John Major: The Autobiography. John Major
so she naturally agreed with my decision wholeheartedly. In any event she wanted interest rates down, not up. It was ever thus in the latter years of her premiership – the anti-inflationary ‘Iron Lady’ is a myth.
Nonetheless, our working relationship at this time was very easy and relaxed. I was enjoying the Treasury and she was enjoying having a chancellor with whom she was comfortable. Our conversations were easy ones whereas hers and Nigel’s were not. I was much more open with her than Nigel had been, and she was with me.
But there were differences of emphasis between us. While I thought membership of the Exchange Rate Mechanism would help our anti-inflation policy, Margaret shied away from it. Her instincts – and Alan Walters’s arguments – had made her deeply hostile towards the ERM. Yet neither she nor anyone else was putting forward a serious alternative course of action, and I felt from the outset that she could be persuaded to enter if the decision to do so did not humiliate her.
EMU and the single currency were unpalatable to us both, and we agreed that we should oppose them, although we disagreed on how to do so. The Prime Minister simply wanted to say no. I knew this would be useless. It would not stop our partners going ahead, and would only deprive the UK of any influence over their plans. Margaret was dismissive, even scornful, of this argument. She did not grasp that I was not asking her to change her policy on the single currency – because I agreed with her on that – but to be more subtle in her opposition to it, and less dismissive of those colleagues who thought differently.
I saw also – though Margaret, I think, did not – the extent to which this policy dispute was hurting her with many in the party. It was not so much the policy itself as the dogmatic way she advocated it that was doing her such damage. She was in real danger. My pleas fell on deaf ears. She simply did not take the point. It was magnificent, but it was not politics, as events were to show within a year. In any event we did not begin to engage seriously on either the ERM or the single currency until the early spring of 1990.
Before that came my first budget. One of the attractions of being chancellor is the opportunity to deliver a budget. Iain Macleod once memorably remarked that ‘Money is the root of all progress,’ and he was right. For two years as chief secretary to the Treasury I had negotiated public spending allocations and learned that by releasing – or withholding – money it was possible to change political priorities. But in 1990 the options for making significant changes in the budget were grimly restricted. I was boxed in by the state of the economy.
This was brought home to me vividly in a letter I received from Nigel Lawson early in January 1990 offering some friendly advice for my first budget. The advice was good – even though it was uncomfortable. In essence, Nigel said: don’t put up taxes and don’t reduce them; don’t believe the seductive line that higher taxes will deliver lower interest rates; don’t reduce interest rates for some time; don’t on any account increase the £30,000 limit for mortgage interest relief (a constant demand of Margaret Thatcher’s); but perhaps raise motor car benefit scale rates and play around a little with indexation. All this was good economic advice, but not very exciting. I knew I would not be able to deliver the sort of radical budget I would have wished.
I began to examine the options within days of becoming chancellor. Whereas Nigel had been probably the most technically knowledgeable chancellor since Gladstone, he was not always sensitive to the frailties or needs of others. He did not know what it was like to run out of money on a Thursday evening, whereas I did. Nigel favoured the entrepreneurs who made the economy tick, and he had done much to benefit them. The Prime Minister favoured the hard-working strivers who were succeeding, and wished to help them to greater success. I wished to concentrate now on those who wanted to succeed, were prepared to work, but who were often trapped by circumstances from which they could not break out. They were my main concern, and I shall always regret that throughout my days of power the weakness of the economy – which our priority was to put back on an even keel – prevented me from doing more to help them.
The contribution I was able to make to them was to bring down the inflation by which they were being disproportionately hurt. In effect, this was just like reducing a pernicious and widely-based tax on the poor. But it was also, of course, removing a curse, not bringing a benefit, and had little political resonance. Worse still, the counter-inflationary measures we had to take inevitably hurt people, and often made us seem uncaring, and this, for me, was bitterly frustrating and galling.
I wished to bring a different emphasis to our tax and expenditure plans. Nigel’s radical budget of 1988 had dramatically reduced direct income tax for the higher-paid. It now seemed right for me to concentrate most on those who had least. I began to consider what we might do over a longer time-scale. I envisaged tax cuts exclusively at the lower end, aiming initially at a 20p basic rate and a higher threshold of income before tax bit. I favoured tax incentives to encourage self-provision and a radical reform of National Insurance contributions, which I saw as a lop-sided tax that bore only a passing relationship to social security entitlements. This – and much more – was in my mind, but in the prevailing economic conditions it could not go into my budget.
I did ask the Treasury for an in-depth examination of ‘a caring package for the budget’, but nothing very exciting emerged. The tax options they proposed didn’t help really low-income families, because they didn’t pay tax anyway, and public expenditure measures could only be limited as our national accounts swung from an annual repayment of debt to a large annual borrowing requirement. It was obvious even before the Treasury ministers’ and officials’ annual early-January weekend meeting at Chevening that we had no cash for an interesting budget, and would need considerable ingenuity if we were to produce one.
Over Christmas at Finings I closeted myself away from the festivities with papers prepared for the pre-budget discussions at Chevening. When I was reading them on Boxing Day Elizabeth, whose eighteenth birthday we had celebrated the previous month, asked me what I was doing. I explained to her that the Chevening weekend had become something of an institution. ‘So has Christmas,’ she said. ‘Put the papers away.’
The work over the early-January weekend at Chevening is intense, and so is the enjoyment. One traditional feature is the Ministers versus Mandarins snooker game, which in my year was won by Peter Middleton and Terry Burns against Norman Lamont and me. They had been practising at the Reform Club, which Norman and I thought was akin to cheating. ‘They give us boxes to work on while they practise,’ said Norman. Terry and Peter grinned: it was true.
Chevening itself was far from the house of my dreams. I found it austere and unwelcoming, unlike Chequers when I came to know it. Geoffrey Howe had loved it, and spent a great deal of time there. I went there as little as possible. Nevertheless, party games and leisurely strolls around the admittedly beautiful lake that lies to the rear of the house helped lighten our working weekend.
The economic situation was altogether less fun. In early 1990 we were coming out of a boom that had been unprecedented in scale, and driven by the private sector rather than by policy. Domestic consumer demand had far outstripped supply, and forecasts had failed to register the extent of it. Inflation had picked up despite a dramatic rise in interest rates and a tightening of fiscal policy. House prices had risen crazily following the stock market crash of 1987. Credit had risen and savings had fallen. Neither government nor private-sector forecasts had revealed the scale of what had happened. Forecasts were especially uncertain, and we were steering the economy in a fog. It was obvious that we would have to be cautious. The Chevening weekend illustrated that in spades.
Gradually, in meeting after meeting, a series of measures emerged. I knew that mine could not be a ‘big’ budget. The state of the economy meant that I was condemned, broadly speaking, to a fiscally neutral package. To enliven it I looked for some eye-catching innovations. Moreover, as this would be the first budget to be televised live, I wanted to present it in a way that would be understood as easily in the living room as in the foreign exchange dealers’ room. My working instruction to officials was: ‘We need to explain not only what we are doing but why, and also what we expect to come of it.’ I wished the presentation to be human and colourful, but the budget’s real importance lay in the substance, which the discussions at Chevening had largely preordained.
The physical compilation