Margaret Thatcher: The Autobiography (103 page)

For the first time a government had declared that anyone who could reasonably afford to do so should at least pay something towards the upkeep of the facilities and the provision of the services from which they benefited. A whole class of people had been dragged back into the ranks of responsible society and asked to become not just dependants but citizens. The violent riots of 31 March was their and the Left’s response. And the eventual abandonment of the charge represented one of the greatest victories for these people ever conceded by a Conservative Government.

The trouble was that, because of the size of the bills now being sent out, the new system had the very same law-abiding, decent people, on whom we depended for support in defeating the mob, protesting themselves. The riot did not, therefore, shift me from my determination to continue with the community charge itself or to see the criminals of that day brought to justice.

In fact, unbeknown to me, the rioters were on their way up to Whitehall as I was addressing the Central Council in Cheltenham.

I began my speech with what was to be the first of a number of increasingly risky jokes about the political threat to my leadership. Cheltenham’s reputation as the traditional retirement centre for those who governed our former empire provided the peg. I began:

I then went almost immediately to the heart of the issue about which the Party was agonizing:

But I did go on to announce a number of limited special reliefs. Even this modest package had necessitated my tearing up a feeble draft from the Treasury and writing it myself. Given the weak draft, the absence of colleagues and the late hour, however, I was not able to write into my speech assurances of the weight and substance I would have liked. So I had to content myself with hinting at my ideas about further capping powers to deal with overspenders.

My main message, therefore, had to be that the way to have low community charge bills was to vote Conservative in the forthcoming local elections.

The reception was good. But for them and for me the worries remained. Now I had to ensure that my colleagues threw themselves as wholeheartedly as I would into the job of protecting our people from the kind of problems we were experiencing in 1990–91.

Chris Patten was strongly opposed to any kind of comprehensive capping of local authorities but I insisted that the DoE should work up the options. I wanted to see cuts in expenditure in some local authorities. The local election results on Thursday 3 May 1990 strongly suggested that where Conservative councillors and candidates used the community
charge in order to point up the differences between them and the Labour Party and then worked to get out the Conservative vote – rather than indulge in recrimination against the Government – they could do very well. (Indeed, some of our councillors opposed wider capping in 1990–91 on the ground that it would protect profligate Labour councils from the electoral
coup de grâce
.) Conservative successes in Wandsworth and Westminster were the results of that approach. Where the Conservatives were in control of an authority, the lower the charge it set, the better we did. The reverse was true where Labour was in office. In this respect the community charge was already transforming local government. There was the prospect that, even in a bad year for the Conservative Party nationally, local government elections could now be fought and won on genuinely local issues and the local record, rather than the political control of councils swinging according to national trends.

These successes, however, did not diminish the urgency of ensuring that next year’s charge levels throughout the country were kept down. Throughout May and early June papers were produced and discussions between ministers and officials held. Chris Patten and I were still at odds over the question of a general capping power. I put some pressure on him by refusing to allow any discussion about the level of next year’s central grant until we had reached a decision on spending controls. John Major was in two minds. On the one hand, as Chancellor, he wanted to see effective controls on public spending. On the other, he was worried about getting the Parliamentary Party to pass the necessary new legislation for stronger capping powers.

But suddenly the whole basis of our discussions was changed by new legal advice. When we had met on the morning of Thursday 17 May the lawyers advised that even new legislation on capping could be undermined by judicial review. This seemed to me to be extraordinary. It suggested that Parliament would not be allowed by the courts to fulfil its duty to protect the citizen from unreasonable levels of taxation: it cast doubt on our ability to control public expenditure and manage the economy. At that point I asked for urgent advice about how these difficulties could be overcome.

It is easy to imagine my surprise – and initial scepticism – when, as I worked through my boxes overnight on Wednesday 13 June, I came across a note from my private secretary reporting a telephone conversation with government lawyers earlier that evening. Their view now was that the present legislation – let alone any future legislation – might be more
robust than their earlier advice had indicated.
*
They told us that we would be in a position to cap large numbers of authorities as long as we made clear at an early stage in the budgetary cycle what we would regard as an excessive increase in spending – and we could achieve this without the difficulties which new legislation would have brought. This legal advice was strengthened as a result of the Government’s victory in a court case several days later against a number of local authorities appealing against capping.

On the evening of Tuesday 26 June I held a meeting of ministers to sort out exactly where we stood. The lawyers confirmed their advice that it was unlikely that we could have any greater certainty about capping under new legislation than under the present. I was reluctant to drop the idea of introducing a general capping power. I would have liked to combine this with the use of local referenda, so that an authority which wanted to spend more than the limit set by central government would have first to win the agreement of its electorate. This would have done a good deal to defuse the accusation that new spending controls would undermine local democracy. In the light of the revised legal advice, though, I accepted that unless the courts came up with some new judgment which changed the position it would be best to cap in 1991–92 under the existing law. It was crucial, however, to achieve the greatest possible deterrent effect and so Chris Patten had to announce in July – well before local authorities set their budgets – how he intended to use his powers. The other aspect we had to discuss was the extra money which was needed to be put in in order to limit the burden on individuals. Chris was authorized to announce to the House certain extensions to the transitional relief scheme and other changes.

The system of local authority finance which I bequeathed to my successor remained unpopular. At the end of March 1991 Michael Heseltine, once again Environment Secretary, announced that the Government had decided to abandon the community charge and to return to a property tax, supplemented by a sharp rise in VAT from 15 to 17.5 per cent.

Few episodes of my period in government have generated more myths than the community charge. It is generally presented as a doctrinaire
scheme forced on reluctant ministers by an authoritarian Prime Minister and eventually rejected by popular opinion as unworkable. This picture is a tissue of nonsenses. As Nigel Lawson has generously conceded, few pieces of legislation have ever received such a thorough and scrupulous examination by ministers and officials in the relevant Cabinet committees as did the charge. The conclusion I draw is that whatever reform was chosen, we should have accompanied it with draconian restraints on local government spending from the centre in order to prevent local authorities – Conservative as well as Labour – from using the transition to jack up spending and blame it on the Government.

The fact remains that the defects in our system of local government finance were largely remedied by the charge, and its benefits had just started to become apparent when it was abandoned. The fundamental problems of local government – badly administered services, an obscure relationship with central government, lack of effective local accountability – not only remain: they will get worse.

Tax cuts, tax reform and privatization

T
HE 1980s
SAW THE REBIRTH
in Britain of an enterprise economy. This was, by and large, a decade of great prosperity, when our economic performance astonished the world. From 1987 there were classic signs of ‘overheating’ and initial confusion about what monetary indicators were showing. Nigel Lawson’s shadowing the deutschmark meant that we did not take action early enough to tighten monetary policy. That is not to say that the surge of prosperity in these years was just or even mainly the result of an artificial consumer boom. It was more soundly based than that. The current account deficit which became a real problem must not obscure the fact that industry was investing in the future during these years: in the 1980s British business investment grew faster than in any other major industrial country, with the exception of Japan. Profitability rose, and so did productivity. New firms grew and expanded. New jobs followed – 3,320,000 of them created between March 1983 and March 1990.

It is, therefore, as important to understand what went right in these years as what went wrong. Where the problem arose was on the ‘demand side’ as money and credit expanded too rapidly and sent the prices of assets soaring, particularly non-internationally traded goods like houses. This spiral was clearly unsustainable. By contrast the ‘supply side’ reforms were highly successful. These were the changes which made for greater efficiency and flexibility and so enabled British business to meet the demands of foreign and domestic markets. Without them, the economy would not have been able to deliver such improvements in profits, living standards and employment: in short, the country would have been poorer.

Trade union reform was crucial. The most important changes were those made between 1982 and 1984, but the process continued right up to the time I left office. The 1988 Employment Act, based on our manifesto pledges, strengthened rights of individual trade unionists against industrial action organized by their unions without a ballot and against the unions’ attempts to ‘discipline’ them if they refused to go out on strike. It also instituted a special commissioner to help individual union members exercise their rights and opened up trade union accounts for inspection. The 1990 Employment Act concluded the long process of whittling away at the closed shop, which had held so many in its vicious thrall. The abolition of that monument to modern Luddism – the National Dock Labour Scheme – was another blow to restrictive practices.

Such reforms not only allowed management to manage and so ensured that investment was once again regarded as the first call on profits rather than the last; they also helped change the attitudes of employees to the businesses for which they worked, and in which they increasingly held shares. So in my last year in office there were fewer industrial stoppages than in any year since 1935: under two million working days were lost in this way, compared with approaching thirteen million a year on average during the 1970s. Still too many, by the way.

But there were other changes aimed at improving the quality of the workforce by helping people to obtain the right qualifications and experience. In my last year as Prime Minister some two and a half times as much – in real terms – was being spent by government on training as under the last Labour Government. Of course, there is always a danger that ‘training’ becomes an end in itself, with its own bureaucracy and momentum, particularly when public funds on this scale are involved. So I was keen that as much as possible of the administration and decision-taking in these great state-funded programmes should be decentralized. Training and Enterprise Councils (TECs) were set up from 1988 to take over responsibility for the delivery of these programmes. They consisted of groups of local employers, who knew more than any ‘expert’ what skills were actually going to be needed.