Below is the text of Mr Major’s response on Economic Policy on 6th July 1989 in the House of Commons.
Mr. Martyn Jones To ask the Chancellor of the Exchequer what representations he has received from institutions in the City of London about United Kingdom economic policy.
Mr. Win Griffiths To ask the Chancellor of the Exchequer what representations he has received from institutions in the City of London about United Kingdom economic policy.
The Chief Secretary to the Treasury (Mr. John Major) My right hon. Friend often receives advice from the City, most of it unsolicited.
Mr. Jones From that reply I take it that the Chancellor may not have seen the Chase Investment bank report which stated that inflation was likely to peak at over 9 per cent. this year and that 18 per cent. interest rates would be needed to bring inflation down to 4 or 5 per cent. by 1992. Bearing in mind that the report was based on the Chancellor’s Treasury model, will the Chancellor confirm that his young friends in the City are correct and that he would be prepared to put interest rates up to 18 per cent. by 1992?
Mr. Major If my right hon. Friend had seen that report – I am not sure whether he has – he would certainly not hale agreed with it.
Mr. Griffiths Has the Minister received any representations from the City about how to deal with the problem of directors’ huge pay increases? He may have seen the report that five of the top 100 company directors had increases of 50 per cent. and 91 had on average a 28 per cent. increase in their pay? Bearing in mind the Chancellor’s views on pay and inflation, has he proffered them any advice on how to bring those increases down to a reasonable level, or does he believe in allowing wages to go up and keeping interest rates high?
Mr. Major I do not support unjustified pay increases from any source, including directors – and neither does my right hon. Friend. While I have no intention of defending them, they are not under our control.
Mr. John Townend Does my right hon. Friend agree with the remarks made yesterday by the Governor of the Bank of England, when he commented that aggressive advertising by the banks to persuade people to borrow more so that they can spend more makes him feel uncomfortable?
While credit controls are neither desirable nor practicable, does my right hon. Friend agree that the clearing banks and big City institutions should act responsibly? Would it be a good idea for the governor to invite the chairmen of the clearing banks to the delightful garden behind his office and – over a long, cool summer drink – tell them that it is in their long-term interests to act in the long-term interests of the country?
Mr. Major I share the governor’s instincts, but what action he takes is a matter for him. I certainly do not believe that credit controls would be the answer.
Mr. Charles Wardle Is it not imperative for the City and for industry alike that my right hon. Friend’s chief and abiding priority continues to be controlling inflation – even though, in the short term, that remedy may be painful to borrowers – because inflation threatens competitiveness, erodes savings, and threatens jobs?
Mr. Major My hon. Friend is entirely right. That is the central proposition before the Government at present, and my right hon. Friend has put in place the policies to bring down inflation.
Mr. Beith Is it not widely recognised in the City that London would be the obvious centre for a central European bank, and that Britain should be in the European monetary union of which that central bank would be a part? From a counter-inflationary point of view, would it not be better if that central bank had more of the independence enjoyed by the Bundesbank, rather than the relationship that the Bank of England has with the Government?
Mr. Major These are matters that will have to be addressed in the future, but I am bound to say that others may hold views that differ from the premise of the hon. Gentleman’s question.
Mr. Latham Before my right hon. Friend throws the unsolicited junk mail that he receives from the City into the wastepaper basket, will he ask some of the teenage scribblers to send him a table showing their predictions of economic outcome in the last five years compared with the actual outturns?
Mr. Major I shall be very happy to study those projections and the eventual outcome. It is undoubtedly true that over a run of years, Treasury forecasts have been the most accurate.
Mr. Gordon Brown As the Chancellor spent yesterday attacking the railmen, will the Chief Secretary take the opportunity that I am giving him today to condemn the pay increases which have given Sir Jeffrey Sterling a rise of £1 60,000 in one year alone, Lord King of British Airways £100,000 in one year alone, and the head of Warburg £350,000 – on top of the top-rate tax cuts awarded to them last year? Will the Chief Secretary explicitly condemn such pay rises – yes or no?
Mr. Major Yesterday, my right hon. Friend condemned the strike, not individual railmen. If the hon. Gentleman had listened, he would have heard what I said earlier about unjustifiable pay demands. They are unjustifiable whether they are made by directors or by workers.