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ON THE RECORD
RECORDED FROM TRANSMISSION BBC-1 DATE 15.11.92
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JONTHAN DIMBLEBY: Good afternoon and welcome to On the
Record. In today's programme, the Chancellor of the Exchequer, Norman Lamont,
gives his first extended interview about the prospects for the British economy
since the debacle of Black Wednesday two months ago.
Last Thursday the Chancellor of the
Exchequor, Norman Lamont, unveiled his Autumn Statement, or, as it's also
described, his mini-budget. With Britain deep in recession and now teetering
on the edge of slump, with the official unemployment figures rising towards
three million, has he done what's needed to restore that vital but elusive
quality - confidence? On the answer to that question hangs the fate of the
economy, of the government's policy and very probably of Norman Lamont himself
- I spoke to him at No. 11 Downing Street.
Chancellor, the great issue now is
confidence not only in your policies but in you yourself, you'd accept that?
NORMAN LAMONT: I accept that confidence is a vital
ingredient for the progress of the economy.
DIMBLEBY: And do you accept that that is
confidence both in your policies and in you as Chancellor?
LAMONT: The two go together.
DIMBLEBY: If one falls, the other falls.
LAMONT: Why don't we get on with the interview?
DIMBLEBY: Well, we will, you accept the point that
is part of the interview, it's rather a critical part of judging what you say
in an interview. The suggestion that I want to put to you against that
background is that the odds are stacked somewhat against you. You claimed the
other day, if I can quote you, "the best thing that government can do to create
confidence is to be consistent". Let me suggest to you that your hallmark
actually is inconsistency, you are the U-turn Chancellor.
LAMONT: No, I think that is completely untrue
and completely unjustified. For two years I have stuck very rigorously and
very toughly to a policy of getting inflation down which has brought enormous
benefits to this country. When I became Chancellor, inflation was just under
eleven per cent, today it is well under four per cent. The underlying rate of
inflation is now also below four per cent. That is a very respectable level of
inflation indeed. Now that has taken me two years of hard work, determination,
a lot of people like yourself telling me it was wrong, telling me to let go. I
stuck to that and we have seen the fruits and success of that come through.
DIMBLEBY: You see that's where people detect the
U-turn, on exactly this point because....
LAMONT: Might I just finish, I was going to
answer your question, if I'm allowed to. It is true that we were forced to
leave the Exchange Rate Mechanism, as were some other countries in Europe. As
were the Italians, as were the Spanish forced to devalue, as were the Finns
forced to leave their link to the ERM. I think anybody who understands
currency markets, knows that these things do happen when governments are forced
under a tremendous wave and tide of speculation to depart from one system to
another. I very much regret that that happened but I think I have put in place
a framework for policy that emphasises the continuity of low inflation but has
also enabled us to place somewhat more emphasis on growth.
DIMBLEBY: You see you talk about leaving the ERM
which I wasn't actually in the process of raising. I was sticking on this
question that you yourself talked about of inflation. It is a U-turn is it not
to be aiming for zero inflation and to say that is your overriding objective,
and then to say afterwards - now - well, inflation, if it's, as long as it's
below four per cent, it's not too bad. Is that not a U-turn?
LAMONT: No, not at all. Zero - price stability
was always very carefully and precisely defined by myself when you look at my
evidence to the Select Committee as being the range of nil to two per cent.
That is how price stability was defined, very publicly, by myself. I have now
said that the aim is one to four per cent, measured by the underlying rate of
inflation and that by the second...by the end of this Parliament, we hope to be
in the lower half of this range.
Now, we have been forced out of the ERM
- that may mean that we have some upward pressure on inflation in the short
term, but I had indicated that we will be back in the lower half of that band
by the end of this Parliament. That is precisely in line with what we were
saying before.
DIMBLEBY: Where does the term "zero inflation"
come from then?
LAMONT: The term "zero inflation", the term
"price stability", has been used on several occasions but it has been defined
as nil to two.
DIMBLEBY: So "zero inflation" when the Prime
Minister used that phrase, and when you use it, you didn't mean "nought" you
meant "one to two"?
LAMONT: There is a reason for this. If we want to
go into the technicalities, and that is that price indices do not capture all
the changes in the qualities of new products that are measured. That is why -
not just by me, but by many eminent economists and bankers like Alan Greenspan
round the world price stability, is equated with nil to two.
DIMBLEBY: Let me then put this to you. Not so
long ago, you were saying that Governments can't pursue growth. Now you're
saying we have a strategy for growth, and you tell me that that's not a U-turn?
LAMONT: We have put the framework for growth in
place. I have also taken a number of measures in my Autumn Statement - which I
hope we're going to be able to discuss - which I believe will be encouraging to
industry, encouraging to confidence. The measures I've taken to encourage
investment, through increased capital allowances, the encouragement to the
motor industry through getting rid of car tax, the encouragement to the
construction industry through the release of Local Authority receipts. All
these will help specific industries.
DIMBLEBY: OK. We'll come to that in more detail.
The question was a slightly different question.
LAMONT: But Jonathan, I do always answer your
questions if you will just let me get to the point
DIMBLEBY: Very well.
LAMONT: I don't try and avoid questions - you
know very well that I don't. The point is Governments can't just press a
button and the economy then grows. What Governments can do is to create the
overall framework within which it is up to business, up to individuals, up to
industry, to do their best, and we have seen in the last seven weeks very
considerable relaxation of policy.
We've had three percentage points off
interest rates, now down to the lowest levels since 1978; we've had a
depreciation of the pound, which I didn't seek, but none the less makes our
exports much, much more competitive. That is a framework within which
business now has more opportunity. And I very much hope that, given the
increased confidence, that British business is going to seize this opportunity
and we will begin to see the economy grow.
DIMBLEBY: Now, you've quite legitimately delivered
yourself of that and I'm going to put back to you the question that I put. I'm
not quarrelling with your description of what you think you've done. I'm
suggesting to you that once you were saying "It is the conquest of inflation,
not the pursuit of growth, which is the responsibility of Government"; now
you're telling me - and I heard the Prime Minister saying the same thing - "we
need a strategy for growth and we're going to get it"; and you're telling me
that those are the two same things?
LAMONT: But the two are connected.
DIMBLEBY: Connected, but they're not the same, are
they?
LAMONT: They - but you have to have one before
you can get the other. You have to get...
DIMBLEBY: You never talked about strategies for
growth did you?
LAMONT: Jonathan, am I allowed to answer any of
the questions.
DIMBLEBY: Yes, of course you are..
LAMONT: ....uou, you - I mean, let me ask you a
few questions, then we'll see how, we'll see how direct you are.
I wish to make this point, which I
believe is the answer to your question. You have to get inflation down. We
got it down from a very high level - eleven per cent to under four. Now that
is the pre-condition for growth and we had to do that first. Having done that,
we are now in the position that we are able to re-balance policy, we've been
able to relax it more, it's because inflation - the inflation figures that came
out on Friday, showing that the underlying rate had come down to three point
eight per cent - that really is an encouraging respectable rate of inflation.
Of course, I'm not satisfied I want to do more, but I believe we've got
inflation on a downward trend. We are able, in the light of that very dramatic
progress, which we had to have, to go more for growth. There's no mystery
about it.
DIMBLEBY: You ask for confidence Chancellor. Let
me put it to you - throughout 1991 you foresaw green shoots. In your Autumn
Statement, a year ago, you talked about Britain clearly emerging from
recession. In the Budget of last Spring you said we're emerging from
recession. In the Election, the Prime Minister said "Vote Tory on Thursday -
recovery on Friday". You were wrong, wrong, wrong and wrong again. And you
expect people to have confidence in you?
LAMONT: I don't think that the criterion for
judging the management of the economy is forecast and I'll say a word about
that in a minute.
It is true that I said in the Autumn of
1991 that I thought there were some green shoots in the economy and, indeed, I
was quite correct. There were. And I wasn't the only person who saw them.
There were businessmen who saw them too, there were economists who saw them.
It is also true, I may say, that earlier this year - when I kept very quiet -
many businessmen and many economists were saying that they thought, and indeed
the CBI said in April that they thought the recession had ended.
I think one has to be extremely
cautious about all forecasting and about all predictions. All, all, all the
Government can do is to put the conditions in place. The Government cannot
forecast precisely whether the economy is going to grow by one per cent, one
and three quarters per cent - there are margins of error in this, as I have
constantly, constantly tried to, tried to make clear.
DIMBLEBY: Okay, I don't want to go into the
forecasting thing, but if you say to people, now if people believe that what
you said to them is over a period, it's becoming as you said a year ago now,
"It's becoming increasingly clear that we are emerging from recession", and it
doesn't happen, the point is this surely, that the more you are perceived to
have got it wrong, the less they're going to have confidence when you say,
"We're getting it right?"
LAMONT: Well, I don't believe that there is a
government anywhere in the world that has seen precisely what was going to
happen to the world economy in the last two-three years. You look at the
analysis that have been made by the American government, by Alan Greenspan,
he himself has gone on record as saying "This has been a very difficult period
to read", and that is true not just in this country but everywhere in the
world, where people did think that the overhang of consumer and housing debt
that is held back recovery not just in this country, but in Scandinavia and
north America as well, that has been very difficult to read and for one obvious
and simple common-sense reason. It is very difficult to know precisely when
consumers with the amount of debt they've piled up in the late eighties are
going to feel: yes we feel really secure, we feel really confident about
our own personal financial position. That has been very difficult to read.
Because this has been a debt inducted recession it has been one that has been
very difficult actually to predict.
DIMBLEBY: Let me then suggest to you that the
package ....
LAMONT: And I think what you should have
confidence in is a person who has always stressed the huge uncertainties and
the difficulty of knowing what is going to happen tomorrow.
DIMBLEBY: Against the background which you
outlined there of gloom in the domestic and the international economy, the
package which you referred to earlier in this programme, let me put it to you,
is far too small to be significant. It is relatively speaking, peanuts, your
recovery package.
LAMONT: Well, the package of measures is aimed
at specific sectors, in particular I think the most important of the measures
is the one aimed at the housing market, where we are going to use public money
in a very short period of time to buy up empty, repossessed properties that
are overhanging the market, that is holding back the housing market, that is
holding back the whole economy. There are then the measures to assist the
motor industry, which I think is our almost most important manufacturing
industry, it is at heart of British manufacturing, it's done very well in
recent years and we don't want to see it held back, and then there is the
general encouragement to investment in the private sector through capital
allowances, the encouragement to investment in the public sector. These are
all specific measures aimed at particular points of concern in the economy, but
the most important thing that has happened, the most important measure of all
has been the relaxation of monetary policy in the last seven weeks, the three
per cent off interest rates and the depreciation of the pound which means that
our exports are very much more competitive than they were and at a time when
the world economy is rather alarmingly showing signs of slowing down again, it
gives our exporters who are faced with difficulties, a greater opportunity to
overcome them.
DIMBLEBY: I just .....
LAMONT: Don't underestimate the change that has
occurred in monetary policy, that takes time to have an effect, but to
describe that as peanuts would be grotesque, it is hugely significant.
DIMBLEBY: Well, I'll come if I may, to the cut in
interest rates. Just on the word peanuts, I say peanuts because what you're
actually doing in terms of the recovery package - the four billion package is
just over one billion for three years, which represents what? Something like
one fifth of one per cent of GDP against the depth of recession and the huge
anxiety that there is. That's why I say it's peanuts.
LAMONT: But that is the wrong way to look at it.
I don't think the significance of these measures is adding them up and saying,
what is their monetary value? Their importance is the effect that they will
have on specific sectors that gives me cause for concern, but look at the
effect if you want to add up totals - look at the effect of the reduction in
interest rates. Each one per cent off interest rates reduces industry's costs
by well in excess of a billion pounds. The eight points off industry's costs
has probably reduced industry's costs by something like nine billion pounds.
DIMBLEBY: But this..........Chancellor
LAMONT: But we have taken three percentage
points and there has been a depreciation of the pound that is the equivalent of
more off interest rates, all in the period of six weeks.
DIMBLEBY: And yet ....
LAMONT: .... and that is a very considerable
stimulus, call it what you like, relaxation of monetary .....
DIMBLEBY: You call it stimulus. It needs to be a
stimulus and yet you yourself cite the American example where real interest
rates are zero, at three per cent because of the level of inflation they're
actually zero interests rates. You cite that that hasn't had much effect on
the American recession which is much shallower than ours, you cite a European
recession which is deepening, what can lead one to assume that suddenly
business is going to say thank you, and that the debt laden public are going to
say thank you and go out there and start spending as you want on the basis of
that interest rate cut.
LAMONT: Well, all history would lead one to
conclude that a relaxation of that magnitude would have a very considerable
effect, but don't let me delude anybody, don't let me avoid the implication of
your question. There are huge uncertainties on this and it depends on the
behaviour of millions of people in this country, but I think there are
differences between the situation in North America and in this country.
Furthermore although we've been through an extremely worrying period in the
last few weeks since September the sixteenth, not all the indicators in the
British economy this year have been bad. Far from it; we did see after the
election a bit of an upturn in activity, GDP actually grew in the second
quarter of the year, we did see manufacturing production rise in both the first
and second quarters of this year, industrial ...
DIMBLEBY: It's now down again ins't it? The
lastest report - manufacturing output's down again.
LAMONT: ..it went down by point four per cent in
one month, that is worrying, but on quarter, on quarter basis went up in the
first two. Retail sales have risen for two quarters in succession....
DIMBLEBY: And we're still in recession, we're
still in recession.
LAMONT: Yes.
DIMBLEBY: So it hasn't done the trick.
LAMONT: May I just finish. And we have seen
some quite good figures for motor car production. The most worrying aspect of
continued recession I think has been what has been happening in the housing
market and what has been happening in the property sector, construction, and
that is why I had specific measures aimed at those areas in my Autumn
Statement. I also was concerned notwithstanding the relative strength of
British industry's performance for a large part of this year, I was concerned
that in the third quarter and in the recent past we've seen a fall off in
industrial confidence which is why I brought in the reduction in interest
rates, I brought in the increase in capital allowances and this will have its
effect.
DIMBLEBY: Right, now you have said it will have
its effect, you also said in answer to my previous question that you recognise
it would depend on what individuals and companies did.
LAMONT: We live in a free society where people
don't go around behaving to some computer programme, some economic model. That
is why I think the point that has to be made is there is no precision about
economics. The economy is not a machine, you don't press a button - it
consists of individuals...
DIMBLEBY: You've said this Chancellor - you've
said this and I will and you will be I know very gracious and allow me to
pursue, um, what will be regarded by the public as important points - like the
ones that you have been dealing with so far. You talk about restoring
confidence. Let me suggest to you that from the public's point of view the
only certainty - given the uncertainties that you described - is that for the
indefinite future your strategy for growth also delivers increasing
unemployment, designed inevitably to produce the exact reverse of confidence.
LAMONT: Well, I believe that unemployment will
go on rising for some time, but what is certain is that the measures I have
taken will assist the employment situation. The most important thing we could
do for employment was, firstly, to get inflation down but, having done that,
has been the relaxation of monetary policy and the opportunity that there
now is for business. I can't emphasise this too often. We have had a very
considerable change in monetary conditions in this country. Business now has a
huge opportunity.
DIMBLEBY: But how can you expect, Chancellor....
LAMONT: May I just make this point. We have had
a very favourable response from British business. They have said that this is
what they wanted, they have overwhelmingly endorsed the package and welcomed
the steps that have been taken.
DIMBLEBY: Because....just started to listen
for the first time - that's what they'll tell you.
LAMONT: They, they, they believe that this gives
them a great opportunity and I'm sure they're right.
DIMBLEBY: Well, that's what they sometimes say and
some of it's in public and they, they put out all kinds of noises about what
they really think. The, the, the point is this surely...
LAMONT: I'm not sure I know what that means..
DIMBLEBY: Well, that they say at last - I'll tell
you what they say, because they don't want to say it so noisily with their
names attached to it, but you know what the real world's like. They basically
say "At last - they've started to listen. They're doing some of the things
that we've asked for for an awful long time - we're quite glad of that. But do
you think we're confidence about whether we're coming out of recession - Oh
no, boy, we're not". That's roughly what they say, if you want the gist of
it.
LAMONT: Of course, of course there has been a
considerable damage to confidence following the events of September the
sixteenth, but I believe that, quite genuinely, I talk to industrialists all
the time - I talk to them in private, not in public - I believe that those
measures will give them a lot of confidence and they were, as you say, based
very much on what businessmen had told me they wanted to see.
DIMBLEBY: Now, you could hardly expect to return
to this question of unemployment. You say it will rise; indicators say it is
unlikely not to reach three million or above; that's going to go on for an
uncertain period ahead, and you seek and expect a return to confidence with
millions of people unemployed and tens of thousands of people per month about
to become unemployed. That's not a condition in which the general public says
"Let's go and consumer spend".
LAMONT: Yes, but unemployment has to fall as the
consequence of the economy growing. Unemployment cannot logically fall in
advance of the economy growing, and we have got, first of all, to get industry
moving, get the growth which the measures I have announced are designed to do.
If we can get that, then we will see unemployment first stabilise and then come
down.
DIMBLEBY: But you - you say first stabilise and
then come down. You would not reject that view that says that unemployment is
going to rise to three million or about, would you?
LAMONT: Well, we don't make forecasts for
unemployment - it is an extremely difficult thing to forecast. I've said to
you that I think unemployment will go on rising for some time yet, but I
believe that all the measures I've taken are very positive ones, they're
welcomed by industry, they will help to get the economy moving again and, in
the end, that is the way that we will tackle - which I very much want to tackle
- the problem of unemployment.
DIMBLEB7: You described the problem principally as
one of debt - the recession is debt-led. How are you expecting those people
who are feeling in debt, who feel fearful of being unemployed, who see the
person down the road, if they aren't, getting unemployed, to say "Yes, the
Chancellor tells me inevitably unemployment's going to go on rising". You
expect them in the same breath to say "And I'm going to go out and spend"?
LAMONT: Well, indebtedness has been gradually
coming down. The easing of interest rates will help the position further and
if we can just return to some of the encouraging trends that we were beginning
to see in the first and second quarters of the year on manufacturing, more
recently in some other sectors of the economy, if we can just get that back,
with the further relaxation of policy that we've had, that will be a boost to
output and then to jobs.
DIMBLEBY: Chancellor, do you acknowledge that this
time this is your last throw? If you do not lift us out of recession your
strategy for growth will be seen to be properly in tatters.
LAMONT: Well, I have always said we can't just
press a button and growth will appear, and I'm not claiming that I have pressed
a button in my statement but, as I say, we have created the conditions, we've
had these specific measures and we've had a very, very good response to them.
One of the points that I have made,and
make again now, is that although I believe that our membership of the ERM was
the right policy and helped us to get inflation down, I don't think there's
much doubt that in the last few months of our membership, when we had seen the
effects of rising interest rates in Germany, our policy had become rather over
tight than I might ideally have wished and, having been forced out of the ERM,
something I'd rather not have had, we have been able to rebalance policy and
give a little bit more emphasis, well more than a little, to growth and to give
business the opportunity that it wants, and it has that now.
DIMBLEBY: And if that opportunity isn't taken. If
that confidence, that illusive commodity, confidence, does not swiftly return,
let me put it to you again - your policy would be in tatters because you would
then be driven into a borrowing level that would be astronomical. That's a
correct economic analysis is it not?
LAMONT: Well, you're quite right to say that
borrowing is a worrying feature of the present situation and any Chancellor
must always have an eye on what borrowing is doing to the stock of debt, the
national debt, of the country and the longer a recession goes on, that adds to
borrowing.
DIMBLEBY: And it would become astronomical....?
LAMONT: Well, bear this in mind. We actually
have, in terms of our total debt to GDP, one of the lowest levels in the
European Community. Thanks to the marvellous progress that was made in the
nineteen-eighties we reduced our debt, but you can very quickly reverse that
situation and if the sorts of levels of borrowing that we have now went on for
a long period of time, then you would be moving into a situation where the
total indebtedness, the Government debt represented by this country, went up
again.
That is why what something we haven't
talked about, an important part of my package was a very tight limit on public
spending, because I don't believe that you can spend your way out of
recession. You have to accept the facts of where you are, you have to accept
that tax revenues are not coming in as quickly as you might like and,
therefore, you have to limit your spending to what the country is actually
producing and earning.
DIMBLEBY: Chancellor.....
LAMONT: And that is what I did. I think it was
the tightest spending round that we have had in decades.
DIMBLEBY: That may or may not be the case but it
doesn't alter the point does it that if you don't know get confidence, if you
don't get the beginnings of recovery that debt will grow, forcing you into the
powerless position of either having to cut and cut again or have a run on the
pound or up up taxes, are you today saying to me - there are no circumstances
in which I would, as you were all claiming at the election - I would put up
taxes or put up National Insurance if I have to.
LAMONT: Well, I'm not going to go into my next
Budget. I would make a judgement at the time of that as to what I think is
necessary. This Autumn Statement was about spending. Because of the fiscal
position, I judged it right to have a very tight public spending round indeed.
These problems are not unique to this country - because recession is in many
parts of the world, the pressure of borrowing and of a weak fiscal position is
everywhere in the world and I hardly know of a European country that has not
had to have retrenchment on its spending in precisely the way that I outlined
in my Autumn Statement.
DIMBLEBY: You would not, Chancellor, be prudent
would you to rule out, given the circumstances in which Britain finds itself,
the possibility of having to consider tax increases in one form or another?
LAMONT: Well, my Autumn Statement was about
spending. We always look at spending in isolation in the Autumn Statement or
until we move to the unified budget next year which I..one of the reforms that
I have introduced, long overdue, and I believe very sensible reform but I will
make my judgement about the overall balance of taxation in the economy at that
time.
DIMBLEBY: That rules in, if I may say so, that
rules in that possibility.
LAMONT: Neither rules it in nor rules it out.
Now there you're trying to get your story out of the programme, you won't get
it from me.
DIMBLEBY: Well, there is an interesting thing,
there is an interesting thing on what you said on that because you so
clearly - at least in the public mind at the last Election - ruled out
increases in taxation. You're now saying you neither rule them in nor you rule
them out. That's the story, if you're interested in the stories.
LAMONT: We have particular pledges which we will
stick to; that is our habit to stick to our election pledges; this government
is not in the habit of breaking them and doesn't intend to.
DIMBLEBY: Confidence in you, which we touched on
right at the beginning, is by most measures at a pretty low ebb, something that
a Chancellor inevitably has to endure when things are bad. Does it ever cross
your mind that confidence in the economy and in the policy of the Government
now that you have what it is in place, might be increased if you made way for
someone else?
LAMONT: I have no intention of making way. I
believe that I should soldier on with my policies. It's been a very rough time
indeed, it would be astonishing if I wasn't much criticised, given the
circumstances that we have been through, but I just come back to the point I
made earlier.
For two years I slogged it out in the
most unpromising environment, doing what absolutely had to be done, getting
inflation down from eleven per cent to under four per cent. If I had not done
that, just imagine what would have happened. Where would we be if I had just
acquiesced in it, as people were constantly telling me, give it up, don't carry
on with this policy and just let inflation be at eleven per cent. We would be
heading for never ending increases in unemployment, spiralling out of control
debt.
DIMBLEBY: I'm sure that's not a pitch to say, keep
me in my job please, but let me put it this and this is not in any way meant
personally, but for one reason or another, it is very evident that you do not
inspire trust as Chancellor. There is not confidence in you amongst the
business community, in the City and in the broader public. If you were
persuaded that confidence in the economy would be improved if you were to go,
would you then depart?
LAMONT: All Chancellors at all times when goings
have been rough have been much criticised, much unpopular and you see exactly
the same with Nigel Lawson and Geoffrey Howe. I believe that I have the total
confidence of the Prime Minister, of the Cabinet and I think it was
demonstrated that I have the total confidence of the Conservative Parliamentary
Party.
DIMBLEBY: If you were pursuaded, however, that
your departure would increase confidence, would you in due course go?
LAMONT: Look Jonathan, I'm not going to go into
this. I have stated the position and you may love stirring it up but this is
really not a question that's on the agenda.
DIMBLEBY: I love asking questions Chancellor, that
may be in the public mind. Thank you very much for answering them.
...oooOooo...
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