Michael Heseltine – 1990 Speech on the Balance of Payments and Interest Rates

The speech made by Michael Heseltine, the then Conservative MP for Henley, in the House of Commons on 6 March 1990.

The right hon. Member for Swansea, West (Mr. Williams) has done us all a service. His speech was thoughtful and comprehensive, embracing a coherent strategy on how to attempt to run an economy. To paraphrase what he said, there was the once-and-for-all bonanza of North sea oil and “we”—I assume he meant the Government of which he hopes to be a member—will be able to use that money for a once-and-for-all investment process for the greater benefit of the British people. That shows the difference between the Opposition and the Government. The weakness in the Opposition’s case is that they have no idea how to use the money, which they would have confiscated through high taxes from the people who had extracted the oil from the North sea.

It is precisely because Governments the world over do not have the sophisticated mechanisms for investing money for profit that the system described by the right hon. Gentleman does not work. Socialism fails because it misuses resources in its hand. It is the marketplace that finds the probable investments, and that is what the Labour Government, had they been in power, would have denied—the proper effective disposition of resources.

The seriousness of the right hon. Gentleman’s speech, with the conclusions of which I wholly disagree, was in stark contrast with what I think he described as the “knockabout rubbish” of the speech of the hon. Member for Dunfermline, East (Mr. Brown)—which was funny. By any standards in the House, it was extraordinarily funny, and the better the jokes, the more apparent it became that he had absolutely no policy contributions to make. If this country wants to be run on the basis of inspired humour and the odd wit of Opposition Members, it has today seen what lies over the edge of the abyss.

The hon. Member for Dunfermline, East was quite specific about what he wanted to do. He wanted to introduce a Budget for investment to bring down interest rates. We were led to understand that that commitment was at the top of his list of priorities. He did not tell us what the Budget would contain to bring down interest rates. Bringing down interest rates would mean cutting the level of demand in the economy. As my right hon. Friend the Chancellor eloquently put it, “If it ain’t hurting, it ain’t working.” The hon. Member for Dunfermline, East did not say where he would impose the pain necessary to get a grip on inflation.

The hon. Gentleman then moved on to the second broad sweep of policy. I wholly agree with many of the sentiments he expressed, but then, all hon. Members would broadly agree with them. He argued for more education, training and research and development. He would be the first to say that those are essentially long-term policies. It is no use thinking that, if we say that we are going to put £1 billion into education, the kids will be in the factories within 24 hours, changing the nature of the performance of British industry. It is a long-term policy. With research and development, we must start with a gleam in the eye, work through to the application and then the product emerges.

Mr. Gordon Brown indicated assent.

Mr. Heseltine

The hon. Gentleman is generous enough to agree with me.

With training, we have to start the process, find people to do the training and set up the facilities, and, in five to 10 years, we will probably get a greater output of trained people. The hon. Gentleman and I are at one on that, but there is a lacuna in his argument. If, when he and his party were in power, they were doing all the training, education and investing in research and development, why did the economy fall apart when they left power? We should have been the beneficiaries and inheritors of that great legacy, but they had done none of those things.

The third, and by no means the worst, item of the hon. Gentleman’s agenda for change is regional policy. If I understood him correctly, the implications of his speech were that the northern parts of our economy work less effectively than the southern parts, and a little bit of subsidy here from central Government to stimulate a little bit of job creation there, will change things in a way that all Governments since the war have failed to do. However, there is a small problem for the hon. Gentleman——

Mr. Allen

The right hon. Gentleman tried it when he was Secretary of State.

Mr. Heseltine

No. The hon. Gentleman says that we tried it. The Labour Government did something quite different. In their regional policy, they spent a few hundred million pounds from the centre to the regions while they took billions of pounds from the regions in the south-east in one form of subsidy or another to the City of London and the pension funds.

What do the Opposition think they achieved with the capital gains tax that destroyed the family businesses of the north? What do they think they achieved when they subsidised pension funds to take the money out of the wealth-creating companies to institutionalise them in the City of London? What did they think they achieved when they gave the publicly quoted companies of the south of England the privilege of taking over the businesses in the midlands and the north with tax incentives? Where did the power go from? From the north. Where did the power go to? To the south. When the communications explosion of the 1980s took place, where did it take place? Where the head offices were. Where were they? Down here. Why? Because they had been driven out of all parts of peripheral Britain by the Labour party. That is what has happened.

The fourth argument of the hon. Member for Dunfermline, East—his cri de coeur to my right hon. Friend the Secretary of State for Trade and Industry—was, “Give me this one hope.” The hon. Gentleman’s message was, “Let there be no more restructuring of British industry.” I have heard that before. That was the essence of nationalisation—remove the industry from the initial owners, subsidise it, protect it, prevent it from being changed, do not let it diversify, ossify the economies around the country’s periphery, and then expect those economies to compete.

That is what the hon. Member and his party achieved. When the market winds blew, the subsidised, nationalised industries were the first to shed the horrendous number of jobs which, if they had been changed and diversified when the economy was prosperous and growing, would have resulted in much less pain and much more benefit. It took the Conservative party to face up to that, and it is because the Opposition have learnt nothing that they must remain what the hon. Gentleman made them today—an eloquent, uproarious joke, fit for opposition but not for government. [HON. MEMBERS: “What about Jaguar?”] Hon. Members know it has already been sold to the Americans.

I wish to speak about the central issue to which my right hon. Friend the Secretary of State for Trade and Industry referred—the battle against inflation. Conservative Members understand that that is the battle we must win. I am grateful that the Chancellor is here today. He and my right hon. Friend the Secretary of State should seriously consider the first act of nationalisation in the post-war world—the nationalisation of the Bank of England. The Government have achieved wonders by working back through the corridors of history and privatising most of the major nationalised industries. It is curious that we did not concentrate on the first act of nationalisation, that of the Bank of England. We all know that it cannot be privatised, but there is every conceivable reason why we should seek to distance the Bank of England from its current relationship with the Government.

I say that for two reasons. First, the battle for inflation is an institutional and a psychological battle. It is of critical importance that the people, the politicians and the wage negotiators of a country know what is the overriding priority of a nation, and that has to be the battle against inflation. If, as with the German, American and Swiss banks, the central bank is distanced from the Government, everybody knows that the only way in which politicians can change the influences on the value of money is by direct and open direction through a bank that is likely to resist it. That is a huge sanction. There would be no diminution in the sovereignty of the House, because it would be easier for the House to detect the process that was at work, and the power built into the central governor’s position would have a major stabilising impact in the direction that I have described.

Secondly, whatever one might consider to be the likely effects of German unification, we are moving, driven by treaty, towards the completion of the single European market. One of the major benefits of that market is not just the removal of the structural inhibitions between the 12 countries: it is the enhanced confidence that can come from the investment profile of a much larger and more stable home market, a market that enables Britain, within a partnership of Europe, to stand on all fours with the United States or Japan. One method of achieving that is to obtain a degree of monetary stability in the wider market place.

The debate is increasingly becoming one of sovereignty, and there are no ways in which, in logic and in the ultimate, that issue can be avoided. But in the first stages towards a more co-ordinated market, the European monetary system and the disciplines of the exchange rate mechanism, no unacceptable loss of sovereignty is involved in moving into such a mechanism. But one would preserve that sense of national independence if we saw it happening coincidentally with the establishment of a central independent bank in Britain.

We should suggest to our European partners that they should all establish independent central banks on the same model as the Bundesbank, operating to the disciplines of the Bundesbank. Let us have no illusions about that: the disciplines of the Bundesbank are precisely those to which we are all committed. It is precisely because it has been so successful, and the deutschmark so powerful, that all of us recognise that either it will make it on its own, dominating the European economic marketplace, or there will be some arrangement within which we conduct a dialogue; in other words, we have access to the top table.

A way in which that could be achieved without loss of national sovereignty would be if an independent team of hankers, operating to the same disciplines as the Bundesbank, were established in the national capitals, acting coherently as a council of central bankers.

It would be perfectly possible for any country to opt out of the exchange rate mechanism or not to attend the meeting of the council of central bankers if it wanted to. But if one did not attend, it would become apparent that one was worried about the disciplines themselves and, in leaving the central mechanism, one would lose the underpinning of the exchange rate mechanism itself, so there would be a price to be paid. But if the central management of a national economy is such as to justify such a removal from the mechanism, one will pay that price in any case, so the important point is to establish disciplines which bind us into the highest standards, which are those of Europe, the deutschmark and the Bundesbank.

It is apparent from what we have heard in the House today that the alternative policies of a putative Government are those of yesterday, with no understanding of the changes that are coming. But for Britain the 1990s will be more traumatic and the change more far-reaching than is yet perceived. We shall deal with the rationalisation of industry and commerce on a scale that is relevant to the competitive challenge of the modern world only if we get inflation under control and if we have disciplines that are equal to the best in Europe. That is something that only the Conservative party understands and has the will to achieve.