John Major: The Autobiography - John Major

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threatened to resign unless he got a better settlement. I once asked him at the beginning of a meeting whether he wanted to threaten to resign now, or to wait until we had finished. ‘I think I’ll wait,’ he grinned, knowing even then he would only settle at the last moment. Scotland was well served by a series of Scottish secretaries who turned public expenditure negotiations into an art form.

      The public spending survey is always hard pounding, and I found it doubly so first time round. In my favour was a growing economy and buoyant revenue; working against me was a general election manifesto that enabled ministers to claim a mandate for specific expenditure. As the survey covered the first three years of the Parliament they tried to include every election promise they could identify, and usually overestimated the expenditure necessary to cover it.

      I tried to reduce or eliminate bids by challenging the case made for them by the ministers facing me, although in doing so I was always acutely aware that they had to return to their departments and defend the deal they had accepted. I always left them with what we in the Treasury called a ‘lollipop’, even if we had denied many of their cherished schemes. I had no wish to undermine their credibility or that of the government.

      One tale needs scotching. John Moore, who after the election had become Secretary of State for Health and Social Security, and I were said to be rivals, and it was widely believed in some quarters that I gave him a poor settlement in order to damage his political career. John was a former Treasury minister convinced of the virtues of low spending, and rather quixotically he tried to match his policies to his philosophy. In pursuit of this admirable consistency he bid for too little money in the public expenditure settlement, rather than too much. This concern for prudent economics would cause him much difficulty – a rare and honest approach that earned him opprobrium.

      Gradually the deals were reached. Some took a long time. George Younger, at Defence, conceded only after many meetings and a firm refusal on my part to meet his demands. He was a hard negotiator, and eventually accepted that if he pushed his case to an adjudication by the so-called ‘Star Chamber’ – which would determine the outcome if I could not reach an agreement with the minister concerned – he would get no more cash. George was a good defence secretary: he attacked in strength and retreated in good order.

      In the 1987 spending survey all the deals were eventually reached in bilateral meetings, the first time for years that the ‘Star Chamber’ had not been called upon. The Treasury’s spending target was met too, although I had agreed an extra £1 billion for capital spending and large increases for health, law and order, defence and education. Despite this, the level of expenditure fell to the lowest proportion of national income since the early 1970s. This outcome was widely praised.

      In January 1988, Willie Whitelaw retired as deputy prime minister. He had become the public face of tolerant Conservatism, a wise counsellor, and a restraint upon Margaret. He was irreplaceable. I was given some of his responsibilities. One of them, ‘helping with the presentation of public policy’, simply amounted to ensuring that Bernard Ingham, the Prime Minister’s pugnacious Press Secretary, was briefed on Cabinet discussions. I was also given the job of adjudicating in disputes between departments when they were in conflict. In practice I was rarely called upon, unless the dispute involved money. Nevertheless, these rather imprecise new responsibilities were widely publicised and speculated upon, and my profile began to rise.

      The public finances were buoyant when Treasury ministers and senior officials met in January at Chevening, the foreign secretary’s official country residence, lent for the occasion of the annual weekend discussion on the budget options. It was to prove a dramatic budget. Nigel was determined to take advantage of the excellent fiscal position to make deep cuts in income tax. He reduced the highest rate from 60 per cent to 40 per cent, the basic rate to the 25p target Geoffrey Howe had set years earlier, and increased personal tax allowances by twice the rate of inflation.

      The 1988 budget would cast a long shadow. Against all tradition there were angry interruptions in the Commons when Nigel made his Budget Statement, and the House was suspended for a brief time. Labour – and many others – were shocked by what they perceived as the budget’s recklessness. I did not agree with them at the time. Whilst Nigel had cut taxes – and therefore the government’s income – the public expenditure survey had also cut spending as a proportion of national income. Like Nigel, I saw the tax cuts as a taxpayer’s dividend earned by the growth of the economy and the restraint in public spending. Moreover, despite the income tax cuts, Nigel had delivered a balanced budget, and one that had been warmly received by the Prime Minister and the Cabinet that morning when he had set out his measures for them. Our backbenchers too were ecstatic.

      But there was a shark in the water. The official Treasury statistics were wrong, and badly misled the forecasters into seriously underestimating the growth in the economy. These dangers became apparent within months of the budget when a boom began, and inflation started to climb. To curb it Nigel raised interest rates to 12 per cent, then 13 per cent, 14 per cent, and eventually 15 per cent, the level I was to inherit as Chancellor. As the boom grew – and with it spending power boosted by wage increases, overtime and tax cuts – the housing market went crazy. Prices rocketed as people scrambled to become home-owners. It seemed a one-way bet, and purchasers concerned themselves only with whether they could meet their mortgage repayments; it was taken for granted that the value of their houses would go on rising. When the economy fell off the cliff and boom turned to recession, made worse by an adverse world economy, the housing market stagnated, prices tumbled, and millions found themselves burdened with negative equity, owing more on their homes than they were worth. This problem was to paralyse the economy in the early nineties, when the public would yearn for a return to the boom years, with no recognition that it was the boom itself which had led to many of their problems.

      Despite the role of the 1988 budget in feeding the boom-soon-to-be-recession, the tax changes Nigel introduced were right. They ended the unjustifiably high taxation of income that had hampered investment. Nigel saw that long-term advantage very clearly, but he did not foresee the short-term problems. I had no premonition of what lay ahead either, and I defended the budget with conviction. By the time the malign combination of inflation, high interest rates, rising unemployment and a collapse in growth was fully apparent, Nigel and Margaret were no longer in government.

      The review was long and detailed and recommended fundamental changes that I continue to believe were worthwhile, though they were widely attacked. To ensure that NHS facilities were used effectively and patients treated more speedily, we devised a system to enable money to follow the patient – often outside the immediate health area. We also proposed two areas of devolution: hospitals were permitted to become self-governing, and large GP practices were enabled to control their own budgets.

      Although these schemes were permissive – no one would be forced to be part of them – the debate that followed, as so often with the NHS, was based more on emotion than logic. Some of the criticisms were ludicrous. Labour, on political auto-pilot, said we were trying to ‘privatise’ the health service – although this had never been discussed for a moment throughout all our detailed deliberations. They also attacked the ‘internal market’ we created, claiming that we were putting money before patients. Here they were wrong too: we were in fact putting patients first, by ensuring that money was allocated more efficiently to increase the sum total of health care. In due course we legislated to bring our reforms into

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