Mrs Thatcher, in Butler’s memory, ‘greeted it [the community charge idea] enthusiastically’.77 He regarded the meeting as ‘the decisive moment’. Waldegrave did not consider that Mrs Thatcher herself was blazing the trail, but she did respond very positively: ‘This was a phase of the world when we were trying to bring people back to reality, as we had with trade unions and with inflation. The idea that people have to pay for the services they want was a strong part of her ethos.’78‡ She formally summed up the mood of the meeting as supporting reform: ‘It was increasingly difficult to justify the retention of domestic rates and the group welcomed the proposals which recognised the need to strengthen local accountability and introduce fairer arrangements.’79 More work would be done on the proposals for a discussion in the second half of May with the aim of producing ‘a predominantly White Paper with some green edges’ in early autumn if the Cabinet agreed to go ahead. ‘Some material’ would be slipped to George Younger so that he could give a little comfort to the annual Scottish Conservative Party conference in Perth in May.
After the Chequers meeting, Mrs Thatcher wrote to Lord Rothschild to thank him for his contribution. The discussion had been so valuable because it had ‘gone back to fundamentals’:80 ‘As a result I think we have the best opportunity for a long time to find a lasting solution to this perennial but increasingly acute problem.’ She asked him to ‘keep a fatherly eye on the infant’s development’.
There had been little political discussion at Chequers of the war with the hard left in local government, but the hopeful mood of the meeting was closely related to its timing. At the beginning of the month, the miners’ strike had collapsed, giving Mrs Thatcher the greatest of all her industrial victories. With the strike ended, ‘the focus switched to the municipal socialists’ revolt’.81 Very shortly after the defeat of the NUM, the GLC decided not to set an illegal rate, with Ken Livingstone, who ‘knew it couldn’t be done’,82 having to hold back his even more hardline comrades. A big march in London had been organized to ‘give real hope of turning the tide’ by helping create ‘a joint strike against Local Government legislation and Pit Closures’.83 The march was advertised under the banner ‘one year!’ (of the miners’ strike), but it had now lost the purpose of its slogan. It seemed that the left was crumbling. Having achieved what no previous Conservative prime minister had managed, Mrs Thatcher had become very hard for colleagues to gainsay.
In a note to Robin Butler shortly after the Chequers meeting, Rothschild said, ‘The community charge is, I believe, a winner. But I am nervous lest it is accidentally or deliberately misinterpreted, for example: “Tories hit the poor once again …” ’84 The question was whether the charge could ‘avoid hardships and still collect what is necessary’. ‘Only the figures’, he went on, ‘can provide the answers … and as, for some reason beyond my comprehension, they do not exist, they will have to be got.’ He said he was going off to get his own ones from Cambridgeshire, the local authority where he lived.
Rothschild had put his finger on a key point which was to dog the development of the poll tax, as it had dogged all government attempts to control local government spending. Without knowing how the figures would work out, it was impossible to calculate who would gain and who lose. On such calculations would hang the success of the entire policy. Yet no one at the Department of the Environment, which was supposed to understand these matters, seemed to do so. To be fair, no amount of ingenuity could have made sums accurate. There were too many unknown quantities, because the change was so complete. Although Mrs Thatcher herself was, as always, interested in the figures, and sometimes scribbled sums on the relevant documents, she does not seem to have focused on the key point that the ultimate results were – literally – incalculable.
By the middle of May, Environment officials had produced their ‘Specification Report’ on the Local Government Finance Studies. It predicted that 7,450,000 people would lose as a result of the proposed reforms and that 9,250,000 would gain. Given the natural propensity of those who lose to make much more noise than those who gain, this figure was immediately recognized as dangerous. The calculations suggested that people living in inner London or parts of the northern industrial areas would suffer the most, especially those earning between £5,000 and £12,000 per year, the middle-income bracket at that time. Redwood and Letwin reported to Mrs Thatcher, with a certain nervousness, on these problems: ‘Unless some of them can be sorted out this reform is unattractive.’85 Yet how could they be sorted out? The Cabinet Office brief to Mrs Thatcher estimated that the poll tax itself would work out at an average of £160 per year,86 over three times the figure imagined at the Chequers meeting just six weeks earlier.
Attached to this memo was one from Nigel Lawson which subsequently became famous. The Specification Report’s own evidence, said Lawson, gave ‘a horrifying picture of the impact. A pensioner couple in inner London could find themselves paying 22 per cent of their net income in poll tax, whereas a better off couple in the suburbs would pay only 1 per cent.’*87 He did not think that efforts to correct these imbalances would work: ‘We should be forced to give so many exemptions and concessions (inevitably to the benefit of high-spending authorities in Inner London) that the flat-rate poll tax would rapidly become a surrogate income tax. That is what a “graduated residents’ charge” is.’ ‘This is not simply a hideous political problem,’ he went on: ‘local authorities would seize the opportunity to bump up their spending and revenue and blame it all on the imposition by the government of an alien system of taxation … the proposal for a poll tax would be completely unworkable and politically catastrophic.’ He felt that the rule by which some people paid nothing no matter how high rates rose could be mitigated by limiting rate rebates rather than by inventing a new tax. ‘This [Lawson’s] scheme is certainly a runner,’ Redwood and Letwin acknowledged, and it contained ‘less political risk’ than the poll tax, which would be attacked ‘as “a tax on votes” and for its regressive nature’.88 They repeated their view that nothing should be rushed.
It is a puzzle that Lawson’s objection to the whole idea – trenchant even by his standards – should not have made more impact. For the man in charge of the nation’s money to be so opposed to a new tax was a very big thing. In the twenty-first century, it would certainly have leaked and made huge headlines.* So successfully was the Thatcher–Lawson combination seen to be working for economic recovery that the media were not looking for a story pointing in a different direction.
Besides, Lawson himself did not fight the internal battle for all it was worth. Since local taxes were the one form of public revenue over which the Treasury did not hold sway, he had limited power to intervene. His attitude was that he was ‘very happy’ if local government tax reform was ‘not getting anywhere’89 since it bore no relation to the purposes of his own tax reforms. If asked, he would give his opinion, but he did not consider making this an issue of resignation. After finding himself isolated on the poll tax at the Cabinet committee meeting on 20 May, he did work up, at Mrs Thatcher’s request, his own reform of rates which suggested basing them on capital values rather than putative rental ones; but on the whole he did not much mind colleagues making fools of themselves, with him ‘sniping from the sidelines’.90 His main task, as he saw it, was to carve out and protect his own sphere of operations, so he almost washed his hands of the whole subject.
Lawson also felt that he had enough matters to argue about with Mrs Thatcher without adding another. ‘I got the impression she was fixated on the subject,’ he recalled,91 and he did not want to waste his breath. This attitude helps explain why, unlike Michael Heseltine over Westland, he did not seek confrontation and never, at the time or later, complained about Mrs Thatcher’s methods of arriving at the decision. Furthermore, Lawson recalled, ‘I had no personal reason for arguing with her about it.’92 Often, without the spur of a personal quarrel or a turf war, politicians are not very energetic in pursuing their views.
In th
e later stages of the battle, Lawson was in an uneasy position, for other reasons. He had failed to persuade Mrs Thatcher that Britain should join the ERM in November 1985 (see Chapter 13), and so was grumpy. He could not afford to fight on the front of the poll tax as well. Those involved in the policy believed that if she had felt able to trust Lawson, many errors would have been avoided.93
As for Mrs Thatcher, she also seems to have had some idea of demarcation. Here was a tax issue – the only one, in fact – where she did not have ultimately to defer to the Treasury. Although she naturally listened to Lawson attentively, none of her officials or colleagues remembered her putting his objections centre-stage. This was her subject, not his.
Where the attitude of the Treasury did make a serious difference, however, was not so much in its opposition to the poll tax as in its absence from the detailed deliberations. Although Waldegrave made it an ‘absolute condition’94 of his unit’s work that nothing be kept from the Treasury, Letwin recalled that Lawson told his officials: ‘I don’t want you to be working on it.’95 As Lawson himself conceded, ‘We made no positive contribution to the subject.’96 This meant that there was a lack of intellectual power because ‘Half of the intellect of the government is in the Treasury.’97* It was certainly a very risky thing to create a new tax without the active help of the department whose grasp of the subject of taxation is unique.
Anyway, the issue of local government finance could not be considered with cool-headed policy reflection alone. The Scottish situation was politically desperate for the government. George Younger, whom Lawson considered ‘a delightful man but very stupid on this subject’,98 seized upon the poll tax as the answer to his prayers. So desperate was he to push forward with it at his party’s conference in May that Stephen Sherbourne felt he must caution Mrs Thatcher about rushing. Just before a crucial meeting with Younger on 1 May, Sherbourne complained to her that the Scottish party organization had been ‘fanning the flames on rates so that the position is even more explosive politically’.99 They were demanding a replacement of rates on the statute book by the next general election. The choice, therefore, was either to ‘commit ourselves now to having a new source of local government finance passed through Parliament … even though we have not decided what, OR we have a rough Party Conference’. His advice was clear: ‘Better a bad conference in 1985 than a bad election in 1987’. Mrs Thatcher seemed to accept this view, and gave no promise about timing when she spoke to the Scottish party on 10 May; but she did authorize Younger, in his speech to the same gathering, to say that ‘the status quo is not an option’.100 This gave a clear signal. The political impetus, if not the precise legislative plan, was becoming hard to stop.
This applied nationwide. If it was true – which it certainly was – that the rate revaluation in Scotland was unbearably unpopular, especially with natural Conservative supporters, the same must apply to England and Wales. Indeed, it applied much more strongly, because revaluation had been so long delayed. So although it remained theoretically possible, at this stage, to stick with the rates, their potential future levels had already made revaluation seem politically out of the question. A poll tax looked ever more likely.
In the course of the summer of 1985, the government’s tactics seemed to be paying off in its rate-capping battles against councils controlled by the extreme left. At the end of June, the district auditor issued notices of surcharge against forty-nine Liverpool Labour councillors who had voted to set an illegal rate. Shortly afterwards, Lambeth Council, led by the ultra-revolutionary ‘Red’ Ted Knight, capitulated. In late August, Edinburgh Council, also Labour controlled, wavered and decided to prepare a legal budget. In early September, Liverpool, still hoping to frighten the government into intervening by operating a ‘deficit budget’, found itself obliged to put its entire council staff on three months’ notice. The new Secretary of State for the Environment, Kenneth Baker, refused its request to be allowed to borrow an extra £25 million. Some of the redundancy notices had to be delivered by taxi in order to reach their recipients within the time-period legally required. The council quickly ran into conflict with the previously supportive public sector unions. At the beginning of October, Liverpool’s famously left-wing Anglican and Roman Catholic bishops, David Sheppard and Derek Warlock, furious with the extremists, wrote an article in The Times101 headlined ‘Stand Up to Liverpool’s Militants’.* Mrs Thatcher was winning what Letwin called the ‘war of nerves’.
The hard left’s rate-capping revolt deeply embarrassed the Labour leadership. Neil Kinnock was conscious that his position during the miners’ strike – criticizing Arthur Scargill, yet not demanding a ballot or breaking with the strike completely – had done him and his party great damage. Although he had just about held the Labour movement together, his stance had made him look weak, and under the thumb of the extremists. He did not want to repeat this mistake in the sphere of local government.
In his speech to his annual party conference in Bournemouth at the beginning of October Kinnock aimed his fire at the extremists in his own party, taking the example of Liverpool. ‘You start with far-fetched resolutions. They are then pickled into a rigid dogma … and you end in the grotesque chaos of a Labour council – a Labour council! – hiring taxis to scuttle round a city handing out redundancy notices to its own workers.’102 He was duly heckled by Militant and widely cheered in the country. Kinnock’s eloquence and courage on this occasion did a great deal for his reputation. By turning on his internal foes, however, he ensured that resistance to the Tories’ local government reforms was seen as merely a left-wing cause. It was not in Kinnock’s interest to assail the emerging plans for a poll tax. By doing so, he would empower the very people in his own party he was trying to defeat. He gave Mrs Thatcher an almost free pass on the subject. As so often in her career, the left’s hatred of Mrs Thatcher caused far more trouble for Labour than for the Conservatives. She could develop her new ideas in what was almost a vacuum of mainstream opposition.
The Local Government Finance Studies had been refined and returned for consideration in mid-September. Redwood and Letwin now advised Mrs Thatcher that Nigel Lawson’s ideas for rate reform would be ‘politically suicidal’.103 Capital valuations as the basis for rates would be seen by ‘your supporters … as a wealth tax’. The notion that a property tax should remain in some form, however, was favoured even by some who supported a poll tax, notably Kenneth Baker. It helped deal with the ‘regressive’ aspect of the proposed reform.* ‘If I’m on Question Time,’ Baker was heard to protest, ‘and I’m asked “Why do the Duke and the dustman have to pay the same?”, there’s no answer.’104 Over the summer, Rothschild invented what he called, with his love of learnedly obscure jokes, ‘Operation Gynandromorph’ (ancient Greek for ‘woman/man shape’, the term often being used to describe butterflies or moths which exhibit male and female characteristics). This would mix a poll tax with a property element based on floor-space rather than rental valuation. Mrs Thatcher, seeing things, as always, from the point of view of the proud house-owner, objected: ‘it would have the adverse effect that any extension would need an increase in rating.’105 But Baker and Waldegrave took up the basic suggestion that a property element should remain.
Mrs Thatcher’s Cabinet Office brief also re-emphasized, as did the Policy Unit, the fundamental purpose of the whole thing: ‘Virtually all [Baker’s and Waldegrave’s] proposals are informed by the thrust towards disengaging central government and establishing automatic systems instead, and towards putting the control of local expenditure with the local elector.’106 This point was made again and again throughout the process and was agreed by all the participants, so the many subsequent attacks which claimed that the Thatcher government wanted to ‘destroy local government’ by introducing a poll tax were untrue, indeed the opposite of the truth.*
What is true, however, is that Mrs Thatcher herself had low expectations of what local government could, in practice, deliver. When, as part of her consultatio
n with interested parties in the summer of 1985, she met leaders of Conservative local government organizations, she set out her overall view: ‘Britain was a unitary state with a strong tradition of national standards for the different services set by Government … local government could not be seen as a separate sphere of Government, but as a means of delivering statutory services combined with some degree of local discretion.’107 It may be that she was instinctively happy with the conventions which had prevailed until the 1960s, by which local government concentrated on essentially uncontroversial services and was not very political. Her own father, in Grantham, had been a classic figure of this era – essentially, in his later years at least, a Conservative, but never using a party label, and resenting the gradual politicization of the council by Labour. She felt that the left had smashed the old conventions, thus creating conflict and threatening the power of the national elected government.† So although she was genuine in her desire to bring taxation and representation into balance, thus empowering local electors, she did not want arrangements which, overall, made local government a greater power in the land. There was a contradiction here which she never resolved. The same point really applied to the rates themselves: they were not such a bad form of tax, so long as they were not pushed too hard. By the end of the 1970s, they had been.
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