Ted’s mastery of the Cabinet was complete and unchallenged. He had won the 1970 election against all expectations and by means of a very personal campaign. We were aware of this and so was he. Moreover, argument from first principles was alien to his nature and disagreeable to his temperament. Until 1972—73 and the events of the U-turn, the unity of Cabinet under Ted’s leadership was at least in part simply recognition that he was Prime Minister and had a right to expect support in carrying through the programme. Once the programme itself was abandoned and an exercise in corporate interventionism adopted in its stead, the atmosphere grew worse, not manifesting itself in dissent but in the occasional leaked grumble. We knew we were locked in.
A ROLLS-ROYCE POLICY
For all the difficulties which were quickly upon us that summer and autumn of 1970, such melancholy reflections were still far from our thoughts. Indeed, Ted Heath, Tony Barber, Robert Carr and John Davies set out on the course of radical reform with impressive zeal; and the rest of us in the Cabinet were enthusiastic cheerleaders.
First, the Government embarked with a will on cutting public spending. (In fact this review was to be the only sustained Cabinet-level exercise of the kind during the entire period of 1970–74; the cuts of December 1973 would be made at speed and without detailed discussion in Cabinet.) Discussions began at the end of July. A target was agreed of £1,700 million net reduction in planned spending by 1974/75, and Ted circulated a paper on the economy to show his commitment to the strategy. The cuts were to fall most heavily on industrial spending, though as already noted I had my own departmental spending battles at Education. Investment grants were ended. The Industrial Re-organization Corporation (IRC) would be closed down. Aircraft and space projects would be subject to the closest scrutiny. Even with the reprieve of the hugely expensive Concorde project, largely on European policy grounds, it was an impressive free-market economic programme. And it made possible a tax-cutting Budget in October, which reduced the standard rate of income tax by 6d, down from 8s.3d in the pound (just over 4ip), and made reductions in corporation tax to take effect at the beginning of the next financial year.
Nor was there any delay in bringing forward the other key feature of our economic programme — the Industrial Relations Bill. The framework of the Bill was already familiar: this was one of the areas of policy most thoroughly worked out in Opposition and we had published our proposals in 1968. It was to be an ambitiously comprehensive attempt to provide a new basis for industrial relations. The main principles were that collective bargaining agreements should be legally enforceable unless the parties to them agreed otherwise, and that the unions’ historic immunities from civil action should be both significantly narrowed and confined to those whose rule books met certain minimum standards (‘registered unions’).
Cases brought under this legislation would be dealt with by a new system of industrial courts and tribunals, headed by a branch of the High Court — the National Industrial Relations Court (NIRC). The Bill also gave new powers to the Secretary of State for Employment, as a last resort when negotiation had failed, to apply to the NIRC either for an order deferring industrial action for up to sixty days — a ‘cooling off’ period — or for one requiring a secret ballot of the workers involved before a strike.
There was a good deal in the Bill that actively favoured trade unionism, for all the hostility it encountered on the Left. For the first time in English law there would be a legally enforceable right to belong (or not to belong) to a trade union. There would be statutory protection against unfair dismissal — again, a new principle in English law. Finally, the Bill would repeal provisions under previous legislation that made it a criminal offence for gas, water and electricity workers to strike during the lifetime of their contracts.
At the time I was a strong supporter of the Bill, although I had doubts about particular parts, such as the measure on essential services. We were all conscious that the previous Labour Government had backed off from its In Place of Strife proposals for trade union reform under a mixture of union and Party pressure. We were, therefore, doubly determined to make the changes required.
In retrospect, the philosophy of the Bill was muddled. It assumed that if the unions were in general confirmed in their powers they would both discipline their own members industrially, reducing wildcat strikes for instance, and use their industrial strength in a regulated and orderly fashion on the American model. But it also contained provisions to strengthen the powers of individuals against the unions. So the Bill was in part corporatist and in part libertarian.
Specifically there were four flaws. First, the Bill was full of loopholes. By refusing to sign agreements unless the employer conceded that they need not be legally binding, the unions effectively bypassed one legal sanction. They also discovered an effective tactic to stymie the Bill’s ambition to transform the nature of British industrial relations — many simply de-registered and went on behaving as if they still possessed the old immunities, defying anyone damaged by their activities to bring an action, and defying the courts on the rare occasions when actions were brought.
Second, we were not clear how the Industrial Relations Act fitted into our overall economic strategy. Our movement towards a ‘voluntary’ incomes policy — starting with the so-called ‘n–i’ policy[25] which had begun even before the Bill was introduced — increased the occasions for disputes about pay and put the fledgling Act under huge pressures. Eventually, the Industrial Relations Act was shelved, at least tacitly, as part of the attempt to stitch up a deal with the trade unions on pay.
Third, if we were to rely so heavily on the law to improve the climate of industrial relations, we should have avoided creating so many new institutions and procedures all at once. This allowed our opponents to claim that the system was rigged against them. And when we used the new powers to impose ‘cooling off’ periods and strike ballots, these were promptly discredited as disputes heated up and the votes went against us.
Finally, we naively assumed that our opponents would play by the same rules as we did. In particular, we imagined that there would not be either mass opposition to laws passed by a democratically elected government or mass infringement of the criminal law, as in the miners’ strike of 1972. We did not recognize that we were involved in a struggle with unscrupulous people whose principal objectives lay not in industrial relations but in politics. Had we understood this we might have embarked upon a step-by-step approach, fighting on our own territory at our own timing, as we were to do after 1979. It was later, as Leader of the Opposition, that I realized how far the extreme Left had penetrated into trade union leaderships and why that ‘giant’s strength’, of which the Tory pamphlet had spoken in the late 1950s, was now being used in such a ruthless manner. The communists knew that they could not be returned to Parliament, so they chose to advance their cause by getting into office in the trade union movement. And the fact that both the Wilson and Heath Governments had stood up to the unions and then lost increased their influence more than if we had not challenged their power in the first place.
But at this early stage we pressed ahead. The TUC was told by Robert Carr in October 1970 that the central aspects of the Industrial Relations Bill were not negotiable. The Bill was published and had its Second Reading in December. February and March 1971 saw mass protests and strikes against it. Labour used every device to fight the Bill, but in August 1971 it duly reached the Statute Book. The TUC Congress passed a resolution instructing unions to de-register. It therefore remained to be seen, when the Act came into force at the end of February 1972, what its practical effects would be — revolution, reform or business as usual. We were soon to find out.
Meanwhile other problems preoccupied us. It is sometimes suggested — and was at the time by Enoch Powell — that the Government’s decision in February 1971 to take control of the aerospace division of Rolls-Royce marked the first U-turn. This is not so. Shortly before the company told the Government of the impossible financia
l problems it faced (as a result of the escalating cost of the contract with Lockheed to build the RB–211 engine for its Tri-star aircraft), a constituent of mine had told me that he was worried about the company. So I asked Denis to look at the figures. I arrived home late one evening to find him surrounded by six years’ accounts. He told me that Rolls-Royce had been treating research and development costs as capital, rather than charging it to the profit and loss account. This spelt real trouble.
A few days later I was suddenly called to a Cabinet meeting and found Fred Corfield, the Aviation Minister, waiting in the Cabinet ante-room. ‘What are you here for, Fred?’ I asked. I wasn’t surprised when he replied gloomily: ‘Rolls-Royce.’ His expression said it all. At the meeting itself we heard the full story. To the amazement of my colleagues I confirmed the analysis, based on what Denis had told me. We decided without much debate to let the company itself go into liquidation but to nationalize the aerospace division. Over the next few months there were many more complicated discussions as we renegotiated the original contract with Lockheed, which was then itself in financial difficulties. One could argue — and people did — about the terms and the sum which needed to be provided. But I do not think any of us doubted that on defence grounds it was important to keep an indigenous aircraft engine capability. And in the long term, of course, this was one ‘lame duck’ which eventually found the strength to fly away again into the private sector, when I was Prime Minister.
The Rolls-Royce controversy proved to be of short duration, and it was to be a year before the serious economic U-turns — reflation, subsidies to industry, prices and incomes policy — occurred, and began the alienation of the Conservative right in Parliament and of many Tory supporters outside it. The failure of these U-turns to deliver success divided the Party still further and had other consequences. It created an inflationary boom which caused property prices to soar and encouraged a great deal of dubious financial speculation, tarnishing capitalism and, in spite of all the disclaimers, the Conservative Party with it. I shall return to the economic developments which led to all this shortly. But it is important not to underrate the impact on the Party of two non-economic issues — Europe and immigration.
FROM EMPIRE TO EUROPE
I was wholeheartedly in favour of British entry into the EEC for reasons which I have already outlined. General de Gaulle’s departure from the Elysée Palace in April 1969 had transformed the prospects. His successor, Georges Pompidou, was keen to have Britain in; and, of course, no one on our side of the Channel was keener than the new Prime Minister, Ted Heath. There was never any doubt what the incoming Conservative Government’s position would be; but nor was there doubt that many people across the political spectrum would oppose it. These included seme of the most effective parliamentarians such as Michael Foot, Peter Shore and Enoch Powell. But the worlds of business, the media and fashionable opinion generally were strongly in favour, for a variety of high-and low-minded reasons.
Talks formally opened in Brussels at the end of October 1970, with Geoffrey Rippon reporting back to Ted and a Cabinet Committee and, on occasion, to the rest of us in full Cabinet. Twice in December we had detailed discussions of our negotiating position on the EEC budget. There was no doubt that the financial cost of entry would be high. It was estimated that the best we could hope for would be a gross British contribution of 17 per cent of total EEC expenditure, with a five-year transition, and three years of so-called ‘correctives’ after that (to hold it at 17 per cent). To defuse the inevitable criticism, Geoffrey Rippon also hoped to negotiate a special review provision which we could invoke at any time if the burden of our net contributions to the budget threatened to become intolerable; but he seemed to attach little significance to it, and assumed that we could reopen the question whether there was a formal review mechanism or not.
At the time Ted resolved discussion about the costs of entry by saying that no one was arguing that the burden would be so intolerable that we should break off negotiations. But this whole question of finance should have been considered more carefully. It came to dominate Britain’s relations with the EEC for more than a decade afterwards, and it did not prove so easy to reopen. Though the Community made a declaration during the entry negotiations that ‘should an unacceptable situation arise within the present Community or an enlarged Community, the very survival of the Community would demand that the Institutions find equitable solutions’, the net British contribution quickly grew. The Labour Government of 1974–79 made no progress in reducing it. It was left to me to do so later.
Cabinet discussed the matter again in early May 1971, by which time the talks were reported to be ‘deadlocked’. There were difficulties outstanding on preferential arrangements for New Zealand products (butter and lamb) and Commonwealth sugar, and shadow-boxing by the French about the role of sterling as an international currency. But the budget was still the real problem. We had an idea what deal might be on offer: promises to cut the cost of the Common Agricultural Policy and the creation of a Regional Development Fund from which Britain would benefit disproportionately. It was still not the settlement we would have wanted — and anyway promises are not bankable — but at the time none of us foresaw how large the burden would turn out to be. Ted ended the discussion by telling us that he was planning a summit with President Pompidou in Paris to cut through the argument.
Ted spent two days talking to the French President. In view of all the past difficulties with the French, the summit was seen as a veritable triumph for him. Negotiations were completed rapidly afterwards — other than for the Common Fisheries Policy, which took years to resolve — and the terms approved by Cabinet the following month. Parliamentary approval could not be assumed, for both parties were deeply split and Labour had reversed its former support for British entry, arguing that the present terms were unacceptable. In the end, the Government decided that there would be a free vote on the Conservative side on the principle of entry. This embarrassed Labour, especially when sixty-nine Labour MPs ignored their own party whip and voted in favour, giving a majority of 112 for entry. But when it came to the terms rather than the principle of entry, the argument was far from won. The Second Reading of the European Communities Bill in February 1972 was only passed by 309 to 301, with the Liberals backing the Government and after much arm-twisting by Conservative Whips. The Bill itself was enacted in October.
The dog that barely barked at the time was the issue of sovereignty — both national and parliamentary — which as the years have gone by has assumed ever greater importance. There was some discussion of the question in Cabinet in July 1971, but only in the context of the general presentation of the case for entry in the White Paper. The resulting passages of the document — paragraphs 29—32 — can now be read in the light of events, and stand out as an extraordinary example of artful confusion to conceal fundamental issues. In particular, two sentences are masterpieces:
There is no question of any erosion of essential national sovereignty; what is proposed is a sharing and an enlargement of individual national sovereignties in the general interest.
And:
The common law will remain the basis of our legal system, and our Courts will continue to operate as they do at present.
I can claim to have had no special insight into these matters at the time. It then seemed to me, as it did to my colleagues, that the arguments about sovereignty which were advanced by Enoch Powell and others were theoretical points used as rhetorical devices.
In the debate on Clause 2 of the Bill, Geoffrey Howe, as Solicitor-General, gave what appeared to be satisfactory assurances on the matter in answer to criticisms from Derek Walker-Smith, saying that ‘at the end of the day if repeal [of the European Communities Act], lock, stock and barrel, was proposed, the ultimate sovereignty of Parliament must remain intact’. Asking himself the question: ‘What will happen if there is a future Act of Parliament which inadvertently, to a greater or lesser extent, may be in conflict with Commun
ity law?’ Geoffrey said: ‘The courts would… try in accordance with the traditional approach to interpret Statute in accordance with our international obligations.’ But what if they could not be reconciled? He went on, elliptically:
One cannot do more than that to reconcile the inescapable and enduring sovereignty of Parliament at the end of the road with the proposition that we should give effect to our treaty obligations to provide for the precedence of Community law… If through inadvertence any such conflict arose, that would be a matter for consideration by the Government and Parliament of the day…[26]
The decision of the European Court that the Merchant Shipping Act, 1988, is in contravention of the Treaty of Rome has made it impossible to put off consideration of these matters any longer.[27]
It was not, however, this question which was to make the Common Market such a difficult issue for the Government. The main political error was to overplay the advantages due to come from membership. As regards the Government itself, this tendency led ministers to adopt and excuse unsound policies. In order to ‘equip’ British industry to meet the challenges of Europe, subsidies and intervention were said to be necessary — reasoning which was endorsed in the 1972 Budget speech. Still worse, loose monetary and fiscal policies were justified on the grounds that high levels of economic growth — of the order of 5 per cent or so — were now sustainable within the new European market of some 300 million people. It was also suggested that competition from Europe would compel the trade unions to act more responsibly. As regards the general public, expectations of the benefits of membership rose — and then were sharply dashed as economic conditions deteriorated and industrial disruption worsened. Yet the White Paper had promised that ‘membership of the enlarged Community will lead to much improved efficiency and productivity in British industry, with a higher rate of investment and a faster growth of real wages’.
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