The Downing Street Years

by Margaret Thatcher

  FURTHER STEPS IN HOUSING POLICY

  By the time of the July 1989 reshuffle the problems with the implementation of our 1987 manifesto housing reforms were all too apparent and it was clear that we should take stock and seek new ways of achieving our objectives. Unfortunately, in Chris Patten as the new Environment Secretary I had someone whose energies were principally (and rightly) directed at trying to smooth out the introduction of the community charge and who in any case was less interested in housing policy than in his other departmental responsibilities. This is not, though, to say that innovative thinking had come to a halt.

  Since the spring of 1988 Peter Walker in Wales had been pressing a scheme which he christened ‘flexi-ownership’ under which public sector tenants unable to exercise the ‘Right to Buy’ — even with the large discounts available — would be able to acquire equity stakes in their homes that would increase as the years went by and whose value would be updated in line with local house prices. Initially, I had doubts about the idea — on financial grounds, in that people might choose to use this route rather than the ‘Right to Buy’ and sales and receipts would fall; on political grounds, in that those who had already exercised the ‘Right to Buy’ and made the sacrifices required to do so would be resentful. Both the DoE and the Treasury were strongly against. In Scotland, another variant on the same idea — called ‘Rents to Mortgages’ — had been devised. Under this, rent payments — less a sum for repair and maintenance — would be converted into mortgage repayments.

  We discussed the possibilities of both schemes in the summer and autumn of 1988. Scotland was a different case from Wales, for — as I shall explain — home ownership was much lower. Another difference was that in Scotland the Government through ‘Scottish Homes’ was itself a substantial landlord: so no new legislation was needed. I therefore agreed to a Scottish experiment on these lines, while holding fire on Wales.

  The ever ingenious Peter Walker now put his ingenuity to good use. He devised a similar Welsh scheme which would operate through the Development Board for Rural Wales at Newtown Powys. The DoE and the Treasury still objected on the ground that the idea could not in the end be limited to Wales and that if it were applied in England substantial ‘Right to Buy’ sales revenues would be lost. But I could see its political attractions; it was fairly modest, and, in any case, it was Peter Walker’s brainchild and I thought he should be allowed to go ahead. I agreed to this at the end of June 1989.

  The most disturbing political issue in housing at this time, however, was homelessness. It should immediately be said that the alarmingly large figures for the ‘homeless’ did not by definition reflect the number of people without roofs over their heads. Rather, the published ‘homelessness’ figures described the number of people in certain statutorily determined ‘priority groups’ who were accepted for housing. In other words, far from being homeless they had homes provided by local councils. Sad as the cases of some of these people might be, the problem which worried the general public — and me too — was the growing number of people (especially young people) sleeping rough on the streets of London and other big cities, who were better described as ‘roofless’.

  While it was certainly true that there was an insufficiency of short-term ‘direct access’ hostel accommodation — as opposed to the larger, more traditional hostels — and while it was true that the shortage of private rented accommodation had worsened because of rent control, this was essentially a problem of wider social, not housing, policy. Nor are behavioural problems solved by bricks and mortar. I was not prepared to endorse changes in social security benefits relating to the under-25s which were suggested by Tony Newton and the Social Security Department: I thought it vital that we should not add to the already too evident lure of the big city for young people. We wanted them back with their families, not in London living on benefits. I urged the Department of the Environment to bring in the voluntary organizations to see what they rather than the state could do. I was also convinced that far too many disturbed people, who should have been in institutions, had fallen through the central and local government safety net and found themselves with nowhere to go.

  In November 1989 Chris Patten announced a package which provided £250 million over two years to London and the South-East, the areas with the worst problems, with help also to improve the management of empty properties by councils and housing associations. But I insisted that whatever Government did to help, there must be a stick as well as a carrot. Crowds of drunken, dirty, often abusive and sometimes violent men must not be allowed to turn central areas of the capital into no-go zones for ordinary citizens. The police must disperse them and prevent their coming back once it was clear that accommodation was available. Unfortunately, there was a persistent tendency in polite circles to consider all the ‘roofless’ as victims of middle-class society, rather than middle-class society as victim of the ‘roofless’.

  At the end of July 1990 I asked Chris Patten and Michael Spicer, the Housing minister, to come in and discuss with me the whole of our housing policy — both about where we stood on existing initiatives and where we should go from here. I pinpointed three specific areas — what to do about improving the condition of council estates, whether to extend ‘flexi-ownership’ (or ‘Rents to Mortgages’) in England, and the timetable for getting ‘roofless’ people off the streets and into decent accommodation. In September Chris Patten duly submitted a paper containing his latest thinking. It was immediately clear to me that there were some important differences between his — or more accurately the DoE’s — approach and mine; this was confirmed when he and Michael Spicer came in to see me later that month.

  The extension of home ownership over the last decade had been one of the Government’s greatest successes. It had (in England) risen from 57 to 68 per cent of the housing stock. ‘Right to Buy’ sales were still running at about 80,000 a year. Councils had almost completely stopped building new houses and were now concentrating on renovation, a trend which would be accelerated by the new housing finance system. Nine councils had transferred all or part of their housing stock to housing associations — though not in the major urban areas. What was clear, however, was that the DoE saw all this as raising more problems than it solved. In their view — something, indeed, which never seemed to alter — there was a ‘housing shortage’ which required the public sector to provide more new low-cost homes to meet the ‘demand’ from a growing number of households. Consequently, measures to increase home ownership — such as the ‘flexi-ownership’ proposal which would be particularly attractive to poorer families — were considered undesirable because they would reduce the supply of cheap local authority housing to rent. This analysis failed to grasp that selling a house to a tenant reduced the demand for as well as the supply of rented housing and that more home ownership — even partial ownership with a small equity stake — would make even quite bad estates that much more tolerable, as the pride of ownership improved the neighbourhood. More seriously, it also assumed that the ‘demand’ for housing was finite, which was not true if housing was subsidized. Indeed, perverse incentives were operating to encourage the break up of large households and the formation of new smaller ones, for instance in the treatment of the housing needs of unmarried pregnant mothers. To analyse demand and supply without considering the effect of price was a perfect prescription for policy failure.

  The other difference of analysis lay in our opposing views of the role of local authorities. The DoE envisaged the main thrust of renovation coming from the extension of the Estate Action programme — which worked through local authorities — under which money was provided to improve the worst estates. Many of these individual schemes were good and imaginative. Indeed, I went further than the DoE in believing that the design of estates was crucial to their success and to reducing the amount of crime. I was a great admirer of the work of Professor Alice Coleman in this area and I had her made an adviser to the DoE, to their dismay. But what I did not believe w
as that local authorities should be the main agents for improvement. My Policy Unit was working on an interesting alternative route which would have combined a new QUANGO — at arms length from the DoE and not in collusion with the local authorities — which would have backed ‘Community Housing Trusts’. The latter were schemes which we envisaged would combine public and private investment to upgrade the infrastructure of the estate, give residents an equity stake in their homes and under which the estates would be managed by a commercial company. It would thus be a different route to the objective for which HATs had been created, but this time bringing in private enterprise from the start and giving residents a direct financial stake in its success.

  The September 1990 discussion with Chris Patten and Michael Spicer was not an inspiring one. Michael was keen to concentrate on new measures to revive the private rented sector. I agreed with him on this, but I thought that in the short term it was more important to tackle the problems of public sector housing. Chris, I suspect, thought that the best way of doing this was simply to build more public sector houses. In any case, he seemed content to work within the present local authority dominated framework. After the meeting I had a discussion with my advisers and penned a personal minute to Chris Patten in which I noted my disappointment. I added:

  I am not persuaded that we are yet being sufficiently bold in carrying forward promising and practical policy initiatives in the short term; nor have we yet explored with the necessary thoroughness and vision the full range of policy options for the longer term.

  I drew particular attention to the importance of extending home ownership through the ‘Right to Buy’, ‘Rents to Mortgages’ and home-steading — providing people with the money to renovate and then become the owners of derelict properties. I reaffirmed that I wanted to get local authorities out of managing and owning housing. It was clear to me that we must now get back to the kind of fundamental policy thinking which Nick Ridley — now no longer a member of the Government — had once supplied. I said that I was going to call in outside experts and businessmen to talk through all these issues at a dinner which Chris would, of course, attend; but I had left No. 10 before the planned dinner could take place. The inertia of the DoE had won out in the end.

  REFORMING THE NATIONAL HEALTH SERVICE (NHS)

  Housing, like Education, had been at the top of the list for reform in 1987. But I had reserved Health for detailed consideration later. I believed that the NHS was a service of which we could genuinely be proud. It delivered a high quality of care — especially when it came to acute illnesses — and at a reasonably modest unit cost, at least compared with some insurance-based systems. Yet there were large and on the face of it unjustifiable differences between performance in one area and another. Consequently, I was much more reluctant to envisage fundamental changes than I was in the nation’s schools. Although I wanted to see a flourishing private sector of health alongside the National Health Service, I always regarded the NHS and its basic principles as a fixed point in our policies. And so, whereas I felt under no obligation to defend the performance of our schools when criticism was made, I peppered my speeches and interviews with the figures for extra doctors, dentists and midwives, patients treated, operations performed and new hospitals built. I felt that on this record we ought to be able to stand our ground.

  Some of the political difficulties we faced on the Health Service could be put down to exploitation of hard cases by Opposition politicians and the press. But there was, of course, more to it than that. There was bound to be a potentially limitless demand for health care (in the broadest sense) for as long as it was provided free at the point of delivery. The number of elderly people — the group who made greatest call on the NHS — was increasing and this added to the pressure. Advances in medicine opened up the possibility of- and demand for — new and often expensive forms of treatment.

  In significant ways, the NHS lacked the right economic signals to respond to these pressures. Dedicated its staff generally were; cost conscious they were not. Indeed, there was no reason why doctors, nurses or patients should be in a monolithic state-provided system. Moreover, although people who were seriously ill could usually rely on first-class treatment, in other ways there was too little sensitivity to the preferences and convenience of patients.

  If one were to recreate the National Health Service, starting from fundamentals, one would have allowed for a bigger private sector — both at the level of general practitioners (GPs) and in the provision of hospitals; and one would have given much closer consideration to additional sources of finance for health, apart from general taxation. But we were not faced by an empty slate. The NHS was a huge organization which inspired at least as much affection as exasperation, whose emergency services reassured even those who hoped they would not have to use them, and whose basic structure was felt by most people to be sound. Any reforms must not undermine public confidence.

  I had had several long-range discussions with Norman Fowler, then Secretary of State at the DHSS, in the summer and autumn of 1986 about the future of the National Health Service. It was a time of renewed interest in the economics of health care. Professor Alain Enthoven of Stanford University had been advancing ideas about creating an internal market in the NHS, whereby market disciplines would be applied even though a full-scale free market would not. Some of the think-tanks were refining these concepts. So there was much to talk about. Norman provided a paper which I discussed with him and others at the end of January 1987. The objective of reform, which we even now distinguished as central, was that we should work towards a new way of allocating money within the NHS, so that hospitals treating more patients received more income. There also needed to be a closer, clearer connection between the demand for health care, its cost and the method for paying for it. We discussed whether the NHS might be funded by a ‘health stamp’ rather than through general taxation. Yet these were very theoretical debates. I did not believe that we were yet in a position to advance significant proposals for the manifesto. I was not even sure that we would be able to do so at an early stage in the next Parliament. Even the possibility of a Royal Commission — not a device which I would generally have preferred but one which had been used by the previous Labour Government in considering the Health Service — held some attractions for me.

  Norman Fowler was much better at publicly defending the NHS than he would have been at reforming it. But his successor, John Moore, was very keen to have a fundamental review. John and I had our first general discussion on the subject at the end of July 1987. At this stage I still wanted him to concentrate on trying to ensure better value for money from the existing system. But as the year went on it became clear to me also that we needed to have a proper long-term review. During the winter of 1987–8 the press began serving up horror stories about the NHS on a daily basis. I asked for a note from the DHSS on where the extra money the Government had provided was actually going. Instead, I received a report on all of the extra pressures which the NHS was facing — not at all the same thing. I said that the DHSS must make a real effort to respond quickly to the attacks on our record and the performance of the NHS. After all, we had increased real spending on the NHS by 40 per cent in less than a decade.

  But the pressure to provide more money for the Health Service was proving all but irresistible. Many of the District Health Authorities (DHAs)* which ran the hospitals overspent in the first half of the year and then cut back by closing wards and postponing operations. They promptly blamed us, publicizing the sad cases of patients whose operations had been postponed, or, in the ghoulish phrase used among doctors, ‘shroud waving’. It seemed that the NHS had become a bottomless financial pit. If more money had to be provided, I was determined that there must at least be strings attached — and the best way those strings could be woven together was in the form of a full scale NHS review.

  There was another strong reason for favouring a review at this time. There was good evidence that public opinion accepted tha
t the NHS’s problems went far deeper than a need for more cash. Many of our critics in the press admitted as much. If we acted quickly we could take the initiative, put reforms in place and see benefits flowing from them before the next election.

  There was a setback, however, before the review had even been decided on. John Moore fell seriously ill with pneumonia in November, almost collapsing during a meeting at No. 10. With characteristic gallantry, John insisted on returning to work as soon as he could — in my view too soon. Not fully recovered, he could never bring enough energy to bear on the complex and arduous process of reform and produced several below par performances in the Commons. The tragedy of this was that his ideas for reform were in general the right ones, and indeed he deserves much more of the credit for the final package than he has ever been given.

  I made the final decision to go ahead with a Health review at the end of January 1988: we would set up a ministerial group, which I would chair. I made it clear from the start that medical care should continue to be readily available to all who needed it and free at the point of consumption. The review would seek to reform the administrative structure of the NHS so that the best of intentions could become the best of practice. With this in mind I set out four principles which should inform its work. First, there must be a high standard of medical care available to all, regardless of income. Second, the arrangements agreed must be such as to give the users of health services, whether in the private or the public sectors, the greatest possible choice. Third, any changes must be made in such a way that they led to genuine improvements in health care, not just to higher incomes for those working in the Health Service. Fourth, responsibility, whether for medical decisions or for budgets, should be exercised at the lowest appropriate level closest to the patient.