Margaret Thatcher: The Autobiography (102 page)

In May 1986 I moved Ken Baker to Education and brought in Nick Ridley to replace him at the Department of the Environment. Nick brought a combination of clarity of thought, political courage and imagination to the questions surrounding the implementation of the new system. His vision was that local authorities should enable services to be provided but, unless it was truly necessary, local authorities should not provide those services themselves. Nick’s 1988 Local Government Act required that refuse collection, street cleaning, the cleaning of buildings, ground
maintenance, vehicle maintenance and repair and catering services (including school meals) be put out to tender.

It was entirely consistent with this rigorous approach that Nick considered it illogical to retain capping powers, except perhaps during the transition to the new system. But I felt we needed this safeguard. He also wanted to introduce the community charge more quickly than Ken Baker had envisaged, believing that the sooner local authorities could be made truly accountable the faster we could go in bringing local government back onto the right lines. Nick had always opposed dual running and in the end he persuaded the rest of us to abandon it – though, as I shall explain, not without a little help from the Party in the country.

During the winter of 1986–87 Parliament legislated to introduce the community charge in Scotland from April 1989. In February 1987 Malcolm Rifkind won our agreement to drop dual running in Scotland, though a safety net was retained, and it was on this basis that the Party north of border fought the 1987 election. The community charge was an important issue during the campaign there. Our results were disappointing but Malcolm Rifkind wrote to me afterwards that the community charge had been ‘neutral’ in its effect and that it had at least defused the rates problem. In England and Wales the community charge was hardly an election issue at all.

Nevertheless, when the new Parliament met it became clear that many of our backbenchers had got the jitters. On 1 July the whips estimated that while over 150 were clear supporters, there were nearly 100 ‘doubters’, with 24 outright opponents. There was a real danger that over the summer recess many of the doubters would commit themselves against the charge altogether. Nick’s response was characteristically robust: to propose that we drop dual running, drastically cut down the safety net and attack the London problem by direct action to reduce the Inner London Education Authority’s costs. But he met strong opposition from colleagues, particularly Nigel, and in the end we compromised on dual running for four years with a full safety net phased out over the same period.
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It quickly became clear that this had not done the trick. At the Party Conference in October speaker after speaker attacked dual running and backbench opinion was also very strongly opposed to it. We argued it out at a ministerial meeting on 17 November, and decided that dual running
should be abandoned except for a very few councils, all but one of them in inner London. We also ended the full safety net, setting a maximum contribution of £75 per person from the gaining authorities, so that their gains came through more quickly. (In June 1988 we abandoned dual running altogether: by that time we had made the decision to abolish ILEA, which seemed likely to reduce community charge bills in London significantly in the long term. There were serious doubts too whether the authorities scheduled for dual running were administratively competent to do the job.)

It is worth noting that the changes we made in local government finance originated in and continued to reflect opinion in the Conservative Party, notwithstanding these arguments about transitional arrangements. Both the English and the Scottish Party demanded fundamental changes in the rates. It was the Scottish Party which insisted upon the early introduction of the community charge in Scotland: and if, as the Scots subsequently claimed, they were guinea pigs for a great experiment in local government finance, they were the most vociferous and influential guinea pigs which the world has ever seen.

It is true that in April 1988 we had to fight off an amendment put forward by Michael Mates MP, a lieutenant of Michael Heseltine, which would have introduced a ‘banding’ of the community charge – that is, income would be taken into account in setting the charge. This would have defeated the whole purpose of the flat-rate charge. The proper way to help the less well off was through community charge rebates, and Nick Ridley won round many of the rebels by announcing improvements in these. But the most consistent pressure was from Tory MPs anxious to see that the benefits of the new system came through faster to their constituents.

The Bill received its Royal Assent in July 1988. The new system would come into operation in England and Wales on 1 April 1990.

It was very important that the first year’s community charge in England (1990–91) was not so high as to discredit the whole system. In particular it was crucial that good authorities be able to announce community charges at or below the level we deemed necessary to achieve the standard level of service (known as the Community Charge for Standard Spending, or CCSS).

In May 1989 Nick Ridley, Nigel Lawson and John Major (as Chief Secretary) began discussions on the level of the local authority grant
settlement for 1990–91. There was a wide gap between the DoE and the Treasury. The figures suggested by Nick Ridley were, he argued, the only ones which would lead to actual community charges below £300 (a far higher figure than we had envisaged a year before). The Treasury view, with which I agreed, was that the 1989–90 settlement had been very generous – deliberately so to pave the way for the community charge. But the only result had been to lead to greatly increased local authority spending. Local authorities had kept down the rates themselves in 1989–90 through the use of reserves, merely deferring increases. The lesson, the Treasury argued, was that providing more money from the Exchequer did not mean lower rates (or a lower community charge). On 25 May I summed up the discussion at a ministerial meeting by rejecting both Nick Ridley’s and John Major’s preferred options and going for something in the middle, which I thought would still give us a tolerable community charge while not validating the large increase in local authority spending in 1989–90. But I said that I wanted to see exemplifications of the likely community charge in each local authority area.

We were not to know it at the time, but these decisions contributed to the undoing of the community charge. At this time the Treasury was still using an inflation measure (the GDP deflator) of just 4 per cent. In fact, inflation and – most important – wage settlements were turning sharply upwards. Combined with a pretty tight grant settlement and with the determination of many local authorities to push up spending for political reasons, we were now on course for much higher levels of community charge in 1990–91 than any of us foresaw.

I moved Chris Patten to become Secretary of State for the Environment later that summer and in early September Chris, with my approval, began a review of the operation of the charge. A couple of days before, Ken Baker (now the Party Chairman) had sent me in great secrecy research conducted by Central Office in ten Conservative marginal seats. This confirmed the scale of the political problem we faced. On the assumption of a 7 per cent increase in local spending the following year, 73 per cent of households and 82 per cent of individuals would lose from the introduction of the charge in 1990 compared with the rates in the previous year. If spending increased by 11 per cent the figures would rise to 79 per cent and 89 per cent respectively. On any calculation these figures were pretty bad.

Now that dual running had been dropped, the only way in which we could limit the losses of individuals or households generally was by a new
scheme altogether. Chris Patten and the Treasury accordingly worked up a proposal for ‘transitional relief’.

Chris favoured a massive programme of transitional relief for households to limit losses to £2 a week – that is, £2 a week on the basis of what we thought local authorities should spend (the CCSS), which many of them of course would exceed. Even in this limited form the scheme might cost as much as £1,500 million. Ken Baker wanted a very costly scheme too. The Treasury argued for something much more modest, targeted on the worst losers. All of this was against a difficult public expenditure round and a worsening economic situation with rising inflation. I told Chris Patten that transitional relief on the scale he was proposing was out of the question, but I also pressed the Treasury hard to take a positive and co-operative attitude. I held a meeting at the end of September to try to get agreement and concluded by saying that it was essential that the scheme should be sufficiently generous to defuse genuine criticism but that it must be clear that this was indeed the last word and that the Government would not make further money available for 1990–91.

Discussions continued up to the eve of the Party Conference where David Hunt, the Local Government minister, announced a scheme costing £1.2 billion over three years. The scheme would ensure that former ratepayers (and ratepayer couples) need pay in community charges no more than £3 a week extra, over and above their 1989–90 rate bills, provided that their local authority spent in line with the Government’s assumptions. Pensioners and disabled people would be entitled to the same level of help even if they had not previously paid the rates (and of course many of them were entitled to rebates as well). At the same time David Hunt announced that the taxpayer would finance the safety net in England and Wales after the first year and that all gains would therefore come through in full from 1 April 1991. In spite of this, backbench pressure increased. There was even doubt as to whether we could win the crucial Commons votes in January 1990 to authorize payment of the 1990–91 Revenue Support Grant. And I was under no illusion that victory in the House of Commons would be sufficient to convince public opinion, which had now turned strongly against the community charge.

By January 1990 the DoE had yet again raised its estimate of the average community charge to £340. We were heading for double the original estimate. That had been bad enough. Now, in February, the latest indications were that it could be £20 or more higher.

Another piece of bad news was that the Retail Price Index Advisory Committee had decided that the community charge should be included in the RPI – treating it like the rates, but unlike other direct taxes. But the massive reliefs to individual charge payers should not be taken into account. This administrative fiction gave another expensive upward twist to the RPI and greatly increased the political damage which we were sustaining.

The political atmosphere was becoming grim. All my instincts told me that we could not continue as we were. On Thursday 22 March we sustained a very bad by-election defeat in Mid-Staffordshire where we had had a majority of over 19,000. The press was full of outraged criticism of the community charge from Conservative supporters. What hurt me was that the very people who had always looked to me for protection from exploitation by the socialist state were those who were suffering most. These were the people who were just above the level at which community charge benefit stopped but who were by no means well off and who had scrimped and saved to buy their homes. Our new scheme of transitional relief did not protect them against overspending councils. Something more must be done.

There was widespread support for the principle that everyone should pay something towards the cost of local government, which only the community charge could ensure. When people complained about its fairness they were not usually rehearsing the hackneyed – and spurious – point about the hypothetical duke and dustman paying the same. Unless the duke was very poor or the dustman very wealthy this could not be so, because about half of local authority expenditure was met out of general taxation which did reflect ‘ability to pay’. The problem was the levels at which the charge was now being levied and the fact that it was sudden and unexpected in its impact. But what could now be done?

The essential point, I felt, was to ensure that central government stepped in to protect the victims of what was essentially an arbitrary abuse of power by irresponsible local authorities.

The main option seemed to be the introduction of a direct central control over levels of local authority spending; for example, laying down that expenditure by each authority could be no more than a certain percentage above a Standard Spending Assessment (SSA) – that is, the level at which the authority needed to spend to deliver a certain nationally uniform standard of service. That, however, would need to be matched by a substantial increase in the level of government grant to
local authorities, perhaps with a larger proportion of the total in the form of specific grants for particular services. We would then have to consider whether to continue with the community charge as the sole means of financing expenditure above the level allowed for, given that at present all the extra expenditure fell on the charge. An alternative would be to place some of the burden of higher spending on the business rate. All this pointed to the need for a major internal review.

John Major, as Chancellor, did not dissent from my judgement that a radical review was necessary. He also agreed that the changes we came up with must control total public expenditure.

But the most public opposition to the community charge came not from the respectable Tory lower-middle classes for whom I felt so deeply, but rather from the Left. From 1988 a number of Labour MPs, mostly in Scotland, had proclaimed their determination to break the law and refuse to pay the community charge and the far Left were agitating effectively in England too. On Saturday 31 March, the day before the introduction of the community charge in England and Wales, a demonstration against the charge degenerated into rioting in and around Trafalgar Square. There was good evidence that a group of troublemakers had deliberately fomented the violence. Scaffolding on a building site in the square was dismantled and used as missiles; fires were started and cars destroyed. Almost 400 policemen were injured and 339 people were arrested. It was a mercy that no one was killed. I was appalled at such wickedness.