Geoffrey argued against a penny on income tax – on which I was not too difficult to persuade for I was horrified at the thought of reversing even some of the progress we had made on bringing down Labour’s tax rates. But he also argued against the need to bring down the PSBR further, and on this last point I was not persuaded at all.
Early the following morning, Alan came in to see me. I told him that I had insisted on the lower PSBR he wanted. But I still did not know quite how Geoffrey would react. Then Geoffrey came in to see me. Having consulted his ministerial colleagues in the Treasury he had accepted that we should have a smaller PSBR, below £11 billion. Rather than increase the basic rate of income tax he proposed the less unpopular course of withholding any increase in tax thresholds – though this was still an extraordinarily bold move when inflation remained at 13 per cent. Our budget strategy was now set. And it looked as if we would be able to announce a reduction of 2 per cent in MLR in the budget the following Tuesday.
Unsurprisingly, the budget was very unpopular. In the eyes of our critics, the strategy was fundamentally wrong. If you believed, as they did, that increased Government borrowing was the way to get out of recession, then our approach was inexplicable. If, on the other hand, you thought, as we did, that the way to get industry moving again was above all to get down interest rates, then you had to reduce Government borrowing. Far from being deflationary, our budget would have the reverse effect: by cutting government borrowing and over time easing the monetary squeeze, it would allow interest rates and the exchange rate to fall, both of which had created severe difficulties for industry. I doubt that there has ever been a clearer test of two fundamentally different approaches to economic management.
The dissenters in the Cabinet had been stunned by the budget when they learned its contents at the traditional morning Cabinet on budget day. The press was soon full of leaks expressing their fury and frustration. They knew that the budget gave them a political opportunity. Because it departed so radically from post-war economic orthodoxy even some of our supporters would not wholly believe in the strategy until it started to yield results. That might not be for some time.
Thankfully, strikes occupied far less of our time during 1981 than they had in 1980, and the number of working days lost due to strike action was only a third of that in the previous year. But two disputes – one in the coal industry, which did not in the end result in a strike, and another in the civil service, which did* – were of great importance, both to budget decisions and to the overall political climate.
A foreigner unaware of the extraordinary legacy of state socialism in Britain would probably have found the threatened miners’ strike in January 1981 quite incomprehensible: £2.5 billion of taxpayers’ money had been invested in the coal industry since 1974; productivity at some of the new pits was high, and a slimmed-down and competitive coal industry could have provided employees with good, well-paid jobs. But this was possible only if uneconomic pits were closed. Moreover, the pits which the NCB was intent on closing were not just uneconomic but more or less exhausted. On 27 January the Energy Secretary, David Howell, told me about the closure plans. The following afternoon Sir Derek Ezra, NCB Chairman, visited Downing Street and briefed me in person. I agreed with him that with coal stocks piling up there was no alternative to speeding up the closure of uneconomic pits.
As in the cases of BSC and BL, it was the management which had to implement the agreed approach. The press was soon full of NCB plans to close 50 pits and a bitter conflict was predicted. The National Union of Mineworkers was pledged to fight closures and although Joe Gormley, its President, was a moderate, the powerful left-wing faction of the union was bound to exploit the situation and Arthur Scargill, the hard-left leader, was likely to succeed Mr Gormley as President in the near future.
At a meeting with the NUM on 11 February the NCB Board resisted pressure to publish a list of pits it was proposing to close and denied the figure of 50. However, the Board failed to mention the idea of improved redundancy terms, which was already being discussed by the Government, and instead undertook to join the NUM in an approach to us seeking a lower level of coal imports, the maintenance of a high level of public investment and subsidies comparable to those allegedly being paid by other governments to coal industries abroad. The NCB Board was behaving as if it entirely shared the interests of the union representing its employees. The situation quickly deteriorated further.
On Monday 16 February I had a meeting with David Howell and others. Their tone had entirely changed. The department had suddenly been forced to look over the abyss and had recoiled. The objective had now become to avoid an all-out national strike at the minimum cost in concessions. David Howell would have to agree to a tripartite meeting with the NUM and the NCB to achieve this. The tone of the NCB Chairman had also changed in short order. I was appalled to find that we had inadvertently entered into a battle which we could not win. There had been no forward thinking in the Department of Energy. The coal stocks piled at the pit heads were largely irrelevant to the question of whether the country could endure a strike: it was the stocks at the power stations which were important, and these were simply not sufficient. It became very clear that all we could do was to cut our losses and live to fight another day, when – with adequate preparation – we might be in a position to win. Defeat in a coal strike would have been disastrous.
The tripartite meeting was due to take place on 23 February. On the morning of 18 February I met hurriedly with David Howell to agree on the concessions which would have to be offered to stave off a strike. There was still considerable confusion as to what the facts really were. Whereas the NCB had been reported to be seeking 50 or 60 pit closures, it now appeared that they were talking about 23. But the tripartite meeting achieved its immediate objective: the strike was averted. The Government undertook to reduce imports of coal, with David Howell indicating that we were prepared to discuss the financial implications with an open mind. Sir Derek Ezra said that in the light of this undertaking to review the financial constraints under which the NCB was operating, the Board would withdraw its closure proposals and re-examine the position in consultation with the unions.
The following day David Howell made a statement to the Commons to explain the outcome of the meeting. The press reaction was that the miners had won a major victory at the expense of the Government, but that we had probably been right to surrender. This was not, however, the end of our difficulties. It had emerged at the tripartite meeting on 25 February that the NCB was in far deeper financial trouble than we had known. They were likely to overrun their external financing limit (EFL), which had already been set at some £800 million, by between £450 and £500 million and were expecting to make a loss of £350 million. We would need to challenge these figures and examine them in detail, but we could not do this when the NUM knew almost as much about the NCB’s financial position as we did. Therefore, our aim must be to draw a ring fence around the coal industry by arguing that coal was a special case rather than a precedent. Above all, we must prepare contingency plans in case the NUM sought a confrontation in the next pay round.
Having managed to ease the Government out of an impossible position – at what I knew to be a highpolitical cost – I concentrated attention on limiting the financial consequences of our retreat and preparing the ground so that we would never be put in such an awful situation again.
The real question in my mind was whether we would be able to resist a strike that winter. It was evident from the NUM Conference which took place in July that the left wing of the union had become obsessed with the idea of taking on the Government and that Arthur Scargill, certain of the presidency, would make this his policy. Willie Whitelaw, as the minister in overall charge of civil contingency planning, sent me a report on 22 July, which concluded that a strike this year probably could not be withstood for more than 13–14 weeks. The calculations took account of the transfer of coal stocks which we had put in hand. In theory, endurance co
uld be increased by power cuts or the use of troops to move coal to the power stations. But either option was fraught with difficulty. There would be huge political pressure to give in to a strike. The union might see what was up if we set about increasing oil stocks for power stations. We would have to rely on a judicious mixture of flexibility and bluff until the Government was in a position to face down the challenge posed to the economy, and indeed potentially to the rule of law, by the combined force of monopoly and union power in the coal industry.
Over the weekend of 10–12 April, riots broke out in Brixton, South London. Shops were looted, vehicles destroyed, and 149 police officers and 58 members of the public were injured. Two hundred and fifteen people were arrested. There were frightening scenes, reminiscent of riots in the United States during the 1960s and ′70s. I accepted Willie Whitelaw’s suggestion that Lord Scarman, the distinguished Law Lord, should undertake an inquiry into the causes of what had happened and make recommendations.
There was a lull; then on Friday 3 July a battle in Southall between white skinheads and Asian youths erupted into a riot in which the police quickly became the main victims, attacked with petrol bombs, bricks and anything else to hand. The mob even turned on firemen and ambulancemen. Over the weekend, Toxteth in Liverpool was also the scene of violence: once again there were outbreaks of arson, looting and savage attacks on the police.
On 8 and 9 July it was the turn of Moss Side in Manchester to experience two days of serious disorder. Willie Whitelaw told me after his visits to Manchester and Liverpool that the Moss Side riots had taken the form of looting and hooliganism rather than direct confrontation with the police. In Liverpool, as I was to learn, racial tension and bitter hostility to the police – in my view encouraged by left-wing extremists – were more important.
The riots were, of course, a godsend to the Labour Opposition and the Government’s critics in general. Here was the long-awaited evidence that our economic policy was causing social breakdown and violence. I found myself countering the argument that the riots had been caused by unemployment. This rather overlooked the fact that riots, football hooliganism and crime generally had been on the increase since the 1960s, most of that time under the very economic policies that our critics were urging us to adopt. Another argument – that racial minorities were reacting to police brutality and racial discrimination – we took more seriously. Following Lord Scarman’s report we introduced a statutory framework for consultation between the police and local authorities, tightened the rules on stopping and searching suspects, and brought in other measures relating to police recruitment, training and discipline.
Whatever Lord Scarman might recommend, however, the immediate requirement was that law and order should be restored. I told Willie on Saturday 11 July that I intended to go to Scotland Yard and wished to be shown how they handled the difficulties on the ground.
After a briefing at Scotland Yard I was taken round Brixton, and on Monday 13 July I made a similar visit to Liverpool. Driving through Toxteth, the scene of the disturbances, I observed that for all that was said about deprivation, the housing there was by no means the worst in the city. I had been told that some of the young people involved got into trouble through boredom and not having enough to do. But you had only to look at the grounds around those houses with the grass untended, some of it almost waist high, and the litter, to see that this was a false analysis. They had plenty of constructive things to do if they wanted. Instead, I asked myself how people could live in such circumstances without trying to clear up the mess and improve their surroundings. What was clearly lacking was a sense of pride and personal responsibility – something which the state can easily remove but almost never give back.
The first people I talked to in Liverpool were the police. I also met councillors at Liverpool City Hall and then talked to a group of community leaders and young people. I was appalled by the latter’s hostility to the Chief Constable and the police. But I listened carefully to what they had to say. They were articulate and talked about their problems with great sincerity.
The whole visit left me in no doubt that we faced immense problems in areas like Toxteth and Brixton. People had to find once again a sense of respect for the law, for the neighbourhood, and indeed for themselves. Despite our implementation of most of Scarman’s recommendations and the inner-city initiatives we were to take, none of the conventional remedies relying on state action and public spending was likely to prove effective. The causes went much deeper; so must the cures.
The rioters were invariably young men, whose high animal spirits, usually kept in check by a whole range of social constraints, had been unleashed to wreak havoc. What had become of the constraints? A sense of community – including the watchful disapproval of neighbours – is the strongest such barrier. But this sense had been lost in the inner cities. Often those neighbourhoods were the artificial creation of local authorities which had uprooted people from genuine communities and decanted them into badly designed and ill-maintained estates where they did not know their new neighbours. Some of these new ‘neighbourhoods’, because of large-scale immigration, were ethnically mixed; on top of the tensions which might initially arise in any event, even immigrant families with a very strong sense of traditional values found those values undermined in their own children by messages from the surrounding culture. In particular, welfare arrangements encouraged dependency and discouraged a sense of responsibility. The results were a steadily increasing rise in crime (among young men) and illegitimacy (among young women).
All that was needed for these to flower into full-scale rioting was the decline of authority, and authority of all kinds – in the home, the school, the churches and the state – had been in decline for most of the post-war years. Hence the rise in football hooliganism, race riots and delinquency over that period. What perhaps aggravated the 1981 riots into a virtual saturnalia, however, was the impression given by television that rioters could enjoy a fiesta of crime, looting and rioting in the guise of social protest. These are precisely the circumstances in which young men riot, and riot again – and they have nothing whatever to do with £M3.
Once we had solved the problem of the British economy, we would need to turn to those deeper and more intractable problems. I did so in my second and third terms with the set of policies for housing, education, local authorities and social security that my advisers, over my objections, wanted to call ‘Social Thatcherism’. But we had only begun to make an impact on these by the time I left office.
The 1981 budget continued to agitate the Cabinet. Some ministers were long-standing in their dissent. Others on whose support I had counted in the past began to fall away. The irony was that at the very time the opposition to the strategy was greatest, the trough of the recession had already been reached. Whereas in 1980 the dissenters in the Cabinet had refused to face up to the true seriousness of the economic situation and so had insisted on higher government spending than we could afford, in 1981 they made the opposite mistake by exaggerating the bleakness of the economic outlook and calling for even higher spending in a bid to reflate the economy out of recession. Surely there is something logically suspect about a solution which is always correct whatever the problem.
One of the myths perpetuated by the media at this time was that Treasury ministers and I were obsessively secretive about economic policy, seeking always to avoid debate in Cabinet. In view of past leaks that might have been an understandable approach, but it was never one we adopted. Geoffrey Howe was anxious to have three or four full economic discussions in Cabinet every year, in the belief that it would help us to win greater support for the policy; I doubted whether discussions of this sort would achieve a meeting of minds, but I went along with Geoffrey’s suggestion as long as it generated practical results.
The arguments came to a head at the Cabinet discussion on Thursday 23 July. I had more than an inkling of what was coming. Indeed, that morning I had said to Denis that we had not come this far t
o go back now. I would not stay as Prime Minister unless we saw the strategy through. Spending ministers had submitted bids for extra expenditure of more than £6.5 billion, of which some £2.5 billion was demanded for the nationalized industries. But the Treasury urged reduced public spending for 1982–83, below the totals derived from the March White Paper. The result was one of the bitterest arguments on the economy, or any subject, that I can ever recall taking place at Cabinet during my premiership. Some argued for extra public spending and borrowing as a better route to recovery than tax cuts. There was talk of a pay freeze. Even those, like John Nott, who had been known for their views on sound finance, attacked Geoffrey Howe’s proposals as unnecessarily harsh. All at once the whole strategy was at issue. I had thought that we could rely on these people when the crunch came and I was not interested in this kind of creative accounting that enabled fair-weather monetarists to justify an about-turn. Others, though, were as loyal as ever, notably Willie, Keith and, of course, Geoffrey himself who was a tower of strength at this time. And indeed it was their loyalty that saw us through.
I had said at the beginning of the Government ‘Give me six strong men and true, and I will get through.’ Very rarely did I have as many as six. So I responded vigorously in defence of the Chancellor. I was prepared to have a further paper on the issue of tax cuts versus public spending. But I warned of the effects on international confidence of public expenditure increases or any departure from the MTFS. I was determined that the strategy should continue. But when I closed the meeting I knew that there were too many in Cabinet who did not share that view.
Margaret Thatcher: The Autobiography Page 43
