The Confederation of British Industry, the Institute of Directors, the Trades Union Congress, chambers of commerce, trade organisations, charities, banks, building societies and many others all want to have their say. So do Cabinet colleagues, all of whom make representations, some of them original, others no more than familiar and hoary perennials. The Health Department usually wants to put up tobacco duty; the Scottish Office to lower whisky duty; the Social Security Department to help the poor; the Department of Trade and Industry to help business; and so on. If there were a Ministry for Weather it would demand more sunshine each year.
On this occasion every representation was considered, though some were speedily discarded. The Financial Secretary Peter Lilley, the Economic Secretary Richard Ryder and the Paymaster General Malcolm Caithness sifted through a huge number of options and made recommendations.
As chancellor, I followed Nigel’s habit of huge meetings at which all Treasury ministers, together with officials – including ones from Customs and Excise and Inland Revenue – pored over ‘budget starters’ to examine them from every perspective. Only the most rigorous proposals survived this scrutiny, unless they were firmly backed by ministers as politically necessary. If officials didn’t like such propositions, they made their view clear. The ultimate dismissal is a smiling: ‘Of course, Chancellor, if you think it’s politically necessary …’ This implies disownership of the proposal, but also surrender.
Officials delivered their advice. Ministers made their decisions. The essential balance between an independent civil service and an elected government was maintained. Gradually, a package emerged. It was workmanlike, with some original touches, but not particularly exciting. Our ‘budget in a nutshell’ description was ‘a budget for savers’. We abolished Composite Rate Tax, an automatic levy on savings interest at source even when the saver’s income was too low to be taxed. This was a long-overdue reform. We encouraged wider share ownership and introduced the concept of Tax Exempt Special Savings Accounts (thenceforth known as TESSAs – the acronym was already in Treasury use, and was picked up by Gus O’Donnell, my Press Officer). It was my idea that we should do something for people with no savings, and offer them a tax-free advantage for saving comparable to those given to Personal Equity Plans (PEPs) by Nigel Lawson to the relatively well-off. I was determined to offer small savers – who had gained little or nothing from previous budgets – a tax advantage of real substance. TESSAs were my answer. I wished to build a savings safety net, and planned for TESSAs to run initially for five years, with individuals able to invest up to £9,000 over that period. They were a huge and instant success, and in due course around £30 billion would be saved in them by millions of small savers.
Tax changes were limited. Many were simply indexed for inflation, but there were increases for cigarettes, spirits, company car users and leaded petrol. There were innovations to encourage share ownership, small- and medium-sized businesses, training and charitable donations.
I decided also to help football. In recent years there had been tragedies at Bradford City and at Hillsborough, Sheffield Wednesday’s stadium, where inadequate safety measures had led to many avoidable deaths. This had registered deeply with a sports-loving nation. After an inquiry, Lord Justice Taylor had recommended some very expensive safety measures which only the top clubs could comfortably afford. I decided to cut Pools Duty by 2½ per cent for five years, provided the £100 million reduction in taxation was passed to the Football Trust for ground improvements. I wished to promote safety as well as more comfortable, less dilapidated grounds to attract families and deter hooligans. This populist measure was widely welcomed – though it only survived against much scepticism in the Treasury, offset by the support of the football enthusiast Terry Burns. Officials and advisers were worried that clubs were being given a tax advantage when they were able to spend millions of pounds on transfer fees. A proposed levy on these fees only fell after careful examination. When it was first suggested no one had any idea about the total value of transfers. Gus O’Donnell was dispatched to buy a copy of Rothmans Football Year Book, which listed all transfers, so that the Treasury could calculate how much the measure would raise. I shall remember for ever that Chris Waddle was transferred from Spurs to Marseilles for £4.5 million, whilst Gary Lineker joined Spurs from Barcelona for £1.5 million. Such is the diversity of information that can cross the desk of a chancellor.
Any chancellor is entitled to feel a twinge of nerves on budget morning as he emerges from Number 11 holding his red dispatch box aloft and makes for the House of Commons to deliver his statement, and as 3.30 p.m. approached I felt the adrenaline begin to pump. But, like all other chancellors, I had been well served by my officials. The final touches to my speech had been completed the night before; now it was printed and ready. I had finalised the text of my broadcast for later that evening – largely written by Anthony Jay, the co-author of the hugely successful television series Yes, Minister – and prepared what I would say at the meeting with backbenchers which takes place after the chancellor has concluded his statement. I checked through the briefings which would shortly be going out to the media, and finally, after lunch, walked around the Downing Street garden to clear my mind and rehearse the speech without the text to make sure I was familiar with it. The tipple in the glass by my side during my speech – the traditional chancellor’s privilege – was Hine brandy and water; Hine has long been a favourite of mine.
The most popular measure in the budget was a proposal to limit the impact of the Poll Tax, which was becoming ever more loathed by the day. I announced a doubling of the level of savings that would be disregarded when calculating Poll Tax rebates, from £8,000 to £16,000. This was wildly cheered, but led immediately to a huge row. The Poll Tax had been introduced a year earlier in Scotland – at the request of Scottish ministers – and I had not backdated the rebate improvement. Scottish Labour backbenchers scented a grievance to be exploited, and created a huge fuss even as I spoke. This was not quite unprecedented, but ran against Commons tradition, since budgets are usually received without interruption. Mine was not. Television had made its mark.
After I had sat down, the Scottish Secretary, Malcolm Rifkind, under pressure from the perennially hostile Scottish media, threatened to resign if he was placed in ‘an impossible situation’ by the rebate not being made retrospective. Since Nigel Lawson had resigned only months earlier, followed by the Employment Secretary Norman Fowler (to ‘spend more time with his family’), the prospect of another resignation was far from attractive. The cost of the concession – £4 million – was tiny, but what the Prime Minister and I took amiss was that we felt we were being bounced. Malcolm got his money, the Scots gloated, and I wiped egg off my face. It had never occurred to me that such a complaint could carry such force – but my education in Scottish politics had barely begun.
Overall, the joy-through-austerity merchants in the City – and in the press – were disappointed. They had wanted a ‘tough’ budget, with no increase in personal tax allowances. I didn’t agree, because I was too unsure of the economic forecasts and I feared that a tighter budget would lead towards recession. In retrospect, on this at least I was right and my critics wrong. However, the markets disagreed, and the pound fell on the exchanges. Nor did the Poll Tax assistance ease the anguish of electors. Two days after the budget we lost the Mid-Staffordshire by-election – held after the tragic death of John Heddle, who had entered Parliament on the same day as myself – with a massive 21 per cent swing against the government.
The EU’s regular ECOFIN meetings brought me into close contact for the first time with the Irish Finance Minister Albert Reynolds, later Prime Minister of Ireland, to whom I took immediately. Norma and I had breakfast with Albert and his wife Kathleen at an informal ECOFIN at Ashford Castle in Ireland. It was the first time I spoke about the ‘Irish Question’ with the man with whom I was later to establish the Northern Ireland peace process. Pierre Bérégovoy, who was to become Prime Minister of France, also became a friend, but was by no means an easy touch. I remember giving him breakfast at our Washington Embassy to try to sell him our policy on the ‘hard ecu’ (European currency unit) as an alternative to an abrupt change to a single European currency. Pierre was impressed by our embassy – which he compared to a ‘grand palace’ – but less so by our policy. Tragically, this engaging man later killed himself in sad circumstances.
I also saw the European bureaucracy at work, and witnessed the effectiveness of British representation.