(THE SOUND QUALITY IS TERRIBLE BECAUSE OF THE NOISE OF THE VC10)
Prime Minister
(inaudible)
Question
So what is a realistic target?
Prime Minister
Probably the only realistic target is round about nought.
Question
Really? Is that realistic?
Prime Minister
Yes. Well, Germany has just got about, got it round about there.
Question
(inaudible).
Prime Minister
Germany has had it zero. Unless you think in practice if any increase in wages of salaries that you take is matched in a technological age proportionately by increase in output, you need a bit more than that because your increase in output also has to go towards extra population and so on but it is possible to do. It should not be too difficult to do in a technological age but what I was just saying was that with 3.3%;, I think we are just slightly [end p1] above the average of OECD.
Question
Prime Minister, will lower interest rates help or hinder the move towards zero?
Prime Minister
Well, the way you gentlemen talk about the rate of inflation, there is the retail price index; that is not technically the rate of inflation, as you know, because you cannot say the rate of inflation is actually the move up or down of mortgages for example. Our retail price index is one of the few that has mortgage rates in. That affects it quite a lot but will it help the RPI? If the mortgage rate goes down, as I understand it may because it did not go down with the last half percent, then it helps the RPI. Do not forget, equally we have got bigger increases this year, firstly because of electricity and gas prices because those have been down for a long time. Gas has actually gone down and they are now having to come up because of investment of one kind or another.
Question
But are you worried that lower interest rates will encourage the economy to overheat?
Prime Minister
Well, do not forget, your exchange rate is going up which tightens your money supply therefore it does put you in a position to lower your interest rate a little bit without having any effect on your money supply because the rising exchange rate tightens it and then that does enable you actually to take it down—the interest rate—by a little bit without it having a neutral effect. [end p2]
Question
You are obviously worried about the level of the Bearsted (phon) curve expansion. Now, that is likely to be encouraged by lower interest rates.
Prime Minister
It is counterbalanced. You have got the higher exchange rate which is adverse on some, advantageous to others. But that higher exchange rate tightens your money supply but it does open up the possibility of reducing your exchange rate by a little bit.
Question
But a higher exchange rate obviously means that foreign goods are s… into shops and lower interest rates mean that people can afford to buy them more.
Prime Minister
Yes indeed. But the exchange rate is something that you are not wholly in a position to determine because a lot of it depends on what people think of other countries and what other countries are doing.
Question
But how seriously should we take these reports of a disagreement between No 10 and No 11 … .?
Prime Minister
Now you should not, Bruce, you should not. You should know better than to ask me that.
Question
Prime Minister, you mentioned mortgages just now. One of the surprises in the budget was that there was no restriction on [end p3] mortgage tax relief. Have you set your face against that for traditional political reasons or do you think there will come a stage in your economic policies…?
Prime Minister
You have your tongue in both cheeks when you ask me that question. Is that an angelic look on your face? Devils have angels as well. No, you know full well that I feel very strongly that mortgage relief is one of the few which I am absolutely determined to retain and I really do not think very much of people who having got their own houses, got their foot on the first rung of the ladder with mortgage relief themselves attempt to stop other people from climbing up by the same route.
Question
In that case, would you like to see the ceiling grades sometime?
Prime Minister
I am not going to go into that. It has been raised once during our time but what you have to watch also is the price of houses as well. But of course in London, £30,000 is very small and there are many many young people who just have not been able to buy with that amount of relief.
Question
In your visit to Turkey you said you were hoping to boost British trade and it was a bridge building visit—that sort of thing; have you come away pleased with what you have got out of it?
Prime Minister
Well we do not quite know what we get out of it. Obviously [end p4] we discussed quite a large number of contracts but in the end you have to win contracts on merit. But I mean also you do really beat the drum that really our industry is in quite good shape now, very good shape and I think we will find that we will win quite a number of contracts yet purely on merit which is a mixture of price, design; value for money in one way or another. It is not always the cheapest; it is the best value for money.
Question
In any particular field Prime Minister?
Prime Minister
The ironic thing is that they admire our bridge-building design—a chap called Dr Brown as you know who did the Severn—and of course he did the second Bosphorus. Dr Brown did the second Bosphorus bridge? Dr Brown is one of the best bridge-builders in the world. At the moment he is not the one whose design … . But in fact, yes, we did not get the second Bosphorus bridge but they had to come to us for design and the steel. We did not get the second Bosphorus bridge. … in the end and they had to come to us for the design of the bridge and the steel.
Question
There was apparently some feeling that you might be able to do magic with Turkey's inflation rate. Did you give Mr Özal any particular advice?
Prime Minister
No, they have got to deal with that. As I indicated at the Press Conference, they are at a completely different stage of their cycle but Turgut Özalhe is bringing it down and is attempting to bring it down. [end p5]
Question
And how should he do it given that he needs growth?
Prime Minister
There is only two ways … by not having too big a budget deficit and by having your money supply not too hard ahead of your production. It takes a time to get to those. As we know, it is not always easy to bring your public spending down as fast as you would wish. The view we took was if we could not do that, we would cover our expenditure honestly by taxation. He has got quite a high public sector deficit but he is bringing it down as fast as he can.
Question
But … protection for investment outside in Turkey and of the protection of Intellectual property rights; what particularly did you have in mind?
Prime Minister
Well, first we have not got an investment protection agreement with them. One is being negotiated. Now it is no good talking about joint ventures and more investment in a country unless people who put their money there are safe from it being appropriated by nationalisation. Now he has already completed—as Turgut Özalhe tells me—some agreements with some other countries and certainly there is one that is being negotiated with us but I must see that it is very soon completed.
On intellectual property rights, that is tape … patents and copyright, some countries do not fully observe them and we just have to look at Turkey and see that they do observe them because I remember going to South Korea—some of you were with me [end p6] when we went to South Korea—they did not observe, for example, all our patents on drugs? Once you put all your knowledge into a patent for the world to see you are telling them just exactly the design of the various things and how to make them and if they do not observe them then obviously it undermines your willingness to go on pouring in research and development and we just have to have a look at the intellectual property rights which are not satisfactory with Turkey.
Question
Turkey … Britain and the rest of Europe. I mean it is evident from driving around this afternoon how far they have got to go. I mean cheek by jowl by a modern factory … some awful areas. Do you think they can get up to scratch to join the Common Market in the foreseeable future?
Prime Minister
They will tell you that if you look at their standard of living not by converting it into a dollar which depends upon vagaries of the exchange rate but you looked at it on purchasing power parity, which is what the money will buy in Turkey—what a salary will buy in Turkey compared with what a salary will buy in another country—that their standard of living is higher than the ordinary method of converting into dollars and they are concentrating as fast as they can on getting it up. And that of course does make it easier over the years for considering them for Europe. Portugal is not a very high standard of living as you know.
Question
… . population growth in the country and did you feel that [end p7] they were actually making the effort to bring the rate … . down?
Prime Minister
They say again that it is starting to come down particularly in some of the south eastern areas. They say that gradually it is starting to come down and the reason it comes down in most countries is by greater education of the people and of course by far greater survival rate among their families and the realisation of parents that they have large families and the possibility of launching them on a reasonable standard of living is not necessarily very high.
Question
Can I come onto Cyprus? Now if partition in Ireland had been accompanied by a movement of population we might think this was a very desirable state of affairs. There is obviously rough justice in the present … . but they do work. Isn't it almost ludicrous to want Cyprus reunited; we do not want Ireland reunited?
Prime Minister
It was your initial premise, Bruce, that partition in Ireland had been accompanied by a very considerable movement in population; it was not.
Question
I know.
Prime Minister
But it was not and never has in Ireland. There have been various attempts to do it.
Question
But that is perhaps why partition may work in Cyprus in a way [end p8] … .
Prime Minister
After World War II [sic], as you know, there were substantial movements between Greece and Turkey, the Turks in Greece were made to move out to Turkey and the Greeks in Turkey were made to move out to Greece so it is over a million each way. I think Cyprus is very complex, there is a better atmosphere between Greece and Turkey which helps. I have … Mr Vassiliou would like a settlement but when you said that, as I indicated at the press conference, it is when you get down to the detailed negotiating against a background of mutual suspicion. You have got to go also with the negotiations, have a look at them as a whole and see what you are prepared to compromise on and what is the alternative to having a unity state because a divided state would not be easy and when you have partition you still tend to get minority problems in each section so you then have to have a look at what drives you to depart from … the alternative. You have to … politics is often a question of alternatives. But I think the sooner they get down to it the better.
Question
It must give you great satisfaction to say as you said this morning, “We are good, we are worth knowing.”
Prime Minister
We are. I said that to some Japanese … We are.
Question
When did you decide to come out in such frank terms? [end p9]
Prime Minister
I would think about certainly a year before the election because I thought we have got all of the economics pretty nearly right. There are perhaps still some restrictive practices and more to be done on ensuring we have competition, we have got the paper out now. But we have got the tax about right and now we have re-established the incentive because we were getting out of Kilter with other nations on their top tax. Ours was much higher than theirs.
One of my goals has been, is supposing we get inflation down, sound financial policy, tax incentives, a lot of red tape gone, competition working well, that people have been so constrained for twenty years that they have lost the habit and the desire of enterprise, well I will be there [sic], it would have been a great worry. But the fact is they have not and that was evident somewhere between a year to eighteen months before the election that new businesses were building and all of a sudden some of the older ones were expanding, they were doing new products, they knew the importance of design, management of returns. They were really managing again and all of a sudden it became evident that the kind of enterprise that built us in the first place is still there. I think it was evident at the last election.
Question
We are on take-off again.
Question
At the other end of the scale, Prime Minister, are you confident that the new Social Security changes, that you got the [end p10] balance right in every sector? There seems to be a lot of disquiet in the Tory party about penalising those who have some small amount of savings while perhaps … £6000 … are now going to lose out on housing benefit?
Prime Minister
If you have a system which concentrates on helping those in need and bringing up people to a basic income, you are going to have difficulties wherever you draw the line and that is what some of the critics will not admit. There is no alternative to concentrating the help on those most in need. Now if I had said to you in the election in 1979 that we would be defining … help with housing and rates and you would still get need if you had up to £6000 in the bank, you would have thought that quite generous wouldn't you? And that is a measure of how we have come on actually helping those in need out of the greater amount of money we have had.
You see, why they are going on individual cases is because they cannot argue on the broad main case. Now if you are never going to do any Social Security reform because some people are going to be worse off, you would never have had the Labour party producing fair rents. Dick Crossman did not then say, “We cannot do this because some people will pay a higher rent” , he said “We have to do it, we cannot go on as we are” .
On the big broad things there is far more being spent by the working people of this country on social services and I reckon we are all working between sixteen [sic] unless they are in full-time education … than ever before. What they cannot argue with is the colossal [end p11] improvement in the health service. You do not go from spending £8 billion on the health service and spending nearly £23 billion this year—£8 billion to £23 billion over eight years—without it being a colossal improvement. You do not go from £16 billion on the Social Security to £46½ billion in eight years without it being a colossal improvement. You do not have an extra £1.1 billion on health from last year to this, an extra £2 billion on Social Security without every single penny piece of that going to either those who are either sick or in need. But you simply could not go on with the highly complex thing under which people on Social Security, if they needed something extra for laundry; they got a laundry allowance, something extra for diet; they got a diet allowance, they got an extra heating allowance. You simply could not go on calculating it individually so you took them all; we did not give them back to the Exchequer or anything like that, you took them all and evened them out so of course those who got colossal high individual allowances are less well off. On the whole there are a tremendous number of people who have gained.
Question
Having achieved all this, what is your own dearest personal ambition for the next stage of the Thatcherite revolution?
Prime Minister
Well, we still have to extend ownership further and enable people to build their own security for retirement which is going on very well; 70%; of people who retire now have not only their basic pension but a second pension as well—70%;. Half of the people who retire now also own their own homes so you are moving into a totally [end p12] different kind of background for people who are retiring now.
I think there are still some more restrictive practices to go. The battle is still to realise that it is not the Government that provides more for Social Services; it is the earnings of people, and if you take too much out of people's pockets of their own earnings and leave them less and less over which to decide how to spend, you will in fact throw sand into the wealth creating engine. And that you must not do.
The objective is to get people earning more and more, creating more and more wealth so they raise their own standard of living but because they are creating more and more wealth, by taking the same or a lower level of taxation, you still have more than enough for the Social Services and things you want to do.
Question
This bears on the image as … presumably.
Prime Minister
Yes it does. It bears upon your whole attitude. You see the attitude which some people still adopt. If they say “I can get as much from Social Security by not working as I can working” . My reply to them is, “You are not entitled to live off your neighbour if you can earn that same amount yourself” .
Social Security is for people who genuinely cannot find a job or are sick or who cannot earn. The money does not come from Government; it comes from your neighbour and if you can earn the same amount as you get on Social Security yourself, then the fact is that it is your bounden duty so to do, because George Bernard Shaw: “Freedom incurs responsibility” . And you are primarily responsible [end p13] for your own earnings and your family and it is only when you are actually unable to do that because of illness or genuinely being unable to get a job that you are entitled to call upon your neighbour to keep you. But you see the phrase “Am I my brother's keeper?” ; it is not “Is my neighbour my keeper?” Can you see the difference?