............................................................................... ON THE RECORD MICHAEL PORTILLO INTERVIEW RECORDED FROM TRANSMISSION: BBC-1 DATE: 15.1.95 ............................................................................... JOHN HUMPHRYS: Well one way or another the debate in the Labour Party is whether the state is doing enough. In the Tory Party it's the reverse. The right-wingers in the cabinet have been at it again since the New Year began, arguing that the state controls too much of our lives and spends too much of our money. Michael Portillo, now the Employment Secretary, is one of those. He's also one of the leading sceptics on Europe. This morning it was revealed that Mr. Major is drawing up his own agenda for the inter governmental meeting next year - Maastricht Two as it's known. And the implication is that it will demand that Brussels lose some of its powers over our lives. So when I spoke to Mr Portillo this morning I asked him what he made of that. MICHAEL PORTILLO MP: As the Foreign Secretary was saying, this week, the agenda for Europe cannot only be determined by France and Germany, there are other important players in Europe and we are one of them and we must have OUR go at saying what our vision of Europe should be. And our vision of Europe, as you know, is that the decisions that effect people's daily lives should, on the whole, be left with the member states. We don't see the need to create federal structures in order to tell people how they should live their day-to-day lives. HUMPHRYS: But we're talking here about reducing powers. PORTILLO: Well I...what we're doing I think is defining what Europe should be about, it should obviously be about free trade, it should obviously be about sensible co-operation on foreign policy, defence policy, the fight against crime and terrorism and drugs. But what we don't have at the moment in Europe I think, is a definition of what would be left to the member states. You know even in the United State, which obviously does have a federal constitution there are states' rights, it is clear what is left to individual states. In Europe we don't have that. This is the concept known as subsidiarity and I image that we will want, between now and 1996 to put some flesh on the bones of this concept of leaving to individual governments, the things that most effect people's lives, making sure that that means something over the coming years. HUMPHRYS: And an example of the way that you would like to clip the wings of Brussels, to put it crudely, is reducing the powers of the European Court? PORTILLO: Well the European Court is a very special sort of court. It interprets the laws that have been made as part of a process, in other words would a decision lead towards ever closer political union as defined by the Treaty of Rome. This is a very unusual concept for those of us who are used to British courts. HUMPHRYS: And you're unhappy with it? PORTILLO: Well it is something that we are extremely unused to and we have been very surprised at some of the decisions that have come from the court. We're not alone in that, I think Germany has been very surprised at some of the decisions and feel that those decisions have gone a lot further than the Council of Ministers imagined when the original laws were passed, the original agreements were reached. So that is the sort of thing, I don't know because the Prime Minister will want to develop this over the coming months, over the coming year, but it's obviously the sort of thing that the British might put on the agenda and which other countries might well wish to agree on. HUMPHRYS: You say he'll want to develop it over the coming months.. PORTILLO: Yes. HUMPHRYS: So, to use that old sporting cliche, he's going to go to the IGC (phon), intending to get his retaliation in first. PORTILLO: No, I don't think it's like that. I think it is that there are different visions for how Europe can progress. If you only have one vision put forward, let's say by France and Germany - either jointly or separately - then all we can do is resist and say "well that's not what we want to do" and the Prime Minister has made clear that he doesn't want to see constitutional changes, he will resist constitutional changes that take us in that direction towards political union in 1996. HUMPHRYS: He will take a sceptical approach? PORTILLO: I think he will in the sense that he will not allow constitutional change that moves us closer to political union. But it's obviously much better not just to be resisting things, but also to be saying what your vision is because our vision of Europe is a positive one. We see a role for Europe as a free trading entity of course but also as an entity in which we can co-operate on things like defence and foreign policy. And I think it will be a great mistake if we were backed into a corner and made to look defensive, or make to look as if we had a purely negative view of Europe and that is not the case and I think the Prime Minister will want to develop his thinking about the future of Europe over the next year. And as he does so by the way, I think that process in itself will build on the work that he has already done to bring the Conservative Party together. Because actually I don't think we're strongly divided on these issues at all. I think there is a great deal of unity within the Conservative Party on this vision and the Prime Minister recently I think has articulated precisely what Conservatives in general are thinking, which is that we do not wish to advance towards constitutional change which would take us towards political union in 1996. That we will block it and that we're suspicious of anybody now talking about a referendum for 1996 because that would imply that they wanted to sell the country out in 1996 and felt they needed to go to a referendum of the people to get approval for that act. HUMPHRYS: Well you anticipate my next question, in a sense, because this news of Mr Major drawing up this plan, it's going to come as a considerable help in his dealings with his rebels isn't it, because if they believe that he's moving in that direction, they're much more likely to come back into the fold. PORTILLO: I think we've begun this year in a completely different frame of mind and a completely new mood. The Prime Minister's remarks on his ambitions for 1996, the way in which he has ruled out the possibility of agreeing to a single currency in 1996 or 1997, I think has articulated the strong body of opinion within the cabinet, within the government, within the parlimentary party and within the constituencies and therefore I think he has achieved in those remarks an exact expression of the policy that unites the Conservative Party. I really see this as being a turning point, I think the Conservative Party can go forward in great unity on the policies for 1996 that he has set out. It also makes us very distinctive from the Labour Party, as you know they are relaxed about signing up to the Social Chapter, which I believe would destroy jobs in Britain, they're relaxed about saying now that they would sign up to a single currency, without thinking through its constitutional implications or indeed whether it's desirable or whether it's achieveable. So it makes us distinct from the other parties, it unites the Conservative Party and it coincides of course with a time when the Labour Party is now itself in great political difficulty. HUMPHRYS: But of course one interpretation of what you've just been saying, will be, perhaps this is the intention behind it, that Mr Major has adopted the rebels' agenda, or at least the sceptics agenda to bring peace to his party. PORTILLO: I think he's adopted an agenda which fits in with the majority of the parliamentary party, the majority of the Conservative Party and this is fitting. What I think must worry the Labour Party is that he's also adopted an agenda which fits in with the majority of the British people. HUMPHRYS: And you'd expect the rebels to come back in now would you, on the basis of this? PORTILLO: Over a period of time, certainly. HUMPHRYS: How long? PORTILLO: Well I've said before that I think the least helpful thing that any of us can do, is to give a daily bulletin on this sensitive matter. HUMPHRYS: But you're more encouraged this morning than you were at this time last month? PORTILLO: I think the conditions for reuniting the Conservative Party are now in place. I am much more encouraged, the Prime Minister has also been quite generous in his remarks about the rebels - I mean considering that they've lost the whip and this has obviously been an extremely painful process, his remarks have been generous. I think there is now a window of opportunity for putting the party back together and for taking the rebels back on board. But, please don't ask me to tell you whether the window is several days wide or several weeks, or several months. HUMPHRYS: All right, I won't because you won't answer so therefore I won't. Let's return to this theme of big government. You talk about rolling back the powers of Brussels, as it were, what about rolling back the borders of the state in this country, it hasn't gone far enough has it....for you? PORTILLO: Well I think possibly not for any of us. I think all of us in British politics are worried about the sustainability of this increase from one decade to another in the amount that government does and the amount that government spends. And our worry about it is about sustainability. I mean in other words, are the people who are working going to be generating enough in taxes and National Insurance contributions to provide a decent standard of welfare for those who are not. A burden of regulation of taxation so heavy that it makes it difficult for our businesses to generate the wealth which is necessary for us to provide the schools and the hospitals of the future. So, I think all responsible politicians are fixed upon this subject and as I said earlier, the Labour social commission...the commission for social justice was meant to look at this question of how we could make things affordable. Now I think timescale is very important here. I'm talking about a process which has gone on since the beginning of this century. We've gone from ten per cent, spent by the government, to forty-five per cent... HUMPHRYS: ...of the total wealth. PORTILLO: Of the total wealth of the country. Now, what is interesting is that it hasn't, I think, produced equality, it hasn't produced happiness. I think in some ways it's led to a less caring society because people had been able more and more to think that the responsibilities towards their neighbours, even towards their family, sometimes, are responsibilities now taken up by agencies or by government. I think people have become rather tired by the amount of intrusion in their lives by government, the number of visits that they get from inspectors, from everything from building extensions to having a baby. Everything seems to be regulated and so I'm talking about establishing a public mood in which in the future we look to changing this balance, reducing gradually the size of the state and encouraging people, through their working lives, to take more and more responsibility for themselves and for provision for themselves for the future. HUMPHRYS Well, let's look at some areas where that might happen, and one area - we've been hearing about it this week - is mortgage holders, new mortgage holders will have to take out private insurance to protect their mortgage repayments in the event that they lose their jobs. Now if that works why shouldn't it go much further than that. Why shouldn't all mortgage holders have to do so? PORTILLO: Well at the moment, if you find yourself without a job and you're on Income Support you get some help from the government to pay your mortgage interest. If you're on Unemployment Benefit you do not, and so some people are being misled into believing that the taxpayer is there to help them to pay their mortgage and in the circumstances in which they may find themselves they're not. So what Peter Lilley has said I think quite rightly is, people who take out mortgages ought to be willing to spend a little bit more on their mortgage payments in order to provide themselves with insurance. HUMPHYRS: I understand the practicalities of it, but I'm looking now in all of these instances at the principle underlying it. In principle is there any reason why a mortgage holder should rely on the state to pay his payments, given that there's always going to be a safety net for people who are in terrible trouble, when in fact he can take out private insurance? PORTILLO: I think in principle there is no reason why that shouldn't happen provided we make the change over enough time to give people due warning, and honestly a lot of people have mortgages today and they took them out on a different basis, so you have to change these things gradually so that people know what responsiblities they're taking on, but it is an interesting reversal of view. I mean at the moment the view is rather that if you get into trouble with your mortgage the taxpayer is the first port of call. I think in future the view that we would take would be that if you got into trouble you yourself through the insurance that you had taken out would be the first port of call and the taxpayer as you say, might well be there as a safety net, but the taxpayer would be the last rather than the first port of call. HUMPHRYS:: And if you accept that principle why can't you extend the principle to the whole concept of unemployment benefit. If we lose our jobs why shouldn't we take out private insurance to cover that eventually, again allowing for a safety net obviously in the extreme cases. PORTILLO: Well, we set up going back many years now, a state insurance scheme, and I think the state insurance scheme is still important, that is to say people pay National Insurance contributions and on the basis of those contributions they will get payment if they're unemployed for a period of time regardless of whether they have other income or capital. HUMPHRYS: But again that's the state isn't it? That's the state doing that. Why should the state do it when now private insurance companies are terribly sophisticated, they're used to handling this kind of thing, the computers allow them to do it all, why shouldn't the private insurance companies do it all? PORTILLO: The way I would see this you know is that I would allow people who have aspirations beyond what the state can do to them, allow them the freedom to make extra provision. I would be the first to admit that unemployment benefit is a pretty basic benefit, it is only a small amount of money per week, and if you've had a high paying job and you lose it you're not going to feel much compensated by unemployment benefit. HUMPHRYS: Right. PORTILLO: So of course for those people the opportunity is there to supplement their insurance privately and what we see all the time I think John, is people pushing at the boundaries at what the state does, and wishing to do more for themselves. Given the opportunity they'd buy themselves houses, they'd take out private health insurance their trade unions offer them health insurance. They have a basic pension from the state but they take out employer-based pension schemes, occupation pension schemes, private pension schemes. HUMPHRYS: On that then, why not say SERPs isn't necessary. Why should should the government be running a scheme that is going to provide pensions for people, extra pensions for people, again allowing for the safety net, who can provide their own. Why do you not say, "We will abolish SERPS for new entrants"? PORTILLO: Our approach is based on choice and for many people it will be a better choice not to be in a state earnings-related pension scheme but to be contracted out into an employer's scheme or into a private scheme. There are some people for whom that might not be true. There are some people for whom the state scheme might be a better deal, and that might be particularly at the lower end. I mean it's for individuals to make this assessment. HUMPHRYS: But the state is dong the job that private insurance companies can do. That's not in keeping with your philosophy is it? PORTILLO: Well, my philosophy also embraces a safety net. HUMPHRYS: I've accepted that. PORTILLO: I know you have and I'm just emphasising it. My philosophy does not say, there is no role for the state. My philosophy says that in the future we have to look at the balance between what individuals do and what the state does, and there will have to be a shift in that balance, a shift that is already taking place as you're pointing out. Your mortgage interest example is I think absolutely on the ball, your pensions example is also a very good example of the way in which state provsion is being held more or less constant, private provision is growing up around it, and that is appropriate because people in future are likely to be earning more and provided you give them enough notice they can make provision for themselves in a timely way early in their lives. HUMPHRYS: Well, that may or may not be true. The problem at the moment, and it's partly because of difficulties that arose with the insurance companies about which a lot of people are aware. The problem is that too many people are chosing SERPs aren't they? I mean we're getting a million odd people coming into employment every year, too many of those people are choosing SERPS and you know that we cannot afford it. PORTILLO : No, I think that we have taken steps over
the years to make sure that SERPS the state earnings related pension scheme is affordable. I think when it was first introduced in 1978 it did have aspirations built into it that simply were not affordable, but we have taken action on that. You have to remember that although there is an increasing number of elderly people we also have people in work who pay their national insurance contributions in line with their earnings, and their earnings tend to rise from one decade to another much faster than prices, and that means that you have quite a buoyant source of income in national insurance, but what the government is careful to do is to make sure that those who should be making provision for themselves are encouraged so to do, while making sure that those who would not be attractive to private insurance companies or might find it difficult to get pensions for themselves, that they have an opportunity to use a state system that will give them a decent level of pension in their retirement. HUMPHRYS: But that's tinkering with it isn't it. That's tinkering with it. If you're going to be radical, if you're really going to roll back the boundaries of the state in the way that you talk about, you're going to have to do much more than that. Peter Lilley has made it perfectly clear we cannot afford to go on as we are now going on. PORTILLO: But what Peter Lilley has done is he has made reforms already that have saved... HUMPHRYS: He accepts, not enough. PORTILLO: No, he's made reforms already that have saved the nation eight billion pounds at the end of this century. He made a very brave decision to equalise the pension age at sixty five. That will save about twelve billion pounds as opposed to equalising it at the age of sixty. HUMPHRYS: The Social Security budget is growing...is growing alarmingly. It's going to be growing by two point one per cent in a few years from now. It's going to drop a bit and then it's going to grow again very sharply. We cannot afford that. He said that. You believe that. And yet instead of taking really radical decisions you tinker at the margins. PORTILLO: No, John, I think we are taking the action that needs to be taken in a timely way. And by the way we take quite a lot of flak for the action that we take. HUMPHRYS: But that's politics, you'd expect that. That's what you're there for! PORTILLO: Every time we change pension provision, every time we change the arrangements for mortgage interest or whatever it may be we take flak. But it is a sign that we are addressing the problem and what I would like to do is to compare the way in which we do take action - as you say, maybe not dramatic action but repeated action... HUMPHRYS: Not radical action. PORTILLO: No, well thought out action that addresses the problem, compared with our opponents who believe that everything can be easy, that there are no difficult decisions to be made in life. There are difficult decisions but I think you are all pressing us towards a radicalism which implies a crisis which doesn't exist. HUMPHRYS: No, I am testing the extent of your own radicalism, that's what I am trying to do. PORTILLO: All right. Well let ... HUMPHRYS: You see you've been in power - it's not as if you've only been in power for a couple of years and you are feeling it out and seeing how far you can go in this direction - you have had sixteen years and yet we still have, for instance, child benefit and you would accept it's barmy that a middle-class, possibly high-earning woman, will pay taxes into the state and then have it paid back to her in child benefit. Where's the logic in that? PORTILLO: The logic in it is that it started as a tax allowance and it was accepted that if you had a wife who was dependent on you or a spouse who was dependent on you, if you had children who are dependent on you your capacity to pay taxes was less than other people's capacity... HUMPHRYS: But that's how it started, as you say, it's changed, things have changed. PORTILLO: No. And so it was made a tax allowance and that meant that everybody had it allowed against their income whether they were well-off or whether they weren't well-off. And child benefit reflects that today in as much as it is an allowance to everybody whatever their taxable position. Now I agree with you that if you have a social security system in which you are taxing people who are relatively badly-off and transferring benefits to people who are fairly well-off then there is an oddity in the system and that is difficult to sustain. And let me give you another example... HUMPHRYS: You say difficult - well, let me follow that up first - you say difficult to sustain. You'd personally approve of radical change to child benefit? PORTILLO: No as a matter of fact I have examined child benefit from every angle and I personally cannot see any way of changing it. HUMPHRYS: So the state will continue to take responsibility and you say very powerfully indeed, personal responsibility has been undermined by a state that does too much. There is a classic example of the state doing too much but you say there are difficulties with it so we won't do it. And that's the problem isn't it? There are difficulties with all these things. A real radical would deal with those difficulties, wouldn't he? PORTILLO: Well you want to paint me as a real radical and I wanted... HUMPHRYS: Well I'm assuming you are because of the kinds of things you say. PORTILLO: I wanted a moment ago to tell you what my approach would be. My approach would be first of all to control public spending at the level where it is now so that as the economy grows public spending takes a smaller proportion of the total wealth of the nation. The next thing I would like to... HUMPHRYS: Down to what level - if I may interrupt there - down to what level? Forty five per cent at the moment - what's an acceptable level? PORTILLO: We had it in the late eighties at thirty eight per cent and I think I would be repeating Kenneth Clark if I said that our ambition would be certainly to get back to those sorts of levels. And then we would have to look again because countries like the United States and Japan spend about a third of their wealth through the public sector - not forty-five per cent as we do today - so we would have to see again whether we were competitive. The second thing is, I think all over the world the public is demanding that government be done better - that we re-invent government, that we find better ways of spending public money to deliver public services with less waste and less bureaucracy. And then, over - and this is my third point - over a decent period of time by establishing firstly the climate of opinion in which it is acceptable, I would want to be transferring some responsibility which is rested with the state to individuals in the timescale that they could afford it. HUMPHRYS: Spend money better, transfer some responsibility. It doesn't sound a very radical agenda. It doesn't sound as if you want really to roll back the boundaries of the state. PORTILLO: John, it was extremely effective, you know, during the 1980s - before we got into the recession at the end of the eighties and the beginning of the nineties - we had gone from about... HUMPHRYS: Yes but that was then and this is now, you see. PORTILLO: But the principles are the same. I'm talking here about a principle which has been tested. Over a period of a very few years it was possible to reduce the amount that we consumed of the national wealth by about six or seven percentage points. That is a very big change indeed and by applying these policies consistently we can repeat that process. We can repeat that success. But you have to have a government that's determined to do it, not a government - as Labour does today - that believes that there are no difficult choices to be made in life and that a slogan or two will carry you through. It won't. HUMPHRYS: Michael Portillo, thank you very much. PORTILLO: Thank you.