The second development – and one that made the Barber boom seem even more reckless – was the Bank of England’s radical reform of the financial system in the autumn of 1971. During the 1960s, Britain’s major clearing banks had operated under strict lending regulations which meant that they lost business to the so-called ‘secondary’ or ‘fringe’ banks, smaller, upstart institutions which did not have to play by the same rules and therefore muscled in on the market for credit. In an attempt to spur competition, create a level playing field and perhaps kill off the secondary banks, the Bank unveiled a new system in September 1971, known as Competition and Credit Control, which lifted the ceilings on bank lending. As The Times put it, the Bank had changed ‘the traffic lights from red to green’ in a bid to push the banks towards ‘greater competition and efficiency’: precisely the kind of measure that Heath loved. It was obvious that in the short term there would be a sharp rise in credit, and hence in the money supply. What nobody seemed to realize, though, was that, since this coincided with a property boom, the drastic explosion of global commodity prices and Barber’s giveaway Budget, the surge in the money supply would be impossible to control.12
The explosion in credit after September 1971 was extraordinarily reckless by any standards. In 1970, new bank lending to the private sector had come to £1.3 billion; in 1971, £1.8 billion. But as banks rushed to take advantage of their new freedom, it soared in 1972 to a staggering £6.4 billion, reaching £6.8 billion a year later. Meanwhile, the broad money supply, then measured as M3 (meaning notes, coins, money in deposit accounts and private bank deposits in foreign currencies), was wildly out of control, growing by 28 per cent in 1972 and then by exactly the same rate a year later. These figures were bad enough; what was worse was that all of this new credit was not going into industrial expansion and investment, as Heath and Barber had hoped, but something much less productive. For since bank rate in 1971 was just 5 per cent, even though the retail price index had hit 10 per cent, this meant that real interest rates were effectively negative. Assuming that the situation remained roughly the same, anyone who borrowed money at a decent rate would be able to make a killing provided they invested in something that held its value – and the obvious thing was property.13
Property prices had been booming since the late 1960s, thanks above all to the office-building spree that had transformed the skylines of London, Birmingham and Manchester. But when the Bank of England lifted its credit restrictions the boom began to turn into a bubble. With the major clearing banks now competing in the credit market, the smaller secondary banks found themselves squeezed out. So they turned to property lending instead, assuming that in an age of inflation it represented the ideal safe bet. The effect was extraordinary. In the first two years of the bubble, with secondary banks almost throwing money at property developers, entrepreneurs and even ordinary families, house prices went up by an astounding 70 per cent, the biggest margin in living memory. By 1973, office space in central London cost five times as much as it did in New York, while for the first time, property prices became the stuff of popular fascination. With inflation outstripping mortgage rates, it made sense to buy; indeed, if they got the right deal, some people found themselves paying literally nothing for their housing costs. In particular, young couples who would once have been happy to rent now threw themselves headlong into the capital’s property market, rushing to buy houses and flats in run-down areas such as Islington, Camden Town, Brixton and Notting Hill. It was the Barber boom that established all the clichés of the capital’s fashionable middle-class young: the white stucco house-fronts and the stripped-pine interiors, the antique door handles and the painstakingly sourced fireplaces, the overflowing pot plants and the earthenware jars, the Guardian on the coffee table and Led Zeppelin on the record player. In his book Soft City (1974), Jonathan Raban described what happened to one small square on the Islington–Holloway border: the profusion of estate agents’ boards, the overnight swarm of builders and interior decorators, the transformation of brick and stucco fronts, the unexpected crowds at lunch hour in the pubs, the arrival of ‘Nigel and Pamela, Jeremy and Nicola’ in their Renaults and Citroëns. The local landlords duly took note, ‘shaking their heads gloomily at the absences of bathrooms and the damp patches and the jags of falling plaster’ and suggesting that their tenants might be better off in a new council flat somewhere else – so that they could sell the property and cash in on the great gentrification game.14
Needless to say, this was not quite what Heath had envisaged when he set the economy on its dash for growth. The point of Barber’s Budget had been to ‘provide the climate in which industry can have the confidence to re-equip and expand’, not to give 25-year-old couples the chance to become property tycoons. As Heath saw it, he had given the City everything it wanted, slashing corporate taxes, lifting state controls and pulling the government out of industry – and yet the only result had been high unemployment and continued industrial stagnation. In private, he lectured industrialists and bankers on their unpatriotic refusal to invest in new staff and equipment; in public, he exhorted them to do better, telling the Young Conservatives that there was ‘not much virtue in a private enterprise system if its practitioners are always trying to find clouds in the sky as an excuse for staying indoors’. But with entry to the Common Market looming in January 1973, he simply could not understand why businesses were not frantically gearing up for the new competition. Well, he thought: if British business was too timid, slothful and unimaginative to invest in the future, then he must force it to do so. Of course this meant dropping all his rhetoric about pulling the government out of industry, but, as he later put it, this was merely a ‘sensible, pragmatic and practical response to a disappointing state of affairs’ – the classic language of the Heathco technocrat. The aim, he told the Evening Standard, was to ‘regenerate our entire industrial capacity’ so that Britain would be ‘in a very advantageous position when we are in the European Economic Community’. The goals of efficiency, modernization and competition were still exactly the same. All that had changed was the means. ‘Once the industrial climate in Britain had changed, and our companies had acquired some positive momentum,’ he wrote later, ‘then the government could gradually withdraw.’15
In the meantime, what was needed was drastic action. During the early months of 1972 Heath had commissioned a three-man civil service team, headed by Sir William Armstrong, to draft the appropriate legislation, and on Budget Day, Anthony Barber unveiled the proposed Industry Act to a stunned Commons. It gave the government more sweeping powers over industry than most Conservatives had ever imagined, not only creating an Office of Fair Trading and Consumer Protection committee, but restoring the old system of regional grants to areas of high unemployment and creating a special agency, the Industrial Development Executive, to hand out hundreds of millions of pounds to hand-picked companies. Ripping up the principles of 1970, the Industry Act seemed to turn the clock back to the Wilson years, when Tony Benn and MinTech had been in the business of picking winners, encouraging mergers and creating vast industrial conglomerates like British Leyland and Upper Clyde Shipbuilders. But when John Davies explained the details to the House the day after the Budget, he was in bullish form. In the ‘rapidly changing world industrial and commercial environment’, he said, ‘the government cannot stand aside … We have decided to take powers to help industry to modernise, adapt and rationalise to meet these new and changing circumstances.’16
In the Commons, nobody could quite believe their ears. ‘Davies made a great “U-turn” speech on the Budget in which he totally withdrew everything he had ever said about lame ducks,’ wrote Tony Benn, ‘and the House just roared with laughter.’ In fact, Benn was delighted by the new measures, not just because they restored the principles of his beloved Ministry of Technology, but because they made an excellent blueprint for massive state intervention along much more radical lines. The Industry Act was ‘spadework for socialism’, Benn gleefully told the
Commons, with the ‘largest subsidies by the taxpayers to the regions that we have ever known; to industry generally, and to shipbuilding in particular, with total expenditure far exceeding anything that has been brought forward by previous Governments’, and he promised to use its powers ‘when we inherit power again, more radically than the right hon. Gentleman himself will use them’. Not surprisingly, there were reports of serious dissatisfaction on the Tory benches, especially among the two or three dozen backbenchers who saw themselves as champions of the free market. The chairman of the 1922 Committee, Sir Harry Legge-Bourke, even told the government that it was ‘a Socialist Bill by ethic and philosophy’, although he went along with it because the depressed areas were in dire need of help. And yet the future champions of Thatcherism – men like Nicholas Ridley, John Biffen and even Enoch Powell – were conspicuous by their quiescence. At a time when the government appeared beleaguered, they had no wish to make its life even harder, even if they were horrified by its apparent lurch to the left. In the end, the Industry Act sailed through with remarkably little opposition.17
As The Economist put it, Heath now had ‘a blank cheque to give money to industries in trouble’, and in his Cabinet he had the perfect man to spend it. As a former City buccaneer with bags of youthful enthusiasm, Peter Walker was itching to get his hands on British industry, and in the autumn of 1972 Heath gave him his head, naming him as the new chief of the Department of Trade and Industry. Unlike his backbench critics, Walker saw nothing wrong with the state taking a commanding role in industry; indeed, he told the party conference a year later that ‘the object of the “new capitalism” is that harnessing of economic growth to the creation of a civilised society’. By this point, the new regime had been in place for twelve months, spending £55 million on regional development grants and almost £77 million on aid to industry, creating more than 50,000 new jobs in the process. And that was not all. Under Walker’s aegis, the government handed out £1 billion to the coal industry, reorganized the gas industry under one national body, British Gas, and set up British Nuclear Fuels Ltd. and a Nuclear Power Board. There was £16 million for the machine tools industry; there was £26 million for ICL, the computer conglomerate set up by Tony Benn; there was even £5 million for Meriden, the doomed motorcycle firm in the West Midlands, later notorious as one of Benn’s ill-fated workers’ cooperatives. Walker certainly could not be faulted for lack of effort: his junior minister, the flamboyant and similarly expansionist Michael Heseltine, even organized a series of breakfasts with captains of industry, the rationale being that ‘if you excited them’ first thing in the morning, ‘they would go straight back and do something about it’.18
Heath and Walker always denied that the Industry Act amounted to a massive programme of socialism, as their Thatcherite critics later claimed. In a lecture in October 1972, Walker’s junior minister Christopher Chataway, a former Olympic runner who had been a pacemaker for Roger Bannister’s four-minute mile, told his fellow Conservatives that although the government would not ‘prop up’ bad managements and failing firms, it was ‘bad economics as well as bad social policy’ to allow major British companies to collapse because of subsidized international competition or ‘severe market dislocation’. For Chataway, Walker and Heseltine, the Industry Act was merely a home-grown equivalent of what, say, de Gaulle had done in France or the Liberal Democrats had done in Japan, using the power of the state to regenerate and modernize British industry so that it could compete freely on the world stage. There is an argument that their experiment might have worked if it had been tried for longer, or if it had been tried in less turbulent economic conditions, and Heath always insisted that it was a lot better than Mrs Thatcher’s policy of leaving industry to fend for itself, often resulting in massive job losses. (Actually, the difference between them was often exaggerated: in her first term, Mrs Thatcher followed Heath’s example by ploughing vast sums of money into nationalized concerns like British Steel and British Leyland before selling them off.)
But whether the Industry Act was really the answer to the British economy’s problems is very doubtful. For one thing, it was far too complicated and bureaucratic, a typical complaint during the Heathco years, trying to solve every conceivable problem – regional disparities, deep-seated unemployment, consumer protection, competition with the members of the EEC – all at once, usually by throwing money at them. There is no doubt that British industry badly needed modernization, but, as John Campbell remarks, ‘throwing Government money at favoured projects and bribing firms to set up where they would not otherwise have done was not the way to do it’. Throughout the post-war years, British governments had had a lamentable record of picking industrial winners, and Heath’s was no exception. It was telling, as Campbell points out, that a House of Commons report into regional policy in 1974 described it as ‘empiricism gone mad, a game of hit and miss, played with more enthusiasm than success’. And it was even more telling that by 1974, both Heath and Walker had become intensely impatient and frustrated with what they saw as the caution and conservatism of British employers and managers. What they never seem to have realized was that no matter how much public money they spent, economic miracles simply could not be conjured into being overnight.19
There was one other obvious problem with Heath’s new policy of massive industrial expansion. Unless he was very careful, rapid economic growth was bound to trigger a new wave of inflationary pay claims, and any illusions that the government could simply face down the unions had been blown away by the miners’ strike. In any case, not only had an exhausted government lost much of its thirst for confrontation, but the pressure of public opinion and Fleet Street commentary for a more consensual approach proved irresistible. Since yet more strikes would obviously undermine Heath’s drive for growth and modernization, he was keen to strike a conciliatory note. ‘We still have to find sensible means by which sensible men can reach sensible agreements before there is any question of industrial action,’ he told an audience of Scottish Conservatives in May 1972, and a few weeks later he told the Press Association that he was ‘working to find ways of checking more effectively pay claims which go far beyond the rise in prices’.
In private, meanwhile, he was already reaching out to the union bosses. Throughout the early months of 1972, Sir William Armstrong and a group of ‘Four Wise Men’ – the TUC general secretary Vic Feather, the CBI’s Campbell Adamson, the Treasury chief Sir Douglas Allen and Sir Frank Figgures, head of the National Economic Development Council – had been meeting secretly to discuss a more consensual way of running economic and industrial affairs. Meanwhile, just a couple of weeks after the end of the miners’ strike, Heath invited the General Council of the TUC, including Jack Jones and Hugh Scanlon, for drinks at Downing Street, kicking off with cups of tea and moving on to whisky before the night was out. He had always got on well with the union bosses, and with the strike tactfully forgotten, they were soon back in the old jovial routine. According to the TUC’s notes, the Prime Minister was clearly in peace-making mood. He wanted to work out ‘common objectives’ to meet ‘the changing needs of an industrial society’, he said, assuring them that his priorities were to encourage ‘steady expansion of the economy, a decrease in unemployment … and a steady rise in living standards’. Perhaps it would be too much to say that he had rekindled the romance, but the TUC bosses were certainly impressed enough to agree to another date. Heath was ‘a very decent man, there’s no question about that’, Jack Jones said. ‘He was prepared to be patient and listen to our point of view and our arguments and, within his limits as a Conservative Prime Minister, I think he did try to respond.’20
Unfortunately for Heath, thousands of ordinary trade unionists did not share their bosses’ opinion. Although the Industrial Relations Act had been badly undermined by the unions’ refusal to register, it remained on the statute book, a glaring signal (as they saw it) of the government’s reactionary war on the working classes. Months of pay restraint, strikes and
the tumultuous climax to the miners’ dispute gave existing political and social differences a sharper edge: it was telling that, according to Gallup, three out of five people in the spring of 1972 believed that there was a class struggle in Britain, the highest proportion for decades. In the rhetoric of parliamentary debates, as well as on shop floors, on picket lines and in university classrooms, the language of class warfare came increasingly naturally to the tongue, partly because of the popularity of pseudo-Marxist ideas in the late 1960s and early 1970s, but also because a stuttering economy lent a new bitterness to old divisions. Even a family tuning in for an evening’s escapism were confronted with the class struggle, whether it be Till Death Us Do Part’s endless backbiting between right-wing Alf Garnett and his layabout Liverpudlian son-in-law, the defiant working-class hedonism of Stan Butler and Jack Harper in On the Buses, or the earnest proletarian sentiments of Play for Today instalments such as Jim Allen’s The Rank and File (based on the Pilkington glass strike), Jeremy Sandford’s Edna the Inebriate Woman (alcoholism and homelessness), Tom Clarke’s Stockers Copper (a Cornish clay mine strike in 1913) and Dominic Behan’s Carson Country (working-class life in Protestant Belfast in 1920) – all of which appeared between May 1971 and October 1972.
And whereas politicians in the early 1960s had often sought to dampen class differences – for example, Harold Wilson’s attempt to woo middle-class voters with his promises of ‘white heat’ – the generation taking their seats in the 1970s impatiently rejected the compromises of the past. The young Neil Kinnock, who entered the Commons in 1970 and quickly became famous for his blazing condemnations of the ‘class-ridden Government’ and its ‘disgusting and doctrinaire’ policies, stood out only for his red hair and gift of the gab, not because his rhetoric was especially unusual. His fellow left-winger Eric Heffer even wrote a book called The Class Struggle in Parliament (1973), advising the working classes that there was a difference between ‘ordinary laws’, which they should obey, and ‘class laws’, which they should not. For Kinnock and Heffer, Heath’s stiff appeals for national unity and clumsy references to One Nation were merely window dressing, disguising the fact that he was a stubborn, callous reactionary who cared nothing for the common man. Even his hobbies of classical music and sailing were seen as emblems of class tyranny, elitist habits well beyond the reach of the ordinary worker. Heath was ‘unfair’, ‘uncharitable’, ‘faceless and heartless’, said the New Left Review. ‘His hatred of the poor, the unlucky, the undeserving, is absolutely genuine,’ wrote Paul Johnson (then on the left) in a particularly overblown piece in the New Statesman in February 1972. ‘When he dilates on these categories of the nation, he cannot keep the contempt from his voice. To him failure is not merely a sign of incompetence but of immorality, to be punished in the next world but especially in this.’21
State of Emergency: the Way We Were Page 41
