We were still in a mood to celebrate our election victory. We were away from the formality of No. 10. We had completed the initial task of getting the Government on the road. We still had that spirit of camaraderie which the inevitable disputes and disagreements of government were bound to sap. The meal was a light-hearted and convivial one. It was perhaps an instance of what a critic was later to call ‘bourgeois triumphalism.’
But we were aware that there was a long road ahead. As my father used to say:
It’s easy to be a starter, but are you a sticker too?
It’s easy enough to begin a job, it’s harder to see it through.
At 7 p.m. that evening Denis and I returned to London to begin my second full week as Prime Minister. Work was already piling up, with boxes coming to and from Chequers. I recall once hearing Harold Macmillan tell an eager group of young MPs, none more eager than Margaret Thatcher, that Prime Ministers (not having a department of their own) have plenty of spare time for reading. He recommended Disraeli and Trollope. I have sometimes wondered if he was joking.
* The Privy Council is one of the oldest of Britain’s political institutions, with the most important of the Crown’s advisers among its members, including by convention all Cabinet ministers. Its meetings – usually of a few ministers in the presence of the Queen – are now purely formal, but the oath taken by new members reinforces the obligation of secrecy in conducting government business, and the issue of ‘Orders in Council’ is still an important procedure for enacting the legislation not requiring the approval of Parliament.
CHAPTER FOURTEEN
Changing Signals
Domestic politics in the first six months until the end of 1979
TO TURN FROM THE EUPHORIA of election victory to the problems of the British economy was to confront the morning after the night before. Inflation was speeding up; public sector pay was out of control; public spending projections were rising as revenue projections fell; and our domestic problems were aggravated by a rise in oil prices that was driving the world into recession.
The temptation in these circumstances was to retreat to a defensive redoubt: not to cut income tax when revenues were already threatening to fall; not to remove price controls when inflation was already accelerating; not to cut industrial subsidies in the teeth of a rising recession; and not to constrain the public sector when the private sector seemed too weak to create new jobs. And, indeed, these adverse economic conditions did slow down the rate at which we could hope to regenerate Britain. But I believed that was all the more reason to redouble our efforts. We were running up the ‘Down’ escalator, and we would have to run a great deal faster if we were ever to get to the top.
Our first opportunity to demonstrate to both friends and opponents that we would not be deterred by the difficulties was the Queen’s Speech. The first Loyal Address of a new government sets the tone for its whole term of office. If the opportunity to set a radical new course is not taken, it will almost certainly never recur. I was determined to send out a clear signal of change.
By the end of the debates on the Address it was evident that the House of Commons could expect a heavy programme, designed to reverse socialism, extend choice and widen property ownership. There would be legislation to restrict the activities of Labour’s National Enterprise Board and to begin the process of returning state-owned businesses and assets to the private sector. We would give council tenants the right to buy their homes at large discounts, with the possibility of 100 per cent mortgages. There would be partial deregulation of new private sector renting. (Decades of restrictive controls had steadily reduced the opportunities for those who wished to rent accommodation and thereby retarded labour mobility and economic progress.) We would repeal Labour’s Community Land Act – this attempt to nationalize the gains accruing from development had created a shortage of land and pushed up prices. We removed the obligation on local authorities to replace grammar schools and announced the introduction of the Assisted Places Scheme, enabling talented children from poorer backgrounds to go to private schools. We would, finally, curb what were often the corrupt and wasteful activities of local government direct labour organizations (usually socialist controlled).
When I spoke in the Queen’s Speech debate, two points attracted particular attention: the abolition of price controls and the promise of trade union reform. Most people expected that we would keep price controls in some form, at least temporarily. After all, the regulation of prices, wages and dividends had been one of the means by which, throughout most of the western world, governments sought to extend their powers and influence and to alleviate the inflationary effects of their own financially irresponsible policies.
I was also keen to use my speech in the debate to put an authoritative stamp on our trade union reforms. Jim Prior’s preferred strategy was one of consultation with the trade unions before introducing the limited reforms of trade union law which we had proposed in Opposition. But it was vital to show that there would be no back-tracking from the clear mandate we had received to make fundamental changes. Initially, we proposed three reforms in the Queen’s Speech. First, the right to picket – which had been so seriously abused in the strikes of the previous winter and for many years before – would be strictly limited to those in dispute with their employer at their own place of work. Second, we were committed to changing the law on the closed shop, which at that time covered some five million workers. Those who lost their jobs for refusing to join a union must in future be entitled to proper compensation. Third, public funds would be made available to finance postal ballots for union elections and other important union decisions: we wanted to discourage votes by show of hands and the sharp practice, rigging and intimidation which had become associated with ‘trade union democracy’.
In retrospect it seems extraordinary that such a relatively modest programme was represented by most trade union leaders and the Labour Party as an outright attack on trade unionism. In fact, as time went by, it became increasingly clear to the trade union leaders and to the Labour Party that not only did we have huge public support for our policies, but that the majority of trade unionists supported them too, because their families were being damaged by strikes which many of them had not voted for. We were the ones in touch with the popular mood.
This was my first important parliamentary performance as Prime Minister, and I emerged unscathed. But it is Questions to the Prime Minister every Tuesday and Thursday which are the real test of your authority in the House, your standing with your party, your grip of policy and of the facts to justify it. No head of government anywhere in the world has to face this sort of regular pressure; no head of government, as I would sometimes remind those at summits, is as accountable as the British Prime Minister.
I always briefed myself very carefully for Questions and I would go through all the likely issues which might come up without any notice. This is because the questions on the Order Paper only ask about the Prime Minister’s official engagements for that day. The real question is the supplementary whose subject matter may vary from some local hospital to a great international issue or to the crime statistics. Each department was, naturally, expected to provide the facts and a possible reply on points which might arise. It was a good test of the alertness and efficiency of the Cabinet minister in charge of a department whether information arrived late – or arrived at all; whether it was accurate or wrong, comprehensible or riddled with jargon. On occasion the results, judged by these criteria, were not altogether reassuring. Little by little I came to feel more confident about these noisy ritual confrontations, and as I did so my performance became more effective. Sometimes I even enjoyed them.
The next watershed in the Government’s programme was the budget. Our general approach was well known. Firm control of the money supply was necessary to bring down inflation. Cuts in public expenditure and borrowing were needed to lift the burden on the wealth-creating private sector. Lower income tax, combined with a shift from tax
ation on earning to taxation on spending, would increase incentives. However, these broad objectives would have to be pursued against a rapidly worsening economic background at home and abroad.
No amount of advance preparation could change the unpleasant facts of finance or the budget arithmetic. The two crucial discussions on the 1979 budget took place on 22 and 24 May between me and the Chancellor. Geoffrey Howe was able to demonstrate that to reduce the top rate of income tax to 60 per cent (from 83 per cent), the basic rate to 30 per cent (from 33 per cent), and the Public Sector Borrowing Requirement (PSBR) to about £8 billion (a figure we felt we could fund and afford) would require an increase in the two rates of VAT of 8 per cent and 12.5 per cent to a unified rate of 15 per cent. I was naturally concerned that this large shift from direct to indirect taxation would add about four percentage points onto the Retail Price Index (RPI).
This would be a once and for all addition to prices (and so it would not be ‘inflationary’ in the correct sense of the term which means a continuing rise in prices). But it would also mean that the RPI would double in our first year of office.* I was also concerned that too many of the proposed public spending cuts involved higher charges for public services. These too would have a similar effect on the RPI. Rab Butler as Chancellor in 1951 had introduced his tax cuts gradually. Should we do the same? We went away to consider the question further.
At our second meeting we decided to go ahead. Income tax cuts were vital, even if they had to be paid for by raising VAT. The decisive argument was that such a controversial increase in indirect taxes could only be made at the beginning of a Parliament, when our mandate was fresh.
It was generally agreed to be a dramatic reforming budget even by those opposed to us, like the Guardian newspaper, which described it as ‘the richest political and economic gamble in post-war parliamentary history’. Its main provisions followed closely our discussions at the end of May: a cut in the basic rate of income tax from 33 to 30 per cent (with the highest rate cut from 83 to 60 per cent), tax allowances increased by 9 per cent above the rate of inflation, and the introduction of a new, unified rate of VAT at 15 per cent.
Apart from the budget’s big income tax cuts, however, we were able to reduce or remove controls on a number of areas of economic life. Pay, price and dividend controls had gone. Industrial Development Certificates, Office Development Permits and a range of circulars and unnecessary planning controls were also removed or modified.
I took greatest personal pleasure in the removal of exchange controls – that is the abolition of the elaborate statutory restrictions on the amount of foreign exchange British citizens could acquire. These had been introduced as an ‘emergency measure’ at the start of the Second World War and maintained by successive governments, largely in the hope of increasing industrial investment in Britain and of resisting pressures on sterling. The overwhelming evidence was that they no longer achieved either of their objectives – if in fact they ever had done. With sterling buoyant and Britain beginning to enjoy the economic benefits of North Sea oil, the time had come to abolish them entirely. They were duly removed in three stages though the legislation itself stayed on the Statute Book until 1987, but no further use was made of it. Not only did the ending of exchange controls increase the freedom of individuals and businesses; it encouraged foreign investment in Britain and British investment abroad, which has subsequently provided a valuable stream of income likely to continue long after North Sea oil runs out.
But not every capitalist had my confidence in capitalism. I remember a meeting in Opposition with City experts who were clearly taken aback at my desire to free their market. ‘Steady on!’ I was told. Clearly, a world without exchange controls in which markets rather than governments determined the movement of capital left them distinctly uneasy. They might have to take risks.
We had also been distracted throughout our budget discussions by the worrying level of public sector pay rises. Here we had limited freedom of manoeuvre. Hard, if distasteful, political calculations had led us to commit ourselves during the election campaign to honour the decisions of the Clegg Commission on those claims which had already been formally referred to it. The issue was now whether to refer the unsettled claims of other groups to Clegg, or to seek some new method of dealing with the problem.
In the end, it was not until August 1980 that we announced that Clegg would be abolished after its existing work had been completed. Its last report was in March 1981. The fact remains, however, that the momentum of public sector pay claims created by inflation, powerful trade unions and an over-large public sector was not going to be halted, let alone reversed, all at once.
Whatever the short-term difficulties, I was determined at least to begin work on long-term reforms of government itself. Since the early 1960s, the public sector had grown steadily.* Unlike the private sector, it actually tended to grow during recessions while maintaining its size during periods of economic growth; it was shielded from the normal economic disciplines which affect the outside world.
The size of the civil service reflected this. In 1961 the numbers in the civil service had reached a post-war low of 640,000; by 1979 they had grown to 732,000. Within days of taking office, as I have noted, we imposed a freeze in recruitment to help reduce the Government’s pay bill by some 3 per cent and by 13 May 1980 I was able to lay before the House our long-term targets for reducing civil service numbers. The total had already fallen to 705,000. We would seek to reduce it to around 630,000 over the next four years. Since some 80,000 left the civil service by retirement or resignation every year, it seemed likely that our target could be achieved without compulsory redundancies. We were, in fact, able to do it.
But the corollary of this was that we should reward outstanding ability within the civil service appropriately. The difficulties of introducing pay rates related to merit proved immense; it took several years and a great deal of pushing and shoving.
Similarly, I took a close interest in senior appointments in the civil service from the first, because they could affect the morale and efficiency of whole departments.
I was enormously impressed by the ability and energy of the members of my Private Office at No. 10. I wanted to see people of the same calibre, with lively minds and a commitment to good administration, promoted to hold the senior posts in the departments. Indeed, during my time in government, many of my former private secretaries went on to head departments. In all these decisions, however, ability, drive and enthusiasm were what mattered; political allegiance was not something I took into account.
Over the years, certain attitudes and work habits had crept in that were an obstacle to good administration. I had to overcome, for instance, the greater power of the civil service unions (which in addition were increasingly politicized). The pursuit of new and more efficient working practices – such as the application of information technology – was being held up by union obstruction. In a department like Health and Social Security where we needed to get the figures quickly to pay out benefits, these practices were disgraceful. But eventually we overcame them. And some Permanent Secretaries had come to think of themselves mainly as policy advisers, forgetting that they were also responsible for the efficient management of their departments.
To see for myself, I decided to visit the main government departments and devoted most of a day to each department. In September 1979, for instance, I had a useful discussion with civil servants at the Department of Health and Social Security. I brought up the urgent need to dispose of surplus land held by the public sector. I was keen that where hospitals had land which they did not need they should be able to sell it and retain the proceeds to spend on improving patient care. There were arguments for and against this, but one argument advanced on this occasion, which was all too symptomatic of what had gone seriously wrong, was that this was somehow unfair on those hospitals which did not have the good fortune to have surplus land. We clearly had a long way to go before all the resources of the Health
Service would be used efficiently for the benefit of patients. But this visit planted seeds that later grew into the Griffiths* reforms of NHS management and, later still, the internal market reforms of the Health Service in 1990.
Inevitably, my visits to government departments were not as long as I would have liked. There were other limits too on what I could learn on those occasions – particularly that senior civil servants might feel inhibited from speaking freely when their ministers were present. Consequently, I invited the Permanent Secretaries to dinner at No. 10 on the evening of Tuesday 6 May 1980. There were twenty-three Permanent Secretaries, Robin Ibbs (Head of the CPRS), Clive Whitmore, my principal private secretary, David Wolfson and myself around the dining table.
I enjoy frank and open discussion, even a clash of temperaments and ideas, but such a menu of complaints and negative attitudes as was served up that evening was enough to dull any appetite I may have had for this kind of occasion in the future. The dinner took place a few days before I announced the programme of civil service cuts to the Commons, and that was presumably the basis for complaints that ministers had damaged civil service ‘morale’.
What lay still further behind this, I felt, was desire for no change. But the idea that the civil service could be insulated from a reforming zeal that would transform Britain’s public and private institutions over the next decade was a pipe dream. I preferred disorderly resistance to decline rather than comfortable accommodation to it. And I knew that the more able of the younger generation of civil servants agreed with me. So, to be fair, did a few of the Permanent Secretaries present that night. They were as appalled as I was. It became clear to me that it was only by encouraging or appointing individuals, rather than trying to change attitudes en bloc, that progress would be made. And that was to be the method I employed.*
Margaret Thatcher: The Autobiography Page 36
