Edwardes strengthened his position by firing Derek ‘Red Robbo’ Robinson, the hard-left convenor of the shop stewards at the Longbridge plant and master of much of the union disruption.* Mrs Thatcher was pleased, but continued to object to suggestions for saving BL. She wrote ‘Why?’ on documents advocating rescue and put heavy underscorings of approval against suggestions of sell-off. But, shortly before Christmas, she followed political logic and accepted Joseph’s recommendation. The £300 million extra was promised. The condition was that Edwardes sign a letter agreeing that the Plan would be abandoned – resulting in total closure – if thrown off course by strikes.
By February 1980 a strike over Robinson threatened and the car market was continuing to fall. Ministers began to consider aborting the Plan, but did not do so. Just as Mrs Thatcher wanted to get away from ‘beer and sandwiches at No. 10’, by which trade unions took part in the making of government policy, so she wanted an almost equally arm’s-length relationship with the heads of nationalized industries. She therefore had no substantive meeting with Edwardes at all until, at Keith Joseph’s prompting, she gave dinner to the BL board on 21 May. By this time, Edwardes had successfully faced down the strike threat, but the dinner was still combative. In advance, Hoskyns had advocated ‘deliberate brinkmanship’, seeing the dinner as the moment ‘To increase, through Edwardes’s understanding and cooperation, our chances of … “Sell or Merge” ’.136 At the dinner, Edwardes told her that the planned Mini Metro, to be launched in the autumn, would be the saving of the company. He was working on a collaborative deal with a German company which he would not name (it was BMW), but even so cash flow would fall well short of the plan. The exchange rate was very damaging. The company would need up to £500 million extra over the next three or four years. This ‘immediately established a frosty atmosphere’.137
Mrs Thatcher’s manner was ‘somewhat reminiscent of the Spanish Inquisition’.138 She told him she was ‘very disturbed’.139 There could be ‘no presumption’ that extra funds would be provided. ‘What worried her’, Edwardes recalled, ‘was that I wasn’t presenting a budget … We weren’t ready because of the changes in the exchange rate … and that annoyed her. We had to talk in generalities whereas she wanted hard figures.’140 She appeared unhelpful. After dinner, the party moved to the drawing room:
Suddenly she turned everything on its head … She turned to Geoffrey Howe and said, ‘Geoffrey, how much have we got in the contingency fund?’ Geoffrey said, ‘Do you think it is proper for them to know?’ ‘Get on with it. Tell Michael how much is in there,’ she said. There was actually two or three billion in it … I walked out of there knowing that I had had an indication … I was confident that the battle was won and confident that we would get the money.141
It is probably true that Mrs Thatcher found Edwardes persuasive enough to want to go on giving BL a chance, but in fact things got very much worse. In December 1980, Joseph reported to colleagues that BL’s demand for 1981–3, which had been £130 million in the 1980 Corporate Plan, was now £1,140 million. For each car produced, BL was losing £600. Mrs Thatcher peppered Joseph’s document with exclamation marks and wrote, in reference to Jaguar and Land Rover, ‘Sell off.’142 ‘I seem to remember he [Edwardes] told us he would come to govt if he could not carry out the previous corporate plan. He never came.’143
Cabinet ministers disagreed among themselves. John Nott, at Trade, told Mrs Thatcher that if the government paid out the extra sum demanded ‘we would be ridiculed, and rightly so, since such an investment will be seen to be wholly contrary to the industrial and economic policy which we have been promoting for the past five years.’144 Keith Joseph, agonized, went back, somewhat half-heartedly, on his pre-Christmas belief that more money should be advanced, and argued that it should not be. At the beginning of the year, Mrs Thatcher had brought her rising ally, Norman Tebbit, into the Department of Industry to be Joseph’s minister of state. ‘Norman,’ she told Tebbit, ‘I want you to look after Keith – dear Keith, they are so unkind to him, and he needs someone to protect him.’145 Observers noted that, much as she loved Joseph, Mrs Thatcher was not above being unkind to him herself, as he groaned and hesitated and tried to reconcile his beliefs in economic necessity with his personal humanity. But at a meeting on 12 January 1981 Geoffrey Howe argued that further subsidy would be no worse for the PSBR than closure and Mrs Thatcher, using a phrase not often associated with her, sought the ‘middle way’ in which, in return for support, Edwardes would agree to sell or merge the company. The meeting thought that ‘closures in the steel and shipbuilding industries should have higher priority; and it was not politically possible to achieve all at once.’146
Still no final decision emerged, however, and Mrs Thatcher started once more to harden against extra subsidy. Norman Tebbit recalled one meeting at this time when she had summoned Joseph and him to express her concern about the Corporate Plan. ‘Is there anything else you need, Secretary of State?’ asked Joseph’s private secretary as the pair set out for Downing Street. ‘Yes,’ said Joseph, ‘ambulances at three-thirty.’147 The dispute about what to do had dragged on so long that Edwardes wrote to complain that he could not run a business if he did not know whether or not it would exist in two weeks’ time.148 Before E Committee met to decide, Robert Armstrong, conscious of Mrs Thatcher’s politically precarious position, counselled caution: ‘I think it is very important that you should not show your hand in the discussion. I believe that serious consequences would ensue if the decision was to continue financial support … and it then came out (as I fear it might) that that decision had been taken against your advice.’149 He was warning her about the leaky habits of far from loyal Cabinet colleagues.
In the end, the extra money was agreed, but Mrs Thatcher was not pleased. On the draft of the statement to Parliament, she jibbed at the sentence ‘The Government wishes the BL Board and the companies’ employees well in their difficult task.’ She crossed out the word ‘difficult’ and wrote, ‘Not difficult compared with those who haven’t got a government subsidy of £1 billion.’150 In fact, the ‘middle way’ did begin to set the company on a path towards winding down what was unsustainable and selling off what was not. In the course of 1981, the word ‘privatization’ would start to feature strongly in government discussion of British Leyland. But at the time the capitulation to BL’s demands was seen by many Thatcherites as a tremendous disaster. It had been advised against by Alan Walters, who had only just taken up his post as economic adviser to the Prime Minister. At the Centre for Policy Studies, Alfred Sherman turned the framed photograph of Keith Joseph to the wall.151
19
Not for turning
‘They are all against me, Robert. I can feel it’
The pay-out to British Leyland in January 1981 was only one of a series of grave embarrassments which had accumulated for Mrs Thatcher’s government in her second year of office. On 19 June 1980, John Hoskyns sent the Prime Minister a note covering a long paper about the next pay round. It said: ‘Experience of past Governments suggests a tendency to drift into what the historians later recognise as the crucial period with little or no idea of what they are doing. We are now moving into what could be the first, and critical, six months of a make-or-break year. The thinking must be done before the uproar begins.’1
Mrs Thatcher made no record of her reaction to this note, but it probably combined irritation with recognition. If there was drift in her government, it was, by implication, she that was being criticized: the note expressed a hint of the exasperation Hoskyns often felt at her lack of strategy. But, at the same time, she felt exasperated herself.
Her feelings had come to a head in the previous month. As soon as she had entered No. 10 a year earlier, Mrs Thatcher had set up a mechanism for investigating waste in government. She appointed Derek Rayner, formerly of Marks and Spencer, as her adviser on efficiency and waste. The Rayner Scrutiny, as it was known, was based in the Cabinet Office. It not only searched out particular
examples of waste and the pointless generation of paper, but also worked to change the culture of Whitehall. It sought to alter the belief at the top of the Civil Service that brains alone mattered, and encourage the idea that results mattered too. It wished to import notions of management from the private sector, including reviews of performance so that people who worked well were rewarded and people who worked badly were punished. This was the sort of thing in which very few prime ministers in the past had shown any interest, but it was a continuing preoccupation of Mrs Thatcher’s. It fitted, said Clive Priestley, who was the deputy at the Efficiency Unit – the Scrutiny’s formal title – with her ‘womanly theme of good household management’,2 and also with her suspicion that the Civil Service conspired to frustrate the aims of elected governments. When she came into office, the Civil Service, whose numbers, structure and conditions had once been run by the Treasury, was under the charge of a separate Civil Service Department. This tended, in the view of Rayner and of Mrs Thatcher herself, to make it even more resistant to reform because it was cut off from the realities of cost and power. From the start, relations between her and the Permanent Secretary, Ian Bancroft, were uneasy.
At first, colleagues and senior officials were uncomprehending. When the Rayner scrutineers came to see Willie Whitelaw to discuss their task, he said, ‘I don’t know why she wants to do this, but she does, so we must help her.’3 Mrs Thatcher wanted to carry the permanent secretaries with her, however, and in discussion with Whitelaw, Bancroft, Lord Soames, the minister for the Civil Service, and Robert Armstrong, early in 1980, she proposed a meeting with all of them so that she might enthuse them with the task. Perhaps sensing trouble, Whitelaw argued that a dinner would be more congenial than a meeting, and this was duly arranged at No. 10 for 6 May.
Six days before the dinner, Iranian Arab terrorists, Iraqi-trained, stormed the Iranian Embassy in Princes Gate, took the occupants hostage and made a series of demands, including the release of political prisoners in Iran. At first, negotiations were attempted, both by telephone and by Muslim intermediary, but with no result. Other plans were made. On the Monday Bank Holiday afternoon,* Whitelaw, who, as Home Secretary, was the minister in charge, telephoned Mrs Thatcher as she was driving back to London from Chequers and explained that a dead body had been thrown out of the Embassy building on to the street.† He asked for her agreement to support the Metropolitan Police Commissioner’s request for the Special Air Service (SAS) to be mobilized ‘in aid of the civil power’ and to rescue the hostages. ‘Yes, go in,’ she said.4 In the course of this crisis, Mrs Thatcher paid three visits to the Cabinet ‘war room’ from which operations were being conducted. On the first two, according to John Chilcot, ‡ Whitelaw’s private secretary, she was ‘frankly dreadful’, trying to dominate the occasion without really being on top of the detail. On the third, however, when she saw the seriousness of what was required, she was ‘cheerful, resolute’ and happy to place her full confidence in Whitelaw.5 ‘She was very good,’ judged Sir Peter de la Billière, the Director of SAS, also based in the Cabinet ‘war room’. ‘She simply set the overall direction of policy and delegated it to Whitelaw to execute.’6 That afternoon, the world watched as cameras trained on the building picked up hooded gunmen leaping in through the windows of the Embassy which they had blown open. In the operation, all the hostages still alive at the moment of attack were rescued. One terrorist was captured, and the other four were killed. It was the first time that the SAS had been authorized to use force to resolve a crisis on the British mainland. The public reaction was immensely favourable. The SAS, previously relatively little known, became a household word for heroism. Although the person in charge was Whitelaw, not Mrs Thatcher, the incident added to her reputation for dash and decisiveness. Ever afterwards, the fantasy of Mrs Thatcher dressed in black combat kit and swinging into buildings with a gun in her hands became a staple of newspaper cartoonists.
The very next day, Mrs Thatcher gave her dinner for the permanent secretaries. Elated by the success of the Princes Gate siege, she was painfully conscious of what Clive Priestley remembered as the contrast between ‘the boys in black and the men in grey’.7 Although no one present can remember exactly what was said, all agree that the evening was a failure. ‘Her speech was, “You and I can beat the system.” They effectively replied, “We are the system.” ’8 At one point, Sir Frank Cooper,* from the Ministry of Defence, left the room. ‘Where’s Frank gone?’ someone asked. ‘He’s gone to get the SAS,’ was the sotto voce reply.9 Mrs Thatcher remembered only ‘a menu of complaints and negative attitudes’.10 Robin Ibbs, who had just arrived to take charge of the CPRS, noted that ‘They were speaking opposite languages to each other.’11 Mrs Thatcher whispered to Armstrong: ‘They are all against me, Robert. I can feel it.’12 Eventually she said icily, ‘Gentlemen [there were no women present], your cars are waiting for you.’13 As the man theoretically in charge of civil servants, Ian Bancroft attracted her blame for this fiasco, and he never recovered his standing with her.
In later years, Mrs Thatcher liked to say, ‘That meeting is etched on my soul.’14 Not only did she feel discouraged in her attempts to get more efficient administration. She felt more generally beleaguered and – which she disliked even more – patronized and whinged at. It made her wonder whether she would ever be able to wrench the country round to face reality.
Although there was not yet the ‘uproar’ of which John Hoskyns had warned, the early months of 1980 had seen much louder grumbling than before. In February, Ian Gilmour made a speech in Cambridge which set out with remarkable frankness (though not, of course, mentioning Mrs Thatcher by name) the basic Wet disagreement with her approach. ‘Lectures on the ultimate beneficence of competition and the dangers of interfering with market forces will not satisfy people who are in trouble,’ he said, and he declared that ‘In the Conservative view, economic liberalism à la Professor Hayek, because of its starkness and its failure to create a sense of community, is not a safeguard to political freedom but a threat to it.’ He warned, in effect, of defeat: ‘While I agree that we are embarked on a programme that could well take the best part of two Parliaments to carry through, I also note that between the first Parliament and the second, the electorate will have its chance of a say.’ Such words spoken in public sailed very close to breaching the doctrine of collective Cabinet responsibility. In his critique of the Thatcher era, Dancing with Dogma, published twelve years later, Gilmour admitted this, but argued that it was justified because Mrs Thatcher herself had departed from a collective approach, making economic policy through a ‘secretive monetarist clique’.15 His other reason for speaking as he did, he wrote, was: ‘Ridiculous as it now seems, like many colleagues I still had lingering if fading hopes that common sense … would soon be introduced into the conduct of economic policy.’16 This was, perhaps, an oblique and retrospective way of saying that, at the time, Gilmour and his allies felt emboldened to criticize because they believed that Mrs Thatcher was almost bound to fail.
Mrs Thatcher’s reaction to Gilmour’s speech probably emboldened him further. In the same television interview in which she explained that Jim Prior was ‘very, very sorry’ for his remarks about the British Steel chairman, she denied that there was any disagreement over strategy within her Cabinet. ‘We only have arguments about the timing,’ she said. Asked specifically about Gilmour’s speech, she said that all Gilmour’s speeches were ‘very scintillating’ and that there was ‘something in it for everybody’.17 She made no public attempt to rebut the criticism or to put down the man, although, within the (imperfect) privacy of Cabinet, Robert Armstrong recorded, ‘The Prime Minister drew attention to the importance of maintaining collective responsibility, and the trust and confidence among colleagues on which it depends.’18 The conclusion of the Wets, possibly correct at that moment, was that she did not have the power to slap them down. Although they made little complaint in Cabinet when the MTFS was announced the following month, they began to incr
ease their resistance to measures – union reforms, pay stringencies and above all spending cuts – which would give practical effect to Mrs Thatcher’s intentions.
At the same time, people essentially sympathetic to her aims were also becoming more alarmed. In a speech in April of uncomfortable frankness, John Biffen warned of ‘three years of unparalleled austerity’. Mrs Thatcher rebuked him with apparent affection on The Jimmy Young Show: ‘I think he was not quite right. It was a Biffenism, you know.’19 Less than two months earlier, Milton Friedman had called on Mrs Thatcher at No. 10. His arrival had been preceded by a briefing note from Nigel Lawson, explaining that, although Friedman was strongly supportive of the central thrust of the government’s policies, he was worried that the government’s chosen method of controlling the money supply was wrong. ‘He has been concerned recently’, Lawson went on, ‘lest the Bank of England should be intervening too heavily on the foreign exchange markets. He has always stressed the incompatibility between pursuing targets for the money supply and the exchange rate.’20 Mrs Thatcher gathered a small, senior group, including Lawson, Geoffrey Howe, Ian Gilmour and Gordon Richardson, to meet Friedman, and matters were discussed in broad, almost philosophical terms. At one point, after Friedman had uttered a piece of wisdom, Mrs Thatcher swept the gathering with her finger, saying, ‘Now, we all believe that, don’t we?’ Her finger stopped when it reached Gilmour, and lingered, accusingly.21 At the beginning of July, Friedman appeared before the Treasury Select Committee of the House of Commons, a body which, despite its in-built Conservative majority, was critical of the government’s economic approach. Friedman told the committee: ‘I strongly approve of the general outlines of the monetary strategy’ published as the MTFS, but he went on to take issue with a key sentence in the green paper on Monetary Control which said that ‘The principal means [of controlling the money supply] must be fiscal policy … and interest rates.’ That sentence, said Friedman, ‘is simply wrong. Only a Rip Van Winkle could possibly have written it.’22 At issue here was a complex yet important dispute over which measure of money supply a government should target. As had been laid down by the IMF when it came to the rescue of the British economy in 1976, the favoured measure of money supply was the sterling M3 aggregate, a broad measure that included not only cash and bank deposits but also all loans, credit and other liquid instruments. The MTFS stipulated M3 as the preferred measure. It was the choice of such a broad measure of money supply that had led the Treasury to propose both fiscal policy and interest rates as necessary instruments of control. Friedman’s critique was based on two points: first, fiscal policy affects money supply only indirectly and imprecisely through its effect on the supply of credit. At best, it has a blunt, second-order effect on inflation. And second, it was backward to suggest that interest rates control the money supply. Instead, interest rates reflect the prevailing supply and demand for money. To avoid these difficulties, Friedman advocated control of the monetary base (also known as sterling M0), a far narrower measure of money supply than M3. Rather than relying on interest rates or fiscal policy, this approach called for a central bank to take direct measures to alter the amount of currency in circulation such as printing less money. In Friedman’s view, M0 was not only easier to control but also more directly correlated with inflation than M3.
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