NB. THIS TRANSCRIPT WAS TYPED FROM A TRANSCRIPTION UNIT RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT; BECAUSE OF THE POSSIBILITY OF MIS-HEARING AND THE DIFFICULTY, IN SOME CASES, OF IDENTIFYING INDIVIDUAL SPEAKERS, THE BBC CANNOT VOUCH FOR ITS ACCURACY ................................................................................ ON THE RECORD RECORDED FROM TRANSMISSION BBC-1 DATE 15.11.92
................................................................................ 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...