There would also have to be a fundamental overhaul of the way in which prices were controlled by such interventionist measures as the Price Commission, government pressure, and subsidy. We were under no illusion: price rises were a symptom of underlying inflation, not a cause of it. Inflation was a monetary phenomenon which it would require monetary discipline to curb. Artificially holding down increases merely reduced investment and undermined profits — both already far too low for the country’s economic health — while spreading a ‘cost plus’ mentality through British industry.
At both Cabinets, I concluded by emphasizing the need for collective responsibility and confidentiality between ministers. I said I had no intention of keeping a diary of Cabinet discussions and I hoped that others would follow my example. Inconvenient as that may be for the authors of memoirs, it is the only satisfactory rule for government. But I had to repeat this warning against leaks many times.
We were still in the first week of government, but we had to decide the content of the first Queen’s Speech. This was largely the task of ‘QL’,* the Cabinet committee chaired by Willie Whitelaw, which was responsible for making recommendations to the Cabinet on legislation for inclusion in the Queen’s Speech. We were fortunate that our manifesto commitments had been so clear; the Queen’s Speech almost wrote itself.
In all this activity of government-making and policy-setting, however, I knew I could not afford to neglect the back-benchers. After twenty years in the House of Commons, through six Parliaments, I had seen how suddenly trouble could arise and the business of the House be put in jeopardy. So on Tuesday evening, before Parliament assembled the following day, I had invited the Chairman and Officers of the 1922 Committee for a talk, to celebrate our victory and discuss the work of the coming parliamentary session.* The name — which is usually abbreviated to ‘the ‘22’ — commemorates the events of that year, when Conservative back-benchers forced the resignation of Lloyd George’s coalition Government, bringing about a general election and the return of a Conservative administration under Bonar Law. It should remind anyone who is inclined to doubt it of the ‘22’s importance to government. Even in less stormy times, a heavy legislative programme is only possible when there is a good working understanding between No. 10, the ‘22, the Whips’ Office and the Leader of the House.
Wednesday 9 May saw the new parliament assemble for the election of the Speaker. The Speaker of the previous parliament had been George Thomas, a former Labour Cabinet minister, and he was the unanimous choice to continue in that office. My respect for George Thomas, already great, was to grow over the years. He was a deeply committed Christian with a shining integrity that gave him as Speaker a special kind of authority — but in my speech of congratulation, something else was on my mind: I had to keep remembering not to refer to Jim Callaghan as Prime Minister.
VISIT OF HELMUT SCHMIDT
On the following day Members of Parliament assembled-to take the oath. But Thursday was a day of more than ceremonial importance (indeed there was one ceremony which somehow got lost in the rush — Denis’s birthday). It was on that day that Helmut Schmidt, the West German Federal Chancellor, arrived in London on an official visit originally arranged with the Labour Government — the first head of a foreign government to visit me as Prime Minister.
There had been some discussion about whether this visit should go ahead. But I was particularly keen that it should. I had met Herr Schmidt in Opposition and had soon developed the highest regard for him. He had a profound understanding of the international economy on which — although he considered himself a socialist — we were to find ourselves in close agreement. In fact, he understood a good deal better than some British Conservatives the importance of financial orthodoxy — the need to control the money supply and to restrain public spending and borrowing so as to allow room for the private sector to grow. But he had to be told straight away that although Britain wanted to play a vigorous and influential role in the European Community, we could not do so until the problem of our grossly unfair budgetary contribution had been resolved.* I saw no reason to conceal our views behind a diplomatic smokescreen; indeed I wanted to convince Helmut Schmidt of both the reasonableness of our position and the strength of our determination precisely because he and West Germany exercised great influence in the Community. So I used every occasion to get the message across.
The speech which I delivered that Thursday evening at our dinner in honour of the Federal Chancellor was my first opportunity to set out my new approach towards the European Community. I rejected right from the start the idea that there was something ‘un-European’ in demanding that inequities be sorted out. In a passage which caught the media’s attention, I said:
It has been suggested by some people in this country that I and my Government will be a ‘soft touch’ in the Community. In case such a rumour may have reached your ears, Mr Chancellor, from little birds in Smith Square, Belgrave Square, or anywhere else, it is only fair that I should advise you frankly to dismiss it (as my colleagues did long ago!).* I intend to be very discriminating in judging what are British interests and I shall be resolute in defending them.
At our joint press conference the following day we were asked about our personal relations, since Helmut Schmidt was a socialist who had always referred to Mr Callaghan as ‘Jim’. When I stressed the similarity of our policies, he intervened: ‘Don’t go too far, Prime Minister, and do not spoil my relations with my own Party, please!’
WORKING WEEKEND
On Saturday I flew to Scotland to address the Scottish Conservative Conference, something I always enjoyed. Life is not easy for Scottish Tories; nor was it to become easier. Unlike English Conservatives, they are used to being a minority party, with the Scottish media heavily slanted against them. But these circumstances gave Scottish Conservatives a degree of enthusiasm and a fighting spirit which I admired, and which also guaranteed a warm-hearted and receptive audience. Some leading Scottish Tories, though a small minority, still hankered after a kind of devolved government, but the rest of us were deeply suspicious of what that might mean to the future of the Union. While reaffirming our decision to repeal Labour’s Scotland Act, I indicated that we would initiate all-party talks ‘aimed at bringing government closer to the people’. In the event we did so by rolling back the state rather than by creating new institutions of government.
My main message to the conference, however, was a deliberately sombre one, intended for Britain as a whole. That same day an inflation figure of 10.1 per cent had been published. It would rise further. I noted:
The evil of inflation is still with us. We are a long way from restoring honest money and the Treasury forecast when we took over was that inflation was on an upward trend. It will be some considerable time before our measures take effect. We should not underestimate the enormity of the task which lies ahead. But little can be achieved without sound money. It is the bedrock of sound government.
As our economic and political difficulties accumulated in the months ahead, no one could claim that they had not been warned.
We arrived back at RAF Northolt and drove to Chequers where I spent my first weekend as Prime Minister. I do not think anyone has stayed long at Chequers without falling in love with it. From the time of its first prime ministerial occupant, David Lloyd George, it has been assumed that the holders of that office would not necessarily have their own country estates. For that reason, Lord Lee’s gift to the nation of his country house for the use and relaxation of prime ministers marks as much a new era as did the Reform Bills.
When I arrived as Prime Minister, the curator was Vera Thomas, who knew and loved each perfectly polished piece of furniture, each historic portrait, each glittering item of silver. Chequers itself is an Elizabethan house, but has been substantially rebuilt over the years. The centre of the house is the great hall, once a courtyard, enclosed at the end of the last century, where in winter a log fire burns, giving a slight tang of woodsmoke through eve
ry room.
Thanks to the generosity of Walter Annenberg, US Ambassador to Britain from 1969–74, Chequers has a covered swimming pool. But in the years I was there it was only used in the summer. Early on I learned that it cost £5,000 a year to heat. By saving this money we had more which could be spent on the perpetual round of necessary repairs to the house. Perhaps the most important work I had done was the cleaning of the Elizabethan panelling in the dining-room and the Great Parlour. Once the layers of varnish and dirt had gone, we discovered some beautiful marquetry beneath that had not been seen for many years.
The group which gathered for Sunday lunch just ten days after our election victory was fairly typical of a Chequers weekend. My family were there, Denis, Carol, Mark. Keith Joseph, Geoffrey and Elspeth Howe, the Pyms and Quintin Hailsham represented, as it were, the Government team. Peter Thorneycroft and Alistair McAlpine were present from Central Office — the latter having been, as Conservative Party Treasurer, one of the most effective fund raisers of all time and one of my closest and most loyal friends. David Wolfson, Bryan Cartledge (my private secretary) with their wives, and our friends Sir John and Lady Tilney completed the party.
We were still in a mood to celebrate our election victory. We were away from the formality of No. 10. We had completed the initial task of getting the Government on the road. We still had that spirit of camaraderie which the inevitable disputes and disagreements of government were bound to sap. The meal was a light-hearted and convivial one. It was perhaps an instance of what a critic was later to call ‘bourgeois triumphalism’.
But we were aware that there was a long road ahead. As my father used to say:
It’s easy to be a starter, but are you a sticker too?
It’s easy enough to begin a job, it’s harder to see it through.
At 7 p.m. that evening Denis and I returned to London to begin my second full week as Prime Minister. Work was already piling up, with boxes coming to and from Chequers. I recall once hearing Harold Macmillan tell an eager group of young MPs, none more eager than Margaret Thatcher, that prime ministers (not having a department of their own) have plenty of spare time for reading. He recommended Disraeli and Trollope. I have sometimes wondered if he was joking.
* The Privy Council is one of the oldest of Britain’s political institutions, with the most important of the Crown’s advisers among its members, including by convention all Cabinet ministers. Its meetings — usually of a few ministers in the presence of the Queen — are now purely formal, but the oath taken by new members reinforces the obligation of secrecy in conducting government business, and the issue of ‘Orders in Council’ is still an important procedure for enacting the legislation not requiring the approval of Parliament.
* The Policy Unit was first set up by Harold Wilson in 1974 and continued by James Callaghan. The value of the Unit, whose membership I subsequently increased, lies in its flexibility and involvement in day-to-day policy matters, on the basis of close collaboration with the Prime Minister.
* Quasi-autonomous nongovernmental organization.
* See Chapter 2, pp. 44–5.
* Queen’s Speeches and Future Legislation Committee.
* The 1922 Committee consists of all Conservative Members of Parliament (other than those in office). At its meetings, and those of its sub-committees, views and policies are discussed, and the results made known to ministers by the whips and PPSs. It is also the 1922 Committee which has the decisive say in choosing the Speaker when the Conservative Party is in office.
* For the details and course of negotiations about Britain’s contribution to the European Community budget, see Chapter 3.
* No. 32 Smith Square is, of course, the home of Conservative Central Office and Belgrave Square is the address of the German Ambassador’s residence.
CHAPTER II
Changing Signals
Domestic politics in the first six months — until the end of 1979
To turn from the euphoria of election victory to the problems of the British economy was to confront the morning after the night before. Inflation was speeding up; public sector pay was out of control; public spending projections were rising as revenue projections fell; and our domestic problems were aggravated by a rise in oil prices that was driving the world into recession.
The temptation in these circumstances was to retreat to a defensive redoubt, adopting a policy of false prudence: not to cut income tax when revenues were already threatening to fall; not to remove price controls when inflation was already accelerating; not to cut industrial subsidies in the teeth of a rising recession; and not to constrain the public sector when the private sector seemed too weak to create new jobs. And, indeed, these adverse economic conditions did slow down the rate at which we could hope to regenerate Britain. But I believed that was all the more reason to redouble our efforts. We were running up the ‘Down’ escalator, and we would have to run a great deal faster if we were ever to get to the top.
THE FIRST QUEEN’S SPEECH
Our first opportunity to demonstrate to both friends and opponents that we would not be deterred by the difficulties was the Queen’s Speech. The first Loyal Address (as it is also called) of a new government sets the tone for its whole term of office. If the opportunity to set a radical new course is not taken, it will almost certainly never recur. And the world realizes that underneath all the brave new rhetoric, it is Business As Usual. I was determined to send out a clear signal of change.
By the end of the debates on the Address it was evident that the House of Commons could expect a heavy programme, designed to reverse socialism, extend choice and widen property ownership. There would be legislation to restrict the activities of Labour’s National Enterprise Board and to begin the process of returning state-owned businesses and assets to the private sector. We would give council tenants the right to buy their homes at large discounts, with the possibility of 100 per cent mortgages. There would be partial deregulation of new private sector renting. (Decades of restrictive controls had steadily reduced the opportunities for those who wished to rent accommodation and thereby retarded labour mobility and economic progress.) We would repeal Labour’s Community Land Act — this attempt to nationalize the gains accruing from development had created a shortage of land and pushed up prices. We removed the obligation on local authorities to replace grammar schools and announced the introduction of the Assisted Places Scheme, enabling talented children from poorer backgrounds to go to private schools. These were the first of what I hoped would be many steps to ensure that children from families like my own had the chance of self-improvement. We would, finally, curb what were often the corrupt and wasteful activities of local government direct labour organizations (usually socialist controlled).
When I spoke in the Queen’s Speech debate, two points attracted particular attention: the abolition of price controls and the promise of trade union reform. Most people expected that we would keep price controls in some form, at least temporarily. After all, the regulation of prices, wages and dividends had been one of the means by which, throughout most of the western world, governments sought to extend their powers and influence and to alleviate the inflationary effects of their own financially irresponsible policies.
But there was plenty of evidence, gathered by the Confederation of British Industry (CBI), that while price controls had a minimal effect on inflation, they certainly damaged industrial profitability and investment. One of our first discussions in ‘E’ Committee — the economic strategy committee of the Cabinet, of which I was the chairman — was whether we should press ahead with early and total abolition of the Price Commission. Some ministers argued that with inflation accelerating, the coming rise in prices would be blamed on the Commission’s abolition and therefore on the government. This argument had some force. But John Nott, the Trade Secretary, was keen to act swiftly; and he was right. It would have been still more difficult to abolish the Commission later in the year when prices were already rising faster. Per
haps the first time our opponents truly realized that the Government’s rhetorical commitment to the market would be matched by practical action was the day we announced abolition. We made public at the same time our decision to strengthen the powers of the Director-General of Fair Trading and the Monopolies and Mergers Commission to act against monopoly pricing, including prices set by nationalized industries.
I was also keen to use my speech in the debate to put an authoritative stamp on our trade union reforms. Jim Prior’s preferred strategy was one of consultation with the trade unions before introducing the limited reforms of trade union law which we had proposed in Opposition. But it was vital to show that there would be no back-tracking from the clear mandate we had received to make fundamental changes. Initially, we proposed three reforms in the Queen’s Speech. First, the right to picket — which had been so seriously abused in the strikes of the previous winter and for many years before — would be strictly limited to those in dispute with their employer at their own place of work; thus secondary picketing would become unlawful. Second, we were committed to changing the law on the closed shop, under which employees had effectively been compelled to join a union if they wished to obtain or keep a job, and which at that time covered some five million workers. Those who lost their jobs for this reason must in future be entitled to proper compensation. Third, public funds would be made available to finance postal ballots for union elections and other important union decisions: we wanted to discourage votes by show of hands — the notorious ‘car park’ votes — and the sharp practice, rigging and intimidation which had become associated with ‘trade union democracy’.
The Downing Street Years Page 5