Margaret Thatcher: The Autobiography (51 page)

On Friday 28 December President Carter rang me at Chequers. What had happened was a bitter blow to him. Britain had not felt able to comply with all that the Americans had wanted of us in response to the hostage crisis: in particular, we were not willing (or indeed legally able) to freeze Iranian financial assets, which would have had a devastating effect on international confidence in the City of London as a world financial centre. However, I was determined that we should follow America’s lead now in taking action against the USSR and its puppet regime in Kabul. We therefore decided on a range of measures, including the curtailment of visits and contacts, non-renewal of the Anglo-Soviet credit agreement and a tightening of the rules on technology transfer. I also sought to mobilize the governments of the European Community to support the Americans. But, like President Carter, I was sure that the most effective thing we could do would be to prevent the USSR using the forthcoming Moscow Olympics for propaganda purposes. Unfortunately, most of the British Olympic team decided to attend the Games, though we tried to persuade them otherwise: of course, unlike their equivalents in the Soviet Union, our athletes were left free to make up their own minds. At the UN our ambassador, Tony Parsons, helped to rally the ‘non-aligned’ countries
to condemn the Soviet Union’s aggression. In London, on 3 January, I saw the Soviet Ambassador to enlarge in vigorous terms on the contents of my exchanges by telegram with President Brezhnev.

From now on, the whole tone of international affairs began to change, and for the better. Hard-headed realism and strong defence became the order of the day. The Soviets had made a fatal miscalculation: they had prepared the way for the renaissance of America under Ronald Reagan.

But this was the future. America had still to go through the humiliating agony of the failed attempt to rescue the Iranian hostages. As I watched President Carter’s television broadcast explaining what had happened, I felt America’s wound as if it were Britain’s own; and in a sense it was, for anyone who exposed American weakness increased ours. I was soon, though, in a position to demonstrate that there would be no flinching when it came to dealing with our own brand of Middle East terrorism.

I first learned of the terrorist attack on the Iranian Embassy at Prince’s Gate in Knightsbridge on Wednesday 30 April during a visit I was making to the BBC. Several gunmen had forced their way into the Iranian Embassy and were holding twenty hostages – most of them Iranian staff, but also a policeman who had been on duty outside and two BBC journalists who had been applying for visas. The gunmen were threatening to blow up both the embassy and the hostages if their demands were not met. The terrorists belonged to an organization calling itself ‘the Group of the Martyr’; they were Iranian Arabs from Arabistan, Iraqi-trained and bitterly opposed to the prevailing regime in Iran. They demanded that a list of 91 prisoners be set free by the Iranian Government, that the rights of Iranian dissidents should be recognized and a special aeroplane provided to take them and the hostages out of Britain. The Iranian Government had no intention of conceding these demands; and we, for our part, had no intention of allowing terrorists to succeed in their hostage taking. Though the group involved was a different one, this was no less an attempt to exploit perceived western weakness than was the hostage taking of the American Embassy personnel in Tehran. My policy would be to do everything possible to resolve the crisis peacefully, without unnecessarily risking the lives of the hostages, but above all to ensure that terrorism should be – and be seen to be – defeated.

Willie Whitelaw, as Home Secretary, took immediate charge of operations from the special emergency unit in the Cabinet Office. Throughout the crisis, Willie kept in regular contact with me. In turn the Metropolitan Police kept in touch with the terrorists by a specially laid telephone
line. We also made contact with those who might be able to exert some influence over the gunmen. The latter wished to have an Arab country’s ambassador act as intermediary. But there was a risk that the objective of such an intermediary would be different from our own. The Jordanians, whom we
were
prepared to trust, refused to become involved. A Muslim imam did talk to the terrorists, but without result. It was a stalemate.

The position began to deteriorate on Sunday afternoon. I was called back early from Chequers and we were driving back to London when a further message came over the car-phone. The hostages’ lives were now at risk and Willie wanted my permission to send in the SAS. ‘Yes, go in,’ I said. Executed with the superb courage and professionalism the world now expects of the SAS, the assault took place in the full glare of the television cameras. Of the 19 hostages known to be alive at the time of the assault all were rescued. Four gunmen were killed; one was captured; none escaped. I breathed a sigh of relief when I learned that there were no police or SAS casualties. Later I went to the Regent’s Park Barracks to congratulate our men. I was met by Peter de la Billière, the SAS commander, and then watched what had happened on television news, with a running commentary, punctuated by relieved laughter, from those involved in the assault. One of them turned to me and said, ‘We never thought you’d let us do it.’ Wherever I went over the next few days, I sensed a great wave of pride at the outcome; telegrams of congratulation poured in from abroad: we had sent a signal to terrorists everywhere that they could expect no deals and would extort no favours from Britain.

The Middle East continued to occupy my attention throughout the rest of 1980. At the European Council in Venice on 12 and 13 June the heads of government discussed Israel and the Palestinian question. The key issue was whether the Community governments were to call for the PLO to be ‘associated with’ the Middle East peace talks, or to ‘participate in’ them: I was very much against the latter course, for as long as the PLO did not reject terrorism. The final communiqué reaffirmed the right of all the states in the region – including Israel – to existence and security, but also demanded justice for all peoples, which implied recognition of the Palestinians’ right to self-determination. So, of course, it pleased no one.

Then in September 1980 Iraq attacked Iran and we were once again in the throes of a new crisis, with potentially dangerous political and economic implications for western interests. Saddam Hussein had decided that the chaos in Iran provided him with a good opportunity to
renounce the 1975 Algiers Settlement of the two countries’ disputed claims to the Shatt-al-Arab waterway and seize it by force.

I was chiefly concerned to prevent the conflict spreading down the Gulf and involving the vulnerable oil-rich Gulf States, which had traditionally close links with Britain. I told Peter Carrington that I did not share the common view that the Iranians would quickly be beaten. They were fanatical fighters and had an effective air force with which they could attack oil installations. I was right: by the end of the year the Iraqis became bogged down and the war threatened both the stability of the Gulf and western shipping. But by this time we had put in the Armilla Patrol to protect our ships.

As I looked back on the international scene that Christmas of 1980 at Chequers, I reflected that the successes of British foreign policy had helped us through a particularly dark and difficult time in domestic, and particularly economic, affairs. But, as in economic matters, so in foreign affairs I knew that we were only starting the course. Tackling Britain’s Community budget problem was only the first step to reforming the Community’s finances. Bringing Rhodesia to legal independence was but a prelude to addressing the problem of South Africa. The West’s response to the Soviet invasion of Afghanistan would have to be a fundamental rethinking of our relations with the communist bloc, and this had barely begun. The renewed instability in the Gulf as a result of Iraq’s attack on Iran would ultimately require a new commitment by the western powers to the security of the region. All these issues were to dominate British foreign policy in the years ahead.

The restructuring of British industry and trade union reform in 1979–1980

I
N THE YEARS SINCE THE WAR
British politics had focused, above all, on the debate about the proper role of the state in the operation of the economy. By 1979 and perhaps earlier, optimism about the beneficent effects of government intervention had largely disappeared. This change of attitude, for which I had long worked and argued, meant that many people who had not previously been Conservative supporters were now prepared to give our approach at least the benefit of the doubt.

A sort of cynical disdain, often disguised as black humour, had come to characterize many people’s attitude to industry and unions. We all enjoyed the film
I’m All Right, Jack
, but the problem was no laughing matter.

British goods will only be attractive if they can compete with the best on offer from other countries, and the truth is that too often British industrial products were uncompetitive. This was not simply because the strong pound was making it difficult to sell abroad, but because our industrial reputation had steadily been eroded. In the end reputation reflects reality. Nothing less than changing that reality – fundamentally and for the better – would do.

The root of Britain’s industrial problem was low productivity. British living standards were lower than those of our principal competitors and the number of well-paid and reasonably secure jobs was smaller because we produced less per person than they did. The overmanning resulting from trade union restrictive practices was concealed unemployment; and beyond a certain point – certainly beyond the point we had reached in
1979 – overmanning would bring down businesses and destroy existing jobs. Outdated capacity and old jobs have to go to make the most of new opportunities. Yet the paradox, which neither British trade unions nor the socialists were prepared to accept, was that an increase in productivity is likely, initially, to reduce the number of jobs before creating the wealth that sustains new ones. Time and again we were asked when plants and companies closed, ‘Where will the new jobs come from?’ As the months went by, we could point to the expansion of self-employment and to industrial successes in aerospace, chemicals and North Sea oil. Increasingly we could also look to foreign investment, for example in electronics and cars. But the fact is that in a market economy government does not – and cannot – know where jobs will come from.

Because our analysis of what was wrong with Britain’s industrial performance centred on low productivity and its causes – rather than on levels of pay – incomes policy had no place in our economic strategy. I was determined that the Government should not become enmeshed, as previous Labour and Conservative administrations had been, in the obscure intricacies of ‘norms’, ‘going rates’ and ‘special cases’. Of course, pay rises at this time were far too high in large parts of British industry where profits were small or nonexistent, investment was inadequate, or market prospects looked poor. Judged by relative labour costs, our level of competitiveness in 1980 was some 40 to 50 per cent worse than in 1978: and around three-fifths of this was due to UK unit labour costs increasing at a faster rate than those abroad, with only two-fifths the result of exchange rate appreciation. There was little, if anything, we could do to influence the exchange rate, without allowing inflation to rise still further and faster. But there was a great deal which trade union negotiators had it in their power to do if they wished to prevent their own members and others being priced out of jobs; and as the scale of union irresponsibility grew apparent, talk of the need for a pay policy began to be heard.

So it was important that from the very beginning I stood firm against suggestions of pay policies. I had come to feel that all such talk was at best irrelevant and at worst misguided.

Some people offered what they thought of as the ‘German model’. We were all conscious of Germany’s economic success. Indeed, we had helped create the conditions for it after the war by introducing competition and restructuring their trade unions. There were those in Britain who said that we should copy the German corporatist tendency of making national economic decisions in consultation with business organizations and
trade union leaders. However, what might work for Germany would not necessarily work for us. The German experience of hyperinflation between the wars meant that nearly everyone there was deeply conscious of the need to keep inflation down, even at the expense of a short-term rise in unemployment. German trade unions were also far more responsible than ours, and of course the German character is less individualistic and more regimented. So the ‘German model’ was inappropriate for Britain.

In any case, we already had the National Economic Development Council (NEDC) in which ministers, employers and trade unionists met from time to time. And so I was quite sure that we should not proceed further with the idea of a new ‘forum’. In fact, I felt that the whole approach based on prices and incomes controls should be swept away. The Government would set the framework, but it was for businesses and workforces to make their own choices, and to face the consequences of their actions, good and bad. In the private sector rates of pay must be determined by what businesses could afford, depending on their profitability and productivity. In the public sector also affordability was the key – in this case meaning the scale of the burden it was right to ask the taxpayer and ratepayer to bear. Given that government was the ultimate owner and banker, however, the mechanism by which these disciplines could be made effective was bound to be less clear and direct than in the private sector.

The income tax cuts in our 1979 budget were intended to give more incentives to work. However, the most important aspect of the 1980 budget related to monetary policy rather than taxation. We announced in the budget our Medium Term Financial Strategy (quickly known as the MTFS), which was to remain at the heart of our economic policies throughout the period of their success and which was only relegated in importance in those final years, when Nigel Lawson’s imprudence had already begun to steer us to disaster. A little historical irony is provided by the fact that Nigel himself, as Financial Secretary, signed the Financial Statement and Budget Report (FSBR), or ‘Red Book’, in which the MTFS first burst on an astonished world, and that he was its most brilliant and committed exponent.