Margaret Thatcher: The Authorized Biography (85 page)

The public spending White Paper was not badly received in the Commons. Indeed, throughout the first Thatcher administration, it was Tory grandees far more often than rank-and-file Tory MPs who protested at the harsh economic measures which were put before them. But at Prime Minister’s Questions on the same day, the veteran Labour MP Douglas Jay, father of the journalist Peter, asked Mrs Thatcher: ‘As this Government have been in office for six months and as, according to the CBI, business confidence is falling, industrial production is falling, investment is falling and the pound is falling, does the Prime Minister feel that her policies are yielding results?’ Mrs Thatcher seemed flummoxed by the question and replied, weakly, ‘I was pleased to see what the CBI actually said after its survey came out and that it fully recorded its support for the Government.’
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Jay’s question pointed to an undoubted fact – that the government had little positive to show so far. Even the IMF, supportive of the government’s overall stance, doubted its will. The day after the White Paper, a minute to the organization’s managing director from the head of its European Department, Alan Whittome, reported:

Talking privately in the Treasury and the Bank, there is doubt and unease. There is a strong suspicion that some in the Government, including the Prime Minister, believe that the perceived stance of policy will by itself change
expectations … many officials believe – as we would – that one may achieve a change in expectations and behaviour, but only after there has been a noticeable downturn in the economy. A consequence is that at the ministerial level little if any advance thought is being given to the attitude to be taken to … well-organized and lengthy strikes in such key areas as coal and transport.

Whittome’s outlook was not encouraging. It was ‘unlikely but not entirely impossible that we may find the Fund lending to the UK again’, he warned.
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Mrs Thatcher had herself indicated awareness of the lack of progress in her first speech as prime minister to her party’s annual conference in Blackpool three weeks earlier when she had explained to her enthusiastic audience that the Tory electoral mandate was to change four main things – inflation, public spending, industrial relations, income tax – but that results would come slowly. ‘We have to think in terms of several Parliaments,’ she declared.
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In fact, as well as the changes announced in the Budget and the Queen’s Speech, a key decision had been made only a week before Jay’s question. On 23 October 1979, Howe announced to the Commons the complete lifting of exchange controls. In the interests of market secrecy, this had not been put to an amazed, though, except for Michael Heseltine, supportive Cabinet until the last moment. Some restrictions had been lifted in the Budget in June and since then Nigel Lawson, the minister who had argued in print for the change during the election campaign, had pressed Howe to go further. He believed in the symbolic importance of removing exchange controls completely – a ‘sign that we would now live and die in the real world economy’.
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Howe, though more cautious than Lawson, was persuaded, partly by a paper advocating going all the way by David Hancock
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of the Treasury. Howe found it hard to persuade Mrs Thatcher, who was more cautious still about acting too fast. In a meeting on 24 September 1979, she told ministers and the Governor that ‘it would be a mistake to relax the controls further until the Government’s market philosophy was being seen to work. To move any further now could easily lead to a larger outflow of funds.’
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In the end, she was persuaded that the controls had to be lifted before the sale of government-owned BP shares, but she remained dubious. When she eventually agreed, she said to Howe, ‘On your own head be it, Geoffrey … if anything goes wrong,’ a remark which Howe interpreted, surely wrongly, as a joke.
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She used a very similar form of
words when she told Carrington that she would accept his Rhodesian proposals. It was her way of keeping a political escape route. As so often, her radicalism was tempered by her instinct for survival.

The lifting of controls was a very bold step. Ever since the war, British governments had believed that they had to control the movements of money in and out of the country in order to prevent a collapse of sterling. British tourists going on holiday had to register the currency they took with them: in the 1960s, the maximum was £50 per head. When the day of currency freedom dawned, there was no collapse but rather, if anything, the opposite problem. The British economy, and particularly the City of London, at last had the opportunity to compete globally. In her speech at the Lord Mayor’s annual banquet on 12 November, Mrs Thatcher told the assembled financial grandees that sterling was no longer locked in the Bastille: ‘the prison doors have been thrown open.’
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In the Commons on the day of the announcement, Enoch Powell said: ‘Is the Chancellor aware that I envy him the opportunity and privilege of announcing a step that will strengthen the economy of this country and help restore our national pride and confidence in our currency?’ Although Powell’s confidence in the change was to prove fully justified, its effects were not immediate enough to deflect the force of Jay’s pointed question on 1 November. For the British economy, things might eventually get better, but, in the meantime, they could only get worse.

Less than a week after the White Paper’s publication, the money supply target, by which the government set such store, was heavily exceeded. Sterling M3 was growing at an annual rate of 14 per cent in October, when the government’s target remained within the range of 7–11 per cent. The spending targets in the White Paper were not tough enough to convince the markets that the future was going to be different: they were £2 billion, Howe quickly came to think, above where they should have been. At this rate of money growth, and with inflation running at an annual rate of 16 per cent, the purchasers of government debt ‘went on strike’
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and a funding crisis ensued. Internationally, the stage had been set for tougher action by the decision in October of Paul Volcker,
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the new chairman of the Federal Reserve Board, to bear down on the money supply and accept the painfully high exchange rates that resulted. Britain needed to show a comparable toughness. On 5 November, Howe came to see Mrs Thatcher, to warn her of the situation and the fact that, a further fiscal package being ‘unthinkable’, ‘the only option for bringing the money supply back within
the target seemed likely to be a further increase in MLR’.
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Mrs Thatcher said she was ‘most disturbed’ by the news. Howe added that he doubted whether inflation would fall below 14 or 15 per cent by the end of 1980. She said she was ‘most unhappy’ and asked, ‘How could this be so if the Government were pursuing a tight monetary policy?’
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It was a question to which more and more people would demand an answer in the coming months.

Mrs Thatcher had little choice but to agree with her Chancellor, however. On 15 November interest rates went up by 3 per cent to 17 per cent, a punitive increase, and the highest nominal level in the whole of British history, before or since. The rise was designed to be so big as to brook no doubt in the markets. When Howe informed the Cabinet of his decision on the morning of 15 November, Jim Prior pronounced himself ‘disappointed and shocked’ by the increase and said that he did not ‘know where it’s going to stop’. But it was a vivid illustration of Howe’s case that the low interest rates for which the more centrist members of the party particularly pined could come only if the strict policies he sought were genuinely pursued. Mrs Thatcher pointed out acidly to colleagues that ‘It wouldn’t be 17 per cent if we got our expenditure down.’ In a characteristic formulation, Howe told the Cabinet that he was trying to keep things ‘as un-unpleasant as possible’.
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Events were proving him right that – the famous phrase was, in fact, his, not Mrs Thatcher’s
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– ‘There is no alternative.’ As he put it in a memo on the economic outlook despatched to relevant ministers early the following month, ‘The general strategy remains the only feasible one but the difficulties we face are greater than we had any reason to expect.’
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The worse things got, the stronger, by a strange logic, his case became.

The consequence was that two arguments about the government’s economic policy were being conducted separately but at the same time. The first, by far the noisier, was that between Howe and Mrs Thatcher and their allies on the one hand and the Keynesians, Heathites, the Labour Party and the corporatists on the other. This concerned whether or not the policy, often characterized as cruel and ‘doctrinaire’, was destroying British jobs and prosperity. The second, by far the more important for the economic future, was between those who agreed about the essential thrust of the policy, but believed that the balance was wrong or that reform was not coming fast enough or that the methods chosen for controlling the money supply were having perverse effects. In terms of party management, Mrs
Thatcher had to deal with anxious colleagues, such as Jim Prior, who did not really understand the policy, and who certainly did not like it. She was absolutely confident that Prior and co. were wrong and had little to contribute to the debate, but it was they who had more political capacity to break her. In terms of the decisions she required to make the policy succeed, she was debating matters with those – Howe, Nott, Lawson, Joseph, as well as advisers like Hoskyns and civil servants like Peter Middleton
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at the Treasury – who were of similar mind, but far from unanimous about the methods to be used. These were the people whose opinions made a real difference, yet whose weight in the eyes of politics and public opinion was much less. By this time, by the adaptation of a public school usage, Mrs Thatcher’s opponents within the Conservative Party were coming to be known as ‘Wets’, which in turn required a new coinage to describe her supporters: they became ‘Dries’. However beleaguered she was, Mrs Thatcher always knew that if she were forced to adopt a Wet position she would catch her political death of it. It was among the Dries, therefore, that real debate took place.

This helps to explain the testimony of so many people close to Mrs Thatcher in the early years that, however appalling were the political and economic pressures, there was never panic about the entire direction of economic policy. The world beyond Downing Street expected a U-turn, having seen one with Heath. Those within knew that this would not happen. What they feared was simply that events would overtake Mrs Thatcher and that electoral unpopularity or a party coup would bring her down. If people like John Hoskyns were right that recovery would take two full Parliaments, how could the Conservatives contrive a way to win the election which would have to be held halfway through? She said as much herself in an interview given to the
New York Times
on 9 November when she already knew, though the public did not, that the huge interest rate rise was on the way: ‘Can we get far enough by the next election to show that it – our program – is working?’
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Growing economic difficulties did not immediately damage Mrs Thatcher’s public standing. This was partly because they seemed, in 1979 at least, to be proof of the arguments she was making. She told her party conference in October that she had ‘the task of leading this country out of the shadows’,
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so she did not suffer, in the short term, if those shadows seemed dark indeed. It was also because the sense of courage in adversity, of one woman battling against heavy odds, was intrinsic to her style of leadership and to her popular appeal. This leadership was quickly evident not only in economic matters, but on many other fronts.

On 27 August 1979, Lord Mountbatten, the Queen’s cousin and the last Viceroy of India, was murdered, with three others, while sailing near his home in the Irish Republic. The IRA were responsible. On the same day, eighteen British soldiers were blown up and killed in an IRA booby-trap at Warrenpoint in Northern Ireland, the result of a failure of intelligence so dire that it inspired the creation of a new security directorate under Maurice Oldfield, the recently retired head of the Secret Intelligence Service, better known as MI6,
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whose existence, throughout Mrs Thatcher’s time as prime minister, remained ‘unavowed’ in public by the government. Two days later, Mrs Thatcher flew to Northern Ireland. There she went on a lightly protected walkabout in Belfast. Then, against the advice of the Royal Ulster Constabulary and the Northern Ireland Office, but with the encouragement of the army, who wanted her to see just how bad things were, she flew to the so-called bandit country of County Armagh. In Crossmaglen, she put on the uniform of a ‘Greenfinch’, the female members of the Ulster Defence Regiment, the only regiment of the British army per
manently serving in Northern Ireland. The UDR’s members, many of them part-time and local, were the subject of endless terrorist attack. Brigadier David Thorne, who commanded the 3rd Infantry Brigade, produced an epaulette of the Queen’s Own Highlanders, which had belonged to Colonel David Blair, the most senior soldier killed at Warrenpoint: ‘This, Prime Minister, is all that is left of Colonel Blair.’ Mrs Thatcher wept.
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Her dash, courage and human sympathy were much admired, and her intuitive bond with the military was noted. Mrs Thatcher’s views on the politics of Northern Ireland were sometimes confused and her attention intermittent, but her instinct of solidarity with the British security forces was strong, deep and always vividly expressed.
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The new Prime Minister also had to contend with a different sort of enemy of the country. She was faced with the unravelling of a fifteen-year cover-up. Ever since the defections of the Communist spies Guy Burgess and Donald Maclean to the Soviet Union in the 1950s and that of Kim Philby in 1963, there had been a hunt for ‘the Fourth Man’ of the original Cambridge spy ring. This was Anthony Blunt. Blunt, who had become a Communist in the late 1930s, spied for the Soviet Union from 1940 to 1945, while working for the British Security Service (MI5). A distinguished art historian, especially learned on Poussin, he later became director of the Courtauld Institute and Surveyor of the Queen’s Pictures. In the autumn of 1979, Andrew Boyle published a book called
The Climate of Treason
, in which he dropped heavy hints about Blunt, referring to him as ‘Maurice’. It had earlier got out that the Fourth Man was a don with a Cambridge background with a surname five letters long and beginning with B.
The Times
had run the story, wrongly identifying a blameless old Fellow of King’s College called Donald Beves. As the
Observer
started to print extracts of Boyle’s book in early November,
Private Eye
named Blunt. In interviews about his book, Boyle refused to identify Maurice, but challenged the government to do so.
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