John Cole, BBC
Prime Minister, what did you feel came out of this morning's Neddy [NEDC] meeting?
PM
It was very constructive, very realistic, there was a lot of good news about, and a lot of good prospects for the future and Terry Beckett opened with the first paper - alas it is his last meeting - and he said “Look, there is good news, let us accentuate the positive and deal with the problems that still remain”, and that set the tone for the whole meeting.
John Cole, BBC
What is the good news?
PM
The good news is that output is up, that there is an excellent standard of living for those people in work, really good news is that people are no longer just talking about pay in isolation from other things but pay in relation to productivity, pay in relation to output, pay in relation to performance, always in relation to something and that means that when people are applying for wage increases they are also looking at productivity. It means [end p1] that we are staying competitive with the Germans, the Japanese and so on. I think another aspect, they realise that, yes you have got to get pay right and unit wage costs, but you have got to do more than that; you have got to have good design, you have got to have good quality, you have got to have good delivery, you have got to have good management, you have got to have good investment - all of this - and so really we were all on the same side in wanting flourishing industry.
John Cole, BBC
But the occasion of you taking the chair at the Neddy [NEDC] meeting is its 25th anniversary. Now when Neddy [NEDC] was set up it was in a very different political climate; with both Conservative and Labour Governments believing in tri-partism and discussions between industry, unions and Government. Now, is that not a bit anachronistic in the Thatcher era?
PM
I certainly think that Governments are responsible to Parliament and I have never believed that you should go with the CBI, the TUC and Government behind closed doors and set something called a norm for pay disregarding totally the difference circumstances of different industries, the different productivity, the different investment, the different market; no, that is not how life works and you know when we had prices and incomes' control, prices did not beat inflation and incomes only stored up trouble for the future, so yes, that era has gone. I remember, Mr Cole, that you actually reported the first Neddy [NEDC] meeting. I read out the [end p2] headline “Neddy [NEDC] opens quietly - no mention of wages”; do you remember that? That was when you reported the meeting twenty-five years ago. Yes things are different; we are much more market oriented, and what does that mean? It is not a great economic theory. What the market means is that the wage earner and the housewife go down to market, they decide what they want to buy and therefore they decide whose goods should be prosperous and successful.
John Cole, BBC
But after the period of that first report of mine that you mentioned, we then had a period when Reginald Maudling was Conservative Chancellor and George Woodcock was General Secretary of the TUC and they did indeed talk about norms and so on and when did you last see the trade unions to talk about any relationship to wages and unemployment?
PM
I do not believe in norms. I believe in successful, profitable industry. I believe that if you work for a really profitable concern that you should share in that profit because, after all, you have helped to create it. I believe that you should have shares in that undertaking. I believe in variety; when I go down to buy something from one of the great big chain stores or from any shop, what I look at is: is it good value for money? That is how I use my own wages or salary and if that is how you spend your own money then when you come to produce other things for other people to chose, you must have the same criteria: good design, good value for money, good quality, good delivery; you do not get that by norms, you get that by performance related pay. [end p3]
John Cole, BBC
But wasn't there a report this morning from the Director General of Neddy [NEDC] which was taking a somewhat more downbeat view of the economy of wage costs and of unemployment, and didn't it say that it was unlikely to come below 3 million?
PM
Well, the first, the opening paper by Terry Beckett was that he thought that unit wage costs had not gone up this year - at any rate if they had it had gone up very much less than previously and so that we were not being outdone by our competitors - that was very, very good indeed; there was some discussion about the statistics, but it is not possible, Mr Cole, to argue with the fact that the standard of living is higher than ever before - it is. There is good news from industry. Productivity is going well ahead, very well ahead, so as in 1983, we have in this country grown consistently faster than our competitors, so the gap between us is not opening up; we are closing it and that is due both to good management and good relations on the shop floor and I think that the trade union legislation that we brought in has transformed the atmosphere and so today we were not talking about two sides of industry. I opened and said “Look, whoever we are here, we are all on the same side in wanting flourishing industry because that is where our prosperity and jobs will come from”.
John Cole, BBC
But you disagree about how to get it; I mean Norman Willis of the TUC was quoted coming out as saying “The two documents demolished the Government market forces approach and you will not [end p4] solve unemployment by cutting the wages of the low paid even more”, now that does not sound like …
PM
The two documents did not demolish the Government's market oriented approach; the facts show that it is that approach that is producing the goods, producing the higher standard of living, producing the growth, producing the productivity. The TUC are very anxious to say that no matter what the wages, it does not have any effect on jobs. Mr Cole, that just is not so. If the wages demanded are such that the price of the goods will not bear the wages then the whole thing goes out of business. That is why the great advance on this was that people were not just talking about wages unrelated to the product, they were talking about pay related to performance, and of course they are and that is the way they buy their goods.
John Cole, BBC
Both sides were talking about that were they?
PM
Pay related to performance and you will find it; go through the first paper, you will find it. Pay related to performance; they all want - we used to call it a high wage, low cost economy, these days it is called a high wage, high productivity. Yes we were all on that side.
John Cole, BBC
One thing you have not mentioned is unemployment. What is [end p5] your own view and what kind of view did you express this morning about the way of bringing, or when you are going to be able to bring unemployment down …
PM
Well, as you know, for the last six months, it has been coming down. Slight hesitation last month over the Christmas period but the five months before that coming down and as you see from all of the advertising, all of the work we are doing on Action for Jobs, never before has there been so much effort to try to get the unemployed back into work; we spoke particularly about the longer-term unemployed. As you know, everyone who has been out of work for more than a year and now for more than six months is coming in for an interview and within a few more months we will have interviewed every single person and been able to help them as to whether they get a job on the Community Programme, one of the voluntary programmes, whether they want a particular form of training, and we are trying to relate that to vacancies where employers still cannot get people for the work because they are not skilled, have not got the right skills, whether they go to job clubs or whether we can get them a different sort of job so that is much better than it has ever been before; that we are actually seeing every one of the long-term unemployed and constructively helping them. Some of them it is re-motivating for the first time, but above all they know that someone is interested in them, interested in their future and trying to help them.
John Cole, BBC
Twenty-five years ago when Harold Macmillan was Prime [end p6] Minister, there were also rising living standards but unemployment then was under one million and interest rates were 5&pcnt;; when do you think this country will be back to those happy days?
PM
Just exactly when we can produce more goods that can compete with others. There is not another answer, there is not an economic formula, that is what one said - the prosperity of a country is the prosperity of its industry and commerce which is an effort on the part of all of its people. You are thinking and talking of 1962. We were beginning to fall behind. You know why; in the post-war period there was a seller's market; we were able to have it much more easily then than now because the people whom we defeated or the people whom we rescued from Europe, their industry had not yet got back into full production. The industries of the far east, the Japanese, the Taiwanese, Hong Kong, Singapore, they were unknown, they were just beginning; now we have to compete with all of those. That is part of realism. You cannot go back to those days. Yes we can compete, yes we are competing, yes, we in this country actually export more per head of the population than the Japanese do, so we were saying “Look, let us have a look at the good news, let us beat the drum for Britain and let us take courage and confidence from it”.
John Cole, BBC
Just a couple of specific points, Prime Minister. Governments do have a role, do they not, in certain limited areas, one of those is interest rates; do you hope to be able to get interest rates down before or at the budget? [end p7]
PM
I cannot talk about the budget as you know. The vital thing is that we keep inflation down, you were talking about some earlier days, the terrible decade was the decade of the 1970s when people's savings were losing their value every year at an appalling rate, people who had relied upon having that money in their retirement. We must keep inflation down. If we let it rise through our financial policies we should soon find ourselves unable to compete with countries like Germany. The moment unemployment is coming down the number of jobs being created is rising. The standard of living is higher than ever before and for those who have to be on supplementary benefit or benefit of one kind or another, that too is higher than it was when we took over, so we are looking after those who are unfortunate but not in a passive way; we have got the biggest training programme for them and we are interviewing each and every one. As I said this morning, training is not a palliative for unemployment - it is the key to the future.
John Cole, BBC
Roy Hattersley has said today that whatever you do about taxes and the budget that if you win the election there will be a massive post election increase in VAT. What do you say to that?
PM
Roy HattersleyHe has said that many, many times before.
John Cole, BBC
Do you deny it? [end p8]
PM
Roy HattersleyHe has absolutely no grounds whatsoever for saying it, he is doing what the the Labour party have done in the 1979 and 1983 election; they hadn't anything to say for themselves so they tried to set up fears and smears and they will go on doing it and I hope people will judge them without any policies that the country wants, totally unable to trust the people, so what the Labour party is saying to people: “We are going to take more of your earnings because we, the Labour party do not trust you to spend them. We are going to spend them for you.” That is their policy. You wait for the budget. You know full well I can say nothing about it. I hope it will be a very, very good one.
John Cole, BBC
I am talking about after the election, Prime Minister.
PM
You wait for the election campaign. I will give you the policies and I will set them out very fully and you will cross examine me.
John Cole, BBC
But you did say in 1979 that there would be no increase in VAT or your colleagues did.
PM
No, Mr Cole, we said in 1979 that we would transfer some of the taxes onto indirect tax because we believed in getting income tax down. We have got income tax down. We did pursue what was in [end p9] the manifesto and transferred some of the tax to the indirect tax and so VAT did go up. There were three rates before then. One was zero, one was 8&pcnt;, one was 12&pcnt;. We kept the zero rate for things like food, housing which are absolutely vital and transport and we put the other two rates up to 15&pcnt; where they have stayed ever since. There is some VAT on some foods, chocolate biscuits for example, that was put on actually by the Labour party, yes we kept it on.
John Cole, BBC
Can you give me an undertaking that there will not be an increase in VAT?
PM
You are trying to go ahead of what the manifesto will be. I will give you the manifesto at the time of an election. But we are not up to an election. We are not even to the next budget. I cannot talk about that. We will have a very good manifesto, a very forward looking manifesto, and I am afraid, Mr Cole, you must wait for it.
John Cole, BBC
When will we get that, Prime Minister?
PM
After we have announced an election.
John Cole, BBC
And when will that be, Prime Minister? [end p10]
PM
I do not know.
John Cole, BBC
When will you know?
PM
When I have decided.
John Cole, BBC
Thank you.