The Path to Power m-2

by Margaret Thatcher

  None of this pleased me. But our inability to resist trade union power, whether exerted through irresponsible wage demands which forced companies into liquidation and workers out of jobs, or through strikes which brought the country to a halt, was now manifest. The Industrial Relations Act itself already seemed hollow: it was soon to be discredited entirely. Like most Conservatives, I was prepared to give at least a chance to a policy which retained some of the objectives we had set out in 1969/70. I was even prepared to go along with a statutory prices and incomes policy, for a time, to try to limit the damage inflicted by the arrogant misuse of trade union power. But I was wrong. State intervention in the economy is not ultimately an answer to over-mighty vested interests: for it soon comes to collude with them.

  It is unusual to hold Cabinets on a Monday, and I had arranged a long-standing scientific engagement for Monday 20 March 1972, so I was not present at the Cabinet which discussed the Budget and the new Industry White Paper on that day. Both of them signalled a change in strategy, each complementing the other. The Budget was highly reflationary, comprising large cuts in income tax and purchase tax, increased pensions and social security benefits and extra investment incentives for industry, It was strongly rumoured that Tony Barber and the Treasury were very unhappy with the Budget and that it had been imposed on them by Ted. The fact that the Budget speech presented these measures as designed to help Britain meet the challenge opened up by membership of the EEC in a small way confirms this. It was openly designed to provide a large boost to demand, which it was argued would not involve a rise in inflation, in conditions of high unemployment and idle resources. Monetary policy was mentioned, but only to stress its ‘flexibility’; no numerical targets for monetary growth were set.

  On Wednesday 22 March John Davies published his White Paper on Industry and Regional Development, which was the basis for the 1972 Industry Act. Even more than the Budget, this was seen by our supporters and opponents alike as an obvious U-turn. Keith and I and probably others in the Cabinet were extremely unhappy, and some of this found its way into the press. As far as I can recall there had been no prior discussion of the White Paper in Cabinet: it was presented to the Commons in the Budget statement and its preparation within Government was subject to all the secrecy usually applied to Budget measures. From this point on I was conscious that on the Labour benches enmity had been transformed into contempt. I was not in the House at the time, but I read The Times report which sums up the reaction to John Davies’s speech on the Bill:

  Lame ducks never looked healthier as Mr Davies, Secretary of State for Trade and Industry, opened today’s debate on the Second Reading of the Industry Bill with possibly the most remarkable speech heard in the Commons during the life of the present Government. At the end, the cheers from the Labour benches and the almost total silence from Conservative MPs showed more clearly than anything the Opposition could say how complete had been the Government volte face on intervention in industry and on aid to the regions.

  I was not, I know, the only Conservative to squirm on reading stuff like this. Should I have resigned? Perhaps so. But those of us who disliked what was happening had not yet either fully analysed the situation or worked out an alternative approach. Nor, realistically speaking, would my resignation have made a great deal of difference. I was not senior enough for it to be other than the littlest ‘local difficulty’. All the more reason for me to pay tribute to people like Jock Bruce-Gardyne, John Biffen, Nick Ridley and, of course, Enoch Powell who did expose the folly of what was happening in Commons speeches and newspaper articles.

  There is also a direct connection between the policies pursued from March 1972 and the very different approach of my own administration later. A brilliant, but little-known, monetary economist called Alan Walters resigned from the CPRS and delivered not only scathing criticism of the Government’s approach but also accurate predictions of where it would lead.[29]

  One more blow to the approach we adopted in 1970 had still to fall: and it was not long in coming. This was the effective destruction of the Industrial Relations Act. It had never been envisaged that the Act would result in individual trade unionists going to gaol. Of course, no legal provisions can be proof against some remote possibility of that happening if troublemakers are intent on martyrdom. It was a long-running dispute between employers and dockers about ‘containerization’ which provided the occasion for this to happen. In March 1972 the National Industrial Relations Court (NIRC) fined the Transport and General Workers’ Union (TGWU) £5,000 for defying an order to grant access to Liverpool Docks. The following month the union was fined £50,000 for contempt on the matter of secondary action at the docks. The TGWU maintained that it was not responsible for the action of its shop stewards, but the NIRC ruled against this in May. Then, out of the blue, the Court of Appeal reversed these judgements and ruled that the TGWU was not responsible, and so the shop stewards themselves were personally liable. This was extremely disturbing, for it opened up the possibility of trade unionists going to jail. The following month three dockers involved in blacking were threatened with arrest for refusing to appear before the NIRC. 35,000 trade unionists were now on strike. At the last moment the Official Solicitor applied to the Court of Appeal to prevent the dockers’ arrest. But then in July another five dockers were jailed for contempt.

  The Left were merciless. Ted was shouted down in the House. Sympathetic strikes spread, involving the closure of national newspapers for five days. The TUC called a one-day general strike. On 26 July, however, the House of Lords reversed the Court of Appeal decision and confirmed that unions were accountable for the conduct of their members. The NIRC then released the five dockers.

  This was more or less the end of the Industrial Relations Act, though it was not the end of trouble in the docks. A national dock strike ensued and another State of Emergency was declared. This only ended — very much on the dockers’ terms — in August. In September the TUC General Congress rubbed salt into the wound by expelling thirty-two small unions which had refused, against TUC instructions, to de-register under the Act. Having shared to the full the Party’s enthusiasm for the Act, I was appalled.

  A U-TURN TOO FAR

  In the summer of 1972 the third aspect — after reflation and industrial intervention — of the new economic approach was revealed to us. This was the pursuit of an agreement on prices and incomes through ‘tripartite’ talks with the CBI and the TUC. Although there had been no explicit pay policy, we had been living in a world of ‘norms’ since the autumn of 1970 when the ‘n—1’ was formulated in the hope that there would be deceleration from the ‘going rate’ figure in successive pay rounds. The miners’ settlement had breached that policy spectacularly, but Ted drew the conclusion that we should go further rather than go back. From the summer of 1972 a far more elaborate prices and incomes policy was the aim, and more and more the centre of decision-making moved away from Cabinet and Parliament. I can only, therefore, give a partial account of the way in which matters developed. Cabinet simply received reports from Ted on what policies had effectively been decided elsewhere, though individual ministers became increasingly bogged down in the details of shifting and complicated pay negotiations. This almost obsessive interest in the minutiae of pay awards was matched by a large degree of impotence over the deals finally struck. In fact, the most important result was to distract ministers from the big economic issues and blind us with irrelevant data when we should have been looking ahead to the threats which loomed.

  The period of the tripartite talks with the TUC and the CBI from early July to the end of October did not get us much further as regards the Government’s aim of controlling inflation by keeping down wage demands. It did, however, move us down other slippery slopes. In exchange for the CBI’s offer to secure ‘voluntary’ price restraint by 200 of Britain’s largest firms, limiting their price increases to 5 per cent during the following year, we embarked on the costly and self-defeating policy of holding nationa
lized industry price increases to the same level, even though this meant that they continued to make losses. The TUC, for its part, used the role it had been accorded by the tripartite discussions to set out its own alternative economic policy. In flat contradiction to the policies we had been elected to implement, they wanted action to keep down council rents (which would sabotage our Housing Finance Act — intended to bring them closer to market levels). They urged the control of profits, dividends and prices, aimed at securing the redistribution of income and wealth (in other words the implementation of socialism), and the repeal of the Industrial Relations Act. These demands, made at the TUC Congress in September, were taken sufficiently seriously by Ted for him to agree studies of methods by which the pay of low-paid workers could be improved without entailing proportionate increases to other workers. We had, in other words, moved four-square onto the socialist ground that ‘low pay’ — however that might be defined — was a ‘problem’ which it was for government rather than the workings of the market to resolve. In fact, the Government proposed a £2 a week limit on pay increases over the following year, with the CBI agreeing maximum 4 per cent price increases over the same period and the extension of the Government’s ‘target’ of 5 per cent economic growth.

  In any case, it was not enough. The TUC was not willing — and probably not able — to deliver wage restraint. At the end of October we had a lengthy discussion of the arguments for now proceeding to a statutory policy, beginning with a pay freeze. It is an extraordinary comment on the state of mind that we had reached that, as far as I can recall, neither now nor later did anyone at Cabinet raise the objection that this was precisely the policy we had ruled out in our 1970 general election manifesto. Yet no one could accuse Ted of not being willing to go the extra mile. Only with the greatest reluctance did he accept that the TUC were unpersuadable. And so on Friday 3 November 1972 Cabinet made the fateful decision to introduce a statutory policy beginning with a ninety-day freeze of prices and incomes. No one ever spoke a truer word than Ted when he concluded by warning that we faced a troubled prospect.

  The change in economic policy was accompanied by a Cabinet reshuffle. Maurice Macmillan — Harold’s son — had already taken over at Employment from Robert Carr in July 1972, when the latter replaced Reggie Maudling at the Home Office. Ted now promoted his younger disciples. He sent Peter Walker to replace John Davies at the DTI and promoted Jim Prior to be Leader of the House. Geoffrey Howe, an instinctive economic liberal, was brought into the Cabinet but given the poisoned chalice of overseeing prices and incomes policy. It has been said that I was thought of for the job; if so, I can only be thankful that I wasn’t asked.

  For a growing number of backbenchers the new policy was a U-turn too far. When Enoch Powell asked in the House whether the Prime Minister had ‘taken leave of his senses’, he was publicly cold-shouldered, but many privately agreed with him. Still more significant was the fact that staunch opponents of our policy like Nick Ridley, Jock Bruce-Gardyne and John Biffen were elected to chairmanships or vice-chairmanships of important backbench committees, and Edward du Cann, on the right of the Party and a sworn opponent of Ted, became Chairman of the 1922 Committee.

  As the freeze — Stage 1 — came to an end we devised Stage 2. This extended the pay and price freeze until the end of April 1973; for the remainder of 1973 workers could expect £1 a week and 4 per cent, with a maximum pay rise of £250 a year — a formula designed to favour the low-paid. A Pay Board and a Prices Commission were set up to administer the policy. Our backbench critics were more perceptive than most commentators, who considered that all this was a sensible and pragmatic response to trade union irresponsibility. In the early days it seemed that the commentators were right. A challenge to the policy by the gas workers was defeated at the end of March. The miners — as we hoped and expected after their huge increase the previous year — rejected a strike (against the advice of their Executive) in a ballot on 5 April. The number of working days lost because of strikes fell sharply. Unemployment was at its lowest since 1970. Generally, the mood in Government grew more relaxed. Ted clearly felt happier wearing his new collectivist hat than he ever had in the disguise of Selsdon.

  Our sentiments should have been very different. The effects of the reflationary Budget of March 1972 and the loose financial policy it typified were now becoming apparent. The Treasury, at least, had started to worry about the economy, which was growing at a clearly unsustainable rate of well over 5 per cent. The money supply, as measured by M3 (broad money), was growing too fast — though the (narrower) Mi, which the Government preferred, less so.[30] The March 1973 Budget did nothing to cool the overheating and was heavily distorted by the need to keep down prices and charges so as to support the ‘counter-inflation policy’, as the prices and incomes policy was hopefully called. In May modest public expenditure reductions were agreed. But it was too little, and far too late. Although inflation rose during the first six months of 1973, Minimum Lending Rate (MLR) was steadily cut and a temporary mortgage subsidy was introduced. The Prime Minister also ordered that preparations be made to take statutory control of the mortgage rate if the building societies failed to hold it down when the subsidy ended. These fantastic proposals only served to distract us from the need to tackle the growing problem of monetary laxity. Only in July was MLR raised from 7.5 per cent, first to 9 per cent and then to 11.5 per cent. We were actually ahead of Labour in the opinion polls in June 1973, for the first time since 1970. But in July the Liberals took Ely and Ripon from us at by-elections. Economically and politically we had, without knowing it, already begun to reap the whirlwind.

  Over the summer of 1973 Ted held more talks with the TUC, seeking their agreement to Stage 3. The detailed work was done by a group of ministers chaired by Ted, and the rest of us knew little about it. Nor did I know at the time that close attention was already being given to the problem which might arise with the miners. Like most of my colleagues, I imagine, I believed that they had had their pound of flesh already and would not come back for more.

  I hope, though, that I would have given a great deal more attention than anyone seems to have done to building up coal stocks against the eventuality, however remote, of another miners’ strike. The miners either had to be appeased or beaten. Yet, for all its technocratic jargon, this was a government which signally lacked a sense of strategy. Ted apparently felt no need of one since, as we now know, he had held a secret meeting with Joe Gormley in the garden of No. 10 and thought he had found a formula to square the miners — extra payment for ‘unsocial hours’. But this proved to be a miscalculation. The miners’ demands could not be accommodated within Stage 3.

  In October Cabinet duly endorsed the Stage 3 White Paper. It was immensely complicated and represented the high-point — if that is the correct expression — of the Heath Government’s collectivism. Pay increases were to be limited to £2.25 a week or 7 per cent with a maximum £350 per annum; there were complex provisions to pay shift workers more for ‘unsocial hours’, and room was made for additional payments in respect of productivity agreements and moves towards equal pay for women. In addition, there were ‘threshold payments’ to be made if inflation rose to specified levels — we made some rosy assumptions about future rates of inflation — and there was also money for pensioners and a new mortgage subsidy for first-time buyers. But the most significant new development– and one whose necessity ultimately demonstrated the futility of the kind of approach we were pursuing — was the provision that the Pay Board should set up an inquiry into ‘relativities’ between groups of workers, with the aim of accommodating grievances on this score in Stage 4. All possible eventualities, you might have thought, were catered for. But as experience of past pay policies ought to have demonstrated, you would have been wrong.

  My only direct involvement in the working of this new, detailed pay policy was when I attended from time to time the relevant Cabinet Economic Sub-Committee, usually chaired by Terence Higgins, a Treasury
Minister of State. Even those attracted by the concept of incomes policy on grounds of ‘fairness’ begin to have their doubts when they see its provisions applied to individual cases. My visits to the Higgins Committee were usually necessitated by questions of teachers’ pay. But on one occasion when I found myself there with Sir William Armstrong, the Head of the civil service, it was to discuss the pay of Under-Secretaries. I knew that it was at this level in my department that the most important policy work was carried on, and I saw that with inflation running at about 10 per cent and differentials squeezed as a result of union power and government pay policy, these people needed proper motivation through a decent pay rise. Of course, the same could have been said of many groups. What struck me though was that no one doubted that this particular group needed a larger pay increase than pay policy allowed. And what was true for Under-Secretaries in the civil service was true for innumerable other groups throughout the economy. Our pay policy was not just absurd: far from being ‘fair’, it was fundamentally unjust. It was, in fact, an excellent demonstration that market forces, operating within the right framework, make for fairness, and that even beneficent state control only makes for equality.

  On another sublime occasion we found ourselves debating the proper rate of pay for MPs’ secretaries. This was the last straw. I said that I hadn’t come into politics to make decisions like this, and that I would pay my secretary what was necessary to keep her. Other ministers agreed. But then, they knew their secretaries; they did not know the other people whose pay they were deciding.