Statement by the Rt Hon Nigel Lawson, Chancellor of the Exchequer, speaking at a Press Conference at Conservative Central Office, 32 Smith Square, London SW1, on Monday 8 June.
BRITAIN IS GREAT AGAIN
In this campaign the Labour Party has been talking about anything rather than the economy. Yet everything else depends on economic strength and success. They don't talk about it because their predictions of doom and disaster have been totally confounded.
Their predictions of falling living standards, ever rising unemployment and double digit inflation have all been proved wrong—living standards are higher than ever and rising fast, unemployment is falling and inflation is in the low single figures and set to fall further.
Labour's last throw was to predict a balance of payments crisis and collapse of the £. In fact, the balance of payments this year has been in surplus every single month at an annual rate of £2 billion.
And the world's confidence in Britain is such that our foreign exchange reserves increased last month by the biggest amount ever recorded.
This week, the Prime Minister, Sir Geoffrey Howe and I are going to Venice to the Economic Summit of the 7 major industrial nations of the world. At a time when there are worries about world economic growth we go as the Government of the country with the fastest economic growth of all, pursuing [end p1] policies which have earned us the respect of the world and are increasingly being emulated overseas.
As a result of eight years hard work, eight years of sound policies, eight years of skilful economic management, decades of relative economic decline have at last been reversed.
There is one and only one possibility for the economic disaster Messrs. Kinnock and Hattersley have been vainly predicting. That is the election of a Labour Government. Fortunately, it is not going to happen.
ENDS [end p2]
(2) Conservative Party Archive: transcriptMr Paul Channon
Industrial production today is at its highest ever level. Total investment has grown by nearly eight times the rate under Labour and is at record levels. There is a net increase in the number of new businesses—about 550 every week and, last year, a record number of new companies was registered. On manufacturing, in particular, output is up 15 per cent. on the trough of the recession and is accelerating fast. Investment is up 20 per cent. in manufacturing on the low point in 1983. Profitability is up. Exports of manufactured goods are at record level—in the first quarter of 1987 up 31 per cent. on the recession. Imports have slowed down and were down 8 per cent. in the first quarter of 1987. The future prospects for the manufacturing industry and industry, in general, are extremely good.
Mr John Moore
I shall make two points in looking at the past eight years to illustrate the way in which our sustainable economic success actually helped the spending patterns in my Department. In comparison to the collapse in the national road-building programme between 1975 and 1979 when, at the end of that period, national road spending was down 36 per cent., we have seen a 30 per cent. real increase in the national roads programme.
Secondly, there is an interesting illustration of the expansion in our local authority airports. Between 1975 and 1979, only £16 million was invested with Government approval in those airports; £220 million has been invested over the past eight years. Again, I think that is an illustration of the way in which we can sustain that kind of investment with the basic success of our economic policies.
Q (Mr Ian Aitken)
Can I draw the attention of Mr Chairman to some statements by Mr Win Godley in yesterday's Observer, which seem to be at odds with what he has just been saying? He said that comparing the period 1979 to 1986 with every [end p3] previous seven-year period since the early 1950s, the growth of total output in Britain has been lower than in any previous seven-year period and far below the average rate of growth. The growth of manufacturing output has been, for the first time, negative. The growth of total investment—close to zero—was about the same as the mid-1970s, but far lower than in any seven-year period before 1970–1974. The growth of manufacturing investment has been negative by a larger amount than ever before.
Mr Channon
Not surprisingly, I do not agree with much of that. Britain's manufacturing output has, in fact, grown year by year for six years. It is particularly a sharp spurt on the second half of last year—the growth of manufacturing output. There are many sectors in manufacturing which are performing extremely strongly and the figures are accelerating. To look at the prospects, one only has to look at the recent survey by the CBI and the survey by the chambers of commerce, which show industry, in general, and manufacturing industry, in particular, performing very strongly indeed.
Mr Nigel Lawson
I was going to add that I think that is tremendously important. There is a lot of dispute with different politicians saying different things about manufacturing industry. To get the truth, you have to go manufacturing industry itself and see what the people in the manufacturing industry are saying. If you go round the factories and if you look at the CBI survey of manufacturing, you will see that manufacturing is far more optimistic than ever before. It is fair to say that, just as—according to Denis Healey—the Russians are praying for a Labour victory, manufacturing industry is praying for a Conservative victory.
Q
You are going off to the Economic Summit in Venice today to collaborate, amongst others, with the French and the Germans. How do you think they will feel about being portrayed as a pathetic poodle and a diminutive dachshund on your election ads?
Prime Minister
Some of them might have quite a sense of humour about it. I love that ad; I think it is beautiful. I love the little French poodle; I really rather think that [end p4] the German Alsatian is quite fetching, don't you? It is not a dachshund! Have you seen it?
Mr Norman Tebbit
It was not a dachshund.
Prime Minister
Get the poster! A dachshund! Would you like spectacles?
Mr Tebbit
Have you got a Crufts correspondent at The Economist? It was a German Shepherd.
Prime Minister
It was a German Shepherd dog, which is very much like an Alsatian.
Q
It was rather tiny.
Prime Minister
Would you kindly get a poster for Miss Sieghart? We will all sign it. This is not a dachshund.
Q (Mr Peter Kellner)
In view of the good news that Mr Channon has brought this morning, can you assure him of a place in your next Cabinet if you—and for that matter, he—are re-elected?
Prime Minister
I am not going to make my Cabinet here this morning. I have other things to do.
Q
Does the Chancellor think that the British economy will be strong enough in the next five years for him to give away £6.5 billion to create a system of independent taxation with no losers? Or will he, as the previous answer, say that it is likely to be a halfway house with some winners and some losers?
Mr Lawson
I think that the economy will be strong. We will have the scope. As you see from the Red Book, we have the scope, as the economy looks like developing given the policies we are pursuing, for a steady progressive reduction in the tax burden. The question is: in what way will do it? That is one option. Whether we will go the whole way, or go a halfway house and use the scope for tax? cuts [text unclear] [end p5] in other ways remains to be seen. The basic point, however, is that the Labour Party, by its enormous expenditure programme—£35 billion of extra expenditure; a figure which has now been broadly confirmed by Philips & Drew who are not particularly well-disposed towards the Conservative Party—inevitably, even if they only got as far as halfway towards their commitments before they collapse, would require a substantial increase in taxation.
It really is disingenuous, to say the least, for the Labour Party to say that they are going to spend a great deal more and then not be prepared to admit that, inevitably, that would involve taxing a great deal more, too.
I am saying that we will bring taxes down. I am not saying here and now the precise way in which we shall do so.
Q
Last week, the Prime Minister appeared to rule out the possibility of increasing VAT, or widening VAT to include fuel. But when Mr Lawson was asked that question on television on a phone-in programme, he said that it would depend on budgetary events. Which one is correct?
Prime Minister
There is no difference. Go on (to Nigel Lawson).
Mr Lawson
No, there is no difference. As on all issues there is collective Cabinet responsibility.
Prime Minister
… zero on food and on gas and electricity. As I said, no one in their sane senses would ever bring before the House of Commons any proposals to put VAT on children's shoes and clothes. It remains as it was with Tony Barber.
Q
The Chancellor keeps on insisting that the economy is doing splendidly. But how can he reconcile that with the fact that one in five people in Liverpool are out of work?
Mr Lawson
In every country in Europe, unemployment is high. Indeed, our unemployment level is not very different the Common Market average. What is very encouraging is that unemployment in this country is now going down, whereas in most—not all—of the other European countries, it is [end p6] going up. But this particular problem of unemployment is a problem which does not, in any way, mean that the economy is doing badly. It is a problem which has to be addressed in the ways in which we are addressing it—by keeping a steady rate of growth going and by the programmes we have for re-training and helping the unemployed to find work. But if you look at all the indicators, whether it is manufacturing productivity, or whether it is our share of world trade in manufacturing oods, that is a remarkable thing. For decades, our share in world trade of manufacturing goods which, in many ways, is the acid test was declining. Over the past five years, our share of world trade in manufactured goods has, for the first time, been rising.
If you look, too, at the overall economic growth and inflation, which is vitally important, inflation is at the lowest for almost 20 years. One has got to say that there is a particular unemployment problem, which is throughout Western Europe, which we are addressing very directly and successfully.
Prime Minister
You will have heard of Robert Kilroy-Silk. He said, at page 74 of ‘Hard Labour’, that, in fact, the Militants and their ilk in Liverpool are the biggest deterrents to job creation in Merseyside that there have ever been. Dozens of times in the last few years, I have tried fruitlessly to persuade companies that I knew were looking for sites for new plants to locate on Merseyside and in Knowsley. But each time—he said—the decision went against us because of their perception of our militancy. That is why Liverpool does not get the manufacturing that it needs. Not even an urban development corporation—small as it is, but successful as it is—can overcome that militancy in Liverpool. The Left Wing do not want successful private sector within their borders. They would rather go on without it in the way in which they are.
I wish to make a second point—the Norman TebbitChairman will come in with some even more pithy points—is that if you want to know whether the economy is booming and if you are in television, look at the amount of advertising you are getting and the prices you are charging for it. Whopping great prices so high that many of the small businesses, which would [end p7] like to advertise their wares, cannot get on your wave lengths. If you are in the press, look at the numbers of advertisements you are getting, look at your ‘situations vacant’ and look at the vast number of pages devoted to sales of property. Ladies and gentlemen, you are doing well under Tory Government.
Mr Tebbit
About a year after Mr Kinnock had praised Liverpool council for pursuing truly Socialist policies, he was pithily describing the situation there as one in which the council were hiring taxis to go round distributing redundancy notices. So I do not think that we need look very far to see some of the principal causes of the higher-than-average unemployment on Merseyside.
Q (Elinor Goodman)
Going back to unemployment—you say that your economic policies have earned Britain the respect of the world, but can you really say that our relative rate of unemployment has earned Britain the respect of the world?
Mr Lawson
There is respect throughout the world for the success of the British economy and anybody who travels abroad cannot fail to be struck by that. You read the accounts of the British economy overseas. As I said, of course, unemployment is high; it is a problem throughout Europe. The difference between the rate of unemployment in this country and the Common Market average is very very small indeed. It is tiny. It is, at most, 1 per cent. difference between the Common Market average, whereas the great thing is that unemployment in this country is going down, but in many of the other countries in Europe, it is still going up.
What I find difficult to understand is while we are ready to accept that unemployment is too high and it is a problem—which we are tackling very vigorously and successfully—our opponents seem quite unable to accept that business and industry are doing better than ever and that the economy is sounder than ever. Indeed, by refusing to accept it, they simply show that they are totally out of touch with what is happening in Britain today. [end p8]
Prime Minister
No other country in Europe had the amount of overmanning, or the amount of restrictive practices of some of the kind of trade union conflict approaches, that we had in 1979. No other country in Europe had the massive strikes and dislocation that was our experience in 1979. That had to be turned round. Equally, no other country in Europe has been creating jobs since 1983 at the rate that we have. As you know, if you take the numbers of people as a proportion of the population of working age, we now have a higher proportion in work—and have had for some time—and the population of working age is higher than either France or Germany or Italy.
Q (Mr Andrew Roth)
Prime Minister, do you think that Britain is economically strong enough to become a full member of the European monetary system?
Prime Minister
We answered that last week several times.
Q
Some time ago—if I may continue—you said that Britain was not strong enough to withstand the pressures of the system. Is not joining not a sign of weakness?
Prime Minister
No. You will see that Britain's reserves are very very much up and doing well. The economy is very strong and the position is that we shall review joining the EMS in the same way as we have reviewed it from time to time. One day when we believe that the time is right, we shall join. The economy is very strong here. I do not think that anyone is actually arguing with that.
Q (Mr Peter Riddell)
Could I ask the Chancellor about the Venice Summit? We appreciate the summits have now turned into more political events, but what actually on the economy will come out of it? Is his trip actually worth it?
Mr Lawson
Yes. I think it is very important that we should have the trip, even though it is, for some of us, slightly curtailed on this occasion. A number of things, I hope, will come out of it on the economic front. First, the reaffirmation of the agreement to maintain stability of [end p9] exchange rates, which was first agreed between the Finance Ministers of the seven in Paris in February and reaffirmed in March. We will continue with that.
Secondly, very firm undertakings against protectionism. There is a real risk there of trade war. Thirdly, trying to persuade the Americans, Germans and the Japanese to take the measures necessary to both underline the stability of the exchange rate and to prevent world growth from faltering too much. Fourthly, agriculture—dealing with the problem of agriculture throughout the world. Fifthly, I shall want to get further support for the initiative which I launched in Washington to help the very poorest countries of Sub-Saharan Africa which are very heavily indebted. I am glad to say that there is a growing measure of support for that initiative.
Q (Mr Ian Waller)
Prime Minister, whatever you may say about the strength of the economy, one of the most striking features of the past few years has been the growing extremes of wealth and comparative poverty, which is both economically wrong and many find it morally offensive. At its most extreme, it is seen in the City of London where young men are earning a couple of hundred thousand a year shovelling money around or shares and so on. Yet a mile or two away, people are lucky if they can earn £70 a week.
Prime Minister
The fact is that when the wealth is created, the social service expenditures and benefits go up and have. There are some people who would rather have the social service benefits lower than they are provided the whole range of incomes in our economy was lower, and provided the whole standard of living was lower. We do not believe that you are able to help the weaker people by taking away from the talents and abilities of those who create the wealth. Nick Lyell will answer your question. Those on social services and social security benefits have improved their lot.
Mr Nick Lyell
I will make two points. First, we are levelling up. If you look at the independent family expenditure survey—quite independent from Government—carried out in February 1986, you will find that almost every section of society has improved its standard of living since 1979. The [end p10] average family had already improved its standard of living by over 18 per cent. The same was true of great increases for those on three quarters, or half, average earnings. The average pensioner had improved his standard of living by 18 per cent.
Secondly, we have created the wealth for what is a 40 per cent. real increase in what we spend on benefits and pensions: £13 billion a year. Nigel Lawson will tell us that that is getting on for twice what we have handed back in standard rate income tax cuts. So we are levelling up.
Mr Lawson
It is a matter of personal face what your views are about the City yuppies. What we have done is reduced the rates of tax on the capital taxes, the stamp duty, stocks and shares as well as on houses and also, the top rates of income tax. What is striking is that as a result, much more wealth is being created and, therefore, I am getting—as Chancellor—a much bigger tax yield in real terms, a very substantially bigger tax yield in real terms, which is helping to finance the public expenditure which pays for the benefits that Nick Lyell was talking about.
Q (Mr Lewis)
Will the Chancellor say if, in fact, the inflation rate is set to fall to 3.5 per cent. as has been reported?
Mr Lawson
I do not know what next month's figure will be. Even if I did, it would not be proper to say. But what I have said is that the budget forecast that I made that inflation would fall to 4 per cent. by the end of the year, I now believe will be bettered. We shall be below 4 per cent. by the end of the year.
Q (Mr Adam Raphael)
If you are re-elected on Thursday, is your aim in the next Government to reduce the personal standard rate to below 25p? What is one to make of the hints that one is to get a 25p rate rather sooner than the next Budget?
Mr Lawson
I do not have any plans to have Budgets out of season; that is the Labour Party's habit—having Budgets every season of the year—crisis Budget after crisis Budget. We shall have our next Budget in the Spring of 1988 in the [end p11] normal way. Whether we will be able to get the income tax rate down to 25p then or not remains to be seen. Obviously, it would be quite wrong to say anything about that now. But we shall get it down to 25 per cent., and when we have got it down there, we will have to decide on the next step.
Q (Mr John Cole)
In answer to Mr Aitken 's question about Wynne Godley, both the Chancellor and Paul Channon gave us an account of the confidence of manufacturing industry. But they must know that Wynne Godley 's allegations were very precise; they were, in effect, of selective statistic mongering. If the Chancellor is in a position to deny them, would he take the opportunity to do so now?
Mr Lawson
John, you have described them very well. They were selective statistic mongering. That is precisely what they were.
Q
Who is doing that?
Mr Lawson
That is what he was doing. Wynne Godley is a distinguished oboe-ist and I have known him for many years. He has been predicting gloom and doom ever since this Government took office and his predictions have been consistently falsified.
Q
Has Mr Moore calculated what the effect will be of Labour's plan to switch the petrol tax revenue? Apparently, the idea is to abolish the road tax and to put it on to petrol tax. What would that mean for industrial costs and the average bills for the ordinary motorist?
Mr Moore
I can only say what the precise costs would be for the ordinary motorist in the sense that if there were a switch, it would be something between 38p and 40p additional tax on a gallon. But, of course, Labour have not exactly explained precisely the implications for commerce and industry where 85 per cent. of the actual freight in our country moves by road. Obviously, there would be considerable implications for the costs of industry. [end p12]
Q
Prime Minister, Dr Bavadra, the Prime Minister of Fiji, is in London to get your support for the restoration of democracy——
Prime Minister
I am sorry, but we are still on the economy and we must stay on the economy.
Q
You have been banging the drum about your economic advances during this press conference and, indeed, during the whole election. Do not you think that there should be just a note, at least, of apology to 3 million unemployed? It seems very strong—surely to them—to hear you sitting here what a success you have been in all your years of office when so many millions of people do not have jobs. It seems extraordinary.
Prime Minister
Yes, but the Chancellor of the Exchequer has said that he understands that. I am afraid, yes, there has as a result of many changes, including technological change, been increases in the unemployed. But since the last election—since we were last re-elected—there has been the creation of 1 million new jobs and unemployment is now falling. The only way to continue to get unemployment falling is to continue the sound good housekeeping in financial affairs that this Government have had, and to continue with tax incentives, reduced controls and the trade union reforms which we have had, which, in fact, have transformed the economy, have increased the standard of living and have also increased the standard of social service. Jobs come from business. Jobs are coming from business. During this election campaign, I made a point of going to many factories which are increasing the number of people they are taking on, including Jaguar. Some factories have jobs which did not exist in 1981 because either the product or the service could not have existed then. That, and David Young 's programme, is doing more to help the unemployed than we believe is being done in any other country in Europe.
Mr Tebbit
Ladies and Gentleman, David Young will be holding a further briefing session this morning concerning the plans of the parties for trade union reform. It will be at [end p13] 11.30; pithy, short and effective, and well worth attending as ever.