Geoffrey Howe had said in the House of Commons that the CBI’s latest Industrial Trends Survey provided evidence that we were now at the end of the recession — a remark which may have been slightly imprudent, but which was strictly true. The following weekend Francis Pym in the course of a lengthy speech observed: ‘there are few signs yet of when an upturn will occur. And that recovery when it comes in due course may be slower and less pronounced than in the past.’ This forecast would have been bold even from an economist; coming from Francis it verged on the visionary. For good measure he added that ‘in our industrial policy we must work as partners with industry and with the trade unions to identify the key sectors of the economy and the most promising export markets’ — the kind of neo-corporatist incantation which signified total rejection of the economic strategy. Even Peter Thorneycroft, who had been a superb chairman of the Party in Opposition, joined the ‘wet’ chorus, describing himself as suffering from ‘rising damp’ and saying that ‘there [was] no great sign of [the economy] picking up.’ Given that these comments came from the two men in charge of presenting government policy, they were extremely damaging and easily seen (in that inevitable metaphor) as ‘the tip of the iceberg’.
Trade union reform was another subject of Cabinet disagreement. We had issued a green paper on trade union immunities on which comments were to be received by the end of June 1981. When they came in, these showed a desire among businessmen for further radical action to bring trade unions fully under the rule of law. But Jim Prior and I disagreed about what should be done. I wanted further action to restrict trade union immunities, which would make union funds liable to court action. Jim’s proposals would not have achieved this. His analysis was, indeed, fundamentally different from mine. In his reading, history showed that the unions could defeat any legislation if they wanted to. I believed that history showed nothing of the sort, but rather that governments in the past had failed the nation through lack of nerve — drawing back when the battle was nearly won. I was also convinced that on the issue of union reform there was a great reserve of public support on which we could draw. Indeed, as I told Jim, I thought that there was a real risk that people would consider that we had done very little to tackle trade union power.
The differences between Cabinet ministers over the economic strategy — and between myself and Jim Prior over trade union reform — were not just ones of emphasis but of fundamentals. If the goals I had set out in Opposition were to be achieved they must be reaffirmed and fought for by a new Cabinet. So it was quite clear to me that a major reshuffle was needed if our economic policy were to continue, and perhaps if I were to remain Prime Minister.
I preferred to have a Cabinet reshuffle during the recess if possible, so that ministers could get used to their departments before being questioned in the House. I also believed that as matters usually got fairly difficult at the end of July, it was better for all of us to have a holiday before decisions were taken. It was not, therefore, until September that I discussed the details with my closest advisers. Willie Whitelaw, Michael Jopling (the Chief Whip) and Ian Gow came over to Chequers on the weekend of 12–13 September. For part of the time Peter Carrington and Cecil Parkinson joined us. The reshuffle itself took place on the Monday.
I always saw first those who were being asked to leave the Cabinet. I began with Ian Gilmour and told him of my decision. He was — I can find no other word for it — huffy. He left Downing Street and denounced government policy to the television cameras as ‘steering full speed ahead for the rocks’ — altogether a flawless imitation of a man who has resigned on principle. Christopher Soames was equally angry — but in a grander way. I got the distinct impression that he felt the natural order of things was being violated and that he was, in effect, being dismissed by his housemaid. Mark Carlisle, who had not been a very effective Education Secretary and leaned to the left, also left the Cabinet — but he did so with courtesy and good humour. Jim Prior was obviously shocked to be moved from Employment where he had come to consider himself all but indispensable. The press had been full of his threats to resign from the Government altogether if he were asked to leave his present position. I wanted this post for the formidable Norman Tebbit, and Jim could not intimidate me by threatening himself. So I called his bluff, and offered him the post of Northern Ireland Secretary. He asked for time to consider, and after some agonizing and some telephoning he accepted my offer and became Secretary of State for Northern Ireland in place of the debonair Humphrey Atkins, who succeeded Ian Gilmour as the main Foreign Office minister in the Commons.
I moved David Howell from Energy to Transport. It gave me great pleasure to promote the immensely talented Nigel Lawson, the intellectual author of the MTFS, into the Cabinet to take his place. Nigel turned out to be a highly successful Secretary of State for Energy, vigorously promoting competition, taking a real grip on his department and building up coal stocks for the inevitable struggle with the miners.
Keith Joseph had told me that he wished to move from Industry. With his belief that there was an anti-enterprise culture which had harmed Britain’s economic performance over the years, it was natural that Keith should now wish to go to Education where that culture had taken deep roots. Accordingly, I sent Keith to my old department to replace Mark Carlisle. Norman Fowler returned to take up Health and Social Security, the portfolio he had held in Opposition, replacing Patrick Jenkin who took over at Industry from Keith. Janet Young, a friend for many years who had first become involved in politics as leader of Oxford City Council, became Leader of the House of Lords, the first woman to hold the post, taking over Christopher Soames’s responsibility for the civil service.
Perhaps the most important change was the promotion of Norman Tebbit to replace Jim Prior at Employment. Norman had had experience of dealing with industrial relations as a trade unionist himself. He had been an official of the British Airline Pilots’ Association and had no illusions about the vicious world of hard-left trade unionism, nor, by contrast, any doubt about the fundamental decency of most trade union members. As a true believer in the kind of approach Keith Joseph and I stood for, Norman understood how trade union reform fitted into our overall strategy. Norman was also one of the Party’s most effective performers in Parliament and on a public platform. The fact that the Left howled disapproval confirmed that he was just the right man for the job. He was someone they feared.
I had already agreed with Peter Thorneycroft that he should cease to be Party Chairman. I had been unhappy about some of Peter’s actions in recent months. But I would never forget how much he did to help win the 1979 election. He was one of an older school of political leaders — a man of force and character — and remained a friend. I appointed Cecil Parkinson to succeed him — dynamic, full of common sense, a good accountant, an excellent presenter and, no less important, on my wing of the Party.
The whole nature of the Cabinet changed as a result of these changes. After the new Cabinet’s first meeting I remarked to David Wolfson and John Hoskyns what a difference it made to have most of the people in it on my side. This did not mean that we would always agree, or that there would not be the regular arguments about public spending. There would always be some dissent and Jim Prior at his own request remained a member of ‘E’ committee, the economic committee of the Cabinet. But it would be a number of years before there arose an issue which fundamentally divided me from the majority of my Cabinet, and by then Britain’s economic recovery, so much a matter of controversy in 1981, had been accepted — perhaps all too easily accepted — as a fact of life.
The day after the reshuffle, The Times leader entitled Prima Inter Pares, summed up reaction to the changes I had made:
the final impression… left by this reshuffle is the indelible stamp and style of the Prime Minister herself. She has reasserted her political dominance and restated her faith in her own policies. She has rewarded those who do, and punished some of those who do not share that faith. If she succeeds — and b
y success we mean regenerating the British economy and winning the next election for the Conservative Party — it will be a remarkable personal triumph. If she fails, the fault will be laid at her door, though the damage and the casualties will spread wide through the political and economic landscape.
I could accept that.
THE 1981 CONSERVATIVE PARTY CONFERENCE
The ‘wets’ had been defeated, but they did not yet fully realize it, and decided to make a last assault at the 1981 Party Conference in Blackpool that October.
The circumstances on the eve of the conference were grim. Inflation, which had fallen sharply since 1980, remained stubbornly at between 11 and 12 per cent. Largely as a result of the US budget deficit, interest rates had been increased by 2 per cent in mid-September, temporarily wiping out the reduction made possible at such cost by the budget in March. Then, shortly after I arrived at Melbourne for the Commonwealth Conference on 30 September, I received a telephone call to say that we would have to make a second increase of 2 per cent. So interest rates now stood at an alarming 16 per cent.
Above all, unemployment continued its inexorable rise: it would reach the headline figure of three million in January 1982, but already in the autumn of 1981 it seemed almost inevitable that this would happen. Most people were unpersuaded, therefore, that recession was coming to an end and it was too soon for the new sense of direction in Cabinet — which I knew that the reshuffle would bring — to have had an effect on public opinion.
We were also in political difficulties for another reason. The weakness of the Labour Party, which had initially worked in our favour, had allowed the newly formed SDP to leap into political contention. In October the Liberals and SDP were standing at 40 per cent in the opinion polls: by the end of the year the figure was over 50 per cent. (At the Crosby by-election in the last week of November Shirley Williams was able to overturn a 19,000 Conservative majority to get back into the Commons.) On the eve of our Party Conference I was being described in the press as ‘the most unpopular prime minister since polls began’.
Of course, the statistics were misleading at this point. Interest rates would have been higher still had we not taken the action we did in the budget. We were able to begin reducing rates again within weeks. And demographic factors were as important as the recession in explaining the rise of unemployment. The low birth rates during the First World War meant that fewer people were retiring in the early 1980s than in the early 1970s. At the same time the number of young people entering the labour market reached record levels as a result of the 1960s ‘baby boom’. Between 1979 and 1981 the economy had to provide an extra 83,000 jobs a year just to stop unemployment rising.
But that was not how it seemed at the time — and the ‘wets’ determined to exploit our apparent difficulties to the full at Blackpool. I witnessed what seemed to be a concerted attempt to swing the Party against the Government’s policies both in the Conference Hall and at the fringe meetings outside. In a speech to the Selsdon Group the critics were brilliantly answered by Nigel Lawson. Nigel pointed out that it was no argument for them to take refuge in political generalities:
You cannot fight the war against inflation successfully unless you have economic policies that make sense. There is no point in deluding yourself that somehow politics can trump all that… What we are being offered [by the strategy’s critics] is little more than cold feet dressed up as high principle.
In the conference economic debate no less a figure than Ted Heath spearheaded the attack. He argued that there were alternative policies available but that we just refused to adopt them. The debate was well mannered in form, well versed in content and passionate in feeling. Both sides delivered serious economic analyses at a high level — and the stakes themselves were very high. A rebuff for the platform would have emboldened back-bench ‘wets’ to step up their attack when Parliament resumed, with unpredictable consequences; a rebuff for the critics, which is what they received, would strengthen our moral authority. In answer to Ted Heath, Geoffrey Howe, who summed up our case with a cool, measured and persuasive speech, reminded the conference of Ted’s own words in his introduction to the 1970 Conservative manifesto:
Nothing has done Britain more harm in the world than the endless backing and filling which we have seen in recent years. Once a policy has been established, the prime minister and his colleagues should have the courage to stick with it.
‘I agree with every single word of that,’ said Geoffrey. His speech won over some of the doubters and ensured that we had a comfortable win. Nevertheless, in my own speech later I felt the need to fasten down our victory by taking the arguments of Ted Heath and others head on:
Today’s unemployment is partly due to the sharp increase in oil prices; it absorbed money that might otherwise have gone to increased investment or to buy in the things which British factories produce. But that is not all. Too much of our present unemployment is due to enormous past wage increases unmatched by higher output, to union restrictive practices, to overmanning, to strikes, to indifferent management, and to the basic belief that, come what may, the government would always step in to bail out companies in difficulty. No policy can succeed that shirks those basic issues.
Even though the ‘wets’ would continue to be sceptics for another six months, our policy had already begun to succeed. The early signs of recovery in the summer of 1981 were confirmed by statistics in the following quarter, which marked the start of a long period of sustained economic growth. Political recovery followed in the wake of these early signs of improvement, with better poll figures in the spring of 1982. We were about to find ourselves in the Falklands War, but we had already won the second Battle of Britain.
CHAPTER VI
The West and the Rest
The early reassertion of western — and British — influence in international affairs in 1981–1982
We were not to know it at the time, but 1981 was the last year of the West’s retreat before the axis of convenience between the Soviet Union and the Third World. The year began with Iran’s release of US hostages in a manner calculated to humiliate President Carter and ended with the crushing, albeit temporarily, of Solidarity in Poland. The post-Vietnam drift of international politics, with the Soviet Union pushing further into the Third World with the help of Cuban surrogates, and the United States reacting with a nervous defensiveness, had settled into an apparently fixed pattern. Several consequences flowed from that. The Soviet Union was increasingly arrogant; the Third World was increasingly aggressive in its demands for international redistribution of wealth; the West was increasingly apt to quarrel with itself, and to cut special deals with bodies like OPEC; and our friends in Third World countries, seeing the fate of the Shah, were increasingly inclined to hedge their bets. Such countervailing trends as had been set in motion — in particular, the 1979 decision to deploy Cruise and Pershing in Europe — had not yet been given concrete effect or persuaded people that the tide had turned. In fact it had just begun to do so.
EARLY TALKS WITH PRESIDENT REAGAN
The election of Ronald Reagan as President of the United States in November 1980 was as much of a watershed in American affairs as my own election victory in May 1979 was in those of the United Kingdom, and, of course, a greater one in world politics. As the years went by, the British example steadily influenced other countries in different continents, particularly in economic policy. But Ronald Reagan’s election was of immediate and fundamental importance, because it demonstrated that the United States, the greatest force for liberty that the world has known, was about to reassert a self-confident leadership in world affairs. I never had any doubt of the importance of this change and from the first I regarded it as my duty to do everything I could to reinforce and further President Reagan’s bold strategy to win the Cold War which the West had been slowly but surely losing.
I heard the news of the American election result in the early hours of Wednesday 5 November and quickly sent my warmest congratulatio
ns, inviting the President-elect to visit Britain soon. I had met Governor Reagan twice before when I was Leader of the Opposition. I had been immediately struck by his warmth, charm and complete lack of affectation — qualities which never altered in the years of leadership which lay ahead. Above all, I knew that I was talking to someone who instinctively felt and thought as I did; not just about policies but about a philosophy of government, a view of human nature, all the high ideals and values which lie — or ought to lie — beneath any politician’s ambition to lead his country.
It was easy for lesser men to underrate Ronald Reagan, as many of his opponents had done in the past. His style of work and decision-making was apparently detached and broad-brush — very different from my own. This was in part the result of our two very different systems of government rather than differences of temperament. He laid down clear general directions for his Administration, and expected his subordinates to carry them out at the level of detail. These objectives were the recovery of the American economy through tax cuts, the revival of American power by means of a defence build-up, and the reassertion of American self-confidence. Ronald Reagan succeeded in attaining these objectives because he not only advocated them; in a sense, he embodied them. He was a buoyant, self-confident, good-natured American who had risen from poverty to the White House — the American dream in action — and who was not shy about using American power or exercising American leadership in the Atlantic alliance. In addition to inspiring the American people, he went on later to inspire the people behind the Iron Curtain by speaking honest words about the evil empire that oppressed them.
The Downing Street Years, 1979-1990 Page 20
