Malcolm Rutherford Financial Times
Could I ask just one question about a current issue, namely the teachers' question?
I wonder whether you could say something about the next steps there; whether you feel that some progress has been made and we are advancing to a sensible outcome on the teachers?
Prime Minister
We made our position clear on the terms and conditions under which the money would be given. It was a statement of duties, terms and conditions of service, appraisal and a proper structure of pay; because if you are going to get the best people coming into teaching, they have got to be able to see a really good career progression and really, your differentials matter, what your top teachers are paid matters and it matters to your mathematicians and physicists that they have a chance if they are good teachers that they get a reasonable salary in a reasonable time, so the structure is absolutely critical as far as we are concerned. It is critical because of the calibre [end p1] of people you want to come into teaching and undoubtedly, in big cities in the south and south-east, you are not finding it very easy to get specialist teachers and in any event, whatever their speciality, you want really the best teachers, the best people coming into the profession. So pay structure is vital.
Malcolm Rutherford Financial Times
Does that mean you are going to accept it?
Prime Minister
No. Our pay structure is vital. You simply cannot have a structure on which most of the money goes to the people who have just started on their way up without having a proper career progression. That is vital.
As you know, not all of the unions have accepted the present pay structure or the present agreement.
It is absolutely vital. I would have hoped that you might even support us on it.
You look at a young person going in from university or perhaps even having started off on another profession. They are going to look to see the kind of salary they can get compared with what they get either in the Civil Service or another public sector or even in industry on the scale, and you have got to be able to provide them with a good salary structure if they are going to choose to come into teaching, and that to me is vital. We are not going to get the kind of education we desperately want and need unless we insist on that. [end p2]
Malcolm Rutherford Financial Times
You might be turning down what was. …
Prime Minister
I do not know. We will have a look at it, but I have not seen the full details of the salary structure that they are proposing. But from what I know, they have taken the package and done it as they used to in my time as Secretary of State, with most of it done in the early years, and not got a proper career structure, and in those days, of course, we used to have a concordat in Burnham between the Government and the Local Authorities and between us we made jolly certain that there was a reasonable differential so that you got reasonable pay for your higher people in charge of departments and for your deputy heads and for your head teachers, and to me, if we are to get the education system we want it is critical to attract absolutely top class people to come into the profession.
Malcolm Rutherford Financial Times
(not very clear) … .
Prime Minister
I have not seen the full thing. But on the general principle that you simply must have a really good career structure to get excellent people in.
I hear people talking about taking head teachers out. It always seems to be really rather difficult in a way. [end p3]
I think most parents would say what I would say. We have 30,000 teachers … . I think about 30,000 head teachers … if we be absolutely certain that you can get 30,000 absolutely first-class teachers who could have gone to any other professions then you really have sorted out some of your main educational problems, provided those head teachers and parents have rather more control than they have had in the past, because you know, a parent will be the first person to recognise a good teacher, a good head teacher. They, more than anything else, set the tone of the school; set all the background tone, as well as the particular subjects; set the whole background tone of the school and so they are vital. And you do not suddenly go from, say, rung three on the ladder, to the top. You have got to have a reasonable progression up.
So what I am trying to say is this is a point of principle which is absolutely crucial to everything we are trying to do for education.
Malcolm Rutherford Financial Times
Can I take you on, Prime Minister, to, I suppose, third termism?
Prime Minister
Does it have to be an “ism” ?
Malcolm Rutherford Financial Times
The CBI last week were going on about “isms” . It does not have to be, but you know what I mean, and the manifesto … . your heading and how is it working? Are there going to be any surprises? Are [end p4] you going to … . coal and steel?
Prime Minister
Very much a forward movement. You have been talking about education. We are looking very carefully at that.
We have also been looking very carefully at some of the northern cities and some of the inner city problems, and some of them have arisen, in a way, because in the early years companies were directed to go to where they did not want to go and were not able to start up where they wanted to.
We have seen what can be done with the Urban Development Corporations. For example, you would never have got a fraction of the development you had in London unless we really had grasped the nettle, or even more than the nettle, the thistles, the hollies and everything else and said: “Right, we are going to create this!”
Now even then, it took a time, because you had to pass the legislation, get all the powers; but that really has been fantastic and it would not have happened unless we had said: “Look! The local authorities simply cannot cope with this. You have to have an Urban Development Corporation. It has to get rid of the negative value of some of the land—that is to say, it can put in all the services, and then it can go way ahead under a government that believes in—some call it “deregulation” , some would call it, as I would, having the proper framework of regulation at the right level and not beyond.
So we are going to extend it. As you know, Nick Ridley announced four more and we would like to extend it beyond that, because nothing [end p5] is more frustrating than to pour money, as we have, into urban aid, urban development, urban regeneration programme, urban this, urban that, urban the other and not necessarily to get the requisite coordination and the forward movement. And that must go, and it must go with an impetus and with a determination, and believe me, you talk about “third-termism” . Five years is not really very long if we want to do the things which we want to do.
That does mean really having a look at some of the structure again of local authority finance which, as you know, we are pledged to do, because it is not only how the rates are raised; it is really the distribution of the rate support grant which, as you know, gives enormous problems.
I do not think enough people realise, particularly those who talk a lot about north and south—realise the extent to which there is a colossal redistribution through the rate support grant, so that, in fact, what you have is the high rateable value low-spending authorities having a fantastic amount of money distributed away from them to the high-spending lower rateable value, and it is going to be quite a massive change and not all of it, as far as England and Wales, is yet worked out.
We shall have to have a look—but we cannot do it again until after Sizewell—at the whole structure of the fuel economy of this country. In my view, you cannot do without nuclear power and more nuclear power. [end p6]
Malcolm Rutherford Financial Times
Since you mentioned Sizewell yourself first, … take you up on that.
Do you think it is possible or likely that you commission another nuclear power station before the election? … . as a symbol … .
Prime Minister
We have been waiting for this report and we have the problem about waste disposal yet, which is also a problem. I would really rather see it.
Was it last Christmas I read through Stansted or was that the Christmas before? And I had been expecting last Christmas to read Sizewell and I did not. I hope I am not going to be cheated of it this Christmas. Sizewell is about PW, so it is about not only nuclear but about a particular kind of nuclear.
We have got to have, in my view, more nuclear power stations.
When you look forward at oil, it is low price at the moment. It is only a question of time as to when it goes up. Some people say five years, some would say ten, but bearing in mind that it takes you about ten years to get nuclear power stations, we really all ought to be thinking about it very carefully now—not only in this country, but elsewhere. After all, some of our electricity from France, which is cheaper than some of ours, comes across because they were earlier with their nuclear power stations. So that also is very important and you do have to look at some of your design teams and also the fact [end p7] that it would seem the economy is coming up a little bit better now. We seem to be through that difficult period. You know, we had the hesitation earlier in the year. It seemed that we had it the world over. I spoke about it in May at CBI, not because of what the economists were saying necessarily, but because I always thought that the first thing that would come through is that the people who had the money from oil had not got it and therefore the first effect would be stopping a lot of export orders upon which many of our industries had been relying. That was the first effect and somehow—for reasons of which I am not quite sure but I suppose they are somehow due to either instinct or experience or just some deep sixth sense—I did not think the release of the money that you would spend on other things would come through together very soon and therefore we got a hesitation and it would seem that we are through that.
It is interesting, if you look here both at our consumer spending and also in the United States at their increased consumer spending, you have got quite a considerable increase and one is searching as always for explanations, and one of the explanations, because the wages have not gone up in the United States as much in this country, may well be that it is the release of money, money that you would have spent on higher electricity, higher gas, higher petrol, is now freed to be spent on other things. You add that to the increased wages; you add that to the fact that when inflation is lower for some reason your savings ratio comes down slightly, and you will see, I think, a reasonable cohesive explanation of why there seems to have been a [end p8] lot more money spent on retail than one would perhaps have expected. I think it is a combination of those three things. We are down to 10½%; savings ratio.
Malcolm Rutherford Financial Times
Three items under that agenda in the cities, north, south and energy … . what else?
Malcolm Rutherford Financial Times
Could I just ask on the energy question, do you see the privatisation of electricity as a sort of logical further. …
Prime Minister
Yes, I would, yes. One hopes that we will go towards that. That is the fourth thing and I am not necessarily doing it in the right order, and associated with the fourth thing is further tranches of denationalisation, there will be a further spread of ownership, which is absolutely fundamental to everything which I believe in.
You asked about further nationalisation (sic). Yes, there will be a considerable further nationalisation (sic). We shall have to consider just precisely what industries we put in first and also how best to do them.
The longer I am in Government, the more I know that governments ought not to have to make some of the decisions that they do on nationalised industries. If you look to see why is an industry nationalised … . and the only reason that I can really work out is [end p9] so that Government can interfere. You tell me another one.
Why will Government interfere? It will interfere usually because there are uncomfortable political decisions to make in the short run. Look! The Labour Government had the Beswick Report; they dare not take it through. Nevertheless, they had to take the closure of Ebbw Vale and East Moors (phon.) through, but usually it means that you are somehow doing a “short-termism” —to coin a phrase—against “long-termism” and the more I see of it, the less we should have to do with it.
It also means that some of the great investment programmes will be done for the wrong reasons. Some will say infrastructure is good, investment is good. It is not necessarily. We spent half our time in 1970 to 1974 running up investment in steel and half our time from 1979 to today, 1986, running it down because we got it wrong.
The other thing that I have learned is that when I go around and see governments that do operate that way—they are often in the Third World but believe because they are in politics they have to control everything and they control every contract and every industry—I tell you what strikes me—maybe it is not very tactful to say—they spend so much doing that, that they do not do the real big jobs which a government should get down to doing, which is setting the framework, and I sometimes think they are retreating to the easy things—you know, who should this contract go to, who should have that?—but they are not the right things, and what I am getting at again is rolling back the frontiers of the state and we are, I think, coming to a [end p10] position under which our managers are returning to enterprise, returning to efficient management and flourishing industries.
Malcolm Rutherford Financial Times
… Prime Minister, there are some things that Government has to do. You have not commissioned any nuclear power stations as far I … .
Prime Minister
We have not needed … you see the margin of …
Malcolm Rutherford Financial Times
Do you envisage a situation where private sector could go round commissioning … .
Prime Minister
I think they can already—technically they can, because we stopped the monopoly—but sometimes, you know, there is quite a gap between technically stopping something in legislation and the whole surge of opinion, being confident enough to do it—this is why I stopped you at “third-termism” —and part of my whole belief really is to go forward to a really free society, backed up by a free … . and beyond.
I can only say to you I believe that if people could be sure that we would never have another Socialist Government using it in its [end p11] Clause 4 and the way it has gone further and further left, if people could believe that we would never have another Socialist Government, Clause 4, increasing control of state, increasing control of ownership—and you do not even need always ownership to have control; you can control by ownership, increasing control by regulation—if people could be certain we would never have that again, then I think the prospects for this country coming up with another term … would be really bright, because are coming back to the independence, the enterprise, the better management, the more self-employed, the more smaller business and so often now what I hear is: “Well, that could all go!” and if only we could get rid of Socialism as a second force and have two people who fundamentally believed that political freedom had to be backed by economic freedom and fundamentally believed that you get the best out of a people when you delegate power down—it is not really ours to delegate; government is taking away powers, and the history of democracy is the history of increasing liberty from the power of the state.
Malcolm Rutherford Financial Times
How far do you see the denationalisation, as you phrase it, going? You mentioned electricity … coal … steel …
Prime Minister
We will have to decide which ones, but certainly we will expect to have a good deal of further denationalisation. You look and see [end p12] which are the best ones to take first and also how best to do it, because sometimes you do it piecemeal, sometimes you will take a whole industry. Sometimes you will do it with 50%; and then let further … .
Malcolm Rutherford Financial Times
Steel piecemeal?
Prime Minister
You are asking me to say which. That I cannot do. I can only say that we will have further substantial tranches of denationalisation. It works better.
Malcolm Rutherford Financial Times
But on the issue of delegation which you mentioned, one of the criticisms of some of the big privatisations is that you had privatised as a whole things like British Gas and British Telecom and people who run coal and steel seem to be arguing now that if they are privatised they should be privatised as a whole is big and rather large, to some extent monopolistic … I wonder whether in your next phase of privatisation, without asking you which comes first, whether you feel that there is more that could be done to decentralise and possibly even break up these large corporations.
Prime Minister
Yes, to some extent. British Rail has sold off quite a number [end p13] of its hotels, some of its land, some of its other things. British Steel has sold off quite a number of its subsidiaries. I think it is arguable where the phoenix is—some people, it is more nationalisation; some people say it is more privatisation—when once those particular things are well and truly established, then they can be completely sold off.
It is quite possible that that may be done.
British Gas, of course, it makes a good profit, but the regulation of British Gas has had to be very carefully looked at indeed and, of course, they have got an RPI-X formula and so, of course, did British Telecom have an RPI-X.
With British Telecom we were, thanks to Keith Joseph—always, I beg of you, put in a word for Keith Joseph; one day this country will know what it owes to him—he started up Mercury.
Malcolm Rutherford Financial Times
But it only makes sense to the City if you take the privatisation of the coal industry with it, because it is such a supplier isn't it, and will you take the coal industry?
Prime Minister
Well, we will have to consider that. We have to consider what we shall do about the coal industry.
Right now, if I might put it this way, it really is getting into a much healthier state than it has ever been and right now I find [end p14] myself saying in some speeches: “Do you realise that under a Conservative Government, even the nationalised industries run better?” —and they do—and the Post Office. It is because we have deliberately tried to do that.
One obviously has also to have a look at that. I do not promise anything about it one way or the other, but it is going well and in Kent, for example, now Tilmaston is closed, two of the others are doing really well and you have got really good management there and you have got young people applying—it is the youngsters who are going in … . some of them have got A-levels, some of them have got O-levels, and there are prospects for management we have not had there. Management is going to be vital, but you have not asked me about that.
Malcolm Rutherford Financial Times
Just before we go on to that, is there anything else that you would like to put under this head of … .
Prime Minister
Always, always, if I might put it this way. I know that you tell Bernard InghamBernard that my eyes light when I talk about politics, but politics only exists insofar as you support it with economics and with a suitable law.
Everything is … the wider spread of ownership, the delegation of responsibility, which comes also of course with delegation of power.
This is what is happening. For example, take Jaguar. I mean, [end p15] it is a prime example of what you can do.
When I went up to Nissan the other day, I really was looking at their management very carefully. Who would not? And I went around for a long time around the shop floor. What struck me was the attitude of the people there, because of the way in which they had been treated by the management, every single person there knew that his job was significant and it mattered that he do it and one of them said to me: “We do not have many problems here. We do not really [need?] to call in the unions very much, because if we have a problem it is sorted out there and then on the shop floor between whoever is responsible and the next management up!” and that chap then said to me: “Here, we are given responsibility ourselves!”
I had a little bit in my speech which said that I was certain that within a few years our standards, our quality, would be every bit as good as the Japanese and our value for money, and they said to me: “No, ours will be better!” Now, that is a combination of these people had been given responsibility; they appreciated it and they were rising to it, and so many of our really good managers have said to me: “We only really get results when we delegate downwards!” and I said: “Well it is not surprising because it is really what one believes!” .
But they also trained them. They did not just give them things beyond them; they trained them, and if you were going on to training, I would have something to say about it. [end p16]
Malcolm Rutherford Financial Times
Well perhaps we could talk a little bit on the economy. I am sure that will come into that.
One of the anxieties that is being expressed is that there is some danger that inflation might pick up a bit and this, of course, is one of the arguments which people raise for membership of the EMS; that the EMS would be some sort of bulwark against inflationary pressure.
Prime Minister
Yes, I have seen what Samuel BrittanSam has been writing and the terms in which he has been writing it, but Sam and I disagree on this.
First, if you are going to have an EMS and there is one, I think before other things, it would be as well if those who belong to it also observed the same rules. For example, some of them have exchange control, including France. Germany does not, the guilder does not. The others are on foreign exchange control. That obviously gives them a control mechanism, if they swing up interest rates, which we do not have. That is one thing.
Secondly, we have it but only Germany. We are not quite the same as Germany yet; I wish we were. Germany does not have the variation that you get from having a petro-currency element which we do still get, so that when the price of oil goes down it is 100%; benefit to her, it is kind of 50–50 to us.
Thirdly, people think of going into the EMS believing—not you but some other people—that somehow you go in and everything in the [end p17] garden will be lovely without you having to make so much effort. That is just not true.
What it would mean if you went in is you have given yourselves lines. Now, when you come up against those lines, the speculators will come in. They will pit against them. They will see what you are going to do. They will try you several times and what can I do?
Malcolm Rutherford Financial Times
You cannot go in without having a renegotiation of the rules. It is a renegotiation of the system …
Prime Minister
No, no. When I say renegotiation of the system, what you are saying is whether we go to 2½%; or 5%;.
Malcolm Rutherford Financial Times
No, that is not what I am saying. I mean, for example, you could have all the same rules about exchange controls.
Prime Minister
Well, you would not get in because they will not have it.
When we had what is called the “single act” and Kohl and I were considering what we would say, well you saw what we said. One of the things was that there is a great deal to be done in Europe between having the same rules. Now there are not those same rules. [end p18]
If you come against the line, you have got one of two things: you have got interest rate or intervention. There is no way in which you can intervene to any great extent. Then, people come along and they say nice and brightly: “Ah, but all the other people would support us!” and I say: “Don't you know that all they do is lend you money with which to support?”
Malcolm Rutherford Financial Times
But don't you have that problem now? I mean, what rate do you want the pound to be against the deutschmark?
Prime Minister
Well, what do I gain from going in?
Malcolm Rutherford Financial Times
Possibly some kind of … . from the outside, some easier support, reforming the system by the negotiation of … .
Prime Minister
No, I do not believe it.
Malcolm Rutherford Financial Times
Locking in a low inflation rate. I would have thought that was the … [end p19]
Prime Minister
Ah, but that means then that I have to swing up interest rates very highly regardless. They might fluctuate much more, because we would be tested. Sterling is, if I might say so, a different kind of currency after Germany from any other. We would be tested.
It means first, that you want a very high proportion of foreign currency in your reserves compared with your trade, a higher proportion than we have now—I hope one day we will have it. You have to be prepared to swing your interest rates up very sharply, because even if you have got a higher proportion of currency, you would have to use the interest rate mechanism.
Now, frankly, I do not want interest rates higher. I have to put them up in order to … on the inflation.
Thirdly, I think it would be easier, as Mr. Rutherford says, if you got a unified policy of those in the European Monetary System on exchange control, which you do not have at the moment.
Fourthly, I think you were all saying that we should go in when we were at 3.70 deutschmarks … you were saying at 3.50 we should go in … . 3.30 … . “Now, you should go Mrs. Thatcher, that is just about right,” and then down again.
Now the argument is, “Well, now you have done the readjustment, now go in.”
I think that bearing in mind the oil factor, bearing in mind the variation on inflation … what it means is hitching your wagon to the deutschmark, doesn't it? That is really what we are talking about. Instead of a gold standard or dollar standard, you have a deutschmark [end p20] standard, and then you have all the problems that we used to have with devaluation, if it comes.
We are getting stronger and one day we will go in. I believe we will one day go in.
Malcolm Rutherford Financial Times
When we get stronger still?
Prime Minister
I want to get a little bit stronger still and I also do want others to have a look at the general rules, so that although we have one difference, which is that of a petro-currency which will not last indefinitely, and coming up this year, if you look, our actual manufacturing industry is getting stronger. We should soon be coming up into a stronger position, but it will take a little time. But when we go in, and I believe as I say we shall go in—this awful phrase “when the time is ripe” , I want to go in from strength.
Malcolm Rutherford Financial Times
How do you define “strength” ?
Prime Minister
Stronger than we are now.
Malcolm Rutherford Financial Times
… do you make that definition in the terms of the sterling- [end p21] deutschmark rate? A couple of weeks it was down to 2.80 and is now … .
Prime Minister
No, I do not think you could make only that position. I am quite pleased at the moment with the growth rate prospects. I am quite pleased with the steadily improving performance of manufacturing industry. If you look, exports by volume are going up and it is holding its share of world trade.
If you look at the growth prospects, and I never deduce too much from that, but I have looked at them fairly carefully, if we are going to have 3%; growth in the coming year, that 3%; growth is with a falling oil growth, so it has got to be an increasing growth coming from the non-oil economy. Quite a bit of it is expected to come from exports, as you would expect on your exchange rate at the moment.
Let me get it stronger. Let us have it stronger in the manufacturing.
The financial services are going very well, and then we do have quite a strong extractive industry economy as well.
It is not doing badly. You know, we came out of the Snake. It is etched on my mind. Do not forget we came out of the Snake. We went in and we came out and when we go in we will go in strong and staying in, but please do not give any impression that it will ever be an easy option—it will not.
Also, what we have not got, unfortunately, our unit wage costs are the very problematic thing. [end p22]
Malcolm Rutherford Financial Times
How do you mean to get that right?
Prime Minister
I can only do it by pointing out … look, if you lose business, really, people must be intended to presume the consequences of their own action.
Malcolm Rutherford Financial Times
One final thing on the exchange rate. The Chancellor said the other day that the rate had now gone against the deutschmark low enough and he did not want it to fall any further.
Prime Minister
I think it has gone low enough …
Malcolm Rutherford Financial Times
I mean, one of the consequences of that statement … does that mean …
Prime Minister
I do not think there are a great many consequences of that statement. We may believe it has gone enough, but it is what the market believes and you know what the market is: 95%; of the movement is speculation and the other 5%; is trade. That is why I said to you earlier that if we could have confidence that we will have a clear [end p23] run—you will have alternative governments to this one, but if they were not Socialist governments, then I do think the prospects for this country would be transformed.
Malcolm Rutherford Financial Times
Would the Cabinet time be right for the EMS entry before an election?
Prime Minister
I do not think we are quite strong enough yet.
Malcolm Rutherford Financial Times
So it is post-election without question?
Prime Minister
That is when I would expect to reconsider it. One does not rule out anything at the moment, but let me put it positively: when we go in, I want to be absolutely certain that there can be no repeat of what happened before when we came out of the Snake, and when we go in I must also have it clear that it is not, never had been and never will be, a soft option. Also, I want those who sometimes say: “Why don't you come?” to consider it a little bit more carefully, because sterling is a different currency, a different weight from the others, and that could alter it considerably.
Equally, please do not let people believe that other people, out [end p24] of the kindness of their hearts, support your own currency even when you are in. They will sometimes support you when you are out on the same swap basis, but life is not out of the kindness of your heart; it is out of your performance.
David NorgroveDavid, have I said anything terrible?
David Norgrove
Not at all.
Prime Minister
That is a great relief!
Malcolm Rutherford Financial Times
Can I ask you a question about taxes, tax cutting and tax reforming?
Do you think that the Reagan tax reform offers important lessons for us in relation to the higher rates in particular or is the situation too different to draw many obvious parallels?
Prime Minister
Ronald ReaganHe is doing, on the company side, of course what we had already done, and that is interesting.
The United States is an enormously strong personal economy, in the sense that people, if they lose their job, they automatically start up on their own or get another one. This it has been because [end p25] people went there for freedom, for independence, for pioneering, and this is in the bloodstream right from the beginning; it is that terrible phrase in enterprise culture. Please, if you can think of a better one, do let us know. A bigger proportion of self-reliance. And therefore, that is in their bloodstream and this really is why I think people automatically have confidence in the currency of the United States, because first, look at its geographical position: it has not got the freedom of frontier (sic! frontier of freedom?) running across its continent.
Secondly, it is inherently strong and therefore, even though it will have ups and downs and trade cycles—and I have not known anyone able to eliminate a trade cycle by any sort of planning—it has this fundamental strength.
The fact that their top rate is coming down so much will affect some of our top people and that does give me cause for concern, because to our top scientists they can offer both a fantastic laboratory facilities as well as fantastic salaries and most people do work for their family, and that is not a bad thing. So we will have to watch that, particularly on the science and technology side, because so much industry is science-based, so much of the future is going to be science-based.
Also you have to watch, in things like the entertainment world, we are really very good. The Andrew Lloyd Webbers, the music, the theatre, the arts, we are fantastically good—and authors—and some of them have come back. Remember we went down to 60%;. When we went down to 60%; that, you see, was the average. It is now about 50%;. [end p26]
Malcolm Rutherford Financial Times
… is now going to be on the agenda. … .
Prime Minister
We still have tax reform on the agenda. Yes, we have some difficulties at the moment because—you are quite right—we got higher expenditure than we would have wished for a number of reasons coming at the same time. When we get that higher expenditure, as we have, then the only thing that I can do is to do as we did in 1981, insist that it is soundly financed.
Malcolm Rutherford Financial Times
Are you going to do another 1981 if necessary?
Prime Minister
We insisted that it was soundly financed. That is to say … I do not say I am going to do another 1981. What Nigel LawsonNigel said—and you did not pick it up anything like clearly enough—was in the Budget in March we set out the borrowing requirement would be 1.¾%; of GDP. It is still 1.¾%; so what I am saying is when we have got higher public expenditure than we would have wished … we positively wanted to do something to help teachers, we positively wanted to do something on the Health Service … . but the local authority expenditure is considerable and we knew about that. It was foreshadowed last year, and the Social Security thing came rather higher than we had expected, [end p27] but when you have got that, it must be honestly financed, otherwise you go into possible inflation, and that we will not have.
So, insofar as it has been spent, it is not available for tax relief. That is a great disappointment, but had we actually got down a penny a time, a penny a year, we would be further down now than we are.
Malcolm Rutherford Financial Times
But you also want to get down, as Malcolm said, the top … . rate, because it is now some years …
Prime Minister
I want to get down taxes as well throughout the peace [sic]. I think at the moment the most urgent thing is the people at the bottom, because I think they pay far too much and I think 29 pence plus your National Insurance, even though that is lower for that rate than it was, is too sharp a scale and I think we have to look to see what we can do about that.
The interesting thing is when we brought the top rate down to 60%; from 83%; we have not really suffered.
Malcolm Rutherford Financial Times
… you said before you could have gone to 50%; then.
Prime Minister
It was quite a leap to go to 60%;. And then we took the [end p28] second tranche of 60%; for savings income as well. But I cannot promise that that would be top priority. It is just that the feeling of this country is not that it would be top priority, but I do have to watch and see that people are not leaving our country.
We are coming up on economic performance. We do have quite an attractive kind of way of life and one or two things that need attention, but we have quite an attractive way of life to keep people here.
Malcolm Rutherford Financial Times
You were saying earlier that governments are very bad at managing industrial things and so on; you want to get out. Unfortunately, you are stuck with a few of them.
I just wondered on two issues—the Rover Group and the Nimrod thing—what kind of considerations … I am really asking not what is to be decided, but what are the sort of considerations in your mind. In other words, how important, for example it is that the British-owned motor industry and British supply and Nimrod … how much those sort of things weigh with you or what?
Prime Minister
Obviously, on defence, as you know, we try to buy most of our defence equipment here, but the essence in some of the things, on the highly technical things, question number one which we simply must ask is: “Will the RAF who is going to use it say that it works?” and you [end p29] cannot overcome that. That is absolutely critical.
Looking back at that, as you know, there were undertakings given in 1977 and various arguments as to who is responsible, etc. The question that one has to ascertain first is will it work to the satisfaction of those who use it? You cannot take any other prior question, because otherwise you would be letting down those who use it.
Subject to things being satisfactory, and being satisfactory on price, because you know it is no earthly good letting an industry grow inefficient, believing that whatever it does it has got orders in its pocket. That is no good. I mean, you have only to look at Fleet Street to know that that did no good, and it just does not.
So the first thing is does it work and does it work properly and we have given a large number of research development technology contracts to British industry because, frankly, yes we would rather do it.
Rover, frankly, I do wish more people had spoken up for us before the British Leyland thing. You did, one or two.
Let me put it this way. The Opposition were wholly against and some of our own party joined them and some of those in our own party who really wanted the decision we were going for did not perhaps speak up strongly enough. But I think almost all of them now realise that what we wanted would have been best for the future of the industry in this country.
We came across—sometimes you get it in politics—a political feeling which you just cannot, at that moment, overcome, and then you [end p30] just have to say: “All right, we will just have to put it on one side at the moment!” .
I think that people realise it would have been better. There are many reasons.
Malcolm Rutherford Financial Times
You are referring to the General Motors deal?
Prime Minister
General Motors and Ford. Ford has done a lot for this country. Ford actually contributes to the revenue in this country. It does not take money out. It actually contributes to it. It contributes to the money that we have been paying to British Leyland, and if you look also … if only we had been in power perhaps longer … if you look also … the trouble came with putting British Leyland together … the trouble on the manufacturing side has been largely coincident with trouble in the car and automobile industry. The decline in manufacturing has often been in that and industries associated with that, and you will find that that explains a very great deal.
What was terribly difficult to get over to people was that the Rover Group, British Leyland, Rover-Austin-Morris Group, was no longer a big volume car manufacturer, insofar as your volume car manufacture you could not carry on indefinitely alone. Bernard InghamBernard, do correct the figures. I think that whereas we had 4%; of the cars the European market, every other volume car manufacturer had 11%;, 12%; or 13%;. We [end p31] were the only one which had 4%; and I used to go round saying this again and again. “Oh, that is statistics!” they said. I said: “No, it is not. It is reality!”
There is no way in which you can spread your overheads over 4%;; no way in which you can do your new models.
Now, Graham Day is absolutely first-class and we will wait for him to come forward with a proposal, but there is no way in which you can have and keep a volume car business without having some arrangement which enables you, together with someone else, to get the share of the market which would keep you a volume car manufacturer.
Malcolm Rutherford Financial Times
He has come forward with some proposals and I thought that … . cutting out …
Prime Minister
We have not got a corporate plan … we have not got … proposals.
Malcolm Rutherford Financial Times
Would you consider another partner … .
Prime Minister
We are waiting. I have great faith and great confidence in him and he really has gone about it in a way that enhances one's confidence, and he will look at every possibility. [end p32]
Malcolm Rutherford Financial Times
What is the time-scale?
Prime Minister
I do not know when it will come. I expect it will not be until after Christmas, but I hope I am making it clear that there is no way in which you can keep being volume cars at 4%; of the market; no way in which you can get down to the 11%; to 12%;.
They have got some arrangements with Honda, but as you know—you saw the last half-year accounts—you were first to have them all on the front page—as you know, that is not a nationalised industry; it is a private sector which happens to be owned by the public sector.
Malcolm Rutherford Financial Times
There is still a feeling among industrialists, even ones sympathetic to you and to the Government, that somehow the Government is not as interested as it should be in the future of manufacturing industry.
Prime Minister
It is absolute nonsense. I am just longing for them to get bigger volumes. In general, but you will see different. Jaguar is doing fantastically well.
I tell you what else is doing well—Carrington Viyella. You know, you begin to know one or two firms who are fantastic. He David Alliance has cottoned on—I do not mean that in a fun way—to something which [end p33] other people have not sufficiently. What I would call the manufacturing raw materials, like polyester cotton, which is the sort of first fabrication, now is done so much by big machines, that there is no earthly reason why we should not repatriate it here from the Far East, because the labour content is such a small amount of the finished product. That is what he has done, and he says we do not need to import any of that, and their objective now is to become net exporters in the next three years. David Alliance … . fantastic … they are doing fantastic.
They are very varied … according to the way of doing it. There is another man called Peter Black who makes for Marks & Spencers. I could go through the companies who have done absolutely everything. Fantastic. But they are all companies which are at one with their people. Who have got their people working with them; who are very good to their people—as they should be—who therefore work together.
Ralph Halpern in a way, has done the same thing through Montague Burton's and then going into what he calls special … retailing …
Malcolm Rutherford Financial Times
You have just come back from the States. Is there going to be a … . agreement … . how is President Reagan going to manage over the next two years? [end p34]
Prime Minister
I do not know. What one is trying to do is to tease out what would be the priorities.
Let me say this right at the beginning. You do not have security unless you have effective verification. Verification on some of the things you are looking at is extremely difficult. It is said that Russia has two generals we do not—they are called January and February. It also has one called Geography, and you have got to have effective verification for those and you have got to sort out the verification before you really get elsewhere.
You will remember—I talk fast—immediately after Geneva, it was thought that the INF was separated from SDI. It then looked as if we lost that. One is trying to recover that, because I would have thought that even though at the moment the Soviet Union is saying they are all linked, you could separate that one, because its origin is different from the origin of the others. They put in the SS20s, so the Cruise and Pershings went in. So you can get those out, and that would be my hope.
Also, I hope we can go further on chemical weapons, because this really is quite devastating. You could be just devastated by chemical weapons, so long as they have the enormous preponderance, and as you know, we have quite a lot of protection but it is quite difficult to work in chemical protection the whole time. It limits you.
Those two, I think we can go ahead with.
We have been working on conventional for twelve or thirteen years in [end p35] Vienna and have not got anywhere. That also has to be stepped up.
Malcolm Rutherford Financial Times
Was it just a major misrepresentation when they reported you had gone to the States to get the declaration that Trident was still on?
Prime Minister
I had in any case intended to go about this time. The question was people were casting doubt on it. I never had any doubt about it. We negotiated there very thoroughly.
When it came to choosing the modernisation of Polaris, we went into everything very carefully, including Cruise as a possible alternative. Not on! You need far more submarines, far more weapons. They do not get through anything like … they have not the range. That is quickly. We went into it very thoroughly.
We went into the negotiation of the contract very thoroughly. We started our submarine and everything, and I never had any doubt about it, but I had to get it cleared. Also, it was not enough to get it cleared for us. It is also clear that the United States has to go ahead with the modernisation of its ballistic missiles and there is not much doubt about that. The Ronald ReaganPresident always believes in negotiating from strength and you do not negotiate from strength unless your missiles, your weapons, are the most up-to-date, and do not forget since Reykjavik nothing in practice has changed, and until you get an agreement nothing will have changed. So you go on [end p36] modernising, modernising. So that was cleared and both were cleared.
We also discussed what we thought would be the priorities. Frankly, if we get the programmes I have laid down this side of the turn of the century, we shall be doing very well.
Malcolm Rutherford Financial Times
You seem to be putting, from what you were saying in Washington, the deep cuts in strategic weapons down much at the end of that list of priorities, INF, chemicals. …
Prime Minister
I believe it is.
Malcolm Rutherford Financial Times
You are talking about a very long time?
Prime Minister
Yes. Verification—just get out the maps and have a look at it.
Malcolm Rutherford Financial Times
Are you in harness as closely, as well, with President Reagan as you were a few years ago? [end p37]
Prime Minister
Yes, of course.
Malcolm Rutherford Financial Times
Or have you not moved closer to the Europeans?
Prime Minister
One of the great achievements of his presidency is the lead was so strong, but also Europe and the United States—contrary to what you think—actually have moved closer together. I am not saying you, but contrary to what some of the media seem to think. And therefore, when he came from Geneva, he came straight to NATO—he got full support.
George Shultz went straight to NATO after Reykjavik, got full support, because there is a total understanding that the future of the free world is centred on the Atlantic with two bits each side, but it is centred on America and Europe together and believe you me, that understanding among leaders in Europe is stronger … .
Malcolm Rutherford Financial Times
… . Britain has itself moved closer to Europe and it makes for a little easier balance … .
Prime Minister
Let me put it this way. I do think that our role is fully realised both by Europe and the United States, because just being [end p38] off the mainland of Europe has always made that little bit of difference. Also, being strong has made that bit of difference, but believe you me, the bond at the top levels at the moment between America and Europe is immensely strong because we understand that to keep Europe free as well as the Free World, you have to have this important bond.
You have only got to say to people: “All right, what would happen if all the American bases went? If they took their troops out of Europe and then we got trouble?”
Malcolm Rutherford Financial Times
What is going to happen to the Labour Party and the other parties if you win again? Is it going to be further realignment?
Prime Minister
I hope so. I do genuinely say you never expect to be in government in perpetuity obviously, but I do just desperately hope that we could have two parties which fundamentally believed in what I would call the politics and the economics of a free society and I do not believe that the present socialism does. They always want to control people. It is the most arrogant thing ever.
Malcolm Rutherford Financial Times
(Inaudible)
Prime Minister
Not necessarily. I think you could get another realignment. [end p39]
Malcolm Rutherford Financial Times
After another Tory victory?
Prime Minister
After another Tory victory.