On 26 September, Heath welcomed the TUC and CBI to Chequers and unveiled the most ambitious corporatist programme in peacetime history. Under the agreement, the government would be committed to achieve a 5 per cent growth rate for the next two years; the CBI would agree to a 5 per cent price limit on goods in the shops; and the TUC would pledge to accept pay rises of no more than £2 a week, the pill sweetened with the promise of aid to pensioners, ‘threshold’ payments to protect consumers from higher prices when Britain entered the EEC, and help for the low paid. If they accepted his plan, he grandly told them, the result would be a ‘new era of cooperation’, carefully worked out to match ‘what the country can afford’. Even the most militant union leaders were impressed by Heath’s commitment. ‘We Would Be Mad Not To Do It’, declared a long leader in The Times the next day, explaining that Heath’s plan was vital ‘to the future of the British economy and conceivably even to the survival of democracy in Britain’. The alternative, the newspaper declared grimly, holding out the example of the military regime in Brazil, was ‘to go on with inflation until the conditions become so intolerable that authoritarian rule becomes almost unavoidable and certainly popular’. This was dramatic stuff. But the TUC said no. Although Vic Feather allowed that Heath’s plan offered ‘a good deal of fair play to a good many people’, the unions wanted more: the repeal of the Industrial Relations Act, for example, as well as stricter price controls and more concessions on rents and VAT. The next evening, Heath went on television to address the nation, imploring the TUC to see sense in some of his most consensual, conciliatory rhetoric yet. ‘Think nationally,’ he begged them; ‘think of the nation as a whole. Think of these proposals as members of a society that can only defeat rising prices if it acts together as one nation.’33
Even at this stage, Heath remained convinced that the TUC would come round. The possibility that the union leaders would shrink from becoming his ‘social partners’, and might prove much more introverted, conservative and self-interested than he hoped, seems not to have occurred to him. When the talks resumed on 16 October, after the party conference season, he was stunned to discover that Scanlon and Jones had dug in their heels, and were insisting that the CBI must agree that price rises would be controlled by law, while wage rises remained entirely voluntary. Since this was so one-sided as to be politically impossible, it is hard to resist the suspicion that the union leaders simply wanted a pretext for the talks to fail so that they would be spared the challenge of becoming the government’s formal partners. On 25 October, Heath reported to the Cabinet that the TUC had so far not budged an inch. He was willing to concede ground on housing, rents and even the Industrial Relations Act, he told his colleagues, but ‘Parliament and public opinion’ would never allow him to give in to their demand for statutory control of prices only. On the 26th, he welcomed the negotiators to Downing Street for a gruelling seventeen-hour marathon, running from 9 a.m. to almost four o’clock the next morning, with only two hours’ break; on 30 October, they had another seven-hour session; on 1 November, they argued for another eight hours. Heath was exhausted, his eyes red-rimmed with frustration and fatigue, but still he hoped for a breakthrough. ‘At Number Ten again till midnight while the endless tripartite talks go on – or rather don’t go on, as it is almost all separate little huddles in every room and passage – including mine,’ wrote Douglas Hurd during a break on 1 November. ‘EH hanging on still, against almost every calculation, to his hope of an agreement. Just a small chance he can wear them down.’34
At 10.30 on the morning of 2 November, after very little sleep, Heath briefed his Cabinet on the progress of the talks. Although he had not yet abandoned hope, the fact that he was already thinking about the battle for public opinion if they collapsed – with the TUC presented as the culprits – was a sign of how things were going. By this stage, he had also decided on the only option if they did fail: ‘an emergency “freeze” of prices and incomes for a limited period’, followed by legislation ‘to put on a more permanent statutory basis the type of arrangement on which the Government had hoped to find voluntary agreement with the TUC’. Late that afternoon the warring parties met again over a cold buffet supper, but it was no good. At ten o’clock the talks broke up, a sombre Feather telling the waiting reporters that the government had ‘missed a golden opportunity to secure the cooperation of the trade union movement’. But this was disingenuous; the government could hardly have done much more to appease the unions’ demands, short of giving them a deal so one-sided that it would have provoked mirth in the press, horror among employers and a rebellion on the Tory benches. The supreme irony was that Feather himself, as well as most moderate trade union leaders, had actually been happy to accept Heath’s offer. It was Jones and Scanlon, the two most militant leaders but also those most under pressure from radicals in their own unions, and therefore with most to lose, who had dug in their heels. In any case, the chance was gone. The next morning, Heath summoned his Cabinet to approve the next step. It was ‘a matter of great regret’ that the talks had failed, the minutes noted, but ‘there was unanimous agreement that nobody could have done more than the Prime Minister’.35
Three days later, Heath rose in the House of Commons to announce the biggest U-turn of his premiership. With the tripartite talks having collapsed, he said, the government had no choice but to institute statutory measures in pursuit of the goals he had outlined six weeks before. There would be an immediate freeze on all wages, prices, rents and dividends, lasting ninety days and then renewable for another sixty days, with fines of up to £400 for companies who ignored it. This was just Stage One of a long-term policy; in the New Year the government would announce the plans for Stage Two. Given everything that Heath had said, stretching back to the late 1960s, about the folly of a statutory incomes policy, this was an extraordinary retreat, ‘the biggest reversal of positions’ since he had come to office, as Harold Wilson, who knew a thing or two about reversing his position, gleefully pointed out. From the Labour benches, Heath’s old Oxford friend Roy Jenkins elegantly wondered whether he had ‘now abandoned his constantly reiterated view that a statutory policy could only make inflation worse in the long run, or does he now regard the short-term situation that he has produced as so disastrous that he cannot afford any longer to think about the long run?’ Even Heath was seen to wince at that; his pay policy was not the same as Labour’s policy in the 1960s, he said stiffly, because whereas they had been shrinking the economy, he wanted to expand it. It was a dreadfully feeble reply; no wonder Labour MPs delightedly yelled ‘Resign!’
But it was from Heath’s own side that the most damning criticism came. ‘Does my right hon. Friend not know’, Enoch Powell asked with silken contempt, ‘that it is fatal for any Government or party or person to seek to govern in direct opposition to the principles on which they were entrusted with the right to govern? In introducing a compulsory control of wages and prices, in contravention of the deepest commitments of this party, has my right hon. Friend taken leave of his senses?’ Even coming from an old rival and dedicated adversary, this was strong stuff: as Powell resumed his seat there were ‘intakes of breath and whistles of amazement’. ‘Seldom in recent years can a Prime Minister have been so bitterly denounced by one of his own backbenchers,’ wrote one parliamentary correspondent. In reply, Heath barely bothered to disguise his fury. ‘This Government was returned to power to take action in the national interest when required to do so,’ he said stiffly, and then sat down. The debate moved on; the Tories dutifully cheered. But Powell’s question hung in the air, and its author sat motionlessly in place, his eyes fixed on his enemy, wrapped in a ‘sinister, glowering silence’.36
Powell’s dramatic intervention was rooted not merely in personal hatred but in ideological conviction. The Wolverhampton MP had never forgiven Heath for sacking him from the Shadow Cabinet after the ‘Rivers of Blood’ speech in 1968, but as one of the Conservative Party’s few unashamed free-market ideologues he was also genuinel
y appalled by his rival’s economic policies. As early as April 1971 he had torn into Anthony Barber with the relish of a predator, warning that by inflating the money supply to tackle unemployment the government was only making matters far worse in the long run. Even if pay controls were voluntary, he said later, they were ‘totalitarian’ and ‘Fascist’. Powell agreed that inflation was the supreme danger: indeed, in October 1973 he called it ‘a social evil, an injustice between man and man, and a moral evil – a dishonesty – between Government and people, between class and class’. But Heath’s bureaucratic attempts to contain it struck him as not merely counterproductive but downright immoral. ‘No rules can be laid down in advance, or administered by any body of men or Government, so as to decide, prescribe and order, without the most evident and unacceptable injustices, how all prices and wages are to start to move in relation to one another,’ he told the Commons in the summer of 1973. Nobody had a convincing answer; even Tony Benn noted that it was ‘a brilliant academic analysis’. ‘People listen to him fascinated by his intellect and clarity,’ Benn wrote, ‘and he mesmerises Labour MPs like rabbits caught in a headlamp.’37
Although Powell’s heresy over immigration put him beyond the pale for many politicians, he was not quite a voice crying in the wilderness. By allowing himself to be associated with a radical agenda that he did not really believe in, especially after the Selsdon Man furore, Heath had aroused expectations among right-wing backbenchers that had now been thoroughly disappointed. Even before the election, the clever Tory maverick John Biffen had told Hugo Young that Heath was merely a ‘super management consultant’, a ‘technocrat in politics’ with ‘no resources of affection or respect to fall back on’. And as early as the summer of 1971, when the government opened the coffers to fight unemployment, economic liberals such as Biffen and Jock Bruce-Gardyne made no secret of their displeasure. As Biffen later put it, ‘Ted donned the rather tatty fabrics of socialism and they didn’t look any more decorative on him than they had on Harold Wilson.’ When Anthony Barber unveiled his notorious boom a year later, the backbench liberals, as well as the growing coterie of monetarist converts associated with the Institute of Economic Affairs, were horrified. In July 1972, the economist Alan Walters, then a part-time adviser to the Central Policy Review Staff, sent Heath a paper warning of 15 per cent inflation in two years’ time (an underestimate, as it turned out), only to be ignored and eventually relieved of his job. That November, Walters helped to put together a public ‘Memorial to the Prime Minister’, signed by eight prominent monetarists, warning that ‘profligate’ public spending was out of control, and begging Heath to slow the growth of the money supply. Of course the government took no notice. But on the Tory benches, something was stirring.38
For a generation of Thatcherite Conservatives, influenced by the likes of Powell and Biffen as well as by the free-market Institute of Economic Affairs and the converted Sir Keith Joseph, Heath’s U-turn over incomes policy was the greatest of his many betrayals. As early as September 1973, a group of disaffected right-wingers set up the Selsdon Group, convinced that the free-market values of 1970 had been sacrificed by a crypto-socialist government obsessed with the ‘Middle Ground’ and indifferent to genuine ‘Conservative principles’. This was Thatcherism in embryo, dripping with contempt for Heath’s endless U-turns, his betrayal of the Selsdon promises, his appeasement of the unions, and his craven return to inflationary public spending. And in one sense they had an almost unanswerable case. As events were to show, incomes policies were not a very good way of fighting inflation. They might keep a tight lid on inflation in the short term, but, as Wilson had already found in the late 1960s, they could not last for ever. As soon as the lid was lifted, the frustrated expectations of millions of workers boiled over, and the invariable result was more inflation than ever. In the Commons, Heath explained that Stage One was only a temporary expedient, buying time for him to reach a voluntary deal with the unions. If that failed, he would simply move into the next stage of a long-term policy, with the lifting of the lid endlessly postponed. The irony, though, was that he had missed a deeper point. By the end of 1972, pay deals were only one factor in the rising inflation, which was driven by soaring world commodity prices and by the wild monetary incontinence of the credit boom. Not even the toughest incomes policy in the world could do much about them.39
In a broader sense, though, Heath’s critics were wrong. Their image of Heath in 1970, after all, was based on Harold Wilson’s ‘Selsdon Man’ caricature, which made him appear much more radical than he really was. Unlike Powell or Biffen, he was never really a free-marketeer; instead, he thought of himself as a technocratic modernizer, using whatever tools were necessary to turn Britain around. Although he had borrowed free-market language in 1970, this was what his biographer calls ‘the opportunism of Opposition’. In fact, ideology left him cold; to the perennially impatient and empirical Heath, all that mattered was results. As his friend Robert Carr later explained, the U-turns were merely ‘tactical’, while the ‘strategy’ – to turn Britain into a dynamic, competitive, high-growth economy – ‘remained very strong and coherent’. And in this respect, far from being a botched and bowdlerized version of Thatcherism, his approach was not so different from that of his old mentor Harold Macmillan, another modernizer scarred by memories of the Hungry Thirties. Indeed, with its talk of planning, its wage freezes and its mad dash for growth, the Macmillan government looks uncannily like a dry run for Heath’s stint in Downing Street.40
The crucial point, though, is that, like Macmillan before him, Heath was governing at a time when the old Keynesian consensus, however battered and bruised, was still deeply embedded in the body politic. As the horrified reaction to the figure of one million unemployed in January 1972 shows, the press and the general public were still tightly attached to full employment. And if Heath had followed Powell’s advice and taken a strict free-market approach, matters would surely have worked out very differently from how they did later under Mrs Thatcher. When he took office in 1970, after all, there had been no miners’ strike, no oil crisis, no inflation at more than 25 per cent, no IMF crisis and no Winter of Discontent. Although there was a deep thirst for modernization, there was little appetite for the radical surgery of the early 1980s. Indeed, given how violently people reacted to what Heath actually did in his first couple of years, he might well have provoked a general strike if he had adopted even more Thatcherite policies. And unlike Mrs Thatcher, he would have got little support from the press, the Civil Service or even much of his own party. Not only were many Tory MPs desperate for him to take action against unemployment, but even newspapers like The Times, which later backed Mrs Thatcher all the way, were still firmly attached to full employment, statutory incomes policies and big-spending Keynesian expansion. Perhaps most revealingly, the principal architects of Thatcherism – Sir Keith Joseph, Sir Geoffrey Howe and the future Prime Minister herself – did not spend the early 1970s begging Heath to take a harder line. Instead they spent them inside his Cabinet, nodding and smiling at his alleged U-turns, and, in the cases of Joseph and Thatcher, enthusiastically throwing around enormous sums of public money. At that stage, the idea that they were the sworn enemies of the post-war consensus would have seemed absurd.41
This explains why, at the time, Heath’s supposed U-turn attracted surprisingly little criticism outside the hard-core Selsdon Group. By the summer of 1972, with wages rising at almost 17 per cent a year, not only was the Treasury pressing for statutory restraint but newspapers across the spectrum, from The Times and The Economist to the Guardian and the New Statesman, were begging the government to change tack. ‘A statutory incomes policy’, said The Times in a leader entitled ‘How To Fight Inflation’ on 16 June, ‘ought to be a normal part of national economic policy’ – a remark which, coming from the paper most associated with the rise of monetarism, revealed how deeply social democratic assumptions were embedded in the political establishment. Indeed, Heath’s old rival for t
he Tory leadership, Reginald Maudling, never lost an opportunity to remind colleagues that he backed a sweeping statutory policy. ‘The old classical economics are no longer relevant to a wholly new political situation,’ Maudling told his colleagues in the spring of 1972, calling for ‘a far greater degree of systematic control over incomes and prices than we have ever contemplated before’. That a mainstream Conservative was calling for such overt corporatism was a sign of the uncertainty of the day. And even The Economist, usually a reliable indicator of free-market thinking, warned in October that inflation posed such a threat to British life that keeping wages and prices down would be worth ‘the billion pounds or so a year of emollient economic sillinesses’ involved in Heath’s partnership with the unions.42
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