Margaret Thatcher: The Authorized Biography (111 page)

‘The Budget is not well received,’ began Bernard Ingham’s daily press digest for the Prime Minister the following day. The
Sun
, with the headline ‘Howe It Hurts’, said that the government had ‘failed to deliver the goods’. The
Financial Times
spoke of ‘an admission of general defeat apart from inflation’, and offered the headline ‘The Strategy’s Last Chance’. There was praise – the
Daily Mail
spoke of ‘an act of stubborn political courage’ – but not much, and the press reported unhappiness from at least six Cabinet ministers. Changing the subject, the digest also reported: ‘Mark Thatcher to advertise Scotch on Japanese TV’.
³³
At the presentation of the
Guardian
’s Young Businessman of the Year Award, Mrs Thatcher departed from her prepared text to speak angrily about her critics: what ‘gets me’, she said, was that ‘those who are most critical of the extra tax are those who were most vociferous in demanding the extra expenditure.’
³⁴
The next day, telling tales out of school, Ingham sent Mrs Thatcher a secret memo about
Francis Pym’s behaviour in his briefing of the parliamentary press lobby: ‘I think you should know that Mr Pym this afternoon … rather deftly applied public pressure for a pre-Budget discussion in Cabinet of economic strategy.’ Ingham went on: ‘How typical was his view in Cabinet? Probably typical, he said … he did not think that a tough line by the Treasury during the next public expenditure review in the autumn would be particularly well received.’ Ingham said he had subsequently discovered from a journalist that ministers were concerting for an economic strategy discussion, perhaps during a weekend at Chequers. The idea ‘is not merely being nursed by a few Ministers; it is beginning to take off.’
³⁵
Sure enough, the next day’s papers were full of stories about the group of ministers who were now demanding a say in Budget strategy: ‘Never again’, Ingham’s digest reported, ‘will they put up with the shock of learning its secrets on the morning before delivery. All this is characterised by words like “mutiny” … with Messrs Whitelaw, Pym, Prior, Walker, Gilmour and Carrington named …
Guardian
says many Ministers and backbenchers are openly discussing possibility of Palace revolution in summer when Government is told to change policies.’
³⁶

Luckily for Mrs Thatcher, the mood on the back benches, though hardly rapturous, was not as mutinous as the
Guardian
reported. They relieved their feelings by focusing on a side-issue of particular relevance to rural constituencies, the increases in the duty on DERV (diesel), and Howe was able to make a concession at no net cost to the Budget by cutting the DERV duty and making up for it with yet higher imposts on tobacco. But there could be no mistaking the emergence of a clear and semi-concerted opposition within Mrs Thatcher’s Cabinet. There might not be a proper plot to get rid of her – there was certainly a want of boldness among the dissidents – but there was now a move, clothed in demands for changes in process, to isolate her, or create a situation in which her lack of majority among her own ministers could be made to work against her. This coincided with a time when the ranks of her trusted associates had thinned out. About a week after the Budget, John Hoskyns noted in his diary that:

Ronnie [Millar] was very worried indeed about the way Margaret had lost or allowed the departure of so many supporters – Richard Ryder
*
[leaving No. 10 to prepare to become an MP at the next election], Gordon Reece [who was working for Armand Hammer in the United States] … Alistair
McAlpine [who had been temporarily pushed off his Treasurer’s perch in Central Office by Lord Thorneycroft], and so on. He said that Gordon had heard in the US that Kissinger says his friends in the Cabinet (Carrington?) say she’ll be out within a year. He feels we’ve got to move fast to save her.
³⁷

It was probably helpful that, at this moment, to use Ingham’s words, ‘364 economists cook up round-robin to condemn your economic policies’.
³⁸
The letter, published in
The Times
, was signed by five former chief economic advisers to the government, including Terry Burns’s immediate predecessor, Fred Atkinson. It was also signed by Kenneth Berrill, the former head of the CPRS, and by Mervyn King, who much later became the Governor of the Bank of England. It read:

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 introduce 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;

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

Whatever its distaste for the government’s policies, the public was not particularly likely to be impressed by the views of economists, nor to think that 364 of them were better than one. On the same day as the letter, Ingham’s digest also reported: ‘Sam Brittan, FT, says this could be a favourable leading indicator for economic recovery.’
³⁹
Peter Middleton remembered that, as soon as the 364 had spoken, ‘Everything began to look up.’
⁴⁰

As Nigel Lawson put it in his memoirs, ‘The timing was exquisite.’
⁴¹
Output touched its lowest point in the quarter that ended on the day when the 364 economists’ letter was published. In the eight years from 1981 to 1989, real GDP growth averaged 3.2 per cent, whereas there were sixteen months of negative growth during 1980 and 1981. From the first quarter of 1983, the number of people employed began to rise, and from the third quarter of 1986 the number of unemployed began to fall. Alan Walters’s prediction that the inflation rate would fall to 5 per cent in 1982 was over-optimistic, but the rate for 1983 was 4.6 per cent. As for the PSBR, its eventual outturn was £8.5 billion, £2 billion better than budgeted for. Neither the 364 nor their opponents were, of course, to know this at the time, but it was significant that, beyond stating that alternative policies existed, the
Times
letter did not say anything about them. As with internal
critiques by the Wets, the letter was clear in its revulsion at what the government was doing, but much less confident about what to do instead. What the critics failed to recognize was that the old remedies of fiscal expansion did not work if confidence was low. The Budget, as Peter Middleton described it, was ‘all about the
demonstration
effect of what was happening’.
⁴²
As Alan Walters argued, fiscal expansion became, in such circumstances, a symptom of trouble and therefore the actual effect of a deficit intended to be ‘expansionary’ was to contract the economy. The ‘toughest peacetime Budget in memory’ was therefore, perversely, the one to inspire the confidence required.
⁴³
As Douglas Wass, no monetarist, recalled: ‘The 1981 Budget did enable us to have lower interest rates and therefore did lower exchange rates.’
⁴⁴

Not that confidence and calm returned quickly. There was some good economic news – a stock market high, for example – but there was also trouble. At the end of March, the Civil Service unions began a ‘selective’ strike, which soon impeded the flow of government revenue and therefore worsened the public finances still further. It was typical of the situation in which Mrs Thatcher’s government found itself that the day when industrial production turned up for the first time in ten months was also the day when serious rioting broke out in the streets of London. Anti-police riots by mainly black youths in Brixton, south London, on 13 April 1981 injured 150 police, produced more than 200 arrests and gave rise to widespread looting. Four days earlier, the IRA hunger striker Bobby Sands, in prison and still on hunger strike, had been elected to Parliament in the Fermanagh and South Tyrone by-election. Extremists were involved in stirring up trouble in Brixton; against a report, in Ingham’s digest, that the ‘riot started when supporters of IRA H block prisoners [in the Maze] announced stabbed black youth had died’, Mrs Thatcher wrote a strong squiggle of excited disapproval.
⁴⁵
She came out strongly, saying there was ‘no excuse’ for the riots, and that public money had already been ‘poured into’ Lambeth to little effect.
⁴⁶
She probably benefited politically from the fact that the left wing of the Labour Party, including the controversial Labour Leader of Lambeth Council, ‘Red Ted’ Knight, were involved in anti-police agitation. The public were deeply shocked by the scale of the violence, and were disposed, unlike the metropolitan elites, to blame it on the people who had rioted. On the other hand, Mrs Thatcher did not appear to offer any practical ‘Thatcherite’ answer to the problems of rioting, and she allowed Willie Whitelaw, the Home Secretary, to appoint a left-liberal judge, Lord Scarman, to conduct the inquiry into the riots. It was natural that her critics should allege that the disturbances were a response to the
unemployment she was creating: Wets could claim that their prophecies of tears in the social fabric had come true.

The month of May was no merrier. On 4 May, Bobby Sands died of his hunger strike, his death provoking violence in Northern Ireland and worldwide protests. On 7 May, Labour took control of the Greater London Council and the very next day, in an internal coup predicted before the polls, replaced their moderate leader with the rising star of what the tabloids called the ‘loony left’, Ken Livingstone.
*
On 10 May, François Mitterrand
^†
was elected the first Socialist president of France’s Fifth Republic, on a programme which included the nationalization of the banks. On 13 May, Pope John Paul II was shot and nearly killed in St Peter’s Square in Rome by a professional assassin who, it much later emerged, probably had links with the Bulgarian secret services and ultimately the Soviet KGB. On 18 May, Mrs Thatcher felt compelled to sack her Navy Minister, Keith Speed, for resisting the unpopular cuts which John Nott, with her encouragement, was imposing. At this time, she was exhausted by the pressure of events and by trouble with her teeth which was a recurrent intrusion upon her generally very good health. As a result, her staff had to cancel a session with Wolfson, Hoskyns and others at Chequers, planned as part of the great fight over public spending which, after the Budget, was the next area of Cabinet conflict.
⁴⁷

Mrs Thatcher was extremely wary of her colleagues’ demand for discussions of economic strategy. Unlike the ever conciliatory Geoffrey Howe, who reasoned with her that ‘If we cannot convince colleagues that we are right, then we shall find it difficult to convince the country,’
⁴⁸
she had an obsession, based on painful experience, with the danger of leaks; she also feared, again with reason, being ambushed and outnumbered. She did eventually accept, however, that some discussion must take place, in the context of the control of public expenditure, and she decided that, unlike the Burns ‘lecture’ of the previous year, this should be based on a paper by Howe himself. Howe’s paper was circulated, and ministers had the chance before the meeting to give notice of questions they might raise. Howe set out the extent of the growth in public spending since 1979 and concluded that, unless the policy changed, ‘we shall enter the election with
the overall tax burden much heavier than the one we inherited. Not only politically, but also economically, that is not tolerable.’ On his draft, Mrs Thatcher added the one area of proposed reform which was common ground between her and the Wets. ‘Plans to train and occupy young people,’ she wrote.
⁴⁹
In advance of the meeting, Robert Armstrong warned Mrs Thatcher that Prior would call for a debate on whether 3 million unemployed was politically acceptable and that Michael Heseltine would demand higher capital expenditure financed by savings on current account. In best mandarin style, he added, ‘You may also want to agree in the Cabinet the line to be taken with the press – and to invite them to resist the temptation to embroider it.’
⁵⁰

At the meeting, on 17 June 1981, Prior led the charge. ‘Don’t know how we shall get through the coming year,’ Armstrong recorded him as saying. ‘I see solution not in cutting public expenditure but in getting growth.’ Walker, Carrington, Pym and others also expressed unhappiness. Even Willie Whitelaw allowed himself to say, ‘I fear the effects of unemployment on crime are very serious,’ and warned of the risks of ‘future Brixtons’.
⁵¹
The next day’s press carried excited accounts of how Mrs Thatcher had seen off the rebels (‘Maggie Crushes Jobs Revolt by Wets – Lonely Prior’s Jobs Plea is Rejected’), which rather suggested that Ingham had done some embroidering of his own. There followed a fierce row at the regular Cabinet that day about the morning’s leaks, and an additional row about the proposed defence cuts. Mrs Thatcher began to be written up in the papers as a successfully ruthless politician. On the following day, the rate of inflation reached a two-year low and the
Financial Times
reported that profits of UK firms had recovered sharply in the first quarter of the year. In a debate on unemployment on 24 June, following the publication of the monthly figure of 2,680,977 unemployed, Mrs Thatcher was generally agreed to have trounced Michael Foot, whose rambling and facetiousness were reported by
The Times
to have ‘totally misjudged the House’. She was probably assisted, as usual, by the tone of an attack from Ted Heath, who said that the government’s economic policies were ‘incomprehensible’. He warned of severe social and racial strife.

But the sense of conflict and crisis grew. New riots, which began in Southall, west London, on 4 July 1981, spread to many other parts of the country, including Moss Side in Manchester, where a mob besieged a police station shouting ‘kill, kill’, and, most notably, in the Toxteth area of Liverpool. There were attacks, previously almost unknown in mainland Britain, on firemen and ambulance crews. Using a party political broadcast which was mainly a defence of policy on unemployment, Mrs Thatcher inserted a preamble about the riots. She was tough. She emphasized that 200 police had been injured in Liverpool alone. ‘The law must be upheld,’ she
said. ‘People must be protected.’ She denied the link between unemployment and rioting.
⁵²
But the fact that she settled for the uncomfortable mixture of subjects rather than devoting an entire broadcast to the shocking events showed that she was not sure how best to handle the crisis. It was alleged that Mrs Thatcher’s private reaction to seeing the news of the rioting was to exclaim, ‘Those poor shopkeepers!’ The phrase made a chapter title in Hugo Young’s largely hostile biography
One of Us
,
⁵³
and it was considered laughable, almost contemptible, that she should have reacted in this way. In fact, the quotation has not been verified, and may be apocryphal, but, as often in matters concerning social order, Mrs Thatcher’s sentiments may have been closer to those of the general population than were those of her critics. The problem was not that her feelings were at odds with the voters, but that she did not seem to have the situation in hand. Her rhetoric was strong, yet she seemed impotent. On 10 July there was rioting in twelve cities, the most extensive yet.