The trouble was that, because of the size of the bills now being sent out, the new system had the very same law-abiding, decent people — on whom we depended for support in defeating the mob — protesting themselves. The riot did not, therefore, shift me from my determination to continue with the community charge itself or to see the criminals of that day brought to justice. But it did reinforce the conclusions I had reached about the need to take effective action to limit the burden it was placing on what I had described to John Major as the ‘conscientious middle’.
In fact, unbeknown to me, the rioters were on their way up to Whitehall as I was addressing the Central Council in Cheltenham.
I began my speech with what was to be the first of a number of increasingly risky jokes about the political threat to my leadership. Cheltenham’s reputation as the traditional retirement centre for those who governed our former empire provided the peg. I began:
It’s a very great pleasure to be in Cheltenham once again. To avoid any possible misunderstanding, and at the risk of disappointing a few gallant colonels, let me make one thing absolutely clear: I haven’t come to Cheltenham to retire.
I then went almost immediately to the heart of the issue about which the Party was agonizing.:
Many of the bills for the community charge which people are now receiving are far too high. I share the outrage they feel. But let’s be clear: it’s not the way the money is raised, it’s the amount of money that local government is spending. That’s the real problem. No scheme, no matter how ingenious, could pay for high spending with low charges.
But I did go on to announce a number of limited special reliefs. Even this modest package had necessitated my tearing up a feeble draft from the Treasury and writing it myself. Given the weak draft, the absence of colleagues and the late hour, however, I was not able to write into my speech assurances of the weight and substance I would have liked. So I had to content myself with hinting at my ideas about further capping powers to deal with overspenders.
My main message, therefore, had to be that the way to have low community charge bills was to vote Conservative in the forthcoming local elections. I pointed to some of the figures for the charge to illustrate my point.
It costs £96 more for the privilege of living in Labour Warrington than in neighbouring Tory Trafford; £108 more in Labour Liverpool than in next-door Tory Wirral; and an appalling £339 more in Labour Camden than in adjoining Tory Westminster.
But I also drew a wider lesson, and in doing so I deliberately sought to move the political argument back to the greater questions of politics which distinguished the Conservative from the socialist approach — and back to the values for which I personally stood:
Our struggle with the Labour Party has never been a matter just of economics. It concerns the way of life we believe is right for Britain now and in the future. It concerns the values by which we live. Socialism is a creed of the state. It regards ordinary human beings as the raw material for its schemes of social change. But we put our faith in people — in the millions of people who spend what they earn, not what other people earn. Who make sacrifices for their young family or their elderly parents. Who help their neighbours and take care of their neighbourhoods. The sort of people I grew up with. These are the people whom I became leader of this party to defend. The people who gave us their trust. To them I say, of course I understand your worries. They are part of the fabric of my life too, and I share the aspirations which you hold. You don’t expect the moon. But you do want the opportunity to succeed for yourselves and your children.
The reception was good. But for them and for me the worries remained.
TO CAP OR NOT TO CAP?
Now I had to ensure that my colleagues threw themselves as wholeheartedly as I would into the job of protecting our people from the kind of problems we were experiencing in 1990–91. There was not much we could do as regards this year’s bills. The lawyers advised that anything like the scale of capping I wanted to see was unlikely to be sustainable in the courts. Consequently, Chris Patten could only announce the capping of twenty councils. This was very disappointing. But a defeat in the courts could have put the whole system in disarray if, for example, the judges had found not just against a decision about a particular council but against the fairness of the system of SSAs which were crucial to the community charge.
All this reinforced the case for seeking new ways of holding down local government spending — and so community charges — the following year. I pressed with the Treasury and the Department of the Environment my ideas for wide-ranging direct controls over local authority spending combined with more extensive use of specific grants. I had also come round to the idea of single-tier authorities which — though the abolition of county councils would create a furore with Tory councillors — would mean that the identities of the culprits of overspending and high community charges were much clearer in the eyes of local electors.
Chris Patten was strongly opposed to any kind of comprehensive capping of local authorities. He argued against it both on the ground that it would undermine the principle of local accountability and because he thought such a system could not be got up and running in time for 1991–2. But I insisted that the DoE should work up the options. I wanted to see cuts in expenditure in some local authorities.
The local election results on Thursday 3 May 1990 strongly suggested that where Conservative councillors and candidates used the community charge in order to point up the differences between them and the Labour Party and then worked to get out the Conservative vote — rather than indulge in recrimination against the Government — they could do very well. (Indeed, some of our councillors opposed wider capping in 1990–91 on the ground that it would protect profligate Labour councils from the electoral coup de grâce.) Conservative successes in Wandsworth and Westminster were the results of that approach. Where the Conservatives were in control of an authority, the lower the charge it set, the better we did. The reverse was true where Labour was in office. In this respect the community charge was already transforming local government. There was the prospect that, even in a bad year for the Conservative Party nationally, local government elections could now be fought and won on genuinely local issues and the local record, rather than the political control of councils swinging according to national trends — something which had always demoralized conscientious councillors of either party.
These successes, however, did not diminish the urgency of ensuring that next year’s charge levels throughout the country were kept down. Throughout May and early June papers were produced and discussions between ministers and officials held. Chris Patten and I were still at odds over the question of a general capping power. He was demanding a substantial increase in central grant, sufficient to allow us to say with credibility that responsible authorities would be able to set charges in 1991–2 no higher than in 1990–91. I put some pressure on him by refusing to allow any discussion about the level of next year’s central grant until we had reached a decision on spending controls. John Major was in two minds. On the one hand, as Chancellor, he wanted to see effective controls on public spending. On the other, perhaps as a former whip, he was worried about getting the Parliamentary Party to pass the necessary new legislation for stronger capping powers. And this was a fair point. A number of our back-benchers were now in a mood not far short of outright panic and it was difficult to know how they would react to any new legislation which appeared to give them a chance — through amendments — to overturn key aspects of the community charge on which they thought their own electoral fortunes would founder. Quite how the argument would have ended up in government I do not know.
But suddenly the whole basis of our discussions was changed by new legal advice. When we had met on the morning of Thursday 17 May the lawyers advised that even new legislation on capping could be undermined by judicial review. This seemed to me to be extraordinary. It suggested that Parliament would not be allowed by the courts to fulfil its duty to pr
otect the citizen from unreasonable levels of taxation: it cast doubt on our ability to control public expenditure and manage the economy. At that point I asked for urgent advice about how these difficulties could be overcome.
It is easy to imagine my surprise — and initial scepticism — when as I worked through my boxes overnight on Wednesday 13 June I came across a note from my private secretary reporting a telephone conversation with government lawyers earlier that evening. Their view now was that the present legislation — let alone any future legislation — might be more robust than their earlier advice had indicated.* They told us that we would be in a position to cap large numbers of authorities as long as we made clear at an early stage in the budgetary cycle what we would regard as an excessive increase in spending — and we could achieve this without the difficulties which new legislation would have brought. This legal advice was strengthened as a result of the Government’s victory in a court case several days later against a number of local authorities appealing against capping.
On the evening of Tuesday 26 June I held a meeting of ministers to sort out exactly where we stood. The lawyers confirmed their advice that it was unlikely that we could have any greater certainty about capping under new legislation than under the present. I was reluctant to drop the idea of introducing a general capping power. I would have liked to combine this with the use of local referenda, so that an authority which wanted to spend more than the limit set by central government would have first to win the agreement of its electorate. This would have done a good deal to defuse the accusation that new spending controls would undermine local democracy. In the light of the revised legal advice, though, I accepted that unless the courts came up with some new judgement which changed the position it would be best to cap in 1991–2 under the existing law. It was crucial, however, to achieve the greatest possible deterrent effect and so Chris Patten had to announce in July — well before local authorities set their budgets — how he intended to use his powers. The other aspect we had to discuss was the extra money which was needed to be put in in order to limit the burden on individuals. Chris was authorized to announce to the House certain extensions to the transitional relief scheme and other changes.
The relevant Cabinet committee met the following week under my chairmanship to finalize the community charge review and agree the details of the 1991–2 settlement — the amount that we were going to provide for local authorities in the form of grant and business rates, and the amount that we thought they ought to spend. Chris Patten and John MacGregor (the Chief Secretary) had already reached agreement on a package. Our purpose was to endorse this: I also wanted to ensure that it was understood that the extra money for the community charge was not a sign that the brakes had been taken off public expenditure control — far from it. We agreed that the local authorities ought to spend £39 billion, an increase of 19 per cent over the same estimate the previous year and an increase of 7 per cent over what they had actually spent. This would produce a community charge at ‘standard spending’ of £379. The actual community charge in a particular area would of course depend on whether the local authority spent more or less than this figure. It should be possible to keep the community charge down below an average of £400 by vigorous use of charge capping. Yet even so this sum was well over twice the original estimate of the community charge which had been given to ministers. I stressed that the extra money — almost £3 billion — going to reduce the burden of the community charge would mean less for other purposes. That was the priority we had chosen and all ministers must abide by the consequences. Otherwise we would lose control of public spending. Chris Patten announced these measures to the House of Commons shortly afterwards. Some further details and modifications were announced at the end of October.
The system of local authority finance which I bequeathed to my successor remained unpopular. During the leadership contest in November 1990 Michael Heseltine made great play with his pledge to review the community charge and this prompted John Major and Douglas Hurd to promise their own reviews as well. At the end of March 1991 Michael Heseltine, once again Environment Secretary, announced the outcome: the Government had decided to abandon the community charge and to return to a property tax, supplemented by a sharp rise in VAT from 15 to 17.5 per cent.
Few episodes of my period in government have generated more myths than the community charge. It is generally presented as a doctrinaire scheme forced on reluctant ministers by an authoritarian Prime Minister and eventually rejected by popular opinion as unworkable. Mistakes were certainly made in implementing the charge, but this picture is a tissue of nonsenses. As Nigel Lawson has generously conceded, few pieces of legislation have ever received such a thorough and scrupulous examination by ministers and officials in the relevant Cabinet committees as did the charge. Its difficulties arose from a number of factors: the worsening economic and inflationary situation; the fact that the estimates of the charge’s level proved consistently misleading; and the certainty that any reform of local government finance, after seventeen years of nonrevaluation, would have produced many losers and therefore great unpopularity. The conclusion I draw is that whatever reform was chosen, we should have accompanied it with draconian restraints on local government spending from the centre in order to prevent local authorities — alas Conservative as well as Labour — from using the transition to jack up spending and blame it on the Government.
The fact remains that the defects in our system of local government finance were largely remedied by the charge, and its benefits had just started to become apparent when it was abandoned. Those advantages would have become steadily more evident as contracting out of local authority services and improved local authority efficiency took effect. But one further thing would have been necessary. Although the 1990 — 91 community charge capping proved relatively successful in holding down local authority spending, it would probably also have been necessary to introduce the much more far-reaching direct controls over council spending to which my mind had anyway been turning until our legal advice changed. It would have taken time before the disciplines of the new system began to affect the behaviour of the worst overspenders. But eventually they would have done so. However, the community charge was abandoned. The fundamental problems of local government — badly administered services, an obscure relationship with central government, lack of effective local accountability — not only remain: they will get worse.
* Central government grant contributes a large proportion of local authority spending. GREAs were an attempt to allocate grants to authorities on the basis of their ‘need to spend’, as denned by central government on the basis of dozens of indicators covering everything from an authority’s population to the state of its roads. The block grant system altered the distribution of central government grant so that it provided a lower proportion of local authorities’ expenditure if they spent significantly more than their GREAs — in other words, the more a council overspent, the higher the proportion of its spending ratepayers would have to meet. ‘Targets’ for individual local authorities (based on past spending) were introduced later in an attempt to secure year-on-year reductions in local authority spending: local authorities exceeding their targets actually lost grant (‘holdback’). The Audit Commission was established in 1982 with responsibility for auditing the accounts of local authorities in England and Wales and with powers to undertake or promote work on value for money and efficiency.
* Rates were levied at so many pence in the pound (the ‘poundage’) on the basis of the rental value of the property, which was assessed by a general valuation carried out by the Inland Revenue. Since the rental market in domestic property was small and shrinking the valuations were often very artificial. In addition, obviously, their accuracy deteriorated over time; hence the need for periodic revaluations.
* A ‘full’ safety net was one that ensured there would be no losses or gains from the abolition of ‘resource equalization’ during the first year of the charge.
* The capping legislation allowed us to act on a number of different criteria. The lawyers now advised that we could be much more rigorous than we had thought in capping authorities which had made excessive increases of the charge year-on-year (as opposed to capping those which had an excessive level of spending in a particular year).
CHAPTER XXIII
To Cut and to Please
Tax cuts, tax reform and privatization
The 1980s saw the rebirth in Britain of an enterprise economy. This was by and large a decade of great prosperity, when our economic performance astonished the world. Whereas Britain lagged behind other European Community countries in the 1960s and 1970s, our economy grew faster in the 1980s than all of them except Spain. Whereas most European economies in the 1980s grew more slowly than they had the previous decade, the British economy grew faster. From 1987 there were classic signs of ‘overheating’ and initial confusion about what monetary indicators were showing. Nigel Lawson’s shadowing the deutschmark meant that we did not take action early enough to tighten monetary policy. That is not to say that the surge of prosperity in these years was just or even mainly the result of an artificial consumer boom. It was more soundly based than that. The current account deficit which became a real problem must not obscure — indeed to some degree it reflected — the fact that industry was investing in the future during these years: in the 1980s British business investment grew faster than in any other major industrial country, with the exception of Japan. Profitability rose, and so did productivity. The improvement in British manufacturing industry’s productivity in the 1980s was greater than in any other major industrial economy. New firms grew and expanded. New jobs followed — 3,320,000 of them created between March 1983 and March 1990.
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