Speeches, etc.

Margaret Thatcher

HC S: [Economic Censure]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [9/828-38]
Editorial comments:
Importance ranking: Key
Word count: 5343
Themes: Conservatism, Economic policy - theory and process, Education, Secondary education, Higher & further education, Employment, Industry, Monetary policy, Privatized & state industries, Pay, Public spending & borrowing, Taxation, Trade, Health policy, Labour Party & socialism, Law & order, Social security & welfare, Voluntary sector & charity
[column 828]

The Prime Minister (Mrs. Margaret Thatcher)

The right hon. Member for Ebbw Vale (Mr. Foot) made what for him is an unusual speech, but he is no more credible when he makes a serious speech than when he makes one that is more lighthearted. Certainly he has mastered a veritable battery of statistics. Indeed, he seemed to make up for the absence of those statistics in every previous speech in history. However, he did not enunciate one policy that would tackle unemployment at its roots, that would have reduced overmanning or enabled the nation to become more competitive, which we must do if we are to get more jobs.

The right hon. Gentleman gave a battery of statistics over the first two years. Has he forgotten his own two years in office, when from March 1974 it took just over two years to be on the way to the IMF because his Government did not have the guts to follow the right policy to put things right? He mentioned places like Linwood. I was a member of the Government who sent the factory to Linwood with the best of intentions and with all of the possible regional aids. The factory which went to Linwood made a loss in 18 out of the 19 years of its existence. In all honesty, that could not go on.

The right hon. Gentleman referred to the tragedies at Consett and Corby. He was a member of the Government who put off steel closures that should have been dealt with years before. His Government refused to face reality in the steel industry. He said that his Government sustained the number of people in jobs. Is he suggesting that steel would have a better future or that British Leyland would have a better future if we put back all those people who have been [column 829]made redundant? They would have had no future at all. Nor would productivity ever have risen. Indeed, all prospect of future jobs would have disappeared for ever.

The right hon. Gentleman referred to the world recession, saying that we did not seem to know that there was one when we came back to power. In fact, the world recession started with a sharp increase in oil prices. [Interruption.] There were two world recessions. One was in 1974, when perhaps the right hon. Gentleman will remember that there was a sharp increase in oil prices, followed by a considerable reduction in real oil prices for the greater part of the lifetime of his Government. Another extremely sharp increase in oil prices took place when OPEC was sitting, when we were at the first economic summit in Tokyo. That was the beginning of the second world recession, and since then oil prices have risen by over 100 per cent.

There is a world recession, but the fact is that the countries which were most efficient and did not have overmanning and the Governments which faced realistically the problems before 1979 rode the world recessions better. Those countries were Germany, France and Japan and all the countries which followed the very policies which the right hon. Gentleman's Government rejected and which we are trying to follow today.

The right hon. Gentleman referred to the TUC policy document and to his policies. They seem to amount to spend more, tax less, meet the difference by printing and call it reflation. If anything like those proposals were adopted, the pound would plunge and inflation and interest rates would rocket. It is no use pretending that reimposing exchange controls would help. There were exchange controls in 1976, yet the pound plunged. If the pound plunges with consequent increases in interest rates and inflationary expectations, bang will go all our hopes for more jobs. That will be the effect of the right hon. Gentleman's policies.

The right hon. Gentleman argued for a policy of massive reflation. [Hon. Members: “That is right.” ] I am glad that there is no doubt about what the right hon. Gentleman argued for. He is arguing for a policy of massive reflation. Those who support him do so on the basis that there is a grave shortage of demand. In other words, they claim that there is a shortage of money in the economy. They argue that, as in the 1930s, the right way forward is to increase demand by a policy of reflation.

That analysis contains a simple and fundamental fallacy. There just is not a shortage of demand at the present time. Let us look, for example, at the market for cars. Demand exists this year for 1.4 million cars, but fewer than 700,000 will be supplied by British workers. That is not a failure of the Government to create demand. It is a failure of competitiveness in the factory to supply the goods.

This year my right hon. and learned Friend Sir Geoffrey Howethe Chancellor of the Exchequer has provided for an increase in the money supply of about 8 per cent. This should translate into extra demand of about £15 billion. In the 1930s the situation was totally different. Prices were actually falling. There was indeed then a shortage of demand. As Lord Robbins suggested in another place last Friday, a policy of reflation would have been right then, but it would be quite wrong in the very different circumstances of today.

An increase in the money supply of the amount that I have indicated can go either into real growth or into price [column 830]and pay increases. If there were no such increases the growth in money supply that we are allowing for would permit 8 per cent. extra output. If pay and price increases are modest there will still be room for some growth and for some new jobs.

Our task, therefore, must be to divert the increase of money supply away from price and wage increases and into growth and more jobs. All the evidence of the past 20 years suggests that to apply a dose of further general reflation now, when the money supply is rising as it is, would be to create accelerating inflation, leading inevitably to still higher unemployment.

Between 1970 and 1980, expenditure in money terms grew by 340 per cent., but only 16 per cent. of it went into output. If we were to have a massive reflation now, more money would go, not into rising growth but into rising prices and ultimately into a falling number of jobs.

Therefore, the right hon. Gentleman's call for reflation bears no relation whatever to the basic problem of the British economy which he has always refused to face—lack of competitiveness. Governments cannot spend their way to prescribed targets for output and employment. At a time of inflation, that cannot work. By pumping more money in, the right hon. Gentleman would stimulate inflation once again. All the efforts that have been made over the past two years to bring about a new sense of realism will have been wasted.

Our policies are addressed to the root causes of the uncompetitive economy that we inherited in 1979. The first step to a stronger economy is to get inflation down. That is not a minority doctrinal obsession, pursued blindly for its own sake. It is a necessary precondition for our economic recovery.

My right hon. Friends and I sometimes remind Opposition Members of the things that they said when they were in power about the importance of controlling inflation. But I wonder how many of them realise the extent to which that belief is so widely shared today, both nationally and internationally, that it is those who think otherwise who are now a tiny minority obsessed with doctrinal delusions. I remind the House, for instance, of the following passage:

“We must continue to reduce inflation if we are to secure the higher investment and sustainable growth on which the durable recovery of employment depends.”

I could not have put it better myself. That passage is the centrepiece of the communiqué issued at the conclusion of the Ottawa summit last week. It was unanimously agreed, not just by broadly Conservative Administrations but by President Mitterrand and Chancellor Schmidt, who head broadly Socialist Administrations.

Inflation is the cause of unemployment, not an alternative to it. In case there are any doubters on the Opposition Benches, I remind hon. Members of another passage:

“Our most urgent task is to create more jobs while continuing to reduce inflation. Inflation does not reduce unemployment. On the contrary, it is one of its major causes.”

That is an extract from the communiqué of the Downing Street economic summit in 1977, when unemployment under the Labour Government was at its peak, after the Labour Government had been rescued by the IMF.

The defeat of inflation is a necessary but not a sufficient condition for recovery. Therefore, we have taken further steps to lay the foundation for the growth of profitable enterprise. To remove long-standing obstacles, we have [column 831]swept away controls and regulations on a large scale—including wage, price, dividend and exchange controls.

To provide incentives and to help industry, we have lowered the basic rate of income tax from 33 per cent. to 30 per cent. and made even bigger reductions in the higher marginal rates, which had reached absurd levels under the Labour Government. We have started to provide the small business sector with a more encouraging capital tax regime. We have vastly improved the arrangements for stock relief. We have also introduced substantial incentives for new businesses, including in particular a business start-up scheme more generous and better than that in any other country.

We have created a number of enterprise zones, the first three of which are already in operation—at Swansea, Corby and Dudley. Five more will be in operation by the end of August.

There are calls for a programme of investment-led growth, but many forget the vast resources which the Government are already providing as direct help to private sector industry, largely under the Industry Act and mostly in assisted areas. This year that will amount to over £1 billion. Twice as much as that is being provided to public sector industries such as British Leyland and the British Steel Corporation. This is not to enable them to carry on as they were but to help them to carry out the necessary radical restructuring, so that they, too, can contribute eventually to the recovery.

All that is being done to lay the foundations for the future of private enterprise and to make public enterprise profitable. In addition, to reduce inflation is our top priority.

I also believe that it is essential that as many young people as possible should be given training and practical experience in the use of new technologies which will form the basis of so many new jobs. Over the last few months we have been discussing with industry ways in which such practical experience can be provided.

We have pioneered a scheme in Notting Hill for a technology centre providing computer and electronic training for young people. I am glad to be able to announce, following the success of that centre, that we have now approved a programme with, as a first target, 20 information technology centres concentrated in our towns and inner cities where young unemployed people will be trained in computing and electronic assembly skills, because that is where the future genuine jobs lie.

Inflation has been checked. These measures are all now in place laying the foundations for the future prosperity of private and public enterprise. Of course, they will take time fully to work through, but already we are seeing signs of success, and I propose to refer to some of them. The rates of increase of wholesale prices, of retail prices, of unit labour costs and of average earnings have all fallen substantially. In most cases, pay settlements have adjusted quickly to the ability of the employer to pay.

The rate of increase in unemployment has been declining steadily over the past few months. On a seasonally adjusted basis, the July increase in unemployment was the smallest since December 1979, and vacancies notified in July rose for the first time in six months and showed the largest increase for more than two years. [column 832]

Order books in many industries are filling up again. Orders received in the first quarter of this year by British engineering industries alone were worth nearly 25 per cent. more in real terms than those received in the last quarter of 1980. That is good news, though I notice that Opposition Members do not cheer. There are many encouraging signs of substantially improved productivity in manufacturing industry. The Bank of England quarterly bulletin records a 2½ per cent. improvement in productivity in the first quarter of this year compared with the first quarter of last year. As the Leader of the Opposition is so devoted to the Financial Times, I was glad to see its industrial editor also describing in an article last Friday the

“considerable gains in British productivity” .

These productivity gains are not in just a few small and little-known firms. They have also been achieved in our major vehicle industries, in steel, in engineering and in chemicals. I shall give a few examples. Plessey, in Liverpool, is almost doubling its sales per employee over three years, and plans to more than double them again by 1990. Thorn EMI, in Manchester, is achieving productivity gains of at least 8 per cent. Talbot, in Coventry, has achieved a 40 per cent. improvement in productivity over the past two years. Neptune Glenfield Ltd., in Kilmarnock, has achieved an improvement of 30 per cent., and a vice-president of Ford Europe, referring to Britain, has said that

“middle management has switched from despair to enthusiasm to a degree that I cannot fault.”

Those are practical achievements in productivity which will bring prosperity to the country, and they would not have taken place but for the policies pursued by this Government. Nor should we get improvements in our industry unless management was beginning, once again, to manage with the help of the policies we have pursued.

We continue to be a very successful trading nation. Our exports are worth 33 per cent. of GDP, a higher proportion than in any other industrial country. A sustained and favourable balance in overseas trade has been maintained in chemicals, mechanical engineering and building materials, and outstanding export performances have been recorded by such diverse industries as mining machinery, industrial engines and wallpaper.

Mr. Eric S. Heffer (Liverpool, Walton)

The right hon. Lady referred to Liverpool. If the present rate of progress is so marvellous, will she explain why we continue to have wholesale redundancies and the closure of factories, about one of which I have been to see the Minister this morning? If her policy is proving to be so successful, can she explain the massive increase in unemployment in the Merseyside area in the last decade?

The Prime Minister

The hon. Gentleman knows full well that those industries which have taken steps to put themselves in a competitive position are the industries which are our hope for more jobs in the future. The ones which I am enumerating have taken such steps, and I should have thought that the hon. Gentleman would hope that more industries would do that. Yes, there will be some continued redundancies. They reflect years and years of overmanning, which Labour Governments refused to tackle. Unless they are tackled, there is no hope for rising prosperity. The last Labour Government ducked it. We are tackling it, and therein lies hope for the future.

More than that, new enterprises are being formed. This week, The Economist confirms that entrepreneurs with [column 833]marketable ideas are coming forward in large numbers and finding private sector finance to develop them. Only last month the Government introduced their own loan guarantee scheme to help small businesses. Already, within a month, 180 loans have been guaranteed, many of them to new firms.

As for investment, contrary to what is usually thought, the level of investment in plant and machinery, which is most closely connected to productivity, has shown a dramatic rise compared with 1975 and 1978. In fact, the rise compared with 1975 is of the order of 30 per cent. This is investment for the future, investment which will give increased productivity, and investment which will enable Britain to compete.

We are also attracting major new foreign investment. For example, Hewlett Packard, of California, announced a few days ago its plan for a second manufacturing base in the United Kingdom because, it said, we now had

“the best combination of financial market and infrastructure provisions”

for its project. Large new investments in South Wales were announced recently by a Canadian telecommunications company and a Japanese television company. These are signs of success which are working through already. Of course, the Opposition do not like them. They are signs that the policy is working even in advance of an upturn in the world economy. This is the kind of output and production which will bring about the very expansion and the very increase in genuine jobs which the Government desire.

Governments alone do not make economic recoveries; individuals and companies do. What the Government can do is to ensure that provisions are such that companies can take advantage of the expansion as it comes. We would not have been able to do so unless the Government had tackled our problems at their roots. The examples which I have quoted show that the benefits of that approach are starting to come through.

The Opposition motion refers to the Government's social policies, and the Leader of the Opposition referred briefly to the recent disturbances and to the social policy. I intend to say a word about both in rather more detail than the right hon. Gentleman referred to them. There are two points which I want to make about the disturbances. First, many explanations have been offered about why they happened. Today is not the time to attempt a detailed analysis of the causes. We must await Lord Scarman 's report. All that I would say now is that the causes appear manifold and complex. The disturbances do not all seem to have had the same origins.

It is worth pointing out, too, that disorders of this kind are not unique to Britain in Western Europe. They have occurred in recent weeks in Switzerland, Holland and West Berlin—again, as far as one can judge, all for different reasons.

The second point about the disturbances is what our immediate response should be. The Government's has been twofold. First, we have given full support to the police in their task of maintaining law and order. Secondly, faced with disturbances on that scale, it is plainly right for the Government to take a fresh look at the problem of the inner cities, and in particular to see whether the large sums of money already being spent on them are being used in the best way. That is why my right hon. Friend Michael Heseltinethe Secretary of State for the Environment is in Liverpool now. [column 834]

I believe that the public generally regards the Government's balanced reaction of determination to maintain law and order, and a readiness to look constructively at the underlying problems, as the right response.

The right hon. Gentleman referred to the Government's social policies. Already, everybody is familiar with the priority that we have given to law and order and, as he mentioned, defence. However, few realise that we have also singled out spending on the National Health Service as a major priority. We are now spending more in real terms than in any year under the Labour Government. We are spending £13.3 billion in 1981–82. Since March 1979 the Health Service has taken on 1,000 more doctors and dentists. Waiting lists have been cut by more than 100,000. Retirement pensions for a growing number of pensioners have had their value maintained in relation to prices at a cost of £4.4 billion more this year compared with 1978–79. No wonder the right hon. Gentleman did not spend long on that subject.

On the question of education, the teacher-pupil ratios in our schools are now at a better level than they have ever been—[Interruption.] Opposition Members do not like that because it proves that, in spite of everything—especially the difficulties of a world recession—we are doing better than they did when they were in power. How they hate that.

Those are only a few examples of the policies of the Government of ensuring that priority is given to looking after the elderly, the young and the sick—those least able to look after themselves.

I have outlined the Government's long-term strategy for solving our long-standing problems. During the transition we have to redouble our efforts to ease the burden of hardship caused by unemployment. We are already helping the unemployed by means of the present special employment measures. They currently help more than 800,000 people, at a cost of £1 billion this year. We intend to develop those programmes—not only to help people through a difficult time, but to do so wherever possible in a way that will provide lasting benefit to the economy. We must do that both for young people, and for some of those who are older but are without jobs.

I shall begin by setting out our proposals to help young people. First, there is evidence from many areas of an increase in applications to stay on in school or college. It is good when young people choose to follow educational courses, many of a vocational nature, in many cases to obtain qualifications that will help them to obtain and to keep jobs. An additional £60 million in 1982–83 will be provided for that purpose. As a result, we hope that as many as 50,000 more young people will stay on in school or college.

Secondly, we are providing an additional £10 million this year and £11 million next year for the support of longer-term skill training of young people. That was announced last week. Thirdly, we must continue to provide for those who leave school but fail to find work. I reaffirm the undertakings announced by my right hon. Friend James Priorthe Secretary of State for Employment last November, namely, that all unemployed school leavers should this year be offered a place on the youth opportunities programme by Christmas, and that we should try this year to offer a place within three months to other youngsters who have been employed for three months. Those objectives will require an additional [column 835]110,000 places on the youth opportunities programme this year above the 440,000 originally planned. My right hon. Friend informed the Manpower Services Commission today that the necessary resources will be provided.

I am aware that there have been criticisms of the youth opportunities programme, not least from some of the young people who have taken part in it. Indeed, my right hon. Friend Michael Heseltinethe Secretary of State for the Environment already heard some of them from the young people of Liverpool. They felt that the work they were being asked to undertake was of a cosmetic nature, whereas they wanted positively to work for a business or to feel they were receiving effective training.

Thirdly, although I believe that, in terms of the demands made upon it, the youth opportunities programme has done a very good job indeed, we must now look at it more closely to ensure that the experience provided is satisfying to the youngsters themselves, and that it gives the community, which provides the resources, the best possible value for money.

We are, therefore, not only looking at the programme to see how it can be improved; we are giving further consideration to the provision of a better training scheme for the young that will eventually replace the existing programme. Our aim is to reach the position where all young people, on leaving school, move into further education, find a job or are given the chance of vocational training or community service. We want to help the individual and to strengthen our economy by having a better trained work force. A statement will, of course, be made when, after consultations, we have reached our conclusions. In the meantime, I confirm that the existing guarantees under the youth opportunities programme will be honoured next year as well as this year, and that we shall continue to improve the quality of the programme.

Mr. Alexander W. Lyon (York)

Is not the assurance that the Prime Minister has given the same assurance that the Secretary of State has given on two previous occasions when he said that the position was deteriorating and that the Government were earnestly looking, at that moment, at the very issue that she is now announcing? Consultations have been taking place for the past 18 months. All that we needed was a decision—a decision that the Cabinet has now funked.

The Prime Minister

Consultations have not been taking place for 18 months. A document was issued called “A New Training Initiative” . The hon. Gentleman is correct to say that we have given assurances that the guarantees will be honoured. We are now finding the resources to ensure that they are honoured. Those guarantees are very much better than those given by the Labour Government—both for those who leave school obtaining some sort of work experience by Christmas and for those who have been out of a job for three months having the opportunity to gain some work experience.

Fourthly, the Government believe that more needs to be done to help school leavers into jobs. Because the wages of young people are often too high in relation to those of experienced adults, employers cannot afford to take them on—even though it is clear that many employers want to help. That situation has come about because of unrealistic pay bargaining over the years. It contrasts vividly with the situation in Germany, where the wages of [column 836]young people are much lower relative to those of adults and where, consequently, there is less youth unemployment.

In future, if we are to get more jobs for young people, which is what the Government want, trade unions and employers will have to take this factor into account in their bargaining. The Government have decided to provide some encouragement to employers to take on more young people at realistic wage levels. We propose to introduce a new scheme under which employers will be offered a weekly payment of £15 for all young employees under the age of 18 provided they are in their first year of work and provided their earnings are below £40 per week. Full details of the scheme will be announced shortly with a view to its introduction early in 1982. It is expected to cost about £60 million in a full year.

Fifthly, I turn to the job release scheme. Exceptionally large numbers of people will be reaching normal retirement age in the mid-1980s. By bringing forward that peak of retirement we can release jobs so that they may be taken by people who are at present unemployed. Our fifth proposal, therefore, is to lower the age for the job release scheme until March 1984 from 64 to 63 this November and to 62 from February next year—[Interruption.] This will cost about £150 million in a full year.

Sixthly, as my right hon. Friend Patrick Jenkinthe Secretary of State for Social Services announced last week, those aged 60 and over who are unemployed and have been drawing supplementary benefit for a year or more will from November be able to retire on the higher long-term rate of supplementary benefit. This will cost about £20 million in a full year.

Finally, I believe that we should immediately develop further opportunities for voluntary service for unemployed people of all ages. Our seventh proposal, therefore, is that the Government will provide a further £4 million for the remainder of this year and £8 million in 1982–83 for voluntary work in connection with the community enterprise programme.

There are also opportunities in social service and health where community support for the handicapped and elderly depends on a wide range of voluntary services as well as statutory provision. An additional £4 million will accordingly be available in 1982–83 to expand these activities and the departments concerned will be considering how best to apply this money.

The additional costs of meeting the existing undertakings under the youth opportunities programme are estimated to amount for the rest of 1981–82 to about £90 million. They may approach £350 million to £400 million in 1982–83, but that will depend, among other things, on the impact of the new scheme to encourage employers to take on more young people and of the increased educational expenditure, both of which could lower the costs of the youth opportunities programme. The costs of the other measures are estimated at about £60 million in 1981–82 and at around £320 million in 1982–83. For 1981–82 the extra expenditure will be met from the contingency reserve within the planned total for public expenditure. For 1982–83, it will be taken into account in the forthcoming review of public expenditure.

The figures that I have mentioned are gross costs which will partly be offset by lower expenditure on social security benefits and higher tax receipts and by support [column 837]from the European social fund. The total net cost of fulfilling the YOP undertakings and of the other measures may be of the order of £400 million to £500 million in 1982–83. These extra costs will have to be accommodated within the general framework of the Government's medium term financial strategy.

Mr. Foot

The Opposition welcome any U-turns that are involved in the package. Some of us remember the fierce debates that took place when the then Conservative Opposition were attacking the job release scheme and the proposal to raise the age limit to 64 years. We remember several of the other debates that took place at that time. Some of the proposals represent U-turns by the Government and we congratulate the Government upon them.

The right hon. Lady says that these proposals are subject to consultation. Will there be full consultation with the Manpower Services Commission? Many of us will regard the package as a derisory one to deal with such a major problem.

The Prime Minister

It is my recollection that when the right hon. Gentleman was Secretary of State for Employment he brought down the age for the job release scheme to 62 years. That was one month before the general election. He is not in a position to speak about that. The youth opportunities programme is run by the Manpower Services Commission. Any changes that are made within the programme will be the subject of consultation with the commission. I believe that I made that clear.

Mr. Foot


Mr. Robert Atkins (Preston, North)

This is not Prime Minister's Question Time.

Mr. Foot

We regard the package that the right hon. Lady has presented as being insufficient. Will the consultations with the commission, which really knows something about the problem, involve an increase in the amount that will be supplied instead of sticking rigidly to the figures to which the right hon. Lady has referred, which are insufficient to deal with the problem?

The Prime Minister

I do not think that the right hon. Gentleman knows very much about the youth opportunities programme. The guarantees that have been given are that school leavers who have not found a job will be offered some sort of work experience by Christmas, which is a jolly sight better than that which the right hon. Gentleman offered them. If they have been out of work for three months they will be offered a place on the youth opportunities programme. We are saying that if we are to honour that commitment the number of YOP places will need to be increased. We have made resources available to increase them by 110,000. The guarantees will persist for not only this year but next year, as I made clear. The right hon. Gentleman would have appreciated that had he listened to what I said.

We all feel concern for those who are unemployed, but concern is not enough. Nor is it enough to find means of relieving the effects on individuals of our failure as a nation to compete, although we shall certainly do our part. I have no doubt that the Opposition could also put forward ways similar to the measures I have proposed today. But the difference between us is this, and it is profound: we believe that long-standing problems need long-term solutions. We believe that there is no short cut to full [column 838]employment. The route lies through becoming competitive again. The Opposition believe there is a short cut and that it is called reflation.

That is a road that takes us away from becoming competitive and away from more jobs. It would take us towards hyper-inflation and towards higher unemployment. It is a road that we shall not follow. We must recognise that we cannot enjoy more wealth until we earn it. The Government are committed to seeing that we do earn it. It will be hard work and it will take time, but with our policies we can do it. I urge the House to reject the soft options, to reject the prospect of continuing economic decline, to reject reflation, to reject the motion and to suport Her Majesty's Government.