The need for investment in the nationalized industries was a broader problem at this time, with the Treasury trying to develop ingenious models whereby they could borrow to invest without it counting towards the PSBR. In the case of BT, initially Keith Joseph, the Industry Secretary, favoured allowing the company to raise money directly through a ‘revenue bond’ (known as the ‘Buzby bond’ after the cartoon bird used in the BT advertisements), but the Treasury warned that even this funding would need to be included in the PSBR. In July 1981, Kenneth Baker,‡ Joseph’s Minister of State, and David Young, who was Joseph’s special adviser in the department, gave dinner at Young’s house to their boss to persuade him to privatize.91 In Baker’s view, privatization was not a great issue of principle, but ‘we were at the end of our tether about how it [BT] could be better run.’92 The two men knew that, of all the Cabinet, Joseph was best placed to persuade Mrs Thatcher of the rightness of the cause. Shortly afterwards, Joseph saw her, and won her support. At the same time, Baker and Young were working to issue a licence to Mercury, a consortium put together by Cable and Wireless, to set up its own telephone networks, which Mrs Thatcher warmly welcomed. The beginning of competition was provided for. On 28 July, the objective of privatizing was endorsed by Treasury ministers, but without any public announcement until the huge logistical problems involved had been more fully addressed.93
In September 1981, Mrs Thatcher moved Joseph to Education and replaced him at Industry with Patrick Jenkin,* a slightly odd choice for this important post in view of the fact that ‘as it later transpired, she didn’t trust his judgement.’94 Jenkin was keen to push ahead with privatization, believing that it was, among other things, the only way for BT to raise all the money it needed; but her initial line was ‘It’s a monopoly. At least if it’s in the public sector, we have control of it.’95 She told Jenkin: ‘You can’t have a monopoly [once the industry was privatized]. Why not break it up into its sixty-one separate areas?’96 Jenkin’s counter-argument was that the company had always been run from the top and it would take much too long to break it up before any sale. David Young was more supportive of Mrs Thatcher’s view, urging that BT be divided into an international company and six or seven regional companies, but it was ‘a battle I lost’.97 The Treasury, ever keen on maximum proceeds, wanted the company sold whole.
Despite her misgivings about monopoly, Mrs Thatcher did not seek to delay the BT privatization. Progress was made politically easier by victory in the Falklands. Jenkin announced the plans for BT to the House of Commons on 19 July 1982, and from then on Mrs Thatcher was anxious to push ahead. An attempt by the Department of Trade to include BT in its annual referrals of state industries to the Monopolies and Mergers Commission was firmly blocked by the Prime Minister: ‘I take the view that denationalisation must not be jeopardised.’98 At the party conference in October, Mrs Thatcher highlighted the privatization of BT and, for the first time when speaking to her most important annual audience, used the word itself. Adapting Dr Johnson’s famous remark about the effect on a man of knowing that he will be hanged, she said: ‘Depend on it, when you know you are going to be privatised in a fortnight it concentrates the mind wonderfully.’99 She was noting one of the most striking effects of privatization – that the mere prospect of it changed the behaviour of everyone involved.
She herself was no exception to the rule. Peter Benson, a City auditor who helped handle the BT privatization, summed her role up thus: ‘I do not believe that Mrs Thatcher had a clear idea at all until the last moment what she really wanted to do. The great thing was she wanted to do something, and she was certainly going to do it.’100 It was not, of course, in a fortnight, or anything like it, that BT privatization took place. Mrs Thatcher’s decision to call the general election for 9 June 1983 caused the Bill to fall before it had completed its passage through Parliament. But, should the Conservatives be returned for a second term, it was certain to be reintroduced. None of the biggest and most controversial privatizations had yet taken place, but the way towards them now lay open.
Few subjects were more fraught for Mrs Thatcher’s first government than local government spending and the increase in the domestic rates which raised the revenue. She had been pitched into this area in the general election of October 1974 when, as Ted Heath’s Environment spokesman, she had made the public promise that a Conservative government would abolish the rates. As she wrote in her memoirs, she ‘had considerable doubts’ at the time, ‘for we had not properly thought what to put in their place’.101 Eight years on, this remained the problem, though Mrs Thatcher’s personal antipathy to rates was not in doubt. Domestic rates were extremely unpopular, particularly with likely Conservative voters. Because they were a tax on property, they were payable only by householders. This meant that fewer than half of the 35 million local electors in England were liable for them, or, because of various rebates, paid them in full. They therefore bore disproportionately on those who did pay them. Militant Labour councils, using their rate-raising power to spend up and protest at national Tory policies, were only too happy to make that disproportion even greater. Since central government contributed more than 60 per cent of the money consumed by local government, Mrs Thatcher’s ministers devoted a great deal of time and trouble trying to control the excesses of local spending and to devise ways of making councils more accountable to all their voters. But in the 1979 manifesto the party had said that it would defer the abolition of domestic rates for the time being. The implication was that it would come up with something for the election after that. Now that election approached, and still no solution readily offered itself.
In 1982, the Cabinet sub-committee MISC 79, chaired by Willie Whitelaw, tried to bring some sort of coherence to the problem. The Environment Secretary Michael Heseltine’s memo to the sub-committee rehearsed the options. A local income tax was ruled out by the government’s overall taxation policy and a local sales tax was considered too complex and unaccountable. A poll tax (so described) – a tax on every voter – could be working by 1985–6. It would have advantages – getting rid of an unfair tax, getting more people contributing, more accountability. But Heseltine set out the biggest problem: ‘The main complaint about rates is that the means of taxpayers are not fairly judged in assessing rates.’102 A poll tax would do nothing to address this. The government wanted to help the victims of this unfairness but ‘At this point the politics become crucial. We can offer a financial benefit [to some] … but part of our intention is that there shall be losers. It is a fact of politics that it is no less hard to persuade those who will benefit from any change to feel gratitude in support of the policy than it is to convince the losers of the virtue of the policy.’103 A few days earlier, Heseltine had also supplied a preliminary study, for which Mrs Thatcher had asked, about reorganizing local government in the metropolitan areas, which suffered – or, according to taste, benefited – from an extra layer of local government. The idea was growing that the ‘mets’ and the Greater London Council (the GLC), which harboured the greatest groupings of Labour councillors keen to make difficulty for the government, could be abolished. In a separate memorandum to Mrs Thatcher the following day, Heseltine urged caution. The Conservatives must not, he said, ‘forget our fundamental beliefs about the constitutional role of local government’.104 The controls already in force had achieved ‘the first serious check on the expectations and aspirations of local government for some 30 years’. Heseltine fought hard and, for the year 1982–3, successfully, against an attempt by Leon Brittan, then Chief Secretary to the Treasury, to impose a ‘holdback’ of government grant to recalcitrant councils.
Shortly after this, MISC 79, unable to see its way through, ruled out the abolition of domestic rates for the time being. Since there was no agreement, this was the only thing to be done, but the indecision made the government more desperate for other ways of alleviating the problem of local overspending. In the Policy Unit, Ferdinand Mount could see the dangers. In a paper entitled �
��The Local Government Impasse’, written immediately after MISC 79 had decided not to decide, Mount warned Mrs Thatcher of ‘the dangers of ill-advised action’. The abolition of the mets and the GLC was ‘superficially attractive’, but ‘we should not saddle ourselves for the duration of the next Parliament with a commitment whose virtues and defects are not fully explored, as in the case of the promise to abolish the rates’.105 ‘Can it be right’, he continued, ‘to dispense with some kind of directly-elected council for Greater London which speaks for all citizens who regard themselves as Londoners?’ He pointed out the ‘unhappy results’ of previous Conservative structural reforms, such as the Heath–Walker abolition of many old counties in the early 1970s. Mrs Thatcher underlined the phrase. Might it not, wondered Mount, be better to arrange for more frequent elections to hold councils to account, rather than abolishing elected bodies?
But time was running short for such careful thinking. If the Conservatives could not offer the abolition of the rates at the next election, they had to come up with something eye-catching. For the remainder of the year, inconclusive argument continued, with Mrs Thatcher siding with Leon Brittan about imposing selective controls on extravagant councils (‘very worrying’, she wrote against one of Heseltine’s objections to direct control),106 and MISC 79 tending to side with the Environment Secretary. At the turn of the year, Whitelaw reported that his committee lukewarmly recommended abolishing the mets and the GLC, and had failed to agree on the direct control of rates and spending. As Whitelaw put it with characteristic ruefulness, his committee ‘were aware that their recommendations on rates might disappoint the Cabinet. They had perhaps identified problems rather than solved them. Nevertheless, he had to warn the Cabinet that the problems were intractable.’107 The Cabinet meeting proved his point. George Younger, the Scottish Secretary, complained about the rating system: ‘If we don’t do something, we have a disaster on our hands.’108 Mrs Thatcher lamented that MISC 79 had done nothing to address the unfairness of rates to old people and families. Heseltine, on the other hand, who by now had been moved from Environment to Defence, said that the House of Commons had ‘a general understanding that there isn’t an alternative to rates’. More work was set in hand on abolishing the mets and the GLC and to look at rates yet again, under Tom King,* who succeeded Heseltine at Environment, but nothing was actually decided.
By this time, Mrs Thatcher’s dominant and immediate concern was electoral. ‘There would be a great political prize’, she told King at a meeting a fortnight later, ‘in a decision that there would be no further increases in rates.’109 She toyed with paying for this by a local VAT, increasing the central grant which funded the police, or taking the salaries of teachers away from local government and funding them from the centre. None of this transpired. As she told The Times with surprising frankness, when asked about the rates on 3 May 1983: ‘The first thing you always have to look at in politics is – “I know what I want to get away from, but what am I going to put in its place?” ’110 Government indecision was almost final, waiting until the moment when the election was called.
3
Landslide
‘I live in a big house called 10 Downing Street. I’m going to live there for a long time’
The Conservatives were almost bound to win the general election of 1983. The Falklands effect was too strong and the Labour Party, under the leadership of Michael Foot, too weak for any other result to be at all likely. Even without the Falklands, there had been some Tory recovery. From the week before the Falklands crisis broke, the Conservatives were continuously ahead of Labour in the opinion polls until polling day. But, to the woman who had ultimately to decide when the election should be called, matters were not so obvious.
Under the British unwritten constitution,* the sitting prime minister had the right to ask the sovereign for the dissolution of Parliament at any point up to the moment when the Parliament’s statutory five years were complete. The sovereign could, in theory, have refused, but, in modern times, this became extremely unlikely. The freedom to choose the date gave great power to the prime minister, but also caused her (or him) enormous anxiety.
Few prime ministers can have been more anxious than Mrs Thatcher. On top of her natural caution, and her obsession with collecting all possible relevant data before arriving at a decision, was an overpowering sense that a mistake would be fatal for her purposes and for her career. She had always said that the restoration of Britain would take two or even three terms of Conservative government. ‘If we lose, we lose it all,’ she told Ferdinand Mount.1 ‘She knew that this was a massive decision, and that she alone was responsible,’ remembered Cecil Parkinson who, as chairman, ran the party’s campaign.2 As a result, she was extremely tetchy until the decision was finally made.
Mrs Thatcher knew, and stated publicly, that she should not try for a snap election after the Falklands. The Tories had been in government for little more than three years and, with a good working majority, had no need to refresh their mandate. Any early rush to the polls would have been seen as opportunist, and punished accordingly by the electorate. The decision not to go to the country in 1982 was easily made. Everything else was more complicated. Mrs Thatcher’s own original preference was for running the full five years. As this looked less and less sensible, she favoured waiting until October 1983. In her urging that US missile deployment in Europe should take place in November 1983, and that the Germans should settle the EEC budget question during their presidency which was to begin in July 1983, one can detect that, until well into 1983, October was her target date.*
One factor which affected her calculations more than most realized was the inquiry, which she had commissioned from Lord Franks, into the failures which had led to the Argentine invasion of the Falklands. Although the public appetite for questioning a clear British victory was low, Mrs Thatcher genuinely feared that Franks might find against her and so force her out of office. ‘If he had concluded that government inefficiencies had caused war,’ recalled Robin Butler, ‘she thought she’d be done for.’3 On Christmas Eve 1982, when she knew that the draft of the report had arrived at Downing Street, she came into the private secretaries’ room, where Butler and John Coles were sitting. ‘Read me the conclusion,’ she said.4 Franks, whose commission included privy councillors from all parties, concluded that ‘The invasion of the Falkland Islands … could not have been foreseen’ and that the government could not be blamed for the decision of Argentina to invade. She was in the clear. In the new year, Mrs Thatcher therefore felt free to celebrate (although Franks’s conclusions were not yet made public) by visiting the Falklands, which she had never before seen, in conditions of great secrecy.† She was, needless to say, warmly received, although Butler recalled that she ‘was disillusioned with the locals, whose lethargy shocked her, and fell asleep in their company’. On the other hand, she ‘was very happy with the military and behaved like a young filly’.5* Once she had returned to Britain, election speculation grew and she unintentionally added to it when she said publicly that it was contributing to the fall in the value of sterling. It was becoming harder to get on with the business of government.
Although Labour’s weakness was well known, Conservative electoral calculations also had to include a factor which, as a deliberate tactic, Mrs Thatcher hardly ever mentioned in public – the centrist SDP–Liberal Alliance. The Alliance had fallen from its pre-Falklands poll ratings to third place, but it remained a threat. The conventional ideological response to the Alliance was to argue that the Conservatives should tack to the centre. Moderate Tories fretted that Mrs Thatcher was too extreme, and that this would give an opening to the new force. For a background interview in November 1982, Chris Patten, the rising young hope of the Tory Wets, ‘denied that there had been any change in national attitudes in favour of privatisation and the like. He thought the Tory party was completely off the rails under Margaret,’ and he wanted ‘people of principle to put out public markers that they dissented’.6
†
In fact the Conservatives found themselves challenged by the emergence of the SDP, not only in the centre, but on the right. Previously, they had felt confident that they could hoover up the votes of those who resented trade union power, but in the course of 1982, the SDP – which was, after all, a party formed in revolt against the unions’ dominance of Labour – began to attack the Tories for not going far enough. In October 1982, Norman Tebbit,‡ the hardline Employment Secretary, pointed out to E Committee that the SDP was now making the ‘political levy’ – the system by which union members automatically paid money to the Labour Party – ‘a matter of public debate’. The Tories, he went on, were too hesitant about reforming the levy because, for their own reasons, they did not want the argument straying into the broader issue of the funding of political parties.7 They feared too much scrutiny of their business donors. Yet even Tebbit himself was suspected of not pushing trade union reform hard enough. Ferdinand Mount, though generally more politically moderate than the man Michael Foot called ‘the semi-house-trained polecat’, wrote a fierce memorandum to Mrs Thatcher that same month: ‘I think there is a danger of complacency and timidity creeping into our approach to the reform of trade union law. Both the paper from Norman and the discussion last week were extremely defensive and limited.’8 ‘I agree,’ wrote Mrs Thatcher. Mount was particularly exercised about the need to include strike ballots in Tebbit’s forthcoming Green Paper, a subject on which he sensed that ‘the Department of Employment is determined to do nothing.’9 In the end, strike ballots made it into the Green Paper and so did changes to the political levy, but in the conciliatory form that unions should try to find their own ways of sorting these questions out. Politics was becoming more multi-dimensional at a time when most Conservatives, including Mrs Thatcher, were happy with straightforwardly bashing the left.
Margaret Thatcher: The Authorized Biography, Volume 2 Page 7