My Lord Mayor, my late Lord Mayor, Your Excellencies, My Lords, Aldermen and Sheriffs, Ladies and Gentlemen:
May I begin, Lord Mayor, by offering you and the Lady Mayoress my warmest congratulations on your election to your important office. It would be difficult to imagine anyone better qualified. The only blemish on your record that I can see is that you chose, twice, to run for Parliament on behalf of one of the other Parties. But on each occasion you were courteous enough to allow the Tory candidate to pass the post ahead of you. So your offence was not a grievous one. [end p1]
My Lord Mayor, you referred in your speech to the U-turn made by the legendary Dick Whittington. But what I remember about the real Dick Whittington was that, having made a large fortune in the private sector, he made substantial loans to Henry IV and Henry V. Even then the Government looked to the City to finance its borrowing. Some things seldom change.
I was also glad, My Lord Mayor, that you mentioned Benjamin Disraeli. In tackling a great crisis of his day, he wrote that he “had to prepare the mind of the country for Reform … and to educate our Party” . As always, he remains topical. [Manuscript note by MT](The other party that needs ‘educating’. Long and happy life as Leader of the Opposition.)
Foreign Affairs: Retrospect
My Lord Mayor, I spoke here last year of three immediate challenges which then faced Her Majesty's Government overseas:- Rhodesia; the unfairness of our contribution to the European Community's Budget; [end p2] and the need to strengthen the Alliance. On the first two I think we may claim to have scored “bullseyes” —if I may use a metaphor of which you, Lord Mayor, as a military man will approve. On the third, where crucial decisions have been taken on the deployment of Cruise missiles and the acquisition of Trident, at least an “inner” .
These three achievements were of great significance. The first has created the possibility of a peaceful evolution in Southern Africa (the news from Zimbabwe today has been depressing but we must keep it in perspective); the second has opened up the prospect of a stronger and more soundly-based Community in Europe; and the third has given renewed confidence in NATO. [end p3]
On this last point, let me say how much I welcome what Governor Reagan has said about the need for a confident and powerful Alliance. Governor Reagan 's has been a remarkable triumph. The determination he has shown in his campaign; the straightforward way in which he has enunciated his policies; the quality of the team he has assembled around him—all these augur well for the future. I greatly look forward to working with him.
Foreign Affairs: The Outlook
Governor Reagan 's victory, like the successes of Britain's overseas policy in the last year, leaves us, I believe, in good shape to cope with the storms that lie ahead. I do not suppose that anyone here harbours illusions about the international prospects for the next few years. The barometer is falling. [end p4]
There have been periods in history—the Guildhall always encourages one to set events in their historical context—when power and influence in international life have been concentrated in the hands of a very few. Such times have often been relatively stable. A system with a limited number of players evolves its own checks and balances. The international bully tends then to find himself faced by what Edmund Burke would have called an “association” For much of the 19th century this was the case. Despite a number of tragic regional conflicts, so it has been again for much of the period since the Second World War.
But we are now in a much more uncertain era. Gone are the days when there were only two significant groupings: the West, led by the United States, and the Soviet bloc. International authority has fragmented. More and more countries are in a position to put world peace at risk. [end p5] In the long run, Governments everywhere may perhaps learn the necessity for restraint and for the reasoned settlement of disputes. But our own experience in Europe before 1945 has shown that these lessons do not come readily. In the short-run we face a time of troubles.
Statesmen today conduct policy in a world of accelerating change and ceaseless conflict; a shrinking world in which every international problem seems to interact with every other. The international community today includes states varying in age from centuries to a few months; in populations from a few thousand souls to 1000 million. It includes peoples who are striving to become nations and states which comprise rival peoples. And it includes nations for whom the acquisition of military and economic power has proved an intoxicating and unbalancing experience. [end p6]
All this means that political upheavals and military clashes will continue to occur in critical parts of the world frequently and without warning.
And in the background lurks the scourge of international terrorism. There are people exercising power in a few countries and leading political factions in others who seem to be moved by narrow, brutal and irrational impulses. Their view of their own self-interest is so blinkered as to leave no space for purely human values, for peaceful negotiation or for economic advancement. They are bent on the destruction of the established order and of civilised ways of doing business. They must never be allowed to succeed. [end p7]
No single set of ideas or motives can explain the present disorder. Nationalism, ideology, religion, resentment of past wrongs and of present inequities all play a part.
But the Soviet Union, whose Government have chosen to exploit instability to gain influence, also has much to answer for. In the past five years we have seen intervention by Soviet proxies in Angola, Ethiopia, South Yemen and Cambodia. And day by day we are witnessing the direct use of Soviet arms to impose a puppet regime on the brave Afghan people.
It is difficult to believe that the Soviet Government are unconscious of the dangers to which their present policies are exposing the international community. [end p8] But so far they have been content to welcome the opening of Pandora's box and to cheer on the escaped afflictions. It is often claimed—in my view quite wrongly—that the actions of the Soviet Government are essentially defensive. But even if this were the case, it must surely be clear to the Soviet leadership that—to use their own phrase—they are playing with fire. Let us hope they will think again. Let us in particular have no more interventions. In the 1980s responsible policies will be at a premium. Evidence of a willingness to pursue such policies will not go unheeded. After all, at the bottom of Pandora's box was hope. [end p9]
The Policy of the West
For our part we in the West must do everything we can to promote peaceful as opposed to violent change, evolution as opposed to revolution. If we succeed, we will reduce the risks of interference by-and therefore of confrontation between-the great powers. Francis Bacon once said that “opportunity makes a thief” . That has been all too true in international affairs of late. I want to see the temptation reduced.
And there are a number of things that we can do, together with our partners in the European Community, in NATO and with our friends elsewhere:
Together we must make a greater effort to co-operate closely in dealing with present problems; in trying to foresee future troubles; and in preparing our response. [end p10] If we simply wait until things happen, we shall be too late; with our Allies we must develop the ability to assist our friends when they are threatened. We must be seen to be reliable partners when help is needed; we must help to solve regional problems like those in Southern Africa, the Middle East and South West Asia. Some of these trouble spots have been with us for so long that we are in danger of thinking we can live with them. We can't. The future of the West is involved. If they explode, we shall suffer; we must work together to strengthen key countries in the Third World. There are obvious examples in South East Asia, the Middle East, Africa and Latin America; [end p11]
And we must continue to help the less well-off countries to develop their own resources and to raise their standard of living. Poverty wherever it exists is an enemy of stability.
Relations with the Developing World
Contrary to what has been suggested, the Government is fully alive to the importance of this country's relations with the developing world. We are well aware of the human, economic and strategic reasons for helping the poorer nations. And we are acting on these reasons—acting more effectively than many others. For example: The total flow of finance, public and private, from this country to the developing world is second only to that of the United States. [end p12] This reflects not only the policy of the Government but the skill, activity and resource of firms and banks here in the City; Second, this flow has grown far more rapidly than that of any other industrialised country over the last ten years; Third, our official aid programme is the fifth largest among industrialised countries and larger as a proportion of our GNP than for instance those of the United States, Germany or Japan. Moreover, unlike some of our partners, we give as much as two-thirds of our aid to the poorest countries.
We have had to make some reduction in plans for future spending on official aid. This is not because we under-estimate its importance. [end p13] It is because we believe that unless we restore a healthy national economy we shall be in no position to give aid to anyone.
Our policy towards the developing world is founded in reality. The international community as a whole would do well to found its policies on reality rather than on rhetoric.
I have concentrated so far on a few major aspects of our foreign policy. They are areas where Britain is particularly qualified, by tradition and experience, to give a lead. Her Majesty's Government intend to go on doing so. [end p14]
Lord Mayor, the world also has serious economic problems. Recession has hit the industries of many countries—the United States, France, Italy, even Germany.
It has hit Britain at a time when years of low profits, of wage increases unmatched by productivity, of restrictive practices which denied a proper return on investment, have left firms ill-fitted to face hard times.
Manufacturing industry is having to adjust faster than ever before to changed economic conditions. [end p15] It is having to do so because of the high level of sterling, because of high pay settlements particularly in the last two pay rounds, and because of trading conditions throughout the world. Many companies are managing to make the adjustment by drastic improvements in efficiency and by more realistic pay settlements. Others are finding it very difficult.
What, then, can Government do to help?
We cannot alleviate the recession in world trade. We have only a very limited influence on the exchange rate, whose strength is fundamentally the result of North Sea oil. Government cannot recover for industry the loss of competitiveness caused by excessive pay settlements in the past. [end p16]
We cannot significantly influence the pace at which industry has to adjust—except by putting at risk the conquest of inflation. And that we must not do. Our policies to reduce inflation are succeeding, and they must be continued.
We can, however, make it easier for industry to adjust. First, we must control public sector borrowing, so that interest rates can fall. The high level of borrowing by Government and nationalised industries so far this year has been a major cause of interest rates staying as high as they are. [end p17]
Second, the relentless growth of the public sector has put a crushing burden on the private wealth-creating sector. We must therefore contain the cost of the public sector, and in particular, its largest component—pay. As well as being important in its own right, this will make it easier for the private sector to settle at realistic levels.
When we came to office we found that those who worked in the public services felt that they had had a raw deal from the effect of successive incomes policies. The pay awards made in the last eighteen months have, I believe, put that right, and are an earnest of this Government's regard for those who work in the public services. Public service employees have had increases substantially in excess of the private sector—between the spring of 1979 and the spring of 1980, almost 29 per cent, compared with rather less than 21 per cent in the private sector. [end p18]
Against that background and the difficulties being experienced by industry we had to consider how much to provide for pay in the Government grant to local authorities for next year. We decided that a 6 per cent increase was all that could be afforded at the present time. That is more than many in the private sector will have. Some in industry will get nothing at all. Some are on short time and have already taken a fall in pay. How the extra 6 per cent is distributed is for the local authorities to decide. Our job in Government is to decide how much those outside the public service can afford to pay for those in the public service. [end p19]
The decision was taken as part of our expenditure policy. Ironically and wrongly, it has been dubbed an incomes policy. It is not; unless you call an incomes policy a policy for living within the nation's income—an ideal which is much older than Milton Friedman. We are taking the same kind of decision as has to be taken by any responsible employer in private industry. [end p20]
I am not declaring war on the unions or their leaders. But I am challenging their illusion that Government can be a universal provider. The fact is that if the public sector unions take more it will mean less for those who work in the private sector.
Moreover, after two years in which real earnings have gone up sharply while output has actually dropped, we now have no alternative but to accept a reduction in the country's standard of living if investment and employment are to recover.
The City too can help the adjustment in industry. You can help by showing confidence in basically sound established companies—confidence that they will see their way through the current recession. And, in the true tradition of the City which helped generations of merchant venturers in the past, by seeing that finance is available today for the new firms which will have to fill the gap left by our declining industries. [end p21]
I would hope that those who gain from high interest rates will use their fortuitously high profits for this purpose; and take care to avoid leaving those who work in industry with the feeling that those who work in the financial institutions are benefiting from their misfortune. I believe that we are entitled to look to the City for that kind of leadership.
This is the sixth squeeze since the War. Previously, when each one came to an end, we returned to our old habits. From one cycle to the next, inflation and unemployment and interest rates grew inexorably The welcome change of attitudes which we are seeing now must outlast the circumstances of today.
When expansion comes, it will be just as important to match pay to productivity as it is now during the recession. The new leadership being shown by management, the new realism being shown by workforces, must continue. [end p22] If our own industries do not become more efficient and produce the products that people want, other nations' industries will. They will get our business and our jobs.
My Lord Mayor, we have not come this far to go that way. If we did not care about the future of Britain, how much more popular this Government could make itself in the short run! It is because we do care that we pursue our policies, and refuse to reflate the economy to give some temporary relief. The worst betrayal the British people could suffer at the hands of this Government would be for us to seek a little more popularity now by sacrificing all hope of future stability and prosperity. That is not our way.
The prize of long-term success is within our reach. This Government will continue to pursue policies which will bring it within our grasp.