Who Dares Wins

by Dominic Sandbrook

  Everybody agreed that the trip had been a triumph, the perfect tonic at a time when Mrs Thatcher seemed so beleaguered. The American press called it a ‘love-in’ and a ‘honeymoon’, while Reagan’s press secretary joked that it had been ‘difficult to prise them apart’. ‘I believe a real friendship exists between the P.M. her family & us – certainly we feel that way & I’m sure they do,’ Reagan wrote in his diary. A week later, in her handwritten thank-you message to Henderson, Mrs Thatcher sounded a similar note. ‘There will never be a happier party than the one you gave at the Embassy,’ she wrote. ‘I have great confidence in the President. I believe he will do things he wants to do – and he won’t give up.’ But not all of her ministers shared her enthusiasm. When a colleague asked Lord Carrington how the trip had gone, his reply was a masterpiece of its kind. ‘Oh, very well,’ he said. ‘She liked the Reagan people very much. They’re so vulgar.’33

  And then it was back to Britain: the dreary skies, the downcast faces, the drab reality of recession. The news, as usual, was awful. According to the latest figures, manufacturing production had fallen by 15 per cent in the last year, and in some sectors one in six people had lost their jobs. There were, admittedly, two tiny shafts of sunlight. Inflation was down to 13 per cent, its lowest level since the summer of 1979, while the pound was falling at last. But as most commentators peered into the gloom they could see only darkness ahead. Some thought the Conservatives were doomed: in his Budget preview, The Times’s David Wood thought no government could win ‘in circumstances of rising or abnormally high unemployment, factory closures, liquidations and bankruptcies, high interest rates, an over-valued pound, falling production, non-growth, and all the rest’. And with only two years until a likely election, Howe was running out of time to change the narrative.34

  Budget Day was Tuesday 10 March. Late on Monday afternoon, Howe asked Jim Prior to come and see him. Only then did the Chancellor reveal his hand. ‘I told him I thought it was awful and absolutely misjudged,’ Prior wrote later. ‘I couldn’t say anything bad enough about it.’ Later that evening, still in shock, Prior warned Sir Ian Gilmour that the Budget was ‘appalling’. They agreed to meet for breakfast the next day, just before Cabinet. Should they threaten to resign? Gilmour was all for quitting there and then. No, Prior said. The Budget had been decided, so in this battle they were ‘already beaten’. Far better, he thought, to stay and prepare for the next clash than to leave Thatcher and Howe in command of the field.35

  At 9.30 a.m., the Wets joined their Cabinet colleagues to hear Howe go through the details. When the Chancellor had finished, there was a moment of silence. Then, Hoskyns recorded, Prior ‘jumped in to attack, v. strong, red in the face, saying it was a disastrous budget’. Here was the Wets’ last chance to rally their colleagues against the leadership. But they missed it. Instead of making a co-ordinated attack, the other dissenters confined themselves to grumbling and mumbling. ‘We’ve been doing this for two years, and it doesn’t seem to be working,’ Carrington said gloomily. But then Howe’s allies hit back. Would Prior prefer more borrowing, higher interest rates and a higher pound? At that, Hoskyns wrote, the Employment Secretary ‘began to look isolated and foolish’. The battle was lost, and Prior knew it. In his memoirs he regretted that he had shrunk from the nuclear option of resignation, explaining that he felt he owed it to his supporters to stay on. Still, as Hoskyns noted, ‘at least Jim had the courage to speak out’. The other Wets, living down to their nickname, had not even done that.36

  Just after half-past three, Howe rose to present his Budget to the Commons. The deficit, he said, was now forecast to hit £13½ billion in 1980–81, which was 6 per cent of GDP, widening to £14 billion the following year. This was no good: he had decided to get it down to £10½ billion, which would ‘enable us to achieve our monetary objectives without having to face intolerably high interest rates’. But it also meant ‘some harsh decisions’. The nation’s vices would be more expensive – the price of a pint of beer, for example, went up by 4p, a packet of cigarettes by 14p and a bottle of spirits by 60p – while there was a one-off tax on bank deposits over £10 million. Above all, Howe froze income tax allowances, instead of allowing them to rise by 15 per cent in line with inflation. ‘This decision has not been lightly taken,’ he said earnestly, ‘and I share the disappointment that everyone will feel.’ On the upside, he had decided to cut interest rates from 14 to 12 per cent. And then, after some optimistic noises about lower inflation and lower unemployment, he sat down. He had been speaking for an hour and a half; but the aftershocks would continue for years.37

  No modern Budget has ever met a worse reception. Gallup found that it was comfortably ‘the most unpopular Budget for 30 years’, with seven out of ten people considering it ‘unfair’, while only one in four thought Howe was doing a decent job. ‘The Budget is not well received,’ began Bernard Ingham’s press summary – and that was virtually the best line in it. The Guardian called it a ‘message of perverse destruction’ from a government ‘enslaved by a false and destructive dogma’, while The Times’s economics editor, David Blake, predicted that Howe’s measures would push up the value of sterling, put more people out of work and add millions to the annual welfare bill. Even Mrs Thatcher’s most reliable cheerleaders were despondent. ‘Howe It Hurts!’ gasped the Sun, which thought ‘the Chancellor, and indeed the whole Government, have failed to deliver the goods’. ‘You Name It … He’s Taxed It!’ howled the Express. ‘It is not good enough … True, inflation is being conquered – but by the time Sir Geoffrey has finished, what will be left of industry? How many people will be on the dole?’ But the pithiest verdict came in the Mirror. ‘If YOU Smoke, Drink or Drive,’ said its front-page headline, ‘UP YOURS from the Chancellor.’38

  Howe’s 1981 Budget was the most widely reviled in modern history. His wife Elspeth would have needed an immensely powerful magnifying glass to find anything even vaguely complimentary. This is Jak in the Evening Standard, 13 March 1981.

  Mrs Thatcher did not take all this lying down. At lunchtime the day after the Budget she was due to present the Guardian’s Young Businessman of the Year award to John Gardiner, chief executive of the Laird engineering conglomerate. Casting aside her text, she made a few dutiful remarks about Gardiner’s virtues and then reached for her shotgun. She knew, she said, that the press had been critical of the Budget. But her critics were not just wrong, they were downright immoral:

  Now what really gets me is this, that it is very ironic that those who are most critical of the extra tax are those who were most vociferous in demanding the extra expenditure. And what gets me even more is that having demanded that extra expenditure they are not prepared to face the consequences of their own action and stand by the necessity to get some of the tax to pay for it. And I wish some of them had a bit more guts and courage than they have.

  Because I think one of the most immoral things you can do is to pose as the moral politician demanding more for health, for education, more for industry, more for housing, more for everything, and then when you see the bill say, ‘No, no, I didn’t mean you to pay tax to pay for it, I meant you to borrow more.’

  But if the government had borrowed more, interest rates ‘would have gone up and then they would have stifled and strangled at birth any rebuilding of stocks or any expansion of industry and investment’. Then she returned to her critics:

  But what else do they mean? I tell you what they really mean, they mean, ‘We don’t like the expenditure we have agreed, we are unwilling to raise the tax to pay for it. Let us print the money instead.’ The most immoral path of all. Because what that is saying is, ‘Let us quietly steal a certain amount from every pound in circulation, let us steal a certain amount from every pound saved in building societies, in national savings, from every person who has been thrifty.’

  What they are saying is, ‘Let’s go and put a pair of bellows on to the rate of inflation we have now and make it a really big raging furnace.’

/>   Even by her own standards, said a shocked Guardian the next day, this was an ‘astonishing’ outburst. What was most remarkable, though, was how starkly it exposed the divisions at the heart of her Cabinet. ‘Those who were most vociferous in demanding the extra expenditure … One of the most immoral things you can do is to pose as the moral politician … We don’t like the expenditure we have agreed … Let us print the money instead …’ She was not talking about the press. She was talking about her own ministers.39

  Thursday’s papers were more apocalyptic than ever. ‘Chancellor under Savage Attack from All Quarters’ ran the headline in The Times. Besieged by journalists at the Commons, Prior denied that he was going to resign, but pointedly added that he was ‘going to fight my corner for the Government, and in the Government’. And Friday’s headlines were, if anything, even worse. ‘Cabinet Men Warn on Budget’ read the Sun’s front page, reporting an ‘open revolt’ by Mrs Thatcher’s ministers. ‘In secret meetings, top Ministers have decided that they will never again allow Chancellor Sir Geoffrey Howe to spring such a shock on them at such short notice … Now the rebels insist that in future the entire Cabinet must discuss economic strategy before Sir Geoffrey is allowed on the rampage.’ This, the Sun said, was not just ‘a vote of no confidence in the Chancellor’s judgement’; it was ‘a political disaster that could threaten the stability of the Government’.

  The paper had got its information from Francis Pym – whom Ingham had overheard briefing journalists in the Commons – but Whitelaw, Carrington, Prior, Gilmour, Walker and Soames were reportedly ready to join the ‘mutiny’. The only good news was that the Sun sided with Mrs Thatcher, not the disgruntled grandees. These ‘flat-footed Heathites’, the paper said, were the ‘real enemies’ standing in the way of national reconstruction, and ‘should be treated with contempt … If Mrs Thatcher and the Treasury cannot impose their will on their more timorous colleagues – some of whom are demanding a bigger say in what future Budgets should contain – the whole economic Battle of Britain will be lost. Forever.’40

  If there was one place where the Budget provoked the greatest horror, it was not Liverpool, Birmingham or some other recession-plagued manufacturing town. It was not even on Mrs Thatcher’s own front bench. It was Cambridge, the booming heart of ‘Silicon Fen’, a city that was actually doing very well in the early 1980s. Cambridge was the birthplace and alma mater of John Maynard Keynes, whose star still shone brightly at the university’s economics faculty. So when, over coffee a few days after the Budget, two of Britain’s most eminent Keynesian economists, Professors Robert Neild and Frank Hahn, decided to draft a broadside to The Times, they knew they would find plenty of horrified signatories among their Cambridge colleagues.

  What they did not expect, though, was that they would get so many signatures that they exceeded the newspaper’s limit. So Neild, the Treasury’s chief economic adviser during the 1960s, turned the letter into a statement and invited economists from other universities to sign:

  We, who are all present or retired members of the economic staffs of British universities, are convinced that:

  There is no basis in economic theory or supporting evidence for the Government’s belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment;

  Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability;

  There are alternative policies; and

  The time has come to reject monetarist policies and consider urgently which alternative offers the best hope of sustained economic recovery.

  By the time the statement was published, Neild and Hahn had collected 364 names, including fifty-four signatures from Cambridge, twenty-one from Warwick, thirteen from Oxford and forty-seven from various London institutions, including the London School of Economics. Among them were no fewer than five former government chief economic advisers: Professor James Meade, Lord Roberthall, Sir Alec Cairncross, Sir Bryan Hopkin and Sir Fred Atkinson. These were not student union philosophers or Marxist bomb-throwers. They were the great and the good, the Establishment incarnate, the post-war consensus in human form.41

  When the 364 economists’ statement appeared on 30 March, it was a sensation. ‘Maggie Blasted by Egghead Rebellion’, gasped the Express, while the Mirror thought it ‘one of the most powerful indictments of any government’. Immediately, Mrs Thatcher’s admirers raced to her defence. ‘It should surprise no one that the lost generation of British economists who had succumbed to the teaching of Lord Keynes should form a panicky mob when a reversal of the policies they had inspired reveals the damage they have done,’ Friedrich Hayek wrote scornfully to The Times. ‘They significantly can only refer to, but cannot specify, the “other methods” by which their professed aim can be achieved.’

  This was harsh, but not necessarily unfair, since the 364 had indeed failed to spell out what their ‘alternative policies’ would be. In fact, Neild and Hahn had deliberately avoided being too specific because they wanted to attract as many signatories as possible. But they should have known this was asking for trouble. ‘The practical man is puzzled,’ one Tory MEP, William Hopper, wrote mockingly. ‘If workable policies are available, why did the distinguished former Chief Economic Advisers not apply them when they held sway? Or are we in trouble now because they did apply them? And why do they not disclose them now?’42

  It is telling that both Hayek and Hopper turned the economists’ eminence against them. For Mrs Thatcher’s supporters, the men behind the statement were not disinterested experts; they were the ‘guilty men’ of the 1960s and 1970s. ‘With a few honourable exceptions,’ wrote Ralph Harris, director of the free-market Institute for Economic Affairs, ‘the more prominent signatories read like a charge sheet of those responsible for Britain’s relative economic decline since the war.’ Given their record, agreed the Spectator’s Ferdinand Mount, how could they seriously expect ‘simple folk’ to grovel before their ‘professional authority’? ‘Governments crash, inflation whooshes up to annual rates of 20 and 30 per cent, unemployment steadily climbs. Yet still the 364 continue to argue that the sort of policies they espoused when in Whitehall are the best available … Surely, it is time for a tiny re-think, even if only for the look of the thing.’ And in the Express, the reliably pungent George Gale went for the jugular:

  The economists profess that ‘for the sake of the country – and the profession – it is time we all spoke up’ … If they were really thinking of their profession’s reputation instead of playing politics, they would not have come up with, promoted and signed a meretricious little document like this …

  Tendentious, disingenuous, impertinent, insolent and conceited, it represents nothing more than the poor and infertile patch of common ground on which these 364 could agree to stand.

  There they are, held together only by hostility to Thatcher, and a hankering after the good old spendthrift days when some of them were powers in the falling and declining land.

  It takes little imagination to picture how that went down in Cambridge.43

  What did the man and woman on the street make of all this? Most probably could not have cared less, but those who did tended to side with George Gale, at least if the letters pages are any guide. ‘The fact that 364 of Britain’s leading economists, including no fewer than five previous advisers to the Government of the day, have attacked the Government’s economic policies has finally convinced me (and I suspect thousands of others) that Mrs Thatcher must be right,’ wrote William Firth of Blackpool in The Times. ‘I am relieved to see that, economically, Mrs Thatcher has got her sums right. She must have done if 364 economists claim she is wrong,’ agreed Jack Braithwaite in the Express. And even in the Labour-supporting Mirror, J. Moffatt of Ealing thought ‘the fact that 364 university economists condemn Mrs Thatcher’s monetarist policy almost confirms that it is right. These voluble academics have been cons
istently wrong in the past and I see no reason why they should be right over monetarism. I would sooner put my trust in Mirror astrologer June Penn’s predictions than theirs.’44

  Needless to say, this was not the reaction that the former chief economic advisers had anticipated. But in an increasingly populist age, the weight of their qualifications told against them. People who remembered the economic disappointments of the last decade were hardly likely to be persuaded by the very men who had been in charge, let alone by pronouncements from a Cambridge High Table. The irony, therefore, is that in turning their guns on Sir Geoffrey Howe, the 364 economists probably did him a favour. ‘I can’t quite put my finger on it,’ one City broker wrote a few weeks later:

  Somehow they don’t seem to have brought off whatever it was they were trying to achieve. Rather like the Charge of the Light Brigade, they meant well but have ended up as slightly humorous subjects. They formed up in their cloistered courts, mounted on a motley collection of nags, clutching a variety of largely obsolete weapons, blunderbusses, spears and lances, and then weren’t quite sure where they were going.

  But the most memorable verdict came from Howe himself. ‘An economist’, he remarked in his Mansion House speech that autumn, ‘is a man who knows 364 ways of making love – but who doesn’t know any women.’45

  The arguments about the 1981 Budget will never be settled. Perhaps the most obvious point is that the 364 were guilty of what Lawson called ‘exquisite’ timing. In their statement they explicitly said that Howe’s measures would ‘deepen the depression’. Yet the Budget marked the moment when the economy began, very slowly, to turn the corner. In the second quarter of 1981 growth inched into the black, and for the rest of the decade the economy continued to grow. In this respect, then, Mrs Thatcher and her allies were justified in declaring victory. Yes, they admitted, the recovery was much weaker than they had hoped. But it was still a recovery, which proved that their critics had been needlessly hysterical and that the strategy had been right all along. Hence, as Lawson sardonically put it, ‘the 1981 Budget came to be seen almost as a political equivalent of the Battle of Britain: the Thatcher Government’s finest hour; its most widely acknowledged success and a turning point in its political fortunes’.46