Speeches, Interviews & Other Statements

Complete list of 8,000+ Thatcher statements & texts of many of them

1985 Feb 11 Mo
Margaret Thatcher

Interview for Business Week Magazine

Document type: Speeches, interviews, etc.
Document kind: Interview
Venue: No.10 Downing Street
Source: Thatcher Archive: COI transcript
Journalist: Andrew B. Wilson, Business Week
Editorial comments: 1600-1700. Jean Caines worked in the Press Office at No.10.
Importance ranking: Major
Word count: 6726
Themes: Defence (general), Economy (general discussions), Higher & further education, Employment, Industry, Monetary policy, Privatized & state industries, Energy, Pay, Public spending & borrowing, Taxation, Foreign policy (USA), Housing, Science & technology, Social security & welfare, Trade union law reform, Strikes & other union action

Andrew B. Wilson Business Week

In the run-up to the 1979 election you said that you would need two terms to turn the British economy around. You are now roughly halfway into the second and there are few signs that the British economy has discovered the dynamism that you see in Japan and the United States. Would you agree that you under-estimated the task ahead of you and that you would now need three or even four terms to accomplish the things you would like to accomplish?

PM

I think it takes quite a long time to turn an economy round from the kind of rather rigidly controlled society we had with all the controls we had, with all the subsidies we had—to turn it from that into the kind of vigorous enterprising society you have in the United States and Japan. But we have done a great deal. As you know a lot of the controls have gone. A considerable programme ever and the issue of British Telecom which were sold in London recently and indeed over the world was the biggest single sale of shares ever made. Inflation is down to about 4.6%;—that as you know is an eternal battle. And I really should point out that production is at an all-time record. That investment last year was at an all-time record and that the standard of living is at an all-time record. And at the same time we have, or rather as you have in the United States, increased expenditure on defence and law and order of course that was also in accordance with our pledges and we've kept pace with the pensioners and those in the National Health Service. So all told it hasn't been—all told it has been a reasonable record but we have this problem that we are not creating jobs fast enough yet.

Andrew B. Wilson Business Week

That remains the case now.

PM

It remains the case and unless we can get more enterprise going then we are going to be in continual difficulty because although we are at record output now we are doing that record output with a considerable number of unemployed. That's part of the technological society and the only answer to that is more goods, more small businesses, more new business. [end p1]

Andrew B. Wilson Business Week

Still, isn't the performance of Gross National Product still a very disappointing one? I think that GNP only last year exceeded the level that it was in 1979 before you became Prime Minister. And is now 2 percentage points above that. So, look over a period of six years there's been very very little growth and average over that period much much less.

PM

Yes, we went down as you know severely with the recession in 1979–81. 1981 was the trough and we are up—since then we have been coming up steadily since then. Productivity is at 15½%; above the previous peak and in a way that explains why we've got a greater amount of unemployment. But that's not the only reason. I'm not quite sure about the demographic curve in your country. In this country for a period of six years we've had more school-leavers coming onto the labour market than we have had people retiring. It's just the way the birth rate went years ago. So in the last six years we have a million more people of working age than we had. And so you had to create more jobs to stand still. And unfortunately we weren't able to do that. We did create more jobs last year quite a lot more, but they were not filled by people coming off the unemployment register. They were filled by a lot of married women coming back into work.

Andrew B. Wilson Business Week

Isn't it a terrible comment if the only way to hold unemployment down is for productivity to fall or to remain steady? And I believe in the last year or two the rate of productivity growth has indeed been falling. It had reached 6%; in the last year, I believe it's gone to about 2%; now.

PM

Well with 15½%; over the three years peak. But I would not say—I do not jump to the conclusion you are drawing—anyway that the only way to keep unemployment down is to have productivity falling. Indeed that would not work. Unless your wages fell faster. For the simple reason you know if your productivity fell, unless your wages fell faster, it would put your unit labour costs up and make you less competitive. So you have got to have your high productivity and efficiency. And as you know we have some very good industries, as good as any others in the world. In other cases, yes, we still have probl and we still struggle. But we have taken this last year a coal strike, and after eleven months all the power is still on. There is no other major industry that [end p2] hasn't had the coal strike. And in spite of that, in spite of a coal strike for nearly a year, we still have output at an all-time record, even with a coal strike. And we still have investment at an all-time record and we still have a standard of living at an all-time record. It would have been quite a bit better had we not had that coal strike. It obviously affects not only coal but suppliers to the industry and the industries and commerce that would receive orders from the wages that have not been earned.

Andrew B. Wilson Business Week

Still, the Mori poll in the Sunday Times just last Sunday showed that 52%; of voters thought on balance that you were doing a bad job of managing the economy. The FT in a recent editorial said that there had been no real economic policies since the beginning of the second term and the foreign exchange markets felt the recent run on the pound seemed to be confirming a highly negative year. So I want to ask you, what is your …

PM

Can you just repeat that so I can take them down and answer them one by one?

Andrew B. Wilson Business Week

It's the general impression of drift and indecision in your second term, which is showing up I think in a number of different ways.

PM

Now will you give me one example of drift and one example of indecision and then perhaps I can answer it.

Andrew B. Wilson Business Week

OK, one example would be exchange rate policy. Many people …

PM

What is the example of drift or indecision on exchange rate policy? Exchange rate policy has not altered.

Andrew B. Wilson Business Week

Well, many people would say it has altered.

PM

I'm sorry, I'm telling you it hasn't. Exchange rate policy has not altered. You do not …

Andrew B. Wilson Business Week

You seem to have gone from a non-intervention at all to a policy of intervening in order to support the pound. [end p3]

PM

No, intervention policy hasn't altered. You intervene only in turbulent markets or to smooth the market, no single country has sufficient reserves to do continuous intervention or to maintain a specific level. Therefore you do intervene from time to time, no-one knows when you're going to, but it's in a small way. The only variation on that is when you all intervene together and agree. And that's the G5. Again, it's not continuous intervention. It's intervention together because you can't do it separately. And no-one knows when it's going to happen. The other kind of intervention is interest rates. And if you look at the history of interest rates in this country, I simply don't understand the basis of your question. Because we had to put the interest rates up sharply several terms during my term in office. Just look at the figures and they will tell you. But that has not altered. The determination and there has been no drift at all, the determination is to go on keeping inflation down and getting it down further. That you need a strict monetary policy, and for that you do have to use your interest rates as a weapon. All of that has been done. As regards your exchange rate, it is one of the factors you have to take into account, as it always has been. As I said when the pound would buy nearly £2.50, it was one of the factors you take into account but you cannot have a specific target. So there's been neither a drift nor change of policy. The interest rate had to go up sharply in July, gradually it came down again, it has had to go up sharply this time. I don't like putting it up but we didn't hesitate to use it when it was necessary. Now, just let's go back. Where's the drift, where's the indecision?

Andrew B. Wilson Business Week

Well, would you agree there's been a loss of confidence in the conduct of your government.

PM

No, I would not agree there's been a loss of confidence in the conduct of government. You referred to the exchange rate a moment ago. Have you looked today, the deutschmark was at a twelve year low. The Swiss franc was at a ten year low. Are you going to say there's been a loss of confidence in the German government? Are you going to say there's been a loss of confidence in the Swiss government? Because there's a twelve year low or a ten year low. Because if that's what you're saying about the government here, you must also say it about them. You have a surge of the dollar, that is [end p4] affecting all European currencies and our record against the EMS countries is we are up above the EMS countries, compared with where we were in 1979. Against the dollar we are down, but every currency in the world is down against the dollar.

Andrew B. Wilson Business Week

But you are down against the EMS currencies quite sharply over the last twelve months.

PM

Well, we are up against where we were in 1979. Now you may say we are down in the last twelve months. Yes, we have had to ride a coal strike. We have ridden that coal strike. The Germans had a very nasty strike, six weeks it lasted but in six weeks it was over. We have ridden a coal strike. But in fact our record against the EMS, we are higher than when we came in in 1979.

Andrew B. Wilson Business Week

So would you say that the factors that have recently weighed against the pound are no more than the strength of the dollar, the coal strike and perhaps …

PM

The surge in the dollar that is affecting all European currencies and I've lived through two things in my time—a very weak dollar and a very strong dollar. Neither—the weak dollar didn't last indefinitely, I don't think the very strong dollar will last indefinitely. You asked me three things about the strength of the pound. The strong dollar was one, which is affecting all European currencies. Secondly we have had the weakness of the coal strike. But thirdly we've got variation with oil. And one of the reasons why we went very strong against the dollar at one time was a surge in the oil price and now we are weaker against the dollar because there's an oil weakness in sight. I can only point out that oil is only 5%; of our GDP. The other 95%; is not oil. So that is quite wrong to say this is a petro-currency. But I still come back to what we have achieved. Yes, we are higher on output, an all-time record. Investment is an all-time record. The standard of living is an all-time record. I have had a denationalisation programme the like of which has never been seen in the world. We have 1.7 million more people, which you'd have to multiply by five to compare with the United States, are owner-occupied. An all-time record in owner-occupation and we have far more people now since British Telecom owning their own shares. So that is not too bad a record. We have one great problem, that is unemployment which we are not [end p5] really going to cure unless there's a problem I identified right at the beginning, until we have a kind of vigorous enterprising society that you have and Japan has. And which I'm afraid Europe hasn't got to quite the same extent. It affects us all and it's something that bothers us very much. Incidentally, personal taxation is down too at all levels. Personal taxation is about, the thresholds, the amount that is tax free are up about 16%; in real terms. And of course we've brought the top rate down. It doesn't sound much to you but bearing in mind that when I came into power the top rate was 83%; of earned income and 98%; of income, the top rate of everything now is 60%;. And we've introduced stock options on a much more generous scale. And yes of course this thing is going to take time to work.

Andrew B. Wilson Business Week

But the rate of taxation against total national income is up relative to 1979.

PM

Yes indeed it is, partly because of the effect of the recession, partly because of the effect of unemployment and partly because, yes, we have kept pledges to the pensioners that we had to. We made the pledges in election time and we kept them. Not personal taxation.

Andrew B. Wilson Business Week

How do you explain the government's low rating in the opinion polls at the moment?

PM

Look, that's one poll, that's one poll. I have never boasted when the rate of opinion has been enormously high. That is one, just go and look at some others. That's one poll that came out on Sunday. Go and look at some of the previous ones. Go and look at the previous one. You'll find us 6%; ahead, was it 8%; ahead? I really don't know but go and have a look at them all.

Andrew B. Wilson Business Week

Going back to the matter of indecision and drift. There does seem to be a widespread …

PM

No, I'm sorry, I asked you where is the drift, you could not tell me …

Andrew B. Wilson Business Week

No, I haven't had a chance to say yet. Many people felt the monetary policy in 1984 was too loose. The aggregates were growing at the outer boundaries, there was a feeling that fiscal policy [end p6] had been too loose, that the PSBR was kept within its range only by the inclusion of funds raised through the sale of public assets and that that was a fudge, and I think that Mr Nigel Lawson himself indicated that one of the reasons for [high?] interest rates and defending the pound was the fear that perhaps inflation might begin to take off in 1985 and perhaps policy had been too loose and there was a need for some action.

PM

Now, monetary policy. I already indicated that in reply to a former question that the interest rate was raised sharply in July. Then when we saw a need to restrain monetary policy it went up 2¼ points then. So when we saw something like that we took action. This time when we saw something that looked as if it was getting lax we took action.

Andrew B. Wilson Business Week

What looked as if it was getting lax?

PM

What looks as if it is getting lax? You feel that … I think you get a feeling from commentators, and I think partly the commentators were looking at the demands for more public expenditure that we were getting. We were resisting them. We were resisting them pretty nearly all. We had one on students' grants which, in the end, cost us £10 million more. That is minute in a budget of £130 billion. But we were resisting them. The feeling was getting abroad that we were coming under more and more pressure on public expenditure and, of course, knowing the effect of the coal strike, people knew that having to use more oil than coal, that would be more expensive. So they were looking at the overall thing. So we went for interest rates and, as you know, we put them up very sharply. Now, that is, if I might say so, to keep within monetary policy. Yes, at the top end. And within monetary policy. Now, I cannot see why you complain. As long as we keep within the PSBR by legitimate means. It has been a fundamental part of our policy to sell off nationalised industries, an absolutely fundamental part of our policy. And our PSBR this year is of the order of 2½–3 per cent of the GDP. I know quite a lot of countries who would be pleased to have it at that level and forget our PSBR … Yours, actually, if you take it on the nearest basis, it's about 4¼, because if you take your Central Government and your surplus which you have in the States … Our local government, many of them actually [end p7] have a deficit which comes on to our PSBR. Our total PSBR for central and local government and public sector is about 2½–3 per cent of GDP—never quite know under the end of the year. So look, we have held our deficit—2½–3 per cent GDP. For the fifth year in a row we have a balance on current account. Thirdly, in the last five and a half years we have built up our net overseas assets of £15 billion when I came in—£70 billion now. And those let overseas assets will give us and will continue to give us a source of income for many many years to come. So, good record on deficit, good record on trade, good record on building up overseas assets. I'm still waiting for the drift and indecision.

Andrew B. Wilson Business Week

OK. Well, one example that might be …   . Sir Keith JosephThe Secretary for Education came out with the [word missing] for reducing—abolishing, in fact—the subsidies that went to middle-class parents and it was …

PM

Well, one moment, let's get it clear. Every parent with a student at university gets a very considerable subsidy. Middle-class parents were paid … you say, middle-class parents …   . parents with certain income …   . were paid …   . I'm sorry … were receiving £200 a year basic maintenance grant. That was all. Otherwise they were paying the full maintenance for their children, for their young people. They got a grant of £200 a year towards …   . that's the basic maintenance. Otherwise, they paid the full maintenance cost for the children. But, until this year, all the tuition fees are free. Until this year, all tuition fees are free for every parent. And on top of that, they were getting a subsidy of £200. Now, the change that Sir Keith Joseph proposed this year because we wanted more money for science … I might say, the student grants are more generous here than in the United States or Japan.

Andrew B. Wilson Business Week

Oh, quite a bit more generous.

PM

What Sir Keith Joseph came up with was abolish that [end p8] minimum grant of £200 and, according to your income, parents should pay up to £500 a year tuition fees. And I tell you for an Arts student, it costs about £3,000 a year to educate an Arts student at university and anything from up to £7,000 to educate a Science student at university. You can see that the subsidies are still terrific. But it was thought that that change from plus £200 down to minus £500 was too sharp. Now, you say drift. That was announced … and it was quite clear that it was going to be very very difficult to get it through the House. And so, in fact, within a matter of about ten days, the whole thing was, in fact, modified. The £200 grant went, as we had planned. But they were not charged the £500 on tuition fees. And if your definition of drift and indecision is something that is corrected within about a fortnight or three weeks, well I wonder how you go about your budget in the United States?

Andrew B. Wilson Business Week

Well, we go about that in quite a different way …

PM

You do. You do it in quite a different way. But if your definition of drift or indecision is something that is put up and decided upon in a different way within a matter of three weeks or so. If I might say, I wouldn't call that a drift. I wouldn't call it indecision. Because, when I got problems, we took it and dealt with it very quickly, very quickly.

Andrew B. Wilson Business Week

Well, another example I might cite is the past treatment of mortgage payments, and the Treasury have plans for removing most of the benefits that middle income people would have and an interest of tax variance and that plan was shot down …

PM

What's indecisive about that? The Treasury know if they ever get as far as me a plan on cutting mortgage relief, it won't succeed. That's why they've put it up within the Treasury. But they know it won't succeed. There's no indecision. Why are you creating these example? [end p9] Why are you putting up Aunt Sallies only to have them shot down? It's not a genuine one. Have you seen how many times I've said in the House of Commons—and I'm answering Questions there twice a week—that so long as I'm Prime Minister there will continue to be mortgage interest relief? Right. Well, what's the indecision? Well, what's the indecision?

Andrew B. Wilson Business Week

Well, the indecision might be the appearance of indecision …   .

PM

I'm sorry. There is no indecision save what the media create.

Andrew B. Wilson Business Week

But it is a Government and word comes out in the Government that mortgage relief …   .

PM

Word … when? You give me any statement. Give me any statement from the Government ever that has indicated that mortgage relief is going to be curtailed, and I will refer you to my continous statements of “Not as long as I'm Prime Minister”. So, no indecision.

Andrew B. Wilson Business Week

What about the effect that the short increase in interest rates is likely to have on the economy here? It's likely to have a very negative effect, is it not?

PM

There's always a danger of that, particularly on small business. That's why one does not like putting up interest rates. But if you think that people are thinking that your monetary policy is lax or you see things coming near the end of the range and your top priority is to maintain a downward pull on inflation, you have to do it. And I've had to do it unfortunately several times. We had to do it in July. It did not then stay up long. I don't know how long it will have to stay up this time.

Andrew B. Wilson Business Week

Well, how would you explain what the main thrust [end p10] in economic policy in Britain is now? In the first term, it was quite clear that the main thrust was to bring inflation down at all costs. People have a hard time understanding what the economic policy is in Britain now, and I'm referring to that one quote in the Financial Times but here's other such …   .

PM

Well, I'm not responsible for what the press says. Inflation has to be kept down and will be kept down. We have done a good deal of de-regulation. We are going further with de-regulation. We have brought down personal tax. That's sure to give incentives both on the shop floor, particularly at management level, and also entrepreneurs. And we've brought down tax on saving income. Therefore, our policy is … But we have also brought down the Government imposed costs on business, because when we came into power the Socialists had left us with a national insurance surcharge which was a very heavy burden and we had to decide whether to take the costs off business or to take off personal taxation. I could have done a lot more on personal taxation but we had to decide it was better to take the load of costs off business. So you keep down inflation, de-regulate and then to try to have the kind of enterprise framework. Yes, it does give incentives to people who work. We have a whole range of tax reliefs and loans for people who want to start up in business on their own. So it is really very similar to the framework that you have got in the States—inflation down, a de-regulation, incentives …   . incentives, to management, incentives to save, incentives to invest because, incidentally, profits are also recovering quite fast. Now, once we have got that, yes, it does take time for people to turn and start up in increasing numbers in their own businesses. We have got an increasing number of new businesses starting and small businesses. But it is taking a time. (tape ran out) Incidentally, I might also say that we have turned round trade union attitudes enormously. As you know we …   . (interview continues)

Andrew B. Wilson Business Week

I will be going on to the United States and …

PM

Well, I'm not responsible for the United States and [end p11] you're not going to draw me into any adverse comment of any kind.

Andrew B. Wilson Business Week

But I do want to ask you what you expect to accomplish in your forthcoming trip to the United States … You say that trade union attitudes have changed and yet the world is seeing this coalminers' strike which is now in its twelfth month and to people outside the United Kingdom the coalminers' strike is a sign that attitudes in the United Kingdom have not changed—that it is still a strike prone economy.

PM

Well, we have 80,000 miners working—that's well over 40 per cent. So they're working. You've got the National Union of Mineworkers split. And those 80,000 miners have been turning coal and it's been moving to the power stations. So you've got them turning coal, you've got others moving coal. They've got no support either from the steel unions whom they tried to stop coal from going into the steel plants. They did not succeed. The steel unions were determined to keep their business going. They have not had major support from a single trade union, as trade unions have begun to realise other than the NUM that you don't get business if you go on strike. Yes, we have got two-thirds of the miners or 60 per cent of them now on strike. What of its number working? And no support from any other. And, of course, we've made quite major changes in trade union law which are beginning now to help. One of the later ones, I am afraid, only came into effect after the National Union of Mineworkers' strike began. That is that you have to have a ballot for a strike if you're to keep your immunity at law as a trade union. And, of course, we've had laws over secondary picketing, laws to help fund the cost of postal ballots, law about having ballots about closed shops and so on. You've actually got a very different trade union law than the one we have. I think that in [end p12] your law contests [sic] between employers and unions are enforceable at law, but they're not under ours. And also you have a very, very different attitude towards wages. I think partly its been the effect in this country that prices and incomes policies—four prices and incomes policies—many people have thought it's almost their bounden right to have an increase of wages every year, regardless of performance. It has been increasingly difficult to say that what matters is not the wages you're paid but wages in relation to performance. And that's the critical factor. And you're very much better at taking that into account in the United States than we are. Wages in relation to performance, and therefore you've kept your unit wage costs down.

Andrew B. Wilson Business Week

Do you thinks it's important for this coal strike to end and a clear defeat for Mr. Scargill and the NUM …

PM

I want the coal strike obviously to end but it has to end in a way which means that uneconomic pits must be able to be closed. They always have been in the past. They must be in the future. And the National Coal Board must continue to have the right to manage.

Andrew B. Wilson Business Week

How do you feel about the criticism that if the Government took a somehow more accommodating line, this strike might have been over months ago?

PM

This strike was entered into without a ballot of the members of the union. Those members of branches that did ballot voted to stay at work. So the leaders of the union had no ballot from the centre. And that's a cardinal rule of their union, but they didn't. Then it was maintained by violence and intimidation. You never compromise with violence and intimidation. And you cannot compromise the right of a board of an industry to manage that industry. [end p13] You cannot compromise on this.

Andrew B. Wilson Business Week

How would you assess the performance of the NCB in handling the strike?

PM

I'm not going to enter into any comment about who's handled the strike in what way. The fact is that 80,000 miners are at work and turning coal.

Andrew B. Wilson Business Week

Do you expect the strike to end soon?

PM

I never wanted the strike to start. I always hope that it will end soon. I've been hoping that for a long time. It's the most unnecessary strike in British history. But may I make it quite clear the coalminers have had the best offer since nationalisation in the 1940s and everyone knows that. The best pay, the best investment, a guarantee against compulsory redundancy, the best deal for voluntary redundancies and the best what we call colliery review procedure. Five bests. And no other Government has touched the kind deal that we are now giving to the miners because ours is by far the best. And so this strike should really never have occurred but it did.

Andrew B. Wilson Business Week

What sort of a growth rate does Britain need to achieve in order to begin to reduce unemployment? One hears the growth rate has to hit 3½ per cent at least before it can make an …   .

PM

That depends where you get your growth, whether it comes in the more labour intensive service industries or some of the enormous capital intensive in manufacturing. Now I think last month if you look, you'll find that the numbers employed in manufacturing actually rose. That does not mean that the unemployment was reduced because, as I said, there are a lot of people coming into the labour market for the first time who have not not taken jobs from the unemployment register. I think it's very difficult [end p14] to say that. We have changed our regional policy to ensure that we give grants in bigger proportions to the number of jobs that are created. Hitherto, it had been in accordance with the capital investment and sometimes you found that you were giving special regional grants actually to diminish the number of jobs because the type of equipment replaced the jobs.

Andrew B. Wilson Business Week

Do you think there are any lessons to be drawn from the very strong performance in the US economy under President Reagan? And one lesson that some people are drawing which you don't agree with is that you should have a looser fiscal policy and not a tight monetary policy?

PM

If you don't mind me saying so, you had quite a tight monetary policy.

Andrew B. Wilson Business Week

Yes, yes.

PM

A tight monetary policy and a much lower proportion of public spending per national income than we have. As I have indicated, our deficit is between 2½ and 3 per cent. Yours overall is 4¼. The difference is that our savings ratio is very much higher than yours. You have a lower savings ratio than we have but you have financed your deficit by drawing money in from the rest of the world. I just don't think we could have done that. The United States is the world's last resort—the world's safe haven. I is a fundamentally enterprising economy, very enterprising economy and it always has been. You've got a much more flexible labour market. People are prepared to move, they're prepared to take varied jobs, much more so than ours are. And your people have a much more realistic approach to wages in relation to output than we have. I think I'm right in saying that since 1977 real wages on average have only gone up in the States by about 1½–2 per cent. I am afraid real wages in this country have gone up much faster than that, even though output hasn't. And that has been a problem. Of course, it has been one of the things that has led to very sharp redundancies. But what we've got quite frequently is the average earnings [end p15] in industry rising quite sharply at the cost of considerable unemployment. But we also have a central supplementary benefit system which is quite generous compared with the lower levels of wages. And that supplementary benefit system is indefinite in duration. So we've got a number of factors which are very different to yours. But the real difference is you are basically a much more enterprising economy, much more ready to start up in business on your own than we are. And secondly, your universities are much, much more involved in business and expect to be than ours are. We've been working on ours for ages. But we just have not got down to the cross-fertilisation you've got in the States, of which I envy and which we're trying to get here.

Andrew B. Wilson Business Week

The factors you mention in the US are of a general nature and have been there for several years of Presidents. Are there any lessons to be drawn from Reaganism?

PM

Yes. I think the de-regulation. I think it was a tremendous improvement. Tremendous improvement. And of course the reduction of taxes, the reduction of personal taxes is also important. As I said, had I taken the decision to keep on the national insurance surcharge on business and turn that £3 billion into tax relief, personal tax relief, we'd have had a much bigger incentive effect here. But I have to counter here with far heavier burdens on industry, partly because of that national insurance surcharge. And I chose to take it off and give industry a chance to compete. And therefore we've not been able to take as much off direct personal tax as I would have wished. Except, don't forget, the figures I gave you previously, that the top personal tax on earned income when we came into power was 83 per cent, on savings income was 98 per cent. Then you have a good high earned income and then some savings income on top you were getting up into the 90s on your taxation, marginal rate of taxation and the top level now is 50 per cent. And that's deliberately to try to keep the best managers here and to keep our [end p16] best entrepreneurs here. But you know, we've lost quite a lot of them.

Andrew B. Wilson Business Week

I gather you do not think that the strength of the dollar is primarily a result of the high US interest rates?

PM

I think it's part of one thing and part of another. It's part of the fact that you are the world's safe haven. Even bearing that in mind, you still have to have quite a large part of the time, comparatively high interest rates, though the more weight one puts on to the world's safe haven argument, the lower one would have expect the interest rate to have been.

Andrew B. Wilson Business Week

Why would you say now that Britain has to have what I think are the highest real interest rates in the world? Why is that necessary?

PM

They are not as high as yours were at one time.

Andrew B. Wilson Business Week

Well, I mean, at the moment.

PM

At the moment they are, yes, because we have the problem which you saw. And I am absolutely determined to keep money supply within a range because it's absolutely right that we keep inflation down, and people felt that it might be getting slack and they also saw more and more demands of public spending. And look, I know the problems you're having in trying to get that down. We have come across the same problems and you have to be really quite tough about it.

Andrew B. Wilson Business Week

Interest rates went up last July and then came down quite quickly. Is the same pattern going to be repeated here?

PM

I don't know, I don't know. They'll have to stay up as long as is necessary to keep money supply within [end p17] limits and make certain that the anti-inflation policy is not diluted. It is absolutely important to keep that …   . Because inflation is still too high. Well, 4.6 per cent at the moment. But, you see, some of our competitors … Germany is about 2½ and I think Japan is probably about 2½. What are you in the United States? You're just about 4½?

Andrew B. Wilson Business Week

Yes. I think less than that actually. … Could you tell me what you hope to accomplish in your forthcoming trip to the United States? Could you comment on how you view the President's policies on defence, particularly the Star Wars programme?

PM

Well now, look, I'm the world's greatest fan of your Ronald ReaganPresident, as you know. I think he's done terrific things and I think that in his recent speech, the keynote that he struck, that America is a confident leader of the free world, is the right one and I'm absolutely delighted at the way in which confidence had returned to the United States. Jean CainesJean will give you the statement after my last talk with the President that we both agreed on SDI, and you know I said in a very straight way, we absolutely support the need to do research on the Strategic Defence Initiative. In some respects, the Soviet Union has already done a good deal of research and in some respects was ahead before the United State's embarked on research. It's always been … It has a very strong research on lasers, on electronic pulse beams. She had an anti-satellite capacity, which the United States had not got and, of course, she is experienced in running the anti-ballistic missile system around Moscow and is updating it. So her research was already going ahead. All that you know, but perhaps it hadn't been expressed in quite that way. And so the United States had to do research, as I said in the press conference over there, in order to get some balance back into it. When it gets beyond research, as you see from those four points … When it gets to deployment, then it comes within the anti-ballistic missile treaty [end p18] and that has to be negotiated and you can see that in those four points. I'm absolutely behind the President that it is necessary to go ahead with the SDI research and I was very grateful to have a talk with him on my way back from a world tour … not a world tour, but China and Hong Kong …   . came back from the United States previously and of course we talked about other things …   . And I hope this time obviously to meet quite a number of people whom I was not able to last time. There have been a number of changes in personnel leaving various committees. It is very, very important that we keep in touch. I'm very much looking forward to it.

Andrew B. Wilson Business Week

What about the US deficit? Seeing that there's been this final reduce to the deficit and the targets have gone off …   . does not seem that the US deficit is coming down even by $100 billion in 1988. How disturbing is that to you or to your opinion?

PM

The Ronald ReaganPresident's previous State of the Union message, you will recall, was for a down payment and he got that down payment. Now, they ask for further measures to deal with the deficit. I understand the problems and I think it absolutely right to call for measures to deal with it over the coming years. How it's dealt with is a matter between the President and Congress and of course Congress will have its own ideas and two Houses will have their own ideas as to how best to deal with it. But they're all saying that it is one of the problems they must deal with and I would support that. I think that they are right.

Andrew B. Wilson Business Week

Is Britain still in very long term structural decline …   .?

PM

Well, some of our industries, if I might say so, are the match for any in the world and in many we're coming up quite fast. And, if I might say so, we're still a very inventive nation. Many, many inventions are started [end p19] here. We're not nearly so good. And this is our fundamental problem at turning the research and the inventions into profits. And you'll notice that the Japanese are very, very good at that, and so are many, many of your people. And it goes back to this thing that I said before. We are good at research, we are good at development, we are good at invention and we're good at many, many things. We have excellent universities. We have not yet got this cross-fertilisation and this driving enterprise of wanting to create and build a business that you have in the United States and we have still not got the inter-leaving, inter-weaving of the universities and business to the same extent.

Andrew B. Wilson Business Week

But have you turned the corner yet and come out of the period of long-term decline?

PM

Well, as I say, output is at an all-time record. Our investment is an all-time record and profits are finding a way up again. I hope we have.