Downing Street Years - Margaret Thatcher [166]
ECONOMIC RECOVERY
In that election campaign, defence would be of great political importance. Yet I had no doubt that the result would ultimately depend on the economy. Our economic course had already been set in the 1981 budget. We now had to see the strategy through. It was a remarkable testament to the soundness of public finances by this stage that we managed to pay for the Falklands War out of the Contingency Reserve without a penny of extra taxation and with barely a tremor in the financial markets. The economy was already beginning to recover and would have done so more rapidly but for sluggish world conditions. Geoffrey Howe’s 1982 budget was designed to encourage that recovery by helping business, while keeping inflation and interest rates coming down by reducing government borrowing. The principal measure of direct assistance to industry in the 1982 budget was a reduction in the National Insurance Surcharge. We were able to make further reductions at the time of the 1982 Autumn Statement and again in the 1983 budget. These made a direct contribution to cutting industry’s wage-related costs and helped to increase employment.
Another means of strengthening industry without becoming involved in the futile task of ‘picking winners’ was to promote the application of the new ‘information technology’ (IT). This was something in which I took a particularly close interest. As a scientist, I was fascinated by the technology itself; as a passionate advocate of free enterprise capitalism I was convinced that, given the right framework of laws and an appropriately educated workforce, it could widen choice, generate wealth and jobs and improve the quality of people’s lives. Both Keith Joseph at Education and Ken Baker at Industry felt as I did. We designated 1982 Information Technology Year and we all made special efforts to widen understanding of what IT could do for business. Of course, it was the young people who found it easiest to learn the new skills and one of our most valuable and appreciated initiatives was to put a desk-top computer in every secondary school.
By now the question we were being asked was not whether economic recovery would come but rather how fast and how sustainable it would be, and also when unemployment would begin to fall. Since the whole basis of our approach to economic policy was that politicians and civil servants do not know all the answers, I never felt tempted to pick figures out of the air. But I did my best to encourage confidence because as long as the fundamentals — the public finances, monetary policy, tax levels and so on — are sound, confidence itself leads to higher investment and higher consumer spending and so helps recovery. For example, on Tuesday 19 April 1983 I addressed the CBI annual dinner at the London Hilton. We were only weeks away from the election, though neither the audience — nor even the guest speaker — knew it. I reminded them that when I had last been their guest two years earlier there was plenty to worry about in the state of the economy:
Indeed, we had just read an open letter which predicted doom and gloom indefinitely unless we changed our policies. It was signed by no fewer than 364 economists — enough … to provide me with bad advice for every day of the year except All Fools’ Day.
Since then, however, cuts in the NIS had put £2 billion a year back into the hands of private companies. Personal tax had also been cut by raising thresholds faster than inflation. Interest rates were seven percentage points below their peak, saving industry about another £2 billion. The exchange rate had fallen from a high point of $2.45 in October 1980 to $1.54 now. This was providing a boost for exporters. Industrial output, housing starts, and car sales were all up. There was plenty