Margaret Thatcher: The Autobiography (23 page)

But at this early stage we pressed ahead. The TUC was told by Robert Carr in October 1970 that the central aspects of the Industrial Relations Bill were not negotiable. The Bill had its Second Reading in December. February and March 1971 saw mass protests and strikes against it. Labour used every device to fight the Bill, but in August 1971 it duly reached the
Statute Book. The TUC Congress passed a resolution instructing unions to de-register. It therefore remained to be seen, when the Act came into force at the end of February 1972, what its practical effects would be – revolution, reform or business as usual. We were soon to find out.

Meanwhile other problems preoccupied us. It is sometimes suggested – and was at the time by Enoch Powell – that the Government’s decision in February 1971 to take control of the aerospace division of Rolls-Royce marked the first U-turn. This is not so. Shortly before the company told the Government of the impossible financial problems it faced (as a result of the escalating cost of the contract with Lockheed to build the RB-211 engine for its Tri-star aircraft), a constituent of mine had told me that he was worried about the company. So I asked Denis to look at the figures. I arrived home late one evening to find him surrounded by six years’ accounts. He told me that Rolls-Royce had been treating research and development costs as capital, rather than charging it to the profit and loss account. This spelt real trouble.

A few days later I was suddenly called to a Cabinet meeting and found Fred Corfield, the Aviation Minister, waiting in the Cabinet ante-room. ‘What are you here for, Fred?’ I asked. He replied gloomily: ‘Rolls-Royce.’ His expression said it all. At the meeting itself we heard the full story. To the amazement of my colleagues I confirmed the analysis, based on what Denis had told me. We decided without much debate to let the company itself go into liquidation but to nationalize the aerospace division. Over the next few months we renegotiated the original contract with Lockheed, which was then itself in financial difficulties. One could argue – and people did – about the terms and the sum which needed to be provided. But I do not think any of us doubted that on defence grounds it was important to keep an indigenous aircraft engine capability. And in the long term, of course, this was one ‘lame duck’ which eventually found the strength to fly away again into the private sector, when I was Prime Minister.

It was to be a year before the serious economic U-turns – reflation, subsidies to industry, prices and incomes policy – occurred, and began the alienation of the Conservative right in Parliament and of many Tory supporters outside it. The failure of these U-turns to deliver success divided the Party still further and had other consequences. It created an inflationary boom which caused property prices to soar and encouraged a great deal of dubious financial speculation, tarnishing capitalism, and, in spite of all the disclaimers, the Conservative Party with it. I shall return
to the economic developments which led to all this shortly. But it is important not to underrate the impact on the Party of two non-economic issues – Europe and immigration.

I was wholeheartedly in favour of British entry into the EEC, and General de Gaulle’s departure from the Elysée Palace in April 1969 had transformed the prospects. His successor, Georges Pompidou, was keen to have Britain in; and no one on our side of the Channel was keener than the new Prime Minister, Ted Heath. Many people across the political spectrum opposed it. These included some of the most effective parliamentarians such as Michael Foot, Peter Shore and Enoch Powell. But the worlds of business, the media and fashionable opinion generally were strongly in favour.

Talks formally opened in Brussels at the end of October 1970, with Geoffrey Rippon reporting back to Ted and a Cabinet Committee and, on occasion, to the rest of us in full Cabinet. There was no doubt that the financial cost of entry would be high. It was estimated that the best we could hope for would be a gross British contribution of 17 per cent of total EEC expenditure, with a five-year transition, and three years of so-called ‘correctives’ after that (to hold it at 17 per cent). To defuse the inevitable criticism, Geoffrey Rippon also hoped to negotiate a special review provision which we could invoke at any time if the burden of our net contributions to the budget threatened to become intolerable; but he seemed to attach little significance to it, and assumed that we could reopen the question whether there was a formal review mechanism or not.

At the time Ted resolved discussion about the costs of entry by saying that no one was arguing that the burden would be so intolerable that we should break off negotiations. But this whole question of finance should have been considered more carefully. It came to dominate Britain’s relations with the EEC for more than a decade, and it did not prove so easy to reopen. Though the Community made a declaration during the entry negotiations that ‘should an unacceptable situation arise within the present Community or an enlarged Community, the very survival of the Community would demand that the Institutions find equitable solutions’, the net British contribution quickly grew. The Labour Government of 1974–79 made no progress in reducing it. It was left to me to do so later.

Cabinet discussed the matter again in early May 1971, by which time the talks were reported to be ‘deadlocked’. There were difficulties
outstanding on preferential arrangements for New Zealand products (butter and lamb) and Commonwealth sugar, and shadow-boxing by the French about the role of sterling as an international currency. But the budget was still the real problem. We had an idea what deal might be on offer: promises to cut the cost of the Common Agricultural Policy and the creation of a Regional Development Fund from which Britain would benefit disproportionately. It was still not the settlement we would have wanted – promises are not bankable – but at the time none of us foresaw how large the burden would turn out to be. Ted ended the discussion by telling us that he was planning a summit with President Pompidou in Paris to cut through the argument.

Ted spent two days talking to the French President. In view of all the past difficulties with the French, the summit was seen as a veritable triumph for him. Negotiations were completed rapidly afterwards – other than for the Common Fisheries Policy, which took years to resolve – and the terms approved by Cabinet the following month. Parliamentary approval could not be assumed, for both parties were deeply split and Labour had reversed its former support for British entry. In the end, the Government decided that there would be a free vote on the Conservative side on the principle of entry. This embarrassed Labour, especially when sixty-nine Labour MPs ignored their own party whip and voted in favour, giving a majority of 112 for entry. But when it came to the terms rather than the principle of entry, the argument was far from won. The Second Reading of the European Communities Bill in February 1972 was only passed by 309 to 301.

The dog that barely barked at the time was the issue of sovereignty – both national and parliamentary – which, as the years have gone by, has assumed ever greater importance. There was some discussion of the question in Cabinet in July 1971, but only in the context of the general presentation of the case for entry in the White Paper. The resulting passages of the document – paragraphs 29–32 – can now be read in the light of events, and stand out as an extraordinary example of artful confusion to conceal fundamental issues. In particular, two sentences are masterpieces:

And:

I can claim to have had no special insight into these matters at the time. It then seemed to me, as it did to my colleagues, that the arguments about sovereignty advanced by Enoch Powell and others were theoretical points used as rhetorical devices.

In the debate on Clause 2 of the Bill, Geoffrey Howe, as Solicitor-General, gave what appeared to be satisfactory assurances on the matter in answer to criticisms from Derek Walker-Smith, saying that ‘at the end of the day if repeal [of the European Communities Act], lock, stock and barrel, was proposed, the ultimate sovereignty of Parliament must remain intact’. Asking himself the question: ‘What will happen if there is a future Act of Parliament which inadvertently, to a greater or lesser extent, may be in conflict with Community law?’ Geoffrey said: ‘The courts would … try in accordance with the traditional approach to interpret Statute in accordance with our international obligations.’ But what if they could not be reconciled? He went on, elliptically:

It was not, however, this question which was to make the Common Market such a difficult issue for the Government. The main political error was to overplay the advantages due to come from membership. As regards the Government itself, this tendency led ministers to adopt and excuse unsound policies. In order to ‘equip’ British industry to meet the challenges of Europe, subsidies and intervention were said to be necessary – reasoning endorsed in the 1972 budget speech. Still worse, loose monetary and fiscal policies were justified on the grounds that high levels of economic growth – of the order of 5 per cent or so – were now sustainable within the new European market of some 300 million people. It was also suggested that competition from Europe would compel the trade unions
to act more responsibly. As regards the general public, expectations of the benefits of membership rose – and then were sharply dashed as economic conditions deteriorated and industrial disruption worsened.

The success of the negotiations for British entry and their ratification by Parliament seemed to have a psychological effect on Ted Heath. His enthusiasm for Europe had already developed into a passion. As the years went by it was to become an obsession – one increasingly shared by the great and the good. The argument became less and less about what was best for Britain and more and more about the importance of being good Europeans.

January and February 1972 saw three events which tried the Government’s resolve and found it wanting – the miners’ strike, the financial problems of Upper Clyde Shipbuilders (UCS) and the unemployment total reaching one million. It is always a shock when unemployment reaches a new high figure, especially one as dramatic as a million. But the rise of unemployment in 1971 was in fact the consequence of Roy Jenkins’s tight fiscal and monetary policies of 1969–70. Since monetary policy had already been significantly eased in 1971, largely as a result of financial decontrol, we could have sat tight and waited for it to work through in lower unemployment from 1972 onwards. In fact, Ted never bought this analysis, and he greatly underestimated the stimulating effects of removing credit controls. He felt that emergency fiscal measures were necessary to boost demand and reduce unemployment. And this conviction influenced his decisions across the board. Ironically, because it led to higher inflation whose main effects were suffered under the following Labour Government, and because inflation destroys jobs rather than preserves them, it ultimately led to higher unemployment as well.

In particular, the approach of the Government to Upper Clyde Shipbuilders flowed from fear of the consequences of higher unemployment. But it was also seen as caving in to the threats of left-wing militants. When we first discussed the company’s problems in December 1970 the Cabinet agreed that existing government support for the UCS Group would not be continued, though there was a lifeline: we would continue with credit guarantees so long as the management agreed to close the Clydebank yard and separate Yarrow Shipbuilders from the rest of the group. Yarrow – an important Royal Navy supplier – seemed salvageable. But by June 1971 the UCS Group was insolvent and its liquidation was
announced. There followed a protest strike on Clydeside. In July trade unionists occupied the four UCS shipyards.

There was further discussion in Cabinet in the autumn of 1971, and the Government allowed itself to be sucked into talks with the trade unions, who it was believed might be able to influence the militant shop stewards behind the occupation. The Economic Committee of the Cabinet had agreed that money should be provided to keep open the yards while the liquidator sought a solution, but only on condition that the unions gave credible undertakings of serious negotiations on new working practices. There was strong criticism of this from some of my colleagues, rightly alert to the danger of seeming to give in on the basis of worthless undertakings. But the money was provided and negotiations went ahead.

It was the unemployment prospect rather than the prospects for shipbuilding which by now were undisguisedly foremost. In November Ted Heath affirmed in a Party Political Broadcast that the ‘Government is committed completely and absolutely to expanding the economy and bringing unemployment down’. The fateful one-million mark was passed on 20 January 1972. On 24 February at Cabinet we heard that the Economic Committee had agreed to provide £35 million to keep three of the four yards open. John Davies openly admitted that the new group had little chance of making its way commercially and that if the general level of unemployment had been lower and the economy reviving faster, he would not have recommended this course. There was tangible unease, but Cabinet endorsed it and at the end of February John announced the decision. It was a small but memorably inglorious episode. I discussed it privately with Jock Bruce-Gardyne, who was scathing about the decision. He regarded it as a critical, unforgivable U-turn. I was deeply troubled.