Yet the economic upturn was slow to materialise. Though Geoffrey Howe declared that the recession had officially ended in the third quarter of 1981, growth during 1982 was still only 0.5 per cent; industrial output was the lowest since 1965. Several times the Department of Employment massaged the basis of calculating the unemployment figure, but still it went on rising. Many analysts reckoned the true figure to be nearer four million than the three million the Government admitted. From within the Cabinet, too, Jim Prior continued to warn that the present level of unemployment was unsustainable and claimed that it could easily be relieved by ‘some additional activity’ which need not involve any more Government spending.4 Howe and Mrs Thatcher rejected such siren voices as firmly as ever. ‘When the rulers of old started to debase and clip the coinage,’ she asserted, ‘they were in difficulty. That’s what reflation is and I’ll have nothing of it.’5
On the other hand inflation – the Government’s preferred measure of its success – continued to fall. It was down to 5 per cent by the end of 1982, enabling Howe to reduce interest rates steadily (to 9 per cent by November), which helped raise both living standards and the sense of wellbeing of those in work. The heavy shedding of manpower eventually produced higher productivity in those parts of the manufacturing economy that had survived, while industry was relieved by a steep fall in sterling – due largely to a fall in the oil price – which eventually forced Howe to raise interest rates again in December. While maintaining a tight spending framework overall, Howe also pursued an imaginative supply-side programme of deregulation and targeted incentives: more free ports, double the number of enterprise zones, loan guarantee schemes, grants to assist in the introduction of computers. For all these reasons, economic activity slowly picked up. Public spending, though still higher as a proportion of GDP than in 1979, was at last coming under control – despite the war, which was indeed paid for out of the contingency reserve, as Mrs Thatcher had promised – so that by the spring of 1983 Howe was in a position to make some modest but timely tax concessions in what was likely to be his election-year budget.
Then after three years of restraint the Chancellor and Prime Minister provoked general amazement in late 1982 by suddenly urging local authorities and other public bodies to spend more on capital investment. In fact, she was not telling local authorities to spend more, but rather to spend more of the money provided on capital projects and less on wages.
She was much more confident now in dismissing Labour allegations that she did not care about unemployment. ‘I have come to the conclusion,’ she retorted, ‘that they do not want to get rid of unemployment. They wallow in it.’6 In a changing economy, new jobs came from new industries and small businesses, not from declining industries. ‘It is no good the Opposition yowling about it. It is a fact.’ 7 The Government, she insisted, could not create jobs. ‘One gains jobs by gaining customers. There is no other way.’8
By the time Mrs Thatcher went to the country in June 1983, the Government could plausibly claim, against all its critics, that its central economic strategy was working: inflation was being squeezed out of the economy and the way was now clear for a soundly based recovery which would soon bring real jobs. Sceptics countered that, on the contrary, Britain had suffered a more severe recession than the rest of Europe, while the Government’s boasted recovery was shallow and patchy and concentrated in the south of England, leaving the manufacturing regions of Scotland, South Wales and the north of England permanently devastated. Economically this is undeniable; the impact of the Government’s policies was cruelly unbalanced. The political fact, however, was that the Government had won the argument. Mrs Thatcher’s toughness could be seen to be showing results.A level of unemployment hitherto held to be insupportable was discovered to be tolerable after all: there were no more riots. Meanwhile, as the political world adjusted to the probability of a second Thatcher term, a number of distinctively ‘Thatcherite’ policies were beginning to take shape.
First, Norman Tebbit carried the Government’s second instalment of trade-union reform. With the reputation of a right-wing hard man,Tebbit had been appointed Employment Secretary in September 1981 specifically to do what Prior had successfully resisted. In fact he displayed a more subtle touch than his aggressive rhetoric suggested and produced another carefully judged package which was considerably less punitive than the Institute of Directors and right-wing backbenchers had been demanding.
The main thrust of his Employment Bill, introduced in January 1982, was to remove the unions’ immunity from civil action arising out of unlawful trade disputes, while narrowing the definition of what constituted lawful action, thus rendering unions liable for damages (up to £250,000) for secondary and sympathetic strikes. Henceforth the law would only recognise disputes over pay, jobs and working conditions between groups of workers and their own employers. This was the crucial step which ended the privileged legal status granted the unions in 1906 – the anomaly on which the whole history of the abuse of union power since the 1960s had been founded.
Tebbit’s Bill simultaneously tightened restrictions on the operation of closed shops; made it easier for employers to dismiss persistent troublemakers and offered Government funds to finance union ballots. But it still did not require ballots to be held before official strikes. It did not try to outlaw strikes in essential services. Nor did it touch the Tories’ oldest grievance, the unions’ political levy, which still required members to contribute to the Labour party unless they specifically opted out. Strike ballots and abolition of the political levy were foreshadowed in another Green Paper in January 1983, but their implementation was left to a third instalment of reform brought in by Tebbit’s successor, Tom King, in 1984.
Once again this was shrewd strategy, which disarmed opposition by its carefully calculated moderation. As usual trade-union and Labour leaders furiously denounced the proposed legislation. But polls showed that public opinion overwhelmingly supported Tebbit’s Bill; more important, the great majority of ordinary trade unionists supported it. By acting moderately but firmly to curb the abuses of the past fifteen years the Government was seen to be redeeming one of the clearest promises on which it had been elected.
The unions were additionally weakened by the level of unemployment, which severely cut their bargaining power. 1982 saw two long-running public-sector strikes – one on the railways, one by NHS workers – both of which ended in clear defeat for the unions without the Government’s new legislation even being called upon. Mrs Thatcher vigorously condemned the strikers. ‘If you want more unemployment and more job losses,’ she told them bluntly, ‘then keep on striking. Don’t blame me.’9 Tebbit’s Bill was really a case of kicking the unions when they were already down. The industrial climate had been transformed since 1979. The unions’ power to enforce unproductive overmanning and delay the introduction of new technology was already broken; management was recovering the power to manage. Some major battles still lay ahead, but by 1982 the dinosaur which had humbled Wilson, Heath and Callaghan was already mortally wounded.
The second distinctively Thatcherite policy which began to take clear shape in 1982 was large-scale privatisation. The breakthrough from a limited programme of asset disposals to the selling of whole industries came about quite suddenly as a result of the convergence of a number of factors. First the arrival of Patrick Jenkin at the Department of Industry and Nigel Lawson at the Department of Energy gave a new impetus to policies which Keith Joseph and David Howell had initiated but failed to carry through. Then the easing of the recession offered a more propitious economic climate. The likelihood of the Government winning a second term on the back of post-Falklands euphoria gave potential investors the confidence to buy shares in privatised companies without fear of a returning Labour Government immediately renationalising them. Perhaps most important, the newly established telephone company British Telecom urgently needed a massive injection of capital to finance the new digital technology. Mrs Thatcher took some persuading that
privatisation was practical; but she eventually gave Jenkin the green light to go ahead.
She also needed some persuasion to privatise Britoil (the former British National Oil Corporation). This time her reservations were patriotic, reflecting a widely shared feeling that North Sea oil was a national asset which should remain under national control. Lawson’s solution was to split the production side of the business from the trading side and sell only the former, retaining for the Government a ‘golden share’ to prevent the company falling into unsuitable (that is, foreign) hands. The first 51 per cent of Britoil shares were put on the market in November 1982. Despite an unexpected drop in the price of oil which left the underwriters with large losses, the sale raised £334 million for the Treasury, making it by far the biggest privatisation to date. The BT privatisation – much bigger again – was not ready to go before the 1983 election and had to be restarted in the next Parliament.
‘We are only in our first term,’ Mrs Thatcher told the party conference in October 1982. ‘But already we have done more to roll back the frontiers of socialism than any previous Conservative Government. In the next Parliament we intend to do a lot more.’10 In due course the 1983 manifesto earmarked BT, British Airways and ‘substantial parts’ of British Steel, British Shipbuilders and British Leyland, plus the offshore interests of British Gas, as targets for the second term. As it turned out, building on the unexpected success of the BT sale, the Government went much further than this, privatising the whole of British Gas before moving on to target electricity and water. But already, she admitted in her memoirs, this was a programme ‘far more extensive than we had thought would ever be possible when we came into office only four years before’.11
The form of popular capitalism she did enthusiastically embrace before 1983 was the sale of council houses. Michael Heseltine had enshrined the ‘right to buy’ – at a substantial discount – in his 1980 Housing Act. By October 1982, 370,000 families had already taken advantage of the legislation to buy their homes. While the Government was still feeling its way gingerly towards the privatisation of public utilities, she now knew that with the sale of council houses she was on to an electoral winner. It is probably too simple to suggest that those 370,000 families – it was 500,000 by the time of the election – were turned from Labour to Conservative voters overnight: many of them had already made the crucial switch in 1979. But more than anything else this one simple measure, promised in opposition and spectacularly carried out, both consolidated and came to symbolise Mrs Thatcher’s capture of a large swathe of the traditionally Labour-voting working class.
The limits of radicalism
Council-house sales, trade-union reform and the beginnings of privatisation were major initiatives which changed the landscape of British politics. Yet beyond these three areas, some of Mrs Thatcher’s keenest supporters were disappointed that her avowedly radical government did not have more to show for its first term.
The reason was partly that she simply did not have time to spare for social policy: at this stage the economy, the trade unions and the nationalised industries were her domestic priorities. In truth she was not really very interested in it: having served her ministerial apprenticeship in social security and education, she was happy to have escaped to wider horizons. But she was also very wary of the political danger in tackling the welfare state – particularly the National Health Service – which, for all its emerging inadequacies, was rooted in popular affection. ‘She feared that the welfare state was Labour territory – that we weren’t going to win on it.’12 The result was that health, social security, education and public-sector housing were all squeezed to a greater or lesser degree by spending cuts, which gave practical effect – as it were by stealth – to the Prime Minister’s instincts. But this was just tinkering, not the radical shake-up that Tory radicals had hoped to see.
The biggest question concerned the funding of the NHS. Almost since its inception in 1948, Conservative policy-makers had been looking at ways to switch funding at least partly from general taxation to an insurance basis. But insurance schemes had always been found to be less efficient and more impractical. Both Howe and Jenkin were still keen to explore the insurance option, however, and in July 1981 Jenkin set up a departmental working party to study alternative funding options. Mrs Thatcher was sympathetic. In her very first Commons speech as Prime Minister she had warned, with a clear echo of Milton Friedman, that ‘there is no such thing as a free service in the Health Service’.13 She never forgot that the cost of universal health care fell on the public purse and believed that self-reliant individuals should bear the cost of insuring themselves instead of relying on the state. She was keen, as a matter of principle as well as of economy, to encourage private health provision, which duly mushroomed after 1979 with an influx of American health care companies, a rush of private hospital building and more private beds in NHS hospitals. Kites flown by free-market think-tanks like the Adam Smith Institute and the Social Affairs Unit fuelled the impression – sedulously fostered by Labour – that the Tories were planning to privatise the NHS. But when it came to the point the Government drew back.
Social security was less of a sacred cow than health, largely because it was less used by Tory voters. There was no comparable embargo on radical reform; but here too policy proceeded by an accumulation of small cuts rather than a coherent programme. All short-term benefits – unemployment benefit, housing benefit, even child benefit were devalued more rapidly simply by not being uprated in line with inflation.
From her experience as a parliamentary secretary in the Ministry of Pensions twenty years before, Mrs Thatcher retained the conviction that the benefit system was a wasteful mechanism for recycling money from the hard-working to the lazy. Then at least it had been her job to face the reality of a lot of individual cases. Now she saw only the huge cost to the Treasury and a disincentive to enterprise and self-reliance. She believed that the prosperity of those in work would – in the American phrase – ‘trickle down’ to lift the living standards of all. She averted her eyes from the impoverishment of millions of families whose breadwinners were desperate to work if only the jobs had been there. Apart from throwing ever-larger sums at complicated youth-training schemes – money not for the most part well directed – the Government in its first term made no serious attempt to reform the benefit system.
Housing was the area where the Government most clearly favoured the better off at the expense of the poorer. The central plank of its housing policy was the sale of council houses. But while the best houses were sold on generous terms to those more prosperous tenants in secure jobs who could afford to buy them, rents for the rest – usually on the least desirable estates – were steeply increased. New council building almost completely ceased. Local authorities were debarred from using the revenues from council-house sales to renew their housing stock, leading in time to a housing shortage and the very visible phenomenon of homelessness which emerged at the end of the decade. Housing was another service Mrs Thatcher did not really believe the state should be providing at all: her Government’s purpose was to encourage and reward home-ownership. While cutting subsidy to council tenants, therefore, she was determined to protect and even extend mortgage-interest tax relief for home buyers – an anomalous middle-class subsidy which the Treasury had long wanted to phase out, but which she candidly defended as a well-deserved reward for ‘our people’.14
As Education Secretary from 1979 to 1981, Mark Carlisle had an unenviable task, with the Treasury demanding heavy cuts in his budget and Mrs Thatcher bullying him to punish her old department. Less than a decade earlier she had been vilified for cutting free milk for primary schoolchildren, yet she finished up as a notably expansionist Education Secretary, having announced ambitious plans particularly for pre-school education, which sadly were aborted by the 1973 oil crisis. As Prime Minister, however, she showed no interest in reviving these plans, only the memory of the Milk Snatcher. Carlisle was compelled to enforce cuts
in the provision of school meals and rural school transport – though the latter was partly reversed following a rebellion in the House of Lords. The axe fell hardest on the universities, which suffered a 13 per cent cut in funding over three years.This was the beginning of a decade of confusion, demoralisation and falling standards in higher education.
‘We are the true peace movement’
The Government had given curiously little thought to the agenda for a second term. Given the enormous problems of trying to promote an enterprise economy against the background of a severe recession, it is understandable that the Government attempted so little major reform of social institutions before 1983. It is much harder to explain why, after the Falklands victory had transformed the political landscape and her own authority, Mrs Thatcher did not then grasp her opportunity with a radical programme for the next stretch of road that now extended before her. She evidently found it difficult to explain herself. In her memoirs she blamed Geoffrey Howe.
The truth is that a Government’s energy stems from its head, and even Mrs Thatcher confessed to being a little tired by the end of the Falklands summer. Just before the recess she admitted that she intended to take a good holiday ‘after this momentous year’ – quickly adding, in case anyone should see this as a sign of weakness: ‘I do not think I could take more than another ten years such as this has been.’15 She actually went to Switzerland for ten days before going into hospital – briefly and, of course, privately – for an operation for varicose veins. After the high tension of the Falklands she was perhaps mentally unprepared for her sudden breakthrough to popularity and genuinely did not know what to do next. A year earlier she would not have dared talk of another ten years. There is a sense in the autumn of 1982 of Mrs Thatcher – still only fifty-seven years old – pausing for breath, resting on her oars for a moment, until she got used to the idea of going on and on.
The Iron Lady Page 28