Speeches, etc.

Margaret Thatcher

Speech to Institute of Directors (Annual Conference)

Document type: Speeches, interviews, etc.
Venue: Royal Albert Hall, South Kensington
Source: Thatcher Archive: speaking text
Editorial comments: 1200. Text marked "Check against delivery".
Importance ranking: Major
Word count: 3063
Themes: Autobiographical comments, Parliament, Conservatism, Employment, Industry, Monetary policy, Privatized & state industries, Taxation, Labour Party & socialism, Conservative (leadership elections)
Rough notes by MT. [?] indicates illegible word. [? word] indicates uncertain word.

Leadership.

Said it all.

Said to Michael Foot.

Fellow Taxpayers & Ratepayers,

It is a pleasure to follow M. [? Jobellin]

I trust he will not misunderstand me when I say that I hope friendly contact between French & English Shadow politicians will make good progress.

Could say the same to Mr. [?Benn ] but of course in that case it would obviously be the attraction of opposites. Typescript begins [end p1]

To make a major speech at the present time is a hazardous undertaking for an Opposition politician. Not because of what she says, but because of what other people will say she said. Nevertheless, nothing ventured, nothing gained; but as you will discern, Mr Chairman, even that simple phrase could be misinterpreted with things as they are now.

A few days ago the Economist newspaper launched four volumes of political essays by their famous former editor Walter Bagehot. One such essay referring to businessmen in politics is entitled “The Special Danger of Men of Business as Administrators” ! It was written in 1871. Doubtless you could retort with a homily entitled “The Special Danger of non-businessmen at the Department of Trade and Industry.” You are not alone in that view.

In the middle of July a former Lord BowdenMinister of State in a Labour Government, known for his happy knack of direct expression, said:

“It so happens that the total cost of the DTI and other forms of industrial support is about equal to the yield from corporation tax. Most Lancashire businessmen think that industry would do much better if the Government went away and left it alone. [end p2] They would like to abolish corporation tax and the DTI. Several thousand civil servants would be freed for productive work; Government books would still balance, and we could give Mr Wedgwood Benn back to the nation. There is much to be said for this proposition…”

Alas, Lord Bowden's tenure of office was short. It was a pity. Such a cogent style and such thoughts would be an advantage to the Government of today. [Manuscript addition by MT]Bagehot extracts—thought businessmen would do too much—be too interventionist. Able Labour politicians tend to leave politics. [Typescript resumes]

You may think, probably rightly, that there are far too few people in politics who know from personal experience the real day to day difficulties of running a business. One medium sized company I visited told me that in total it returned some 750 forms annually to government departments 3 every working day. Another told of the difficulties of operating the complexities of the Price Code. A third complained of protracted dealings with local authorities over the purchase and development of land, and delays which at present inflationary rates will mean that the investment will cost four or five times the initial estimate.

The actual problems of dealing with these frustrations and demands should be a known part of the experience of those who make our laws.

[Manuscript addition by MT:] Overseas investment example—reason to protect position in overseas market place—usually [? complicating] increase in exports of [? components]. Also contributes to invisible earnings. [Typescript resumes:] [end p3] And yet, of the 635 Members of Parliament only 52 are classified as managers or administrators, compared with 90 as teachers and 107 as lawyers. It is perhaps interesting to note that some 420 Members of Parliament have been educated at university. So we are not short of a good education—not at any rate of a costly education! If more Members with industrial experience are required, companies must encourage or at least permit some of their young people to follow a political career while at the same time keeping them on the pay roll, working part—time while the House is sitting, and full-time during the recesses. I see no other way of keeping us directly in touch with today's problems. Otherwise MPs and Ministers learn at second or third hand, and that is no substitute for learning from experience.

Now we face demands for the ‘restructuring of industry’, a phrase we have heard many times during the recent debates in Parliament. The present difficulties in which many companies find themselves are undoubtedly being used by those with left-wing ideas to justify a further measure of state control. Break them, then buy them. Little attempt is made to analyse either the cause of the problems or to consider the administrative difficulties at the Government end, if ever-increasing duties and decisions are formally placed on Ministers. [end p4]

Let us have a closer look at the cause of the present very serious problems. They do not all lie with industry. As one Chairman (Sir Ronald Edwards) has recently said, the deficiencies belong not to industry, but “much more to successive Governments who have failed either to create or to sustain the conditions that are necessary to good industrial performance.”

First, in a period of rising raw material costs, rising wages and salaries, and rising overheads, companies under the present price code have not been able to recover enough in prices to finance their requirements. Borrowing is not the answer, especially if the profits are inadequate to finance it at today's high interest rates. It is no good having the kind of price code which runs hitherto flourishing businesses into cash flow problems.

Second, our system of accounting was devised for times when the value of money was relatively stable. When raw material costs are rising, the increased cost of replacing stock used up in production is not taken into account in calculating profits for tax purposes. The company is therefore paying tax on stock appreciation, tax which it sometimes cannot find.

Further, for tax purposes depreciation is allowed only on the historic cost of machinery. The taxation system does not recognise the difference in value [end p5] between the pounds of today and those of yesterday. The question was considered extensively by the 1955 Royal Commission on the Taxation of Profits and Income, of which Lord Radcliffe was Chairman. [Manuscript addition by MT] Still the best exposition of fundamental tax principles. In the days when he was at school children were taught to speak and write English. [Typescript resumes] At that time the rate of inflation was about 4%; per annum, (later it was less), and the Commission recommended against a system of adjusting figures computed on historic cost principles to take into account changes in the value of money.

Since then the rate of inflation has accelerated and is still accelerating. The Sandilands Committee is reconsidering the matter, but to most of us it is obvious that matters cannot be left much longer.

There have been various learned dissertations in the daily papers about when is a profit a profit. All seem to have agreed

(1) That the cash flow problems are now urgent and some interim action must be taken, and

(2) That in the light of the problems industry was already experiencing last March, that Budget was no time to have increased corporation tax. [end p6]

Last year industry paid £2,245 million in corporation tax. This year the estimate is £3,265 million. There have been various comments in Parliament that industry is asking for money. The reality is that if the government hadn't taken so much out, it wouldn't need to put so much back in.

As Lord Bowden also said:

“Ministers blandly assert that they are subsidising industry, but our national wealth comes directly or indirectly from industry. All a Government can do is to redistribute it and give some of it back to the industry from which they took it. It is playing with words to describe such an operation as a subsidy. In fact the Government seem to be trying to force feed industry at the same time as they are bleeding it to death. One particular firm which had paid nearly £60 millions in corporation tax was given £2 millions back as a subsidy—and told that it had become dependent on Government aid. The fact that the Government was dependent on the firm was never mentioned by Ministers.”

The fact is that we owe in large measure the increase in both individual and collective prosperity since the War to the private enterprise system.

And yet it has come under constant political attack. Our political opponents, whether they are in Government or Opposition, never cease to preach their beliefs about the economy, and the case for more state control, while we have too often assumed the case for private enterprise instead of arguing it. [end p7]

They have discredited profits and the profit motive. We must defend them, for without a good profit, there is neither the money to invest from internal sources, nor the performance necessary to raise fresh capital for expansion, nor the resources properly to look after the pensions of the large numbers of our people who draw their income from superannuation funds. [end p8] Manuscript addition by MT

Note—net of stock appreciation the share of profits in total domestic income has fallen from 15%; in the 50's to 13.5%; in the 60's to below 10%; in the 70's. Typescript resumes

They have become obsessed with how we can distribute what we already have, instead of how we can produce more. The result will be that all of us will finish up with less. Manuscript addition by MT

Redistribution of Wealth

If you were to redistribute all the income in excess of £5,000—year this would amount to less than £1 per week per head for the rest Typescript resumes [end p9]

They have preached (but not always practised!) equality but we know that those societies which place equality at the top of their national list of priorities are invariably the least equal and the least free. They prefer ideological purity to helping people to do better for themselves. Beginning of section checked against BBC Radio News Report 1300 7 November 1974

Our opponents talk about us taking industry for the community. But if an enterprise is flourishing, the people who work there, the customers, the shareholders, the pensioners and the suppliers are all flourishing, and who are they but the community?

They talk about accountability, but surely Marks and Spencer and others are just as accountable to the public as British Railways—and they put tax in instead of taking subsidies out. End of section checked against BBC Radio News Report 1300 7 November 1974 [end p10] Manuscript addition by MT

Nationalised Industries & P.E.

During the last 10 years the profits of private enterprise in the UK (after deducting all govt. assistance totalling £6,000m) amounted to £28,000m.

During the same period the total profits of nationalised industries have been £294m.—without taking £4,000m by way of subsidies & debt write-off into account. Typescript resumes [end p11]

The alternative of extensive state control—quite apart from being philosophically objectionable—would lead to massive administrative problems. It would not be possible for a Minister to make all the decisions, so they would be bogged down for days, months and years within departments. Whitehall does not constitute the most dynamic decision-making process. And who is more likely to know what people want? A Minister and his staff in Whitehall, or the public who make their choice daily by their purchases? And who is more likely to be able to supply those needs quickly—the people who have been in day to day touch with industry and the market for years, or those who operate in Government offices and who have neither the training nor the experience to take the requisite decisions? There must be some means in society of allocating resources. No Transport House policy group, no committee of enquiry, no Royal Commission, has ever found anything better in practice than the market mechanism.

But there is another reason for furthering the case for a large private sector. Economic power is the most effective foundation for political power. If political power is to be widely diffused, so must be economic power—i.e. the power to make economic decisions. “It is a happy accident that the decentralisation of economic decisions that market efficiency calls for has this salutary by-product, the diffusion of power. And there is no more important requisite for a system of economic organisation than this: that it be conducive to political democracy and individual freedom.” (Robert Dorfman). [end p12]

The economic well-being and standard of living of the country depend largely on the performance of the private sector, The people know its value, even if politicians don't. A survey commissioned by Aims of Industry and carried out by National Opinion Polls, published on 13th September, found that most people would prefer to work for a private company rather than a nationalised industry. Only 12%; of those now working for a private company would favour it being taken over by the State.

Rab Butler, when he was Chancellor of the Exchequer, in his second Budget gave two tax incentives simultaneously—one to companies to encourage profits and therefore investment and the other to earned income because industry was ‘a living structure of human beings’ who must be able to see proper reward for their efforts. I hope that within the coming few years, with or without legislation companies will do everything possible to ensure that employees at every level feel themselves a part of the company, and identify with its success. (Key to success is communication.) Some companies have already made excellent progress in this direction, not because they have been pushed by politicians, but because it is good for the company, its people, and therefore for the country. [end p13]

The outstanding economic problem of today is inflation. There is a greater degree of uncertainty and fear about the economic future than at any time during my political life, which started at university 30 years ago. At that time neither economists nor politicians were contemplating serious inflation as a probability, although it was always there as a possibility. Indeed warnings are given about it in the 1944 White Paper on Employment Policy—warnings that were astonishingly accurate and prophetic:

“Stability of wages and stability of prices are inextricably connected …   . Thus, the stability of these two elements is a condition vital to the success of employment policy; and that condition can be realised only by the joint efforts of the Government, employers and organised labour.”

“Workers must examine their trade practices and customs to ensure that they do not constitute a serious impediment to an expansionist economy and so defeat the object of a full employment programme.”

“It would be a disaster if the intention of the Government to maintain total expenditure were interpreted as exonerating the citizen from the duty of fending for himself and resulted in a weakening of personal enterprise.”

Since then, there have been five post-War trade cycles, each with similar features. Expansion of demand [end p14] leading to increased employment → inflation → balance of payments problems → deflation, and finally a measure of unemployment. But we know from experience, and the story is told in the figures that in the last four cases each successive cycle has resulted in higher inflation at the top, and yet higher unemployment at the bottom of the cycle. This is in spite of the incomes policies which have been a feature of the last three cycles. This year the annual rate of price increases measured by the Retail Price Index is 17%;, but taking into account the consumer subsidies and the fact that the present price code will not allow industry to recover its costs so as to provide enough working capital and investment, the true rate of inflation is of course higher, probably well over 20%;. In past days we said that a little inflation was the price of full employment. These days we know that accelerating inflation is the cause of unemployment. This is because increased costs of raw materials, wages, bills overheads, price goods out of the market with serious consequences for the future of the company and the men and women whose livelihood depend upon it. And there are no “two sides” to an industry when it folds up.

The tragedy affects everyone, whether wage earners, salary earners, shareholders, pensioners, suppliers, creditors, or customers; all are losers. [end p15] Manuscript addition by MT

I cannot resist asking why, if co-operation is best for the success of incomes policy, why is it not also best for industrial policy? Why co-operation for one but coercion for the other? Typescript resumes [end p16]

The 1944 White Paper pointed out in advance the truth that we have now learned from the years of experience:

“For employment cannot be created by Act of Parliament or by Government action alone …   . the success of the policy …   . will ultimately depend on the understanding and support of the community as a whole—and especially on the efforts of employers and workers in industry” .

Today, if employment prospects are to be preserved, we require

(i) Government through the budget to take financial measures to safeguard British industry which provides the major share of jobs, and

(ii) Co-operation to keep wage claims within limits. It is in all our interests that this co-operation should succeed. Otherwise the prospects for employment would be that much more difficult.

Mr Chairman, I understand that this body is politically impartial. I hope I have made it clear that I am partial! [end p17] Manuscript addition by MT

I believe in a market economy in a free society with a social conscience. And not for me resignation from public life if things do not go my way. I stay and fight. Typescript resumes:

The issue is personal ownership and responsibility versus increased dependence on the State.

I can do no better than conclude with a warning given by Sir Winston Churchill some 31 years ago on March 21st, 1943 when in a broadcast to the nation he referred briefly but pertinently to the sort of society we wanted to build after the war. This is what he said:

“We must beware of trying to build a society in which nobody counts for anything except a politician or an official, a society where enterprise gains no reward and thrift no privileges. Human beings are endowed with infinitely varying qualities and dispositions and each one is different from the other. We cannot make them all the same. It would be a pretty dull world if we did.”