by Andy McSmith
On Saturday, 31 March 1990, the day before the Poll Tax was officially introduced, the Anti Poll Tax federation organized a protest march that attracted such a vast turnout that the last marchers were starting out five hours after the first had left . However, one group of about 200 turned into Downing Street to stage a sit-down protest and refused to move. As mounted police moved in, the protest degenerated into the worst riot since 1985. One witness saw rioters ‘on a blind path of destruction. They were not threatening people and were only interested in destroying property. They wrecked loads of cafes in Covent Garden.’ Another saw police drive vans into the crowd to clear a path: ‘They were hitting people and people were getting swept along. There was an old man who had his back to the van and it just pushed him away.’38 Scaffolding was dismantled, missiles thrown, fires started and cars wrecked; about 400 policemen were injured and 339 people were arrested. Thatcher recalled, ‘It was a mercy that no one was killed. I was appalled at such wickedness.’39
What must also have appalled her was that, as the devoted diarist Alan Clark noted fretfully, Tory MPs were ‘talking openly of ditching the Lady to save their skins,’40 now that she had surpassed her own record, set early in the 1980s, as the most unpopular prime minister since polling began. But when the council elections came in May 1990, the results were not as bad as some Conservatives had feared, partly because Lady Porter’s gerrymandering delivered an unexpected Tory victory in Westminster. ‘Kinnock Poll Axed’ was the headline on the front page of the Sun. Margaret Thatcher had won a reprieve, though it was to last only another seven months.
CHAPTER 15
HERALDS OF FREE ENTERPRISE
For all his long career as the nation’s favourite weather forecaster, Michael Fish is fated to be remembered for that one occasion, on 15 October 1987, when he turned to the camera, looking reassuringly smart, bespectacled and balding, to tell the viewers: ‘Earlier on today apparently a woman rang the BBC and said she had heard that there was a hurricane on the way. Well if you are watching, don’t worry – there isn’t.’1 The very next morning, southern England awoke to the aftermath of the worst storm since 1703. Over London, there were 94 miles per hour winds; over the Channel Islands, they were 110 mph. At least thirteen people died, including two seamen who drowned in Dover harbour and two firemen who were killed in Dorset while answering an emergency call. There were 600 distress calls just in Ealing, in west London, from people whose homes or cars had been struck by falling trees. Shanklin Pier on the Isle of Wight was smashed to drift wood, a caravan park in Jaywick, Essex was flattened, and six of the seven oaks in Sevenoaks, in Kent, came down. Twenty years later, Fish denied saying the words attributed to him, but, unfortunately for him, the record shows that he said exactly what he is alleged to have said, in the most celebrated weather mis-forecast of all time.
The worst storm for centuries was followed on Monday, 19 October, by the worst stock market crash since the war. It began that morning in Hong Kong and spread westward, time zone by time zone, through the City of London to Wall Street. On that one day, ‘Black Monday’, the value of shares on the London Stock Exchange fell by £50.6 billion. In other parts of the world, the collapse was even more spectacular; Hong Kong’s stock market lost more than 45 per cent of its value, compared with London’s 24 per cent. Why the stock market fell so far so suddenly is still a subject of debate. Stock values had shot up in August 1987, on the back of good economic news in the USA, but the US administration then became embroiled in a public dispute with Germany over exchange rates, which may have made investors nervous. That might explain why stocks fell, but not why the fall was so precipitous. The speed of the fall, ironically, seems to have been largely caused by the recent introduction of computer technology. A particular culprit seems to have been ‘portfolio insurance’. As the traders arrived at work, they set their computers to sell shares at whatever price they could get, in the expectation that prices would continue to fall. The strategy depended, of course, on someone else being prepared to bet that shares would rise, but there were no takers, so the computers had to set share prices ever lower to attract buyers. After the crash ‘portfolio insurance’ was deemed to be a bad idea.2
Thus it appeared that both God and Mammon had signalled that capitalism was collapsing, as revolutionary Marxists had been predicting for so long. In that same month, October 1987, a coroner’s jury brought in a verdict of unlawful killing in the inquest into 188 people who had died in Britain’s worst peacetime disaster at sea for nearly seventy years, when a roll-on roll-off car ferry capsized just outside the Belgian port of Zeebrugge on 6 March 1987. The crew had allowed the ship to set sail with its bow door open. To the victims’ disgust, the law did not allow a charge of manslaughter to be brought against the company that owned the ship, but only against named members of its crew. The doomed ship was called The Herald of Free Enterprise. But the concept it heralded was not dead. The Conservatives had just secured their third consecutive election victory, under the same extraordinary leader, who showed not the least sign that eight years in her gruelling job was wearing her down. On the contrary, she returned from the 1987 campaign full of an almost maniacal zeal in which no sector of public life escaped her attention. The director of the National Theatre, Richard Eyre, noted in his diary on 12 June 1987: ‘Thatcher’s back, speaking not as if she thought she was in absolute control for ever but as if she knew she was . . . Day One of the Fourth Reich.’3 Capitalism had experienced a convulsion in October 1987, but it was socialism that all but died in the next two years.
The immediate problem confronting the chancellor, Nigel Lawson, in autumn 1987 was that he had been lumbering up for the biggest share sale in history at the very time when the stock market collapsed. The government was committed to selling its remaining 31.5 per cent shareholding in British Petroleum (BP). As usual, the date and share price had been announced well in advance. The sale was to be on 30 October and the price was to be £3.20 a share, making a total share offer worth £7.5 billion. As usual, the big City and Wall Street banks had committed themselves to underwriting the sale, for a generous fee; and an advertising campaign had encouraged members of the public to join the bonanza by investing their savings into BP shares. But since BP was only part-privatized, its shares were already on sale, and like all other shares, their value had dropped like a stone. By 30 October, they could be bought for £2.85.
The banks that had underwritten the sale were now faced with having to buy hundreds of millions of shares at more than 10 per cent above their market value. Though they had been paid to take this risk, the banks thought it quite wrong that they should be expected to stand by the commitment and demanded that Nigel Lawson call off the sale. To his credit, he faced them down, though he threw them a concession under which, for two months, the Bank of England bought back shares from any underwriters who wanted to be rid of them quickly. Even so, the bankers were outraged that they should be facing a loss. At an emergency meeting at Salomon Brothers, on Wall Street, one trader who had flown in from London found that he was the only Briton on a committee of angry Americans.
He became a punch bag for the Americans, who pinned the blame for the crash squarely on the British government. Why were the limeys insisting on continuing their sale? . . . A few of the Americans were jumping all over the Brit for the behaviour of his countrymen. One said sneeringly, ‘You guys did just this sort of thing after the war too, you know.’ . . . The xenophobia was by no means limited to Salomon Brothers. An American partner of Goldman Sachs, a firm also stuck with a 100 million dollar loss on its shares in BP, called a senior Brit at Salomon and blamed him for the problem. But why? It turned out the Goldman partner wasn’t thinking of his Salomon counterpart as a representative of Salomon, but as a Brit. ‘Your people damn well better pull it,’ he shouted. ‘If it wasn’t for us, you’d all be speaking German.’4
Perhaps the oddest aspect of the whole affair was that, despite all the publicity given to the government’s problem
s, thousands of members of the public bought the overpriced shares, content with the thought that they would make money eventually. And in the end everyone did, when share prices recovered.
This near-miss did not in the least put off the government from selling public assets. What was left of British Steel went private in December 1988. The next privatization, of the water industry one year later, was the biggest since British Gas, raising more than £5 billion. This was the most unpopular sale of the lot, because the public generally thought it wrong that water should be a private monopoly. It did not escape Labour’s attention when the new owners of Thames Water showed their gratitude for their rapidly rising salaries by donating part of their company’s income to the Conservative Party. Actually, there was a case for selling the water companies that was as strong as any argument for privatization. Water and sewage pipes badly needed investment, which the privatized companies could raise on the money market. There was also the anomaly that the publicly owned water companies had been their own regulators, responsible for checking levels of pollution in the rivers as well as for cleaning them up. Nicholas Ridley, the environment secretary, also used the sell-off to separate these responsibilities by creating the National Rivers Authority.
Lawson’s successful handling of the BP crisis seemed to convince him that he could do no wrong. In spring 1988 he produced a Budget that exuded confidence, cutting taxes by £4 billion a year, most of which flowed straight into the economy as extra spending money. He cut the tax rate for small businesses, raised the threshold for inheritance tax, raised income tax personal allowances by twice the rate of inflation and reduced the basic rate of income tax from 27p to 25p in the pound. He also produced the biggest gift to the highest paid since Sir Geoffrey Howe’s first Budget by abolishing four of the five higher rates of income tax, leaving only the lowest, which was 40p in the pound. This reduced the tax rates of the very wealthy by a third. As these announcements tumbled out, the House of Commons became increasingly rowdy. The Scottish Nationalist, Alex Salmond, shouted: ‘This is an obscenity. The Chancellor cannot do this.’ The deputy speaker warned him to be quiet, but he went on shouting that it was an ‘obscenity’, and was ordered to leave.5 A few minutes later, the Militant MP Dave Nellist was on his feet demanding to speak and there was so much noise that the session descended into what Hansard euphemistically recorded as ‘grave disorder’. The deputy speaker suspended commons for ten minutes so that everyone could calm down.
Lawson also scrapped a rule that allowed married couples, if both were earning, to claim two lots of tax relief on their mortgage payments; henceforth, only the higher earner of the two could claim. However, instead of introducing the change immediately, he announced that it would come into effect on 1 August 1988, giving every couple who might be thinking of buying their first home an incentive to rush ahead and complete within six months. That summer, the season of the ‘Lawson boom’, house prices rose almost vertically and the government rode a wave of astonishing popularity. Two MORI polls taken ten months apart, in November 1987 and September 1988, both showed that an astonishing 50 per cent of those asked identified themselves as Conservative supporters, while Labour’s support dropped from 38 to 36 per cent.
Some Labour MPs wondered if these poll ratings might improve if they ousted Neil Kinnock and Roy Hattersley and elected a new leadership. The only credible alternative to Kinnock was John Smith, the shadow chancellor, but he refused to consider running and probably would not have won anyway because he had been a minister in Jim Callaghan’s cabinet when Kinnock was a left-wing rebel, and old left-right divisions lingered. Hattersley was more vulnerable, because he, too, had been a cabinet minister. In 1988, John Prescott challenged Hattersley and came close to winning. The only person to contest Kinnock was Tony Benn, who was a spent force in parliamentary politics, and he lost heavily.
However, the Lawson boom, which made the government so popular and confident, and left the opposition floundering, proved to be unsustainable. After the fun came the long hangover. House prices, which went up and up until the 1 August deadline was reached, suddenly tumbled because everyone who had thought about buying their first home had now done so. Suddenly, young couples were introduced to a new and unpalatable phenomenon called ‘negative equity’, something that no one had ever experienced in the old days when building societies had refused to lend to anyone who had not saved up a substantial deposit on their first home. During 1988, many couples had borrowed 100 per cent of the cost of their first home, and as prices fell they owed more than their property was worth. To make it worse, all that spending money sloshing around in the economy had set off inflation. On 8 August, Lawson was compelled to raise interest rates from 10.5 per cent to 11 per cent. A few days later, he put them up to 12 per cent, and later still to 13 per cent, which meant that the interest people were paying on their mortgages had leapt up just as their homes were falling in value. In 1991 alone, 75,000 homes were repossessed.
As months passed, thousands of couples gave up trying, lost their homes and acquired a credit rating that was going to make it difficult for them ever to raise another mortgage. One anonymous couple living in St Albans with two very young children heard through the husband’s family that there was an old farmhouse in a remote part of Northumberland, with very basic amenities, being offered for very low rent. They packed all their belongings, posted their house keys and an explanatory note through the door of the local Abbey National office, and set off for a new life, free from their mortgage, 300 miles to the north. They therefore avoided the bailiff s, whose sudden arrival to turn debtors out of their homes could be a frightening experience. Suzette Janczykowski, a graphic designer, returned to her rented flat in Bristol at midnight one evening in June 1990 to find that bailiff s had forced their way in with a crowbar, changed the locks and left a message that the property had been repossessed by the Halifax Building Society. ‘I was left locked out in the middle of the night. I could have been attacked or raped or worse,’ she said. In the morning, she contacted her landlord, who denied being in arrears. She was homeless for another two days, until it transpired that the bailiff s had gone to the wrong flat.6
The thousands who were caught out included an Iranian exile named Farzad Bazoft , who had been unable to return home since the 1979 revolution. He had taken out a 100 per cent mortgage on a £69,000 one-bedroom flat in north London before the jump in interest rates forced him to move into cramped shared accommodation. The loss of his flat seems to have increased his determination to establish himself at the Observer, where he was working six or seven days a week, but could not get his name in the paper. He volunteered to go on a press trip organized by the Iraq government, and there he went alone to a secret missile plant near Baghdad, where there had recently been an explosion that killed a large number of workers. Bazoft made sketches and collected soil samples, in the hope of proving that it was a nuclear plant. He was arrested and after six weeks in the hands of Iraq’s police, he appeared on television confessing to being a spy. At 6.30 a.m. on 15 March 1990, Bazoft was hanged.
Recession also claimed its inevitable victims among businesses that had borrowed too much in the boom years. The effect was often delayed so the most famous casualties, such as the Middle East-based bank BCCI or the Maxwell publishing empire, were brought down early in the 1990s. Robert Maxwell fell off his yacht in unexplained circumstances on 5 November 1991. A month later, it was discovered that he had looted £526m from Mirror Group newspapers and from pension funds he had controlled, in a final desperate attempt to avert bankruptcy.
There were also properly run businesses that suffered as their customer base shrank. Amstrad, created by Alan Sugar, had been one of the great success stories of the 1980s. The son of a tailor, brought up in a council flat in Hackney, he started in business as a teenager selling electrical goods from the back of a van, and set up the firm in 1968, when he was aged twenty-one. The name Amstrad was short for ‘Alan Michael Sugar Trading’. The merchandise t
hat made him rich and famous was the PWC home computer, which he started marketing in 1986. Until then, the tiny but growing home computer market had been dominated by Clive Sinclair, who was highly inventive but not a great businessman. Sugar bought Sinclair’s business in 1986 for £5m. He did not pioneer any startlingly new technology, but he organized the business effectively and offered the purchaser a reassuringly simple product. An Amstrad arrived in one box, at a reasonable price of £399, and its new owner was not required to do anything but plug it in and switch it on. Its technology was primitive by contemporary standards. You could not, for instance, connect an Amstrad to the Internet; and if you wanted to write a document of more than about 3,000 words you had to break it into parts because the machine’s memory could not cope with anything of that length. However, it was the marketing sensation of 1986, when it captured 25 per cent of the European home computer market. This created a new brand of consumer, the Amstrad owner, and a sub-species, the ‘Amstrad bore’, who could talk about nothing but his new toy. The craze ended, almost as swiftly as it began, when more sophisticated computers came on to the market and giant firms such as Hewlett Packard did deals with high-street chains that effectively elbowed Amstrad off the shelves. ‘It is possible – at certain dinner parties – for the word-processor bores to get into a state of combative one-upmanship which lasts all night. All those who eagerly bought their first Amstrads five or six years ago, now boast of having exchanged them for something else,’ one writer observed in 1989.7