The Downing Street Years

by Margaret Thatcher

  So for all these reasons I satisfied myself through discussions with Washington that the position in reality was satisfactory from the point of view of British security and defence, and on 1 May 1983 I cleared personally with President Reagan the precise formula we should use to describe it. But I knew that it would be difficult to defend our line: not only anti-nuclear protesters but a sizeable number of our own supporters in and out of Parliament had their doubts. Moreover, most of the newspapers were opposed to us on the question of dual key.

  The timing of deployment was bound to be a sensitive matter, especially with an election campaign ahead. We were anxious to avoid very visible signs of deployment in the run-up to or during the 1983 general election campaign, with demonstrations stretching police resources. Until almost the last moment we had been planning an autumn election. But as events happened we had an election in June, so this was not the problem which it might have been. (The launchers and warheads duly arrived in November.)

  Elsewhere in Europe the situation was still more difficult. There was already a good deal of public criticism in Germany and Italy of NATO’s offer of the zero-option, which was widely felt to be unrealistic. And the Soviets were mounting a major public relations campaign.

  It was crucial that NATO’s policy on arms control be well presented and that the alliance should stick together. On Wednesday 9 February I had a meeting at Downing Street with George Bush to discuss these matters. The Vice-President had a special remit from President Reagan to keep in touch with European governments and he did this with great skill. He was always very well briefed and had a friendly, straightforward manner, the proof that this reflected personality rather than artifice being that his staff were well known to be devoted to him. I now urged the Vice-President that the American Administration should take a new initiative in the INF negotiations. The aim should be to seek an interim agreement whereby limited reductions on the Soviet side would be balanced by reduced deployments on the part of the United States, without abandoning the zero-option as our ultimate goal — that is the complete elimination of intermediate-range nuclear weapons.

  Mr Bush reported my views back to President Reagan who replied in a message to me on Wednesday 16 February. The President was at this stage somewhat noncommittal about a new initiative but said that he would be willing to consider seriously any reasonable alternative idea for producing the same result as the zero-option. This did not seem to me to be sufficient. I replied two days later on the hot-line. I stressed the success of Vice-President Bush’s visit to Europe, but pointed out that one of its effects had been to raise expectations. I hoped that the speech which President Reagan was due to make shortly on these matters would go beyond a restatement of the US position and begin to indicate how it might be developed. As things turned out, the President’s statement contained nothing new. So I continued the private pressure for further movement, while remaining in public totally supportive of the American position.

  Then on Monday 14 March President Reagan sent me another message. He said that he had directed that a prompt review of the US position on INF negotiations should be made as a basis for new instructions to the US arms negotiating team. In the meantime, he asked that there should be no European calls for US flexibility and specifically asked me to express confidence in the very close coordination of our policies. I replied warmly welcoming his decision. On Wednesday 23 March the President told me the results of his review. While sticking to the ultimate objective of the zero-option, the chief US negotiator, Paul Nitze, would tell the Soviets at Geneva before the end of the current round of negotiations that the US was indeed prepared to negotiate an interim agreement. The Americans would stop deployment of a (still to be specified) number of warheads, on condition that the USSR reduced the number of warheads on its mobile long-range INF missiles to one equal with the US on a global basis. The President said that it was his tentative judgement that they should not offer specific numbers at this time. Again, I welcomed his decision, but argued that he should consider giving specific figures. In fact the President’s proposal announced on 30 March did not do so. But his modest flexibility did have a beneficial effect on public opinion and incidentally helped us in Britain fighting the general election campaign soon be upon us.

  ECONOMIC RECOVERY

  In that election campaign, defence would be of great political importance. Yet I had no doubt that the result would ultimately depend on the economy. Our economic course had already been set in the 1981 budget. We now had to see the strategy through. It was a remarkable testament to the soundness of public finances by this stage that we managed to pay for the Falklands War out of the Contingency Reserve without a penny of extra taxation and with barely a tremor in the financial markets. The economy was already beginning to recover and would have done so more rapidly but for sluggish world conditions. Geoffrey Howe’s 1982 budget was designed to encourage that recovery by helping business, while keeping inflation and interest rates coming down by reducing government borrowing. The principal measure of direct assistance to industry in the 1982 budget was a reduction in the National Insurance Surcharge. We were able to make further reductions at the time of the 1982 Autumn Statement and again in the 1983 budget. These made a direct contribution to cutting industry’s wage-related costs and helped to increase employment.

  Another means of strengthening industry without becoming involved in the futile task of ‘picking winners’ was to promote the application of the new ‘information technology’ (IT). This was something in which I took a particularly close interest. As a scientist, I was fascinated by the technology itself; as a passionate advocate of free enterprise capitalism I was convinced that, given the right framework of laws and an appropriately educated workforce, it could widen choice, generate wealth and jobs and improve the quality of people’s lives. Both Keith Joseph at Education and Ken Baker at Industry felt as I did. We designated 1982 Information Technology Year and we all made special efforts to widen understanding of what IT could do for business. Of course, it was the young people who found it easiest to learn the new skills and one of our most valuable and appreciated initiatives was to put a desk-top computer in every secondary school.

  By now the question we were being asked was not whether economic recovery would come but rather how fast and how sustainable it would be, and also when unemployment would begin to fall. Since the whole basis of our approach to economic policy was that politicians and civil servants do not know all the answers, I never felt tempted to pick figures out of the air. But I did my best to encourage confidence because as long as the fundamentals — the public finances, monetary policy, tax levels and so on — are sound, confidence itself leads to higher investment and higher consumer spending and so helps recovery. For example, on Tuesday 19 April 1983 I addressed the CBI annual dinner at the London Hilton. We were only weeks away from the election, though neither the audience — nor even the guest speaker — knew it. I reminded them that when I had last been their guest two years earlier there was plenty to worry about in the state of the economy:

  Indeed, we had just read an open letter which predicted doom and gloom indefinitely unless we changed our policies. It was signed by no fewer than 364 economists — enough … to provide me with bad advice for every day of the year except All Fools’ Day.

  Since then, however, cuts in the NIS had put £2 billion a year back into the hands of private companies. Personal tax had also been cut by raising thresholds faster than inflation. Interest rates were seven percentage points below their peak, saving industry about another £2 billion. The exchange rate had fallen from a high point of $2.45 in October 1980 to $1.54 now. This was providing a boost for exporters. Industrial output, housing starts, and car sales were all up. There was plenty of evidence of recovery — above all, one that was soundly based.

  The money supply and government borrowing had been brought under control. Public spending was at last expected to begin falling as a share of GDP, if only slightly, now that t
he economy was growing again. Our overseas debts had been virtually halved. Productivity in industry was greatly improved. Most dramatically, inflation had fallen from 20 to 4 per cent — its lowest level for 13 years. Success against inflation was the single achievement to which we drew most attention as we approached the election, not least because Labour looked set to promise huge increases in spending and borrowing which could never be honestly financed and which would have sent prices soaring again. The black spot in the record was, of course, unemployment, which was still well over three million. It would be vital in the campaign to explain why this was so and what we were doing about it. Our ability to deal with this issue successfully would be a test not only of our eloquence and credibility but also of the maturity and understanding of the British electorate.

  TRADE UNIONS

  Unlike some of my colleagues, I never ceased to believe that, other things being equal, the level of unemployment was related to the extent of trade union power. The unions had priced many of their members out of jobs by demanding excessive wages for insufficient output, so making British goods uncompetitive. So both Norman Tebbit, my new Secretary of State for Employment, and I were impatient to press ahead with further reforms in trade union law, which we knew to be necessary and popular, not least among trade unionists.

  Norman wasted no time. Towards the end of October 1981 he sought Cabinet agreement for what was to become the Employment Act, 1982. There were to be six main areas covered.

  We would raise substantially the levels of compensation for those unfairly dismissed in a closed shop.

  In existing closed shops there would be periodic ballots to test support among employees for their continuation.

  We would make unlawful what were called ‘union labour only’ requirements in contracts, which discriminated against companies not operating a closed shop.

  Henceforth, employers would be able to dismiss those taking part in a strike or other industrial action without having to run the risk of claims for unfair dismissal, provided that all of those taking part in the strike were dismissed.

  The definition of a lawful trade dispute was to be further restricted in a number of ways, closing loopholes in Jim Prior’s legislation to limit immunities in case of secondary action.

  By far the most important of Norman’s proposals related to the immunity currently extended to trade union funds. By virtue of Section 14 of Labour’s Trade Union and Labour Relations Act, 1974, trade unions enjoyed virtually unlimited immunity from actions for damages, even if industrial action was not taken in contemplation or furtherance of a trade dispute. They could not be sued for their unlawful acts or for unlawful acts done on their behalf by their officials. This breadth of immunity was quite indefensible. As long as unions were able to shelter behind it they had no incentive to ensure that industrial action was restricted to legitimate trade disputes and that it was lawful in other ways. Norman therefore proposed that this immunity should be reduced to that enjoyed by individuals under our 1980 legislation.* Both of these immunities would be restricted further by our proposals on ‘union labour only’ requirements and changes to tighten the definition of a trade dispute, which removed the immunity for disputes not mainly about pay and conditions and for disputes between trade unions.

  The unions were bound to put up fierce opposition to moves which would expose them to contempt proceedings and payment of damages. Undoubtedly, they would claim that we were seeking to prevent their defending their members’ interests. So it was vital for us to explain the fairness of our proposals, and to emphasize that trade unions would only be at risk if they acted in ways which were unlawful for everybody else. We believed that the general public would see this as reasonable. We proposed also to set limits on the damages which could be awarded against a trade union, though of course there would be no limit on the fines which a court could impose for contempt — a most important qualification.

  There was at first some opposition in Cabinet to Norman’s proposals, not all of which came from predictable quarters. But most of us were full of admiration for his boldness. He went away to consider some of the points made in discussion, but the package agreed by Cabinet in November was more or less on the lines he wanted. Norman announced our intentions to the House of Commons later that month. The bill was introduced the following February and the act’s main provisions finally came into force on 1 December 1982.

  Far from being unpopular, these proposals were soon being criticized in some quarters on the grounds that they did not go far enough. The SDP were trying to out-flank us by urging greater use of mandatory secret ballots. Many of our own supporters wanted to see action to stop the abuses connected with the ‘political levy’, a substantial sum extracted from trade unionists largely for the benefit of the Labour Party. There was continuing pressure to do something to prevent strikes in essential services — pressure which always increased when there was a threat of public sector strikes, as happened frequently during 1982. But it would not have been practical to deal with all of these issues at once in a single bill: each raised complicated questions and we could not afford to make mistakes in this vital area. I was convinced that the giant step being taken by Norman on the immunity of trade union funds was sufficient for the moment. I was glad, however, that the atmosphere had changed and that the dangers of trade union power were now so much more widely understood. We were winning that battle too.

  Norman and I had further discussions in the summer of 1982. In September he came forward with a paper containing his thoughts for new industrial relations legislation which would be formally submitted to ‘E’ Committee, with a view to inclusion in the manifesto. Norman had already announced that we would undertake consultations with interested parties on legislation that would require trade unions to use secret ballots for the election of their leaders. There was strong support in both Houses for mandatory secret ballots before industrial action. But we were divided on this.

  Ministers now discussed what should be the priorities for the forthcoming consultative green paper. We agreed to concentrate on ballots for the election of trade union leaders, mandatory strike ballots, and the political levy. Norman had reservations about the use of compulsory ballots before strikes. We had previously concluded that these should be voluntary. Moreover, there were doubts whether or not the use of ballots would actually reduce the frequency and length of strikes. But I was very aware of the great advantages of linking trade union reform to the unassailable principle of democracy, and I was keen to see that the proposals on strike ballots were expressed in a positive way in the green paper.

  We published the green paper under the title Democracy in Trade Unions, in January 1983. Ministers discussed in April where we should go from there. We had no difficulty deciding in favour of proposals relating to trade union elections and strike ballots. Two other issues proved much more difficult: the prevention of strikes in essential services and the political levy.

  Public sector strikes and consequent disruption to the lives of the general public had been a feature of life in post-war Britain. Nineteen eighty-two was a particularly difficult year. There were two rail disputes. There was also a long and distressing strike in the National Health Service over pay, which began when ancillary workers took action in May and ended in mid-December. And industrial action in the water industry intensified interest in the whole question of how to deal with the disruption of essential services. But the practical difficulties of tackling the problem were immense. How should one define an ‘essential service’? How much would it cost the taxpayer in extra pay to secure ‘no strike’ agreements? What should be the penalty for failure to observe a ‘no strike’ agreement?

  The political levy was a second difficult subject. It was paid by trade unionists into political funds held by their unions, the principal use of which was, as I have noted, in fact to support the Labour Party. Payment was on the basis of ‘contracting out’: that is, trade unionists contributed automatically unless they speci
fied otherwise. On the face of it, it would have been fairer to base the system on a principle of ‘contracting in’ and some argued for the change. But ‘contracting in’ would have wreaked havoc with the Labour Party’s finances because of its heavy dependence on the unions. Had we introduced such a measure, there would undoubtedly have been pressure to change the system by which some companies donated to political parties, from which, of course, the Conservative Party heavily benefited. I never believed that the cases were parallel: after all, trade unionists in a closed shop could find it very difficult to avoid paying the political levy, especially when the employer had an agreement with the union to just ‘check off’ the levy from the employee. By contrast, shareholders who did not approve of company donations to a political party could either hold the Board to account for their decisions or simply sell their shares. But the funding of political parties was a sensitive topic. If we brought forward radical proposals on the eve of a general election, we would be accused both of attempting to crush the Labour Party financially and of unfairness on the matter of corporate donations.