I could always be sure of a friendly reception from grassroots Scottish Tories, whose embattled position seems to sharpen their zeal. More generally, however, the honeymoon did not last long and ordinary political life resumed with a vengeance. The opinion polls, which in February had given the Conservatives a 4 percentage point lead over Labour, showed a 2 per cent Labour lead just a month later — not statistically significant perhaps, but a check on any premature tendency to euphoria. It also soon became clear that powerful elements in the Party were out to make trouble for me. In early April Harold Macmillan and Ted Heath made speeches to a conference of Young Conservatives, warning against shifting the Conservative Party to the right. The European referendum campaign placed the focus on European issues, and this in turn gave a fillip to advocates of coalition government. All this created more difficulties for me.
My first major parliamentary performance in which I crossed swords with Harold Wilson, in a debate on the economy on Thursday 22 May, was heavily and justly criticized for not spelling out convincingly the Conservative alternative. The difficulty was that at this point we had no credible alternative to offer. Imprisoned by the requirement of defending the indefensible record of the Heath Government, we were unable as yet to break through to a proper free-market alternative.
Even so, however, on this and several other occasions I did not make a good speech. Leading for the Opposition in set-piece debates, one is not able to make a wide-ranging speech on the basis of a few notes, something which I was good at and liked. A front-bench speech has to be a fully prepared text, available to the press. But at the same time it has to be very different from the kind of texted speech that is appropriate to a large sympathetic audience where the only interruptions are from applause. And, of course, you need to have acquired considerable authority in the House — the sort usually accorded only to Prime Ministers, and not always to them — to get through reading a text without a barrage of barracking and interruption.
The root of all our problems, however, lay in the unresolved contradictions of policy. With Keith Joseph and Angus Maude having overall responsibility, I could have confidence that the policy-making process would now be organized along lines which I approved. But the decisive influences would never be theoretical or technical but rather personal and political. However long we argued about the rights and wrongs of public expenditure, incomes policy and industrial subsidies, some of us (probably a minority) in the Shadow Cabinet firmly believed that the free-market approach would work, while the others were equally convinced that it would not — or at least that it would only work at a political and social cost that would be unsustainable. Similarly, we were not discussing these things in a vacuum. The Labour Government in those years was producing a succession of economic packages. Each one of these forced us to define where we stood, to agree on the grounds on which we opposed their policies and to sharpen our alternative approach.
In March 1975 we discussed a paper from Keith and Angus on policy-making. They proposed involving both backbench committees and sympathetic outside experts; and this was accepted. The number of policy groups continued to multiply, and some were more useful than others. They were generally chaired by the relevant front-bench spokesmen. Geoffrey Howe’s Economic Reconstruction Group was the main forum for hashing over economic policy. From time to time, there would be whole-day Shadow Cabinet policy discussions, which I myself would chair. The full Shadow Cabinet approved, rather than devised, policy on the basis of papers put to it by the chief Shadow spokesmen and their policy groups.
The Centre for Policy Studies and a range of outside advisers, particularly on economic matters, fed in ideas and suggestions to Keith and me (Keith also had a number of lunchtime meetings with other Shadow Cabinet colleagues on policy). And on top of all that I would sometimes advance a new policy in a speech or interview — not always to the applause of my colleagues.
As a system of decision-taking the structure had a somewhat ramshackle feel to it. But then, no amount of institutional neatness could resolve the fundamental questions we had to decide. The fact that by the time we took office in May 1979 so many of the big issues had been satisfactorily resolved, and Shadow ministers had as clear an idea of their priorities as any incoming post-war British Government, shows that in the most important sense this policymaking system ‘worked’.
The foremost policy issue was how to deal with inflation, which soared to 26.9 per cent in August 1975 before beginning to fall, going below 10 per cent in January 1978. Time and again inflation registered in the opinion polls as the public’s top priority for action, though often in tandem with strong support for pay policy as supposedly the only means of fighting it. But unemployment was never far behind, and one of the main attacks we had to face from Labour was that our policy for disinflation would result in still higher unemployment.
Discussion of how inflation was caused and cured also necessarily involved making a judgement about the Heath Government. If inflation was the result of an increase in the money supply, which takes approximately eighteen months to work through in the form of higher prices, then the prime responsibility for the high inflation during the first eighteen months or so of the Labour Government should be laid at the door of the Conservatives. If, however, the cause of high inflation was excessive wage awards after the collapse of the previous Conservative Government’s incomes policy and Labour’s abdication of authority to the trade unions, then political life in Opposition would be easier. We might not have any credible solutions to offer, but we could at least blame everything on the Government. This approach was likely to be particularly favoured by those of my colleagues who prided themselves on being sceptics about all kinds of economic theory. In fact, the case that the Heath Government’s monetary incontinence was to blame for inflation seemed to me convincingly argued by Alan Walters, whose devastating indictment and predictions, first published in June 1972, were circulated by Keith as background for a discussion with Shadow Cabinet colleagues in March 1975. But if I had publicly accepted this it would have provoked even more trouble from Ted Heath and his supporters.
Our failure to be explicit about the overriding importance of monetary policy did, however, open up our flank to attack on incomes policy. For if wage rises were the cause of inflation, as our rhetoric in defence of the Heath years implied, then the question arose: how would we in Government be able to contain such rises? Would we do so by a statutory policy — which would not only move us towards the very interventionist approach I wanted to avoid, but would also run up against fierce trade union opposition? Or by a voluntary policy — on which Labour’s traditional links with the unions and willingness to trade socialist measures to cement them put us at a political disadvantage?
The October 1974 Conservative manifesto had committed the Party to seek a voluntary policy for prices and incomes, with the qualification that it might be necessary to move to a statutory policy if voluntary support were not achieved. I could only gradually wean the Party away from this position. My task was made more difficult both by the fact that wages and prices were soaring alarmingly, and by Ted Heath and Peter Walker putting me under heavy public pressure to support successive stages of the Labour Government’s incomes policy. In an interview with Robin Day in May 1975 I said that under some circumstances a pay freeze might be necessary, but not as a prelude to a permanent statutory incomes policy. Wages had, after all, been growing at some 30 per cent a year since Labour took office. But I never saw even a short wage freeze as having more than a transitional role in any realistic strategy to bring down inflation, which must be based on control of the money supply and government borrowing. In fact, there were already some early signs that the Government had woken up to the need for some financial discipline. The April 1975 Budget announced cuts in planned spending levels and raised the basic rate of income tax by two pence — to 35 per cent — in order to reduce the swelling deficit which was expected to reach £9,000 million in 1975/76.
T
his did not prevent the Government accepting the hugely ambitious and ill-conceived Ryder plan to rescue British Leyland with £ 1,400 million of taxpayers’ money. Yet, however irresponsible the decision, it was the Conservative Opposition which had most difficulty in responding. BL was a crucial source of income and jobs in West Midlands seats which we had to win in order to form a government. But resources committed to an unprofitable nationalized car industry must have been diverted, through taxation or higher interest rates or inflation, from successful businesses, among other taxpayers. Keith Joseph, Michael Heseltine and I all gave non-committal reactions in public statements, but the variation in tone, particularly between Keith and Michael, was obvious to all.
If public expenditure was one aspect of the debate about counter-inflation policy, trade union power was another. On this matter, the line-up in the Shadow Cabinet over these years was slightly different from that on the question of voluntary/statutory incomes policy versus ‘free collective bargaining’. Geoffrey Howe was the most consistently hawkish on trade unions. Right from the beginning, he emphasized in our discussions the need to shift the balance of power in industrial relations: indeed, I suspect that he would ideally have liked to get back to the Industrial Relations Act framework which he had devised. Keith Joseph and I shared that approach, though I remained extremely wary about committing ourselves to more changes than we could deliver. Jim Prior and most of the other Shadow Cabinet members could be found in the opposite camp.
On incomes policy, however, Geoffrey and Jim, supported by Ian Gilmour, were the strongest advocates of some kind of national understanding with the trade unions. Geoffrey’s view was that we should seek to emulate the alleged successes of the West German approach of ‘concerted action’, whose purpose was to educate ‘both sides’ of industry in the realities of the state of the economy and win some kind of consent to limit wages. This did not in itself involve a renunciation of monetarism, to which Geoffrey, in contrast with Jim and Ian, was increasingly committed. But it did involve a large element of corporatism and centralized economic decision-making, to which Keith was fiercely opposed and which I too disliked.
The most convinced opponent of monetarism and all its works was Reggie Maudling who, when he put his mind to it, actually had the grasp of economics to give his arguments weight. Reggie was the most ardently committed to a statutory incomes policy. As he put it in a dissenting paper to the Shadow Cabinet in May: ‘To the economic purist, no doubt, prices are only a symptom of inflation, but to us as politicians they are the real problem, because it is rising prices that are breaking the country in half.’ With such divisions in our midst it is not surprising that for much of the time our economic policies were felt to lack coherence.
The difficulties I had faced in the Economic Debate on Thursday 22 May — when for these reasons I had not been able to present a coherent alternative to Government policy — persuaded me of the urgent need to sort out our position. Further public differences confirmed this. In June I spoke to the Welsh Party Conference in Aberystwyth expressing strong reservations about statutory wage controls: the same day Reggie Maudling spoke in Chislehurst implying that we might support a statutory policy. A few days later Keith made a speech casting severe doubt on the value of even a wage freeze, suggesting that it would be used as an excuse for not cutting public spending and taking the other necessary economic steps. On the same day Peter Walker called for a statutory pay policy — and was himself rebutted by Keith, who said bluntly that wage freezes did not work. Not surprisingly, Conservative splits figured large in the press. The fact that these divisions were more than replicated on the Government side was of only limited comfort.
I decided that even if we could not as yet all agree an analysis, we must at least agree to stick to a form of words that would paper over the cracks. After we had heard Denis Healey’s 1 July statement foreshadowing Labour’s introduction of an incomes policy based on sanctions against employers rather than unions, Shadow Cabinet met to discuss our reaction. The crucial question was whether, when it came to a vote in the House, we should support the Government, abstain or vote against. The problem was compounded by the fact that the Chancellor had only given a preliminary indication of what he intended. We would have to wait for the promised White Paper before we even knew whether the policy could properly be described as voluntary or statutory. On the other hand, we did not want to be in the position of flatly refusing support for measures to bring down inflation, even if they included a statutory policy.
Now the Chief Whip told us that there were at least thirty Tory MPs who were opposed in principle to statutory controls and would expect us to oppose them too. I summed up as best I could. Our public line at this stage must be that although the Party would always support measures it believed to be in the national interest, the Chancellor’s statement was high on intentions and low on details. Moreover, he had said nothing about public expenditure cuts or about dropping policies for further nationalization, both of which were directly relevant to the control of inflation.
I found from my own soundings that Conservative opinion in the country was strongly opposed to employers having to bear the brunt of anti-inflation measures. Our supporters wanted us to be tough on Labour. The following day the Backbench Finance Committee met and Bill Shelton reported to me their concerns. While very few wanted us to vote against the Government’s package outright, there was widespread anxiety lest by supporting it we would also be endorsing a continuation of the socialist programme.
At Shadow Cabinet on Monday 7 July, Jim Prior and Keith Joseph argued their conflicting cases. But the crucial question was still which Division Lobby the Party should enter, if any. By now the safest, if least glorious, course appeared to be to abstain. The risk was that such a tactic would dismay both wings of the Parliamentary Party and we could find ourselves with a three-way split.
Whatever the tactics to employ, I also needed to be clear in my own mind whether the Healey measures were a genuine step towards financial discipline or a smokescreen. So the day after the Shadow Cabinet discussion I had a working supper in my room in the House with Willie, Keith, Geoffrey, Jim and a number of economists and City experts, including people like Alan Walters, Brian Griffiths, Gordon Pepper and Sam Brittan who were in regular touch with me and on whose opinions I set a high value.[37] Although we would have to look at the package as a whole, especially the monetary and fiscal side, as Geoffrey said at the start of the evening, I came away feeling still less inclined to lend support to flimsy and possibly harmful proposals.
The White Paper, containing the details, was published on Friday 11 July. It was, as expected, a curate’s egg, containing measures like cash limits which we approved but not matching these with any real public expenditure cuts. The centrepiece was a £6 limit on pay increases for the coming year. The most astonishing omission was that the Government refused to publish the draft Bill it claimed to have drawn up which would introduce statutory controls if the voluntary limits were ignored. By the time it came to a vote, backbench and Shadow Cabinet opinion favoured abstention and this was now agreed. My own speech in the debate did not go particularly well — unsurprisingly, given the protean case I had to present. That might have been awkward, but Ted bailed me out by regretting that we were not supporting the Government and then refusing to back our critical amendment.
If one good thing came out of these travails, it was that the Shadow Cabinet was pushed towards an agreed line on incomes policy. This was that the conquest of inflation required that all economic policies must be pulling in the same anti-inflationary direction, in particular public spending and monetary policy. An incomes policy might play a useful part as one of a comprehensive package of policies, but was not to be considered as an alternative to the others, and could not be expected to achieve much on its own. While hardly qualifying as an original (or even true) economic insight, this at least provided a temporary refuge.
In any case, the Government’s July package w
as rightly judged to be insufficient to deal with the looming economic crisis. Inflation that summer reached an all-time high of 26.9 per cent.
We fled to Brittany in August for a holiday canal-cruising. For my holiday reading I took a book on British Prime Ministers. I was still away when Harold Wilson launched the incomes policy in a television broadcast asking people to give ‘a year for Britain’ by sticking to the £6 limit. In my absence, Willie Whitelaw replied the following evening giving this nonsense a rather warmer welcome than I could have been persuaded to do.
PROBLEMS OF OPPOSITION
In spite of the difficulties I had faced in the months since I became Leader, I approached that autumn’s Party Conference in reasonably good spirits. Ted and his friends seemed likely to continue being as difficult as possible, but my foreign visits had boosted my own standing.[38] The Government’s economic policy was in ruins. The Conservatives were 23 per cent ahead of Labour, according to a pre-Conference opinion poll. The task at Blackpool was to consolidate all this by showing that I could command the support of the Party in the country.
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