Margaret Thatcher: The Authorized Biography

by Charles Moore

  The theme with which Howe introduced his Budget on 12 June 1979 was the decline of Britain. In 1954, he pointed out, Britain’s share of world trade had been the same as that of France and Germany combined. In 1979, a quarter of a century later, the Franco-German share was three times larger than Britain’s. Such a stark admission of decline was a prelude to reversing it. His measures included all the major tax changes that he had wanted. In addition, he changed the basis of calculation for the state pension. In the past, pension increases had been linked to the rise in prices or earnings, ‘whichever is the greater’. Now they were to be linked to prices alone. Since one of the problems of the British economy was the tendency of wages to outstrip prices without compensating improvements in productivity, this change was huge in its long-term effect. So was the decision, announced in the Budget, to begin the staged lifting of exchange controls. For the first time in a generation, large-scale foreign investment in Britain became a serious proposition, as did new British investment abroad.

  Everyone could see the radical change that Howe’s first Budget represented, and it was duly acclaimed or reviled depending on the commentator’s attitude to that radicalism. Cheering news for the government was the annual report by the International Monetary Fund which, since the disaster of 1976, had been making health visits to the British economy as the patient convalesced. Its report in early July praised the restraint on public spending, the tight financial policies and ‘the courageous decision … to act to improve the productivity performance of the UK economy whatever the short-term cost’.34 Less encouraging for Mrs Thatcher was the reaction of Jim Prior. He found the Budget an ‘enormous shock’.35 This may seem strange, given that the chief points of the Budget had been foreshadowed in the election campaign, but Prior admitted in later years that he had been ‘working on the assumption that the rhetoric of opposition would become softened by the experience of government’.36 Besides, because of Mrs Thatcher’s extreme (and, as later events were to show, justified) fear of leaks, there had been no Cabinet discussion of the Budget. Ministers heard its contents only on the morning of the day when it was delivered, by which time protest was too late. Prior, who had earlier got wind of the possible increase in the rate of VAT to 15 per cent, had been to see Mrs Thatcher to lobby against this, and she, who had her own objections to the rise, ‘heard me with sympathy’.37 On the night before the Budget, Prior gave dinner to Moss Evans, the head of the giant Transport and General Workers Union, and told him that he doubted that the rate would go as high as 15 per cent.38 When it did so, Prior lost standing as an interlocutor with the unions, and felt foolish, even misled. He vented his anger by protesting privately at the increases in the RPI which the Budget would cause, and at the policy of encouraging nationalized industries to increase their prices in order to restrain their ‘external financing limits’ (the subsidy they received from central government). These rises, in turn, would push wages higher. For an anti-monetarist like Prior who believed that wage increases, not the quantity of money, caused inflation, the Budget was indeed a great error. For anyone concerned with pay bargaining, it was certainly a high risk.

  The real problem, however, was not the price increases, politically uncomfortable though they were. Most of them, as Geoffrey Howe had successfully persuaded Mrs Thatcher, would drop out of the RPI after a year because they would not be repeated. They were not, in the proper sense, inflationary. The much greater difficulty was whether the course charted by the Chancellor could be sustained. Would the government really be able to contain public spending enough to reduce taxes over time without having to borrow more and more money? Mrs Thatcher sensed at once that she had missed her first chance to be really tough on spending. At the party she gave to celebrate the Budget, she said to Robin Butler, then a Treasury civil servant charged with public spending, ‘I asked for too little, didn’t I?’39 If the government did have to borrow more money, how could it possibly, according to its own theories, reduce inflation? If it did not reduce inflation, how could it bring down interest rates? How was inflation to come down faster if the government was spending and borrowing too much and if, as some were beginning to assert, the measurement of money supply was wrong anyway? The speed of events was such that the government had made a series of important decisions before it was able to think about them. There was a legislative programme; there was a Budget; there were good intentions. But was there a strategy, in the sense of something that linked everything to everything else in order to find a way through the maze?

  John Hoskyns thought not. He remembered observing in Mrs Thatcher what General Sir Alan Brooke had observed in Winston Churchill: ‘I despair of getting the Prime Minister to understand the connection between different theatres of war.’ ‘She was very remarkable, but like Churchill she had no strategic sense in the executive meaning of the word.’40 He kept trying to get her and her colleagues to look at the situation in the round. On the day of the Budget he sent to Mrs Thatcher a paper entitled ‘Government Strategy’ which sought a ‘coherent approach to the task of turning round the British economy’ and declared: ‘The problem is a single problem … The expectations within the system tend to be self-fulfilling. Government therefore has to persuade people to think and feel differently before the behaviour of the system can change.’ His first concept was what he called Stabilization, which would take up most of the first term. It meant getting the economy on an even keel of zero inflation, market pay systems, a stable exchange rate at a competitive level, and so on. It might even require, he doubtingly suggested, a pay freeze to deal with the fact that the public sector would not respond readily to market pressures. From Stabilization could come Rebuilding, a greater reduction of the government’s percentage of GDP, a freeing up of the labour market, a switch of talent to the private sector (‘What is really needed is 10 years of vulgarly pro-business and pro-industry policies’). Rebuilding without Stabilization would be ‘like trying to pitch a tent in the middle of a landslide’. Perhaps the most important single thing, said Hoskyns, was to change the role of trade unions. He questioned whether the proposed reform of the union law would be enough. Reverting to what he had argued in the Stepping Stones papers written in opposition, Hoskyns urged that the ‘union debate’ be ‘started properly: We need to force unions to address their members in the language of the real world.’41

  Mrs Thatcher drew a large black arrow pointing to this last sentence, showing that she approved of it. But it is doubtful whether the paper succeeded in getting the focus Hoskyns sought. Mrs Thatcher used it as the basis for a strategy discussion with a special group of ministers, including Howe, Whitelaw, Heseltine, Joseph and Prior, on 18 June 1979, but it quickly became bogged down. As Hoskyns himself recorded at the time, his mention even of the possibility of a pay freeze ‘got things off on a slightly wrong note’.42 On her copy of Hoskyns’s paper which she used at the meeting, the Prime Minister wrote ‘Pay freeze out’.43* And she took his word ‘stabilization’ the wrong way, believing that it was ‘a stagnation-type word’44 condemning the country to no growth. She had a habit of seizing on a particular word in someone’s argument and wrestling with it. Sometimes this was extremely effective. At other times, she got the wrong end of the stick. The latter was the problem with Hoskyns’s ‘stabilization’. Mrs Thatcher could not see that it was his word to describe the normalizing of a free economy which both of them wanted. In a third strategy paper submitted in December, Hoskyns explained the process of Stabilization further, but Mrs Thatcher scribbled in the margins, ‘This description is not compatible with vigorous action.’45 It was an unnecessary misunderstanding, but not an untypical one. Serious though she always was in pursuing her long-term aims and discussing how to pursue them, Mrs Thatcher never had the ‘critical path’ which people of Hoskyns’s military and business background considered essential. In that sense, Hoskyns was right about her lack of strategy. She preferred to jump about, seizing one phrase, rejecting another, contradicting sometimes herself and,
much more often, everyone else. Such methods sometimes drove those working with her to distraction, but in the view of others they showed the flexibility which is always necessary for political survival. Richard Ryder, her political secretary, saw it as evidence that ‘she was a brilliant, intuitive, instinctive politician’, rather than a doctrinaire one.46 And even Hoskyns conceded that only she had the stomach needed for the fight, pursuing his analogy with the Second World War: ‘Without Churchill i.e. her, we’d have surrendered in the first few months.’47

  There was only one area of political combat where the battle proved surprisingly easy – the sale of council houses. Back in the mid-1970s, despite initial reservations from Mrs Thatcher that such a scheme would disadvantage natural Tory voters who had received no assistance from the state, the Conservative Party had taken up the idea of turning the tenants of public housing into owners. Even in the 1960s, a party committee on which Mrs Thatcher herself sat had worked on schemes of encouraging this trend, but the policy developed in the 1970s was stronger. Recognizing that many Labour councils were adamantly opposed to allowing tenants to buy, it proposed to give the tenants the statutory right to do so. By the general election of 1979, this policy was undisputed within the party and extremely popular with voters. In the view of Michael Heseltine, the Cabinet minister whose department implemented the policy, the right to buy had been ‘next to the “Winter of Discontent” itself … the single most important contributory factor’ in victory.48 So much was the policy agreed that when Mrs Thatcher held her first meeting with Heseltine on the subject of housing, a few days after the May election, she did not specifically discuss the right to buy at all but ranged more widely over everything which needed to be done to spread home ownership. This included an attack on rates, the sale of vacant property and a concentration on allowing ‘most young people to enter the market’. She ‘emphasised the long-term objective of eliminating subsidies in housing for the great majority of people’.49 In the debate on the Queen’s Speech on 15 May, she told Parliament that the right to buy provided in the forthcoming Housing Bill would fulfil ‘Anthony Eden’s dream of a property-owning democracy’ and ‘give to more of our people that freedom and mobility and that prospect of handing something on to their children and grandchildren which owner-occupation provides’.50

  There were, in fact, two main thoughts behind the policy. As well as the principal political and social purpose of bestowing the freedom of ownership on more people, it also helped the Treasury. As a Think Tank paper which Mrs Thatcher received two weeks after coming into office pointed out, housing had been quietly singled out by the Conservatives, in opposition, ‘to produce proportionally greater savings than any other programme’.51 As well as emancipating the buyers, therefore, council house sales would yield revenue, remove large numbers of people from future council housing provision and even make it politically easier to put up council house rents to more realistic levels. In short, the ‘giveaway’ was also, in some sense, a cut. Not surprisingly, therefore, the social and financial objectives were in partial conflict. Heseltine at Environment wanted the largest possible number of council house sales. The Treasury wanted the largest sums of money. The two things were not necessarily identical. The 1979 party manifesto had promised ‘to ensure that 100 per cent mortgages are available for the purchase of council and new town* houses’. In the Treasury’s view, such mortgages were a thorough nuisance if councils had to provide them, and were much better obtained from private providers. Nor should house sales lead to more council house building, it argued. Nigel Lawson, the Financial Secretary to the Treasury, wrote quickly to Heseltine to warn him: ‘It will make no sort of economic sense if stock sold at a discount is replaced by new building.’52

  For her part, Mrs Thatcher behaved as prime ministers are conventionally supposed to do, promoting the policy while trying to reconcile differing departments. She warmly supported the right to buy, and constantly deployed it as part of wider themes of freedom and opportunity. She also agitated for other measures which would spread private owner-occupation – ‘shared ownership’ which allowed people to gain the equity by degrees, ‘homesteading’ by which people could improve council properties in poor condition, and an end to the ‘red-lining’ by which building societies refused mortages completely in areas which they considered too run down. But she did not become heavily engaged in the detail of the legislation. The record shows a fairly small volume of traffic with her on the issues involved. According to John Stanley, who was her first Housing Minister, this was because the government’s commitment to the policy was unquestioned. It was simply a matter of the ‘huge technical undertaking’53 involved in resolving matters like good title and price and dealing with those properties which were defective because they had been built in the 1950s and 1960s under ‘industrialized building systems’ which caused them to fall apart later. In this, the Prime Minister did not need to be deeply involved. The Housing Bill that established the right to buy also offered a discount, based on length of tenure, which began at 33 per cent of the market value and rose to 50 per cent at the maximum. It also empowered the government to intervene if, as was correctly predicted, councils hostile to the right to buy tried to find ways of impeding it.

  As the Bill developed, Mrs Thatcher helped settle the continuing division between Environment and Treasury about 100 per cent mortgages, broadly in favour of Heseltine. ‘Privately, I am with DoE on this,’ she noted to her private secretary when matters came to a head in January 1980.54 She feared that, without provision for such mortgages, councils opposed to the right to buy would be able to stop sales to poorer people. She also supported Heseltine’s insistence that half the proceeds of the sales be remitted to councils, to incentivize them, where the Treasury had sought much more for itself. As Labour councils later tried to block sales, she waited until enough evidence had built up for the legal advice to be securely in the government’s favour, and then urged ministers to act. Successful court action against Norwich City Council in 1981 marked the turning point for the policy. After that it became clear that the right to buy was, indeed, a right, rather than dependent on the wish of each council. But Mrs Thatcher was always cautious. In April 1981, Heseltine, with the support of Geoffrey Howe, put forward suggestions for rent deregulation, since the private rented sector had become moribund because of controls. Mrs Thatcher favoured the idea in principle, but ‘did not believe that this would be politically wise’.55 She dreaded a ‘fear campaign’ from Labour about rising rents. Her attitude to housing policy was governed by her strong, instinctive sense about timing. Politically, her instincts paid off. By the time of the party conference of October 1982, John Stanley was able to tell the audience that the average mortgage paid by a council tenant was only 43 pence a week more than the average council rent. By the end of Mrs Thatcher’s first administration, half a million families were living in council houses which they had bought, mainly under the right to buy. The policy had its disadvantages. The most notable were the gradual build-up of a housing shortage which, in 1979, had not existed, and the stoking, for the future, of a housing bubble. But it worked extraordinarily well in its stated aims. It also produced huge political loyalty to Mrs Thatcher, often from people who had never voted Conservative before. Tory canvassers reported that they could tell their supporters at a glance by the improvements they had carried out to their doors and windows as soon as they had bought their council house. By 1983, it would become commonplace for people, mainly from the upper working class, to declare ‘Maggie got me my house.’ It was one of the few areas in which her personal reward extracted was disproportionate to the amount of work she personally had put in.

  The overall economic situation followed no such steady course. The biggest factor preventing the stabilization that John Hoskyns sought was public spending. In her memorandum for the first Cabinet meeting about the subject on 17 May, Mrs Thatcher had set out the main, related problems of pay, cash limits and spending. There were ‘inher
ited promises’ on pay, the Tories’ own promises of increases in police and army pay, and their promise to exempt the National Health Service from cuts. Then there were the problems of the nationalized industries. How far could they be allowed to run themselves? How could the outflow of central government money to them be minimized? What about the National Coal Board, which was ‘in a category of its own’: ‘Do we ask them to take the whole strain on prices, investment and pit closures?’ Then there was local government. Local authorities should use their ‘quite large cash balances’ so that central government could ‘trim the level of Rate Support Grant support we offer for the next and subsequent years’. In central government, the pay settlement for the non-industrial civil service, reached before the election, was only one-third covered by the cash limit. If there was now to be a ‘resumed dialogue with both sides of industry’ ‘should we seek to hold them [the unions] to the target they accepted jointly with the last Government of reducing inflation below five per cent by 1982?’56 When the Cabinet actually met, Mrs Thatcher told it that the high forecasts for the PSBR meant that cuts would have to be £500–600 million greater than already sketched out by John Biffen, the Chief Secretary. Therefore even defence and law and order would have to get rid of ‘waste’ to fund their promised expansion. Asset sales, though necessary, should not be used as a substitute for real cuts in expenditure, and the sales should be placed with British institutions to avoid foreign buyers.