanics of this change. I believe that it will lead to better decisions about both taxation and spending. It will enable spending plans to be considered alongside the tax plans needed to pay for them. Above all, it will enable Government and Parliament to make more informed and rational choices between spending measures and tax changes. I hope that it will be warmly welcomed by the House.

    ECONOMIC SITUATION AND PROSPECTS

    This year’s Budget is a Budget for the recovery. As usual, I shall begin with the current economic situation and prospects. I shall then deal with monetary policy and public finances. Finally, I will present my tax proposals. The Financial Statement and Budget Report, together with a number of press releases filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.

    WORLD DEVELOPMENTS AND PROSPECTS

    I turn first to international developments. Nineteen ninety one saw the weakest growth in the major seven economies in a decade, while industrial production in the G7 actually fell. This brought a sharp slowdown in the growth of world trade, which was exacerbated by the dramatic events in the former Soviet Union.

    In the United States recovery was generally expected in the second half of last year. But, despite low interest rates, the upturn failed to appear towards the end of 1991. High levels of debt have made firms and households very cautious about spending, while banks have been reluctant to increase their lending.

    In Japan there have been similar problems, and growth has slowed sharply. In the year to January, industrial production actually fell by 4 per cent.

    The slowdown in world growth has been accompanied by lower inflation in nearly all the major economies. G7 inflation fell from over 5 per cent. at the beginning of last year to about 3 per cent. now. But economic developments in continental Europe have been dominated by events in Germany. Over-rapid expansion of domestic demand, following reunification, led to a rise in German inflation. The German authorities responded by increasing interest rates and Germany has now moved into recession. As a consequence, other European economies are experiencing high real interest rates and weak domestic demand.

    But falling inflation, and the cuts in interest rates that have already taken place in north America and Japan, will in time lead to a pick-up in confidence and demand. And as the underlying level of German inflation abates, I expect to see reductions in European interest rates.

    Gross domestic product in the seven major economies is projected to grow by about 1 per cent. in 1992, and world trade by about 4 per cent. We can expect more rapid growth in later years as the recovery gains momentum.

    Some have argued that delayed recovery in the United States, and the slowdowns in Japan and Europe, are not just a cyclical phenomenon of the kind we have seen before, but herald something much more serious. It would be irresponsible for anyone in my position simply to ignore such claims. But I do not believe that they are well founded. I believe that Governments have learned the lessons of the past. Above all, they recognise that nothing could be more damaging to the world economy than a relapse into protectionism of the sort that we saw in the 1930s.

    Indeed, a crucial challenge for Governments is not merely to preserve the world trading order, but to extend it. Unfortunately, not all our Community partners see this as clearly as we in Britain do. But narrow sectional interests must not be allowed to prevent the current GATT negotiations from reaching a rapid and successful conclusion. The prosperity of the world in the decades ahead rests squarely on the freedom to trade.

    UNITED KINGDOM : RECENT DEVELOPMENTS

    The most significant development in the British economy over the past year has been the sharp and sustained reduction in inflation. Retail price inflation has fallen to around 4 per cent., close to the German level, while underlying producer price inflation is at its lowest level for a generation.

    Average earnings, too, are rising at the lowest rate for 25 years, suggesting that, after a decade of supply-side reform, the British labour market is operating far more effectively than before. This augurs well for employment prospects in the longer term. But, as elsewhere in the world, activity and demand in Britain have been weak. The rapid increase in demand in the late 1980s, fuelled by a sharp fall in saving and large increases in indebtedness, made a period of adjustment inevitable. Companies and households that borrowed extensively have reined in spending and repaid debt in response to higher interest rates.

    Following a substantial reduction in interest rates, there were clear signs of renewed growth in the late summer and early autumn of last year – not just in confidence surveys, but also in the figures for retail sales and economic activity more generally. But, as in the United States, the recovery here was not sustained.

    The effect on the British economy of recent world developments, and particularly those in the United States, cannot simply be measured by the adverse consequences for British exports. British firms have factories and offices abroad – indeed, our investment in the United States is higher than that of any other country. Conditions in one country can and do affect business confidence elsewhere. So unexpected weakness in the rest of the world has taken its toll on confidence in Britain, discouraging investment and stock-building. Over the year as a whole, GDP fell by nearly 2 per cent., per cent. more than my forecast of a year ago.

    THE OUTLOOK FOR 1992 AND 1993

    Most independent forecasters agree that 1992 will see the resumption of economic growth. The recovery is expected to start slowly, but to gather pace. I expect growth in the year to the second half of 1992 to be almost 2 per cent. The level of GDP for this year as a whole should be about 1 per cent. higher than last.

    As inflation in Britain has fallen, so too have interest rates ; and that has put money in the pockets of mortgage payers. Indeed, a typical family with a £30,000 mortgage is now more than 15 per cent. better off in real terms than in October 1990 – nearly £30 a week. That represents a considerable stock of pent-up spending power, which will in time feed through to stronger consumer spending.

    Output will also be boosted by stronger export growth as the world economy recovers. Our share of world trade in manufactures rose in 1991 for the third successive year, despite the world slowdown, and I expect further gains in the future as lower inflation leads to improved competitiveness.

    The current account deficit for last year was about £4 billion, per cent. of GDP. As domestic demand recovers, the deficit is likely to widen a little this year. At 1 per cent. of GDP for the year as a whole, it will be easily financeable.

    Even with a resumption of growth, unemployment is likely to go on rising for some time. But while the increase will moderate over the months ahead, a sustained reduction in unemployment over the longer term will depend crucially on our success in keeping inflation down, and the prospects for that are better than at any time in recent economic history.

    I expect retail price inflation to fall decisively below 4 per cent. by the end of the year and to be close to 3 per cent. by the middle of 1993. Producer price inflation will be even lower, down to 2 per cent. by the end of this year and to 1 per cent. by the middle of 1993.

    THE LONGER TERM PROSPECT

    A whole generation has grown up to accept inflation as an unalterable fact of life. But we are now making steady progress towards price stability – an environment in which the decisions of businesses and consumers are no longer distorted by the expectation of a general upward movement in prices. Inflation has been the scourge of our economy for decades, and its defeat, not just here but elsewhere in Europe, will represent a tremendous achievement, bringing enormous benefits to British businesses and families. There are those who would put this at risk by seeking to pump up demand, but I am not prepared to take steps which would call into question the Government’s determination to match or better the inflation performance of our Community partners.

    And even if it were thought desirable, it is not remotely feasible for Governments to try to target the level of demand month by month or quarter by quarter. Having made such progress in getting inflation down, it would be tragic now to throw it all away with an ill-judged or ill-timed attempt to kick-start demand.

    The challenge before us is not to provide some artificial short-term stimulus to the economy. It is to continue the supply-side reforms of the 1980s. Low tax and light government have produced an economic environment which spurs competition and rewards enterprise. Our job now is to build on them to help people and businesses make the most of recovery. And that will be the theme of my Budget today. Between 1979 and the end of 1990, the number of businesses rose by almost a third. Even during the recession capital spending on plant and machinery has remained higher as a proportion of GDP than at any point in the 1970s. As a result we have seen exceptional growth in manufacturing productivity – faster than in any other G7 country in the 1980s. Industrial relations have been transformed. Fewer days were lost to industrial action in 1991 than in any year since records began a century ago.

    The confidence of foreign investors in Britain’s renewed economic strength is demonstrated by our continued high share of inward investment. Almost half of the direct investment in the European Community from the United States and Japan comes to the United Kingdom. Those investors recognise that Britain, with its low taxes, good industrial relations and stable currency, is the right place to come to exploit the opportunities of the single European market.

    MONETARY AND EXCHANGE RATE POLICY

    Whether or not the United Kingdom decides to participate in a move to a single European currency, we will be among those who meet the strict conditions required for entry. The Government believe that these conditions provide a valuable framework for setting policy in the medium term. And that means that monetary policy is primarily directed at the maintenance of sterling’s parity within the exchange rate mechanism. In due course we shall move to the narrow band of the ERM, at the current central rate of 2.95 DM.

    Since ERM entry was announced in October 1990, sterling has remained within its permitted ERM bands, while interest rates have been reduced by 4 per cent. The differential between United Kingdom and German interest rates is now at its lowest for a decade.

    In common with all the major countries within the ERM, I shall set a domestic monetary target. M0, the narrow measure of money, has stayed comfortably within the range I set in the last Budget. For the year ahead I propose to continue the target range for narrow money of 0 to 4 per cent. This is consistent with a further fall in inflation combined with a recovery in output. I shall continue to watch closely other indicators of monetary conditions, including broad money and asset prices.

    PUBLIC FINANCE AND FISCAL POLICY

    I turn now to the public sector finances. The slowdown in the world economy over the last year has led to larger budget deficits in most industrial countries. Tax revenues and spending on some social security programmes largely depend upon the level of economic activity. So, in a recession, tax receipts are lower while social security spending rises.

    But, thanks to my predecessors, we in Britain have the great advantage of having a ratio of Government debt to GDP that is very low by both historical and international standards. Indeed, the general Government debt burden is lower in the United Kingdom than in any other European Community country bar Luxembourg. That means that a rise in borrowing in response to cyclical pressures will not jeopardise the Government’s firm commitment to sound finance. The objective of fiscal policy remains to balance the budget over the medium term. In a recession borrowing will tend to rise. But there is nothing wrong with that, providing that the underlying position is sound and the budget moves back towards balance as the economy recovers. Indeed, it makes good economic sense to allow the level of Government borrowing to vary in this way over the business cycle.

    For the year ending on 1 April, I expect a PSBR of a little under £14 billion, or 2 per cent. of GDP. The rise in the forecast since the autumn statement is due for the most part to the impact of weaker activity on revenues rather than to higher public spending. Indeed, planned public expenditure this year is likely to be a little below the level that I set in last year’s Budget.

    Since the full impact of the recession, on both tax revenues and public expenditure, feeds through only with a time lag, the PSBR will increase further in 1992-93. Taking account of the measures that I am announcing today, my forecast implies a PSBR next year of some 4 per cent. of GDP, about £28 billion.

    As I have said, the increased borrowing requirement reflects the delayed impact of weaker activity over the last year. Even so, I expect it to be rather lower than that of Germany, and less than half the level seen in Britain following the recession in the mid-1970s. The ratio of Government debt to GDP will rise slightly next year. But our debt burden will remain very low by international standards. As the economy recovers, and growth gathers pace, the PSBR will move back towards balance, and the debt burden will resume its downward trend.

    During 1991-92 the borrowing requirement has been fully funded, and that policy will continue over the year ahead. An increased amount will be funded through national savings. A new product, a guaranteed growth bond designed to appeal to taxpayers, will be launched in the summer.

    INVESTMENT

    The prosperity of this country does not stem from government but from the enterprise and initiative of the British people and of British business. A recurrent theme of the Budgets delivered by my distinguished predecessors has been the desire to create a framework in which economic decisions are taken on their own merits, and not in response to distortions created by the tax system. In continuing that tradition today, my Budget will ensure that recovery is not based on some short-term boost from Government but on the decisions taken by the private sector.

    The proposals that I shall be presenting today should be seen in the context of the benefits that business will receive from the measures I announced last year. In my last Budget, I cut the main rate of corporation tax by a full two percentage points, to 33 per cent., for profits earned in the 1991 financial year. That has given Britain a lower rate of corporation tax than any of our major competitors, and I propose to leave it unchanged for the year ahead. Because corporation tax is paid in arrears, companies will feel the full impact of last year’s cut only in the coming year. Combined with the other corporation tax measures that I announced last year, it will benefit businesses by some £1 billion in 1992-93.

    In my autumn statement I announced substantial increases in public sector investment. In the financial year beginning 1 April investment in roads and public transport will be £5 billion, and capital spending on the national health service will be more than £2 billion. Next year, public sector asset creation – in other words, total investment spending by the public sector – will amount to nearly £30 billion.

    Over the last decade, this Government have fully demonstrated their commitment to investment in our public infrastructure. It would be wholly wrong to allow the impact of the recession on the fiscal deficit to lead to cuts in our long-term investment programmes, as occurred in the 1970s. But it would be equally wrong to expect public investment or an ever-expanding public sector to lead the recovery. The recovery will be sustainable only if it is led by the private sector. Investment does not take place in a vacuum. Good quality private-sector investment will come not from artificial subsidies or incentives but in response to consumer demand.

    One suggestion that has been put to me is that I should raise first year capital allowances. I have considered this proposition very carefully. I would be as concerned as anyone if I thought that the corporation tax system introduced in 1984 was acting as a drag on profitable investment. But, on average, the current tax rules allow capital investment to be written off more quickly than economic depreciation would imply. In current circumstances, any general increase in capital allowances would primarily benefit large and profitable businesses. Moreover, given the way that the corporation tax system works, those benefits would not flow through into companies’ cash flow until the year after next.

    The evidence suggests that the cost of higher capital allowances to the Exchequer would be several times greater than the resulting increase in investment over the next few years. I have therefore concluded that, whatever its superficial attractions, an increase in capital allowances would not be a sensible use of the resources available.

    NATIONAL NON-DOMESTIC RATE

    There is a far better way to help business this year. I have decided to bring forward proposals that will be of early benefit to some 900,000 non-domestic properties, large and small, throughout the United Kingdom.

    Business in England and Wales has gained much from the introduction of the uniform business rate in 1990. During the 1980s, when business rates were set by local authorities, poundages in England rose on average by over 37 per cent. more than inflation. Under the new system, rate poundages are capped in real terms.

    In some cases, however, the changes in bills have been substantial, and many businesses have faced a difficult adjustment. That is why, when we introduced the uniform business rate, the Government eased the transition by phasing in the losses of those who faced large changes in their bills. But I am well aware that many of the businesses which face large increases next year have also been hard hit by the recession. I have therefore decided that their burdens should not be compounded by real increases in business rates. The Government propose to amend the transitional arrangements already enacted for next year’s business rates in England and Wales to ensure that no business property will face a real increase in rates next year. The bills for properties protected by the transitional arrangements will increase by no more than the rate of inflation, like those for other properties – 500,000 business properties in England and Wales will benefit at a cost to the Exchequer of £320 million in 1992-93. The present statutory limits on real annual increases in rate bills will apply again from 1993-94. Since such increases will be from a lower base, there will be a further cost of £220 million in that year.

    The present rules mean that new occupiers are not eligible for transitional relief. As the property market has weakened, this has made it more difficult for businesses to move. I therefore propose to allow businesses occupying new premises after midnight tonight to inherit the transitional protection available to the previous occupier, at a further cost of about £25 million. This should help to increase mobility and unlock the property market.

    But it would be wrong to concentrate help only on those businesses who lose from the new arrangements. While the transitional arrangements have postponed losses for some companies, they have also delayed the gains for those who did worst out of the old system. I believe that businesses should see the full benefits more rapidly. I therefore propose to accelerate their gains.

    From 1993-94 onwards, I propose that all businesses gaining from the 1990 reforms should be allowed to have their gains in full. So, by then, no business will be paying higher business rates than it should be doing under the new system.

    In the coming year, I propose that the maximum reductions in the rate bills of the gainers should be raised to 22 per cent. in real terms for large properties, and to 27 per cent. for small properties. Those limits are nine percentage points higher than in the current year : 150,000 business properties in England and Wales will benefit at a revenue cost of £85 million in 1992-93.

    These changes will not reduce the income of local authorities. Subject to Parliament’s approval, the Government will pay extra money into the non-domestic rates pool to make good the shortfall in business rates revenue. These payments will not add to public expenditure.

    The Government will introduce special legislation as soon as practicable to implement these proposals. In the meantime, local authorities should send out bills and collect business rates in accordance with the existing legislation and regulations. Business rate bills on properties in transition will be cut, and adjustment made for earlier higher levels of payment, when Parliament has approved the legislation and local authorities can send out new lower bills.

    The proposals that I have outlined will apply to business properties in England and Wales, reducing the total business rates bill next year by 3 per cent. Scotland and Northern Ireland each have different arrangements for business rates. The Government propose that their total rates bills next year should likewise be reduced by 3 per cent. My right hon. Friends the Secretaries of State for Scotland and for Northern Ireland will be announcing the details.

    These measures will bring significant and early benefit to many thousands of businesses throughout the United Kingdom. The revenue cost will be £480 million in 1992-93 and £590 million in 1993-94 but will fall away rapidly in subsequent years.

    SMALL BUSINESS

    My proposals on the UBR will be of particular benefit to small businesses – the lifeblood of a modern economy. Small businesses have been at the heart of the supply-side revolution in this country over the last decade. The result has been a new economic dynamism, with increased competition and a more flexible labour market.

    Inevitably, taxation and regulation bear most heavily on small firms, so I have considered carefully what measures I can take to ease that burden, and in particular to ease the cash flow of small businesses. Last year, I raised the VAT registration threshold by some 40 per cent. This year, I propose to increase the threshold in line with inflation, to £36,600. One hundred and thirty-five thousand traders – one third of all those eligible – now use the cash accounting scheme for VAT, which allows small firms to delay their VAT payments until they themselves have been paid. I can now announce that the rules will be relaxed to allow traders owing less than £5,000 to Customs to use cash accounting. I hope that this will encourage many more traders to take advantage of this excellent scheme.

    My decision last year to allow small employers to pay income tax and national insurance deducted at source on a quarterly rather than monthly basis was widely welcomed by small employers. I propose to raise the qualifying limit to £450 a month. That will mean that nearly million employers will be able to make payments quarterly rather than monthly.

    But one problem arouses more anger in the small business community than any other. I have every sympathy for small companies which find that their larger debtors are deliberately delaying payment to boost their own cash flow. Such practices are wholly deplorable ; and, while there is no easy solution, my right hon. Friends and I have looked hard at what the Government can do to help. I have a number of proposals to announce.

    First, the Government propose to require larger companies to state in their annual report and accounts how quickly they pay. Second, my noble and learned Friend the Lord Chancellor will be proposing simpler procedures in small claims and debt recovery cases. Third, I want to see the Government’s good record on the payment of bills extended to firms which win Government contracts. From next month, those successfully negotiating a contract with a Government Department will be required to include clauses in their own contracts with subcontractors which provide for the prompt payment of bills, ordinarily within 30 days of receiving a valid invoice. I believe that Government have set a good example, and I hope that large companies will follow.

    For businesses facing cash flow difficulties, value added tax penalties can be the last straw. It has been put to me on many occasions that the VAT penalty regime is too strict. The serious misdeclaration penalty is catching too many minor mistakes. This must stop. In future, Customs will not normally charge penalties on under-declarations of tax of up to £2,000. That will take over three quarters of cases out of the penalty regime, although the largest mistakes will still be penalised.

    Last year I reduced the rate of penalty from 30 per cent. to 20 per cent. I now propose to cut it further, to 15 per cent. But there are other aspects of the regime which require more consideration, and Customs are issuing today a further consultation document on the options for longer-term reform.

    I believe that the highest rates of default surcharge levied on traders who submit late VAT returns or payments cannot be justified. I therefore propose to reduce the maximum rate from 30 per cent. to 20 per cent. These measures, taken together, will reduce the penalties businesses might otherwise have had to pay Customs by £35 million next year.

    One of the other complaints I have heard most frequently over the years is that it is unjust that taxpayers cannot be awarded costs when they appeal before the special commissioners. I now propose to introduce a measure which would give the Lord Chancellor power to make new rules about the hearing of appeals, including the powers to award costs where either party has acted wholly unreasonably.

    INHERITANCE TAX

    I have one final change to announce which will be of substantial benefit, particularly to small family businesses. I propose to take most family businesses out of inheritance tax altogether. This will cost £10 million in 1992-93, and £25 million in 1993-94. Relief from inheritance tax for interests in unincorporated businesses, for shareholdings greater than 25 per cent. in unquoted companies, and for working farmers will be increased from 50 per cent. to 100 per cent.

    Shares dealt on the unlisted securities market, which are generally less liquid than shares with a full stock market quotation, will from today be treated like unquoted shares. That means that shareholdings of over 25 per cent. will also generally be free from inheritance tax.

    For shareholdings of 25 per cent. or less in unquoted companies, and for agricultural landlords, the rate of relief will rise from 30 per cent. to 50 per cent. The 50 per cent. relief will also extend to smaller shareholdings in USM companies and to controlling shareholdings in quoted companies.

    Inheritance and capital are no longer a privilege of the wealthy few. Ordinary families want to be able to pass on the wealth that they have built up over their lives to their children without an excessive proportion being taken by tax. Over the years to come I shall continue to look for ways of lightening the burden of inheritance tax. This year I propose to raise the threshold for inheritance tax by more than inflation, to £150,000. This will cost about £10 million in 1992-93. I intend to raise the threshold for capital gains tax in line with inflation, to £5,800.

    Taken together, the measures that I am proposing on business rates, on VAT and on inheritance tax will be of very substantial benefit to British business as a whole and to small business in particular in the year ahead.

    OTHER BUSINESS MEASURES

    Over the past year I have received many representations about surplus advance corporation tax. ACT is paid by companies when they pay dividends. It serves two purposes : first, to discharge the shareholders’ basic rate income tax liability; and, second, as a payment towards the company’s own corporation tax liability. But some companies paying dividends out of foreign profits taxed abroad find that they are now paying more ACT than they can set against United Kingdom tax.

    That is a significant problem for those affected. But it is also highly complex, and huge amounts of revenue are potentially at stake. A satisfactory and lasting solution will need to address the ways in which different national systems of corporation tax interact. This is currently the subject of a review sponsored by the European Commission, and it is clearly an issue to which the Government will have to return.

    Its importance is of course increased by the abolition, from 1 January 1993, of fiscal frontiers within the European Community. That will give British business access to the largest home market in the world. But it will also necessitate a number of technical changes to our VAT and excise systems. As I announced last October, one consequence of the single market is that businesses which import from other European Community countries will pay VAT on those imports later than they do now, giving some 90,000 businesses a welcome cash-flow benefit.

    This change will add substantially to the PSBR in 1992-93. I therefore announced last year that, from this autumn, the largest VAT payers – those who paid over £2 million in VAT in 1990-91 – would be required to submit VAT returns monthly rather than quarterly as now. It has been put very forcefully to me that the requirement for monthly returns would place an undue administrative burden on the businesses concerned. I have listened carefully to these representations, and I now intend to take steps to allay the concerns raised by those affected.

    I have asked Customs to implement a system of monthly payments on account for these large businesses, but I propose to allow them to continue to submit returns quarterly. This will avoid the requirement to fill in VAT returns every month, while still offsetting the cost to the Exchequer of postponed accounting for imports. Compared to my original proposal for monthly returns, payments on account will cost the Exchequer some £200 million in 1992-93, with a corresponding benefit again to the businesses concerned. I will introduce legislation to establish the basis for these new arrangements.

    I also propose to introduce legislation to prevent the business tax rules from being manipulated to secure an unjustifiable tax deferment when rent is paid between connected persons. The manipulation which has already occurred has involved tax of some hundreds of millions of pounds. This loophole will be closed immediately.

    I have one change to make to the business expansion scheme. It has been put to me that the BES could play a valuable part in helping to ease the problem of mortgage repossessions. At present companies can use the BES to acquire empty repossessed houses, but there are complications if the houses are still occupied. I propose to make it easier for the BES to be used for mortgage rescue schemes where owner-occupiers in difficulties wish to stay in their homes as assured tenants. This will add to the impact of the measures I announced in December to help the housing market.

    But I have also looked closely at the entire rationale behind the business expansion scheme, which is an exceptionally generous tax relief. When my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) introduced it in 1983, the venture capital industry was in its infancy, and there was concern that the investment needs of small firms were not well understood and provided for.

    The BES has been extremely successful. Over £2 billion has been raised and invested in qualifying schemes of all kinds. And Britain now has a venture capital industry the equal of that anywhere in the world, outside the United States. But the provisions of the business expansion scheme have become ever more complex ; and nowadays only a small part of the total invested goes to small businesses. As my right hon. Friend the Member for Blaby (Mr. Lawson) made clear when they were introduced, the BES provisions for assured tenancies were intended to expire at the end of 1993. I have decided that it is unnecessary to continue the business expansion scheme beyond that date, not only for assured tenancies, but for other investments as well. BES will therefore come to an end on 31 December 1993. As I have said, it has fulfilled a useful purpose. But its removal will significantly improve the neutrality of the tax system ; and some 45 pages of complex legislation will be removed from the statute book.

    As a result of my announcement today, there is likely to be some acceleration in investment, which will be welcome. In the long run there will be substantial savings, perhaps £130 million a year. Last year, I made it clear that I was concerned about the position of the British film industry and that I would consider carefully any further proposals that the industry brought forward. I have done so. Although a special tax regime already exists, the industry has long argued that the provisions for writing off expenditure do not fully take account of their special circumstances, and in particular of the cash flow problems that may be caused by the sometimes lengthy gap between the completion of a film and its release. I propose two measures to alleviate the position.

    First, relief for pre-production expenditure will be available as it is incurred; and, second, production expenditure will be available for write- off at a fixed rate of one third each year, on a straight-line basis, starting immediately on the completion of the film. This will have a cost of about £5 million in the first year, and around £15 million in 1993-94.

    CARS

    The motor industry is and will remain at the very heart of British manufacturing.

    Facing a sharp fall in domestic demand over the last year, the industry responded in exactly the right way, by switching production to exports, which rose by 20 per cent. in 1991. The fall in domestic sales should not be allowed to obscure this growing strength, which should make Britain a net exporter of cars by 1996 for the first time since 1974.

    None the less, I recognise that the last year has been a difficult one, and the measures I am proposing today will help the industry, while building on and continuing the reform of the taxation of cars that I and my predecessors have introduced.

    Before the 1988 Budget, the car scale charges – the income tax charge on those who have the benefit of a company car – were too low. Since then, we have moved much closer to realistic levels. I propose this year to increase the scale charges only in line with inflation. Otherwise, the real value of the tax payable would actually fall. But there are still aspects of the car scale charges which are both arbitrary and unfair. For most cars the tax payable is determined not by reference to the value of the car but rather by the car’s engine size. As the Monopolies and Mergers Commission has pointed out, this causes distortions. It also discriminates against diesel cars. The unfairness in the current system may have been acceptable when the tax charge was only a fraction of the true value to the user, but that is no longer the case.

    We need a system that better measures the value of the benefit. That means basing the tax charge on the price of the car, not its engine size. I therefore propose to introduce price-based scales as soon as practicable. The Inland Revenue will be publishing a consultative document in the summer on the details and timing of such a move.

    The car fuel scales, which measure the taxable benefit of free private fuel provided by the employer, have remained frozen since 1987. I propose to increase the scale for free petrol by 4.5 per cent. But at the moment we apply the same charge to diesel as to petrol, even though the cash value of free diesel is less. That means the fuel scales are too high for diesel cars, so I propose to introduce a new, and significantly lower, scale for diesel, bringing the tax charge closer into line with the value of the benefit received.

    While the income tax treatment of cars has until recent years been much too generous, in other ways cars have been the subject of discriminatory tax treatment. I have some changes to announce that will reduce that discrimination, and provide a boost for all businesses buying cars and for the car industry itself.

    First, companies that offered their employees the alternative of cash or a car have found themselves liable to pay VAT on the salary forgone by those who chose the car. That is clearly nonsensical. I shall be laying an order to make clear beyond doubt that, from 1 April, a VAT charge will no longer be imposed in these so-called salary sacrifice cases.

    Second, the capital allowances available for business cars are currently restricted for cars costing more than £8,000. That limit is now unrealistically low and I propose to increase it to £12,000, enabling full capital allowances to be given on most business cars. This measure will cost £50 million in 1993-94, building up to £220 million when the change has its maximum effect. But the revenue cost in the long term will be small.

    At present, most taxi and car hire firms and driving schools cannot recover the VAT they pay on their cars even though their cars are their business. I propose to end this anomaly from 1 August, at a cost of £50 million in 1992-93.

    Those measures will go some way towards improving the neutrality of the tax system as its affects cars purchased by businesses. But I have one further measure to announce, which will affect all those buying new cars.

    In 1973, car tax was introduced, to make up the difference between VAT and the former purchase tax. It has remained unchanged, at 10 per cent. of the wholesale price, ever since. This tax distorts consumer spending, and car manufacturers have long complained that our taxes on new cars are higher than those of other main European producers. This Government have always sought to reduce distortions in the tax system, and I therefore propose to reduce car tax by half, to 5 per cent., from midnight tonight. That will directly reduce the tax burden on all new cars. I trust that car dealers will respond by passing the full benefit of this reduction – about £400 on a typical family car – to the buyer. The halving of car tax will cost about £635 million in 1992-93, and £765 million in the following year.

    EXCISE DUTIES

    I turn now to excise duties. Last year I raised the duties on alcohol in line with inflation, and I propose to do the same this year. From 6pm tonight, this will mean an increase in the tax on a typical pint of beer of just over 1p, just under 5p on a bottle of wine and 28p on a bottle of spirits. I also propose to raise the duty on unleaded petrol and on diesel in line with inflation.

    On leaded petrol, I propose a rather larger increase, of 7 per cent., taking the tax differential between leaded and unleaded petrol to over 5p a litre. That will continue our long-standing and successful policy of encouraging motorists to move away from leaded petrol, which now represents little more than half the market. I propose to increase vehicle excise duty on cars, taxis and light vans by £10, and to freeze it again this year for lorries. I propose to raise the duty on tobacco by about 10 per cent. – roughly the same real increase as last year. That will add 13p to the price of a packet of 20 cigarettes. The duties on other tobacco products will also rise by about 10 per cent., apart from that on pipe tobacco, which will rise only in line with inflation. Benjamin Franklin once remarked that nothing was certain except death and taxes, but for some people the latter may help to delay the former. As for the irreconcilables – among whom I count myself – I have one minor compensation : I propose to abolish from 1 January 1993 the duty charged on matches and mechanical lighters.

    I also have a change to announce on betting duty, with consequences for the racing industry. I propose to cut the rate of betting duty by one quarter of 1 per cent., reducing the tax take by £15 million in 1992-93. My right hon. Friend the Secretary of State for the Home Department will be announcing later today his determination of the horse race betting levy, and he will be making proposals to ensure that the greater part of that reduction will be channelled to the horse racing industry. That is an important part of the measure, and I shall review the cut in betting duty next year.

    A proportion of the reduction, of course, will be attributable to betting on greyhound racing. I hope that voluntary arrangements can be found to direct some of that money to help the greyhound racing industry, and my right hon. Friend will be exploring the possibilities with interested parties.

    I should also tell right hon. and hon. Members quite clearly what I am not proposing. I know that there is particular concern about the European Commission’s proposals on the taxation of alcohol. But let me make it clear : I will not accept any deal in Brussels that would ride roughshod over the interests of the British cider industry. Nor will I accept a deal that would allow member states to continue to levy no excise duty on wine which they make but which forces them to put up duties on spirits which we make.

    CHARITIES

    Over the past 13 years, we have introduced a number of measures directed at encouraging charitable giving. We introduced the payroll giving scheme. We have extended and widened value added tax reliefs – and my right hon. Friend the Prime Minister, when he was Chancellor, introduced the gift aid scheme.

    Gift aid allows tax relief on one-off donations of £600 or more. It has been a considerable success. Charities have received nearly £200 million in income under the scheme. I propose that from 1 July 1992 the minimum gift should be reduced to £400 – the figure proposed by the Council for Charitable Support and the Charities Tax Reform Group. I shall not go further, because I know that some charities are concerned that to do so might reduce the attraction of regular giving through charitable covenants.

    But I propose some changes to the arrangements for tax relief on charitable covenants, intended to reduce administration costs for charities and to help them to maintain a steady and reliable flow of income. And I propose a number of minor improvements to the VAT reliefs available to charities and for aids to the disabled.

    SAVINGS

    Savings are a passport to personal independence and security ; the very foundation of a property-owning democracy. That is why, over the last decade, the Government have set out to lighten the burden of taxation on saving.

    We have reduced the basic and higher rates of income tax, and abolished the investment income surcharge. We have stopped taxing the savings of non-taxpayers. And we have extended savings incentives to the mass of ordinary tax-paying savers by introducing tax-exempt special savings accounts – TESSAs – which allow people to invest up to £9,000 over five years in a bank or building society account. We have also introduced new and popular incentives to invest in shares. In 1986 we introduced personal equity plans to enhance the attraction of investment in shares b making the income and capital gains from them free of tax. Today, I want to improve PEPs still further by removing the £3,000 limit on the amount that can be invested in unit or investment trusts. I propose that from April people should be able to invest up to the full £6,000 a year in qualifying investment and unit trusts. This new opportunity – which will cost £10 million in 1993-94 – will provide further encouragement to PEPs, and help to small savers.

    We do not see the returns to savings as “unearned income”, to be taxed more heavily than earned income. On the contrary, we will continue to lighten the burden of tax on savings, and to broaden the range of investments which receive savings incentives.

    PENSIONERS

    No one has benefited more from our encouragement of savings than pensioners. In the 1980s, most pensioners saw their real incomes rise sharply, as inflation fell and the value of occupational pensions rose. On average, pensioners’ real incomes increased by more than a third between 1979 and 1988. More than half of pensioners now have a second pension; and pensioners have seen their income from saving double since 1979.

    I propose that the income tax allowances for the over-65s–both the personal allowances and the married couple’s allowances – should increase in line with inflation. The income limit for the age-related allowances will also increase in line with inflation.

    Increases in the age allowances can, of course, benefit only those pensioners who pay tax. But this year I also want to help the less fortunate pensioners – those whose savings have been eroded over the years by inflation; those who have only modest occupational pensions; and those who retired too early to take advantage of the growth of SERPS.

    Last October, my right hon. Friend the Secretary of State for Social Security announced that the income support rates for pensioners would be increased this April by at least 7 per cent.; and there were extra increases for disabled pensioners and the over-80s.

    I now propose a further increase in income support rates, of £2 for single pensioners and £3 for pensioner couples. When this comes into effect, in October, all pensioners on income support will be at least £5.75 a week better off than they are now, and some will be as much as £10.70 a week better off. In total, some 5 million people will benefit. And it will bring the real increase in spending on benefits for poorer pensioners since 1989 to more than £700 million. The cost – some £145 million in 1992-93 and £305 million in the following year – will be financed from within the existing public expenditure plans.

    INCOME TAX

    Turning now to income tax more generally, I do not propose this year to increase the basic rate limit, the level of taxable income above which people begin to pay higher rate tax. Compared with indexation, this will save £180 million in 1992-93 and £290 million the following year.

    Nor do I propose any increase in the married couple’s allowance for couples under 65 or the allowances that are linked to it. But I do have one significant change to announce. The introduction of independent taxation in 1990 brought privacy and independence to married women by ending the rule that a wife’s income was assumed to be her husband’s. This change was widely welcomed. However, it did not eliminate completely the discriminatory features of the old system.

    At present, the husband receives the benefit of the married couple’s allowance unless his income is too low to make use of it. That means that the husband’s tax allowances are almost always greater than those of his wife. It also means that couples where the wife is a higher rate taxpayer and the husband is not pay more tax than couples where the husband is the higher rate taxpayer. That cannot be right. It is hardly surprising that the MCA has been described by some as the male chauvinist allowance.

    I propose to change this system. From 1993-94, couples will have a choice. If they take no action, the husband will continue to receive the MCA as now. They will be able to decide that the wife should receive the whole allowance, or that they should split it; or the wife will be able to claim half at her own request. This measure will have only a small effect on revenue – £10 million in 1993-94 – but it will make the tax system much fairer to married women.

    The Government have cut the basic rate of income tax by 8p since we took office in 1979, to 25p. And, as the House knows, we are committed to reducing the basic rate to 20p as and when it is prudent to do so. I reaffirm that commitment today.

    For the year ahead, I propose that the personal allowance should be uprated only in line with inflation. It will rise from £3,295 to £3, 445. But having reflected carefully on the priorities for this year’s Budget, I have decided that for the year ahead it is right to leave the basic rate at 25p in the pound.

    I believe that it is possible, desirable and, indeed, prudent to take a substantial step this year towards our goal of a 20p basic rate for all taxpayers. It is neither necessary nor desirable that anyone earning more than their personal allowances should start paying income tax at a rate of 25 per cent. With national insurance contributions on top, that means that the Government take a third of every extra £1 earned even from the low paid. In my view, that is simply too much; and I believe that we can and should reduce that burden.

    So I propose this year to cut the rate of income tax by 5p, to 20p, for the first £2,000 of taxable income. That will benefit every taxpayer in the country, but it will be of proportionately greater benefit to those on low incomes. It represents a decisive first step towards the Government’s objective of a 20p basic rate.

    In the next Parliament, we will gradually move closer to that goal. We will be able to do that in two possible ways : either by extending the width of the 20p band so that it covers increasing numbers of basic rate taxpayers, or by reducing the basic rate itself. Next year, nearly 4 million people on low incomes will already be paying tax only at the 20p rate. Their income tax bill will be cut by a fifth. That will improve their work incentives and make it more worth while for those not currently in work to take lower paid jobs. Nearly 25 million people – every taxpayer in the country – will see their starting rate of tax reduced to 20p. Combined with the indexation of the personal allowance, that will reduce taxes for the large majority of taxpayers by at least £2.64 a week.

    Mortgage interest tax relief at source will continue to be given at 25 per cent. for everybody, irrespective of whether they are a non-taxpayer, a 20p taxpayer, a basic rate taxpayer, or a higher rate taxpayer. But those in the 20p band will only be liable for tax at 20 per cent. on their savings.

    The new 20p band will cost £1.8 billion in 1992-93 and £2.3 billion in the following year, broadly equivalent to the cost of a penny off the basic rate. But, in comparison with a penny off the basic rate, the 20p band will be of particular benefit to those on the lowest incomes. Indeed, about three-quarters of the cost will go to taxpayers earning less than average male earnings.

    I now turn to the question of value added tax. I have a very important announcement to make, to which I hope the whole House will listen carefully. I have no need, no proposals and no plans either to raise or to extend the scope of VAT.

    The total impact of the taxation proposals I have put forward today, taken together with measures announced since my last Budget, will reduce the burden of taxation by around £1.5 billion, equivalent to per cent. of GDP, in the next financial year.

    PERORATION

    The Budget I have presented today is a Budget for the recovery. It maintains the policies that have slashed inflation and reduced interest rates. And it includes measures that will help businesses, large and small, up and down the country.

    But it is also a Budget that cuts taxes for every taxpayer in the country, a Budget which marks another significant step in our constant drive to leave individuals and families with more of what they earn. Over the past decade our belief in low taxation has brought unparalleled growth in the living standards of the British people. My Budget today continues that process, and I commend it to the House.

  • Mr Major’s Comments on a Nation at Ease With Itself – 9 February 1992

    Below is the text of Mr Major’s comments on his phrase of a nation at ease with itself, made in an interview on 9th February 1992.

    QUESTION:

    [Mr Major was asked to explain what he meant by the phrase a nation at ease with itself].

    PRIME MINISTER:

    What I mean by that is to make sure that everybody has the same opportunities whichever part of the country they come from, to achieve whatever it is they wish to achieve.

    That people have the right to self respect, they have the right to dignity, they have the right to good service, and of course much of that, to take one part of it, much of it is reflected in what we’re trying to do in the Citizen’s Charter; to make sure that people, when they’re dealing with public services, are treated as individuals and offered the quality of service, and individual service to which I believe they’re entitled.

    QUESTION:

    [Mr Major was asked how that objective could be achieved during a recession].

    PRIME MINISTER:

    But if, if I may say so, that is the time when it is most important to have a nation that is at ease with itself. But of course it is important, whatever stage of the economic cycle you’re in, clearly at the moment as we come out of the recession, I think we’re beginning to show signs of doing that, as we come out of the recession it will be easier to make some of the policy changes that are necessary. But that it is important that people have those opportunities, those individual choices, I believe is undoubted.

    QUESTION:

    [Mr Major was asked if he could comment on Neil Kinnock’s claim that as Prime Minister he has presided over a deep recession].

    PRIME MINISTER:

    Well, Mr Kinnock has many virtues but I’m not entirely sure that a deep understanding of the economy is amongst them. We have economic difficulties in this country, that is certainly true, and I have never made any secret of that, that is why we have worked so hard to get inflation down from 11%, down to just over 4%. Mr Kinnock of course said it would go up above 11%. That is why we joined the Exchange Rate Mechanism to stabilise Sterling.

  • Mr Major’s New Year Message 1992 – 1 January 1992

    Below is the text of Mr Major’s 1992 New Year Message, issued on Wednesday 1st January 1992.

    PRIME MINISTER:

    1992 will be General Election year. It is an Election that we must and will win. Over the last year we have wiped out our opponent’s big lead in the polls. And we have done that because of our solid record of achievement. We have:

    – Reduced inflation from some 11 per cent to about 4 per cent. Brought down interest rates eight times.

    – Led Britain with success into the ERM.

    – Committed record resources to the support of the NHS. Safeguarded child benefit against inflation for all mothers. Taken 400 measures to improve environmental protection. Replaced the Community Charge with a new Council Tax.

    This has been accomplished in the face of a world recession. I know it has been a tough year for many in business and for many families. But everyone will gain from the more stable economic position our policies have produced. I will never take short-term action that I know to be wrong, simply because it might be popular. We are now seeing the first signs of recovery, and all forecasters expect to see our economy growing again in the coming year.

    The Conservative Government has given strong leadership in Britain and outside.

    Our education reforms have won a powerful welcome from the parents of Britain. Only the Labour Party could oppose the idea for systematic inspection of all schools. Only the Left are resisting our campaign for a return to basics in the classroom. We will see this programme through under the next Conservative Government.

    Abroad, too, we have acted when and where it was needed. For me one of the most moving parts of the year was my visits to our troops in the Gulf. They did everything we asked of them – quietly, professionally, courageously. When the war against Saddam Hussein was won, they also played a crucial part in carrying through our plan to bring help to the Kurds, and to save hundreds of thousands of people from death in the mountains.

    There have also been great developments in Europe. Our Government was among the first to speak out for the forces of reform in the Soviet Union when they were threatened by a coup. And most recently we have won success for Britain in the important European Summit at Maastricht. The new Treaty followed months of patient discussion. We reached an agreement that was good for co-operation in Europe. To fight international crime and terrorism, drug trafficking and illegal immigration. To develop closer partnership in foreign policy and a greater role for Europe in defence while preserving the importance of NATO. And, on a British initiative, a crucial decision was taken to keep the European Community open to the other newly emerging European democracies. The Community was founded on the desire to bring democracy, stability and prosperity to Europe. The Maastricht Treaty has advanced that cause.

    But I was not prepared to accept an agreement on any terms, or an agreement that could have damaged our national interest. That is why we insisted on deleting from the Treaty a Social Chapter which would have put the trade unions back in the driving seat in British industry. And why did we not sign up now to a single currency. Parliament will decided on that only when it is certain whether economically or politically it will become a reality.

    Our Party has been consistent in its commitment to practical measures of cooperation in Europe. We Conservatives are not opportunists who flip from one policy to another as the opinion polls move.

    We know that it is the effort and initiative of individual people that leads to a successful economy. That is why we will continue to be the Party of low tax. We trust people with their own money. We want them to be able to save, to give them the ability to invest for the future, to start their own business if they wish, and to give their children a good start in life. We have helped many millions of people to own their own homes, to buy shares both in the company for which they work and the privatised utilities, to take out personal pensions. And we have introduced new vehicles for tax free savings.

    But I want to do more: people who have worked and saved during their lives should be able to pass on the fruits of that effort to their children – that ability is a great incentive to effort.

    I place great importance on the Citizen’s Charter programme. That is widening choice and raising standards in public service. Those services should all be properly responsive to the public’s wishes, and offer them the high quality that they need.

    The Conservative Government has already given choice in schooling through providing information, allowing open enrolment and increasing diversity of schooling. It has brought choice in training through training credits. And it has given more weight to local decisions in how the best health care can be provided and new guarantees for patients awaiting treatment.

    It is not only important that choice exists, but that everyone has the opportunity to exercise it. There must be no part of our country, no inner city area, no deprived family that does not receive first rate public services, so that they, through their effort and ability, can build fulfilled lives within the community.

    We faced great challenges last year and we surmounted them. We were able to do so because our actions were based on the enduring principles of Conservatism – sound money, strong defence, respect for the law and a belief in personal rights and responsibilities. It is on these principles that our Party has been elected for the last three General Elections. It is on these principles that we will win again.

  • Mr Major’s Speech in Aberdeen – 9 September 1991

    Below is the transcript of Mr Major’s speech in Aberdeen, given on 9th September 1991. [Parts of the transcript were unclear, and are marked with ….]

    PRIME MINISTER:

    Can I say thank you for the opportunity of meeting you all here this evening. I have spent the day in Aberdeen and the area and it has been a very worthwhile day. One of the pleasures of being Prime Minister is that you are able to escape from London and I do belong to those species of politicians who do not believe that the world begins and ends in the Greater London area.

    So it has been an intriguing day from the Cardon [phon] distillery, to schools, the Chamber of Commerce, the lunchtime speech to the Aberdeen Press and Journal and also to open Grampian Enterprise’s new building where they are going to produce all these splendid … and other ideas of Scottish enterprise that are going to provide so much training for us in the future.

    So I have had the opportunity of getting a very clear bird’s eye view of much of what is happening up here and from my point of view it has been an immensely worthwhile occasion.

    Let me just say a brief word or two about one or two of the matters that are still to come in the months … the rest of this year. And no I am not going to talk about the general election.

    Let me say a word about the progress of the economy as where I think we now are. Across the United Kingdom as a whole the recession has been quite deep, it has been deeper I think it is fair to say than we anticipated at the start or indeed had anyone anticipated, it has been uneven. Contrary to the pattern in recessions that we have seen almost as far back as you can go, the deepest part of it has been in the south and the east because predominantly that was where the largest borrowing was and that therefore was where the largest impact was with the monetary policy as we sought to end it.

    The way it now happens I think is for a sufficiency of months to be absolutely certain … but I think it has been happening for a sufficient number of months to be absolutely certain about it … is that we are I believe increasingly clear that we are through the worst of the recession and that we can now look forward to the regeneration of confidence in the months ahead.

    There are several things I believe that makes that perfectly clear and the first of those is the direction of inflation and by inflation I do not just mean the Retail Price Index, important though that undoubtedly is, I mean the trend of underlying inflation as well. That has been dropping now for some months and it is clear we have it by the scruff of the neck and it will go on dropping in the months ahead. It is very likely that we will have a lower inflation rate than Germany at some stage between now and the end of the year and we have not had that for very many years indeed.

    The second matter which I think is increasingly impacted upon the business mind if not the public mind is the effect of having joined the Exchange Rate Mechanism. In the last year, since we joined it when I was Chancellor last October – and I am bound to say it seems longer, I cannot think why – but in the year since we joined it last October we have seen interest rates in the United Kingdom come down by 4.5 percent, we have seen them rise in Germany and many other parts of Europe, and yet sterling, despite this dramatic narrowing of interest rate differentials has stayed absolutely stable around its central point of 2.95 deutschmarks.

    Not many people expected that to happen but I believed that it would and thus far at least events have shown that that was the right judgment.

    So we are increasingly getting to the position where we have a stable exchange rate, which is one of the key ingredients that the business sector repeatedly have said to governments that they need, they need to be clear where they are on the exchange markets, increasingly that is the case. We now have inflation coming down as well so we have two key ingredients that are critical to business confidence.

    The third one is where we have had so much problem in the months that have immediately gone past, there has been a decline in consumer confidence and consequently in spending and consequently in the market for your products whether in the retail sector or in many parts of the country though that is so I know in Aberdeen for other reasons in the construction industry.

    But there are signs now that consumer confidence is reviving, this morning’s figures I think tend to indicate that, but there have been other leading indicators as well. And if that is correct, and I think the balance of probability is that it is correct, we will be having another of the ingredients in place that we need to return to sustainable growth and that is the return of consumer and investor confidence.

    Now if those three factors are in place – the stable exchange rate, the falling and thereafter low inflation rate and the return of consumer confidence – we are going to find ourselves very well placed indeed for an upturn in the economy in the year ahead.

    Some people say will it be speedy? Well I would say to you, though it will seem to you I daresay a curious thing for me to say, I hope not too soon because what I do not want to see is the economy coming so speedily out of the recession that we have had that we create that hump and collapse that we have seen so frequently in the past, that boom and stop scenario. I do not want that, I want a gentle and sustainable, sustainable, growth out of recession in the months and the years ahead and that is what we are gearing policy to achieve.

    But apart from the fact that I think that is the most stable way to move the economy out of recession, it is also the most sensible way if we look at what we actually need to achieve in the 1990s. Out there is a more competitive world day by day than we have ever known before in our history as a great trading nation. All over the world people who were tame and happy recipients of our products and expertise years ago are now our principal competitors, all the way across south-east Asia you see the most immense changes in attitude, in producing techniques, in management skills, areas where we had huge markets and now we must fight not only for those markets but against those people for other markets.

    And then you see the changes there have been in Latin America and elsewhere. We are in a world where the most competitive and the most efficient have tremendous horizons and where the uncompetitive and the inefficient have no horizons whatsoever because these days if you are not efficient and you are not competitive and you do not provide what people want then you will not survive let alone thrive in the 1990s. In Europe there is a special point to be made and that is the fact that we will soon have the Single Market completely in operation, we will have an open more liberal market across Europe than we have ever seen before, it will not be perfect but it will be a good deal better than anything that has been in place. And the countries and the businesses that will scoop the pool in that huge and rich market are the efficient ones that a stable economy, sustainable investment, sustainable growth, low inflation and the right business climate in order to have the confidence to go out and seek and win those markets.

    That I believe is a huge prize, it is a prize that I am not prepared to take any risks with and that is the essential reason that I say we must come out of this bitter and nasty recession at a sustainable pace to give industry and commerce the right climate to capitalise on those opportunities in the 1990s.

    It is interesting, is it not, … I gave you some illustrations a moment ago in terms of what is happening in other parts of the world but we have seen politically as well the huge changes that are taking place in Eastern Europe and the great changes in terms of technology, many of the things that people will buy as their everyday consumer durables by the turn of the century, probably the majority of those things that they will buy have not yet been invented in the early 1990s. That is the pace of change and particularly technological and innovative change that we are actually seeking to live with at the moment and the environment in which we have to ….

    So it is an exciting time, it is a time when the opportunities are different and a time when if we get the economic management wrong you will not be able to take advantage of those opportunities, that is why I will be cautious in bringing us, with Norman Lamont, out of the recession. But I do believe we are coming out of it in the right way and I think because of the survey released this morning, added to the earlier evidence we have seen, are the clearest opportunity that that is actually what is happening.

    So 4 percent inflation by the end of the year is a target, a target that now I am confident we will meet and perhaps beat .. and that is I think a very happy and worthwhile development.

    So let me just say in conclusion how pleased I have been to have the opportunity of speaking to some of you and soon to have the opportunity of meeting more of you. I am aware of the work of the Chamber of Commerce out in the area, I know how many companies are members, I know the opportunities that you will have to work with the Chamber of Commerce to exploit the export markets that I have mentioned.

    I would just say to you opportunities are there if we have … and the skill and the enterprise and the courage then we must take those opportunities and build for ourselves in the 1990s a business structure and a prosperity structure for this and the next generation on a scale we previously had not imagined and had not seen. I wish you well.