by Andrew Marr
Smith was never personally close to Kinnock, but scrupulously loyal. A convivial (not drunken) workaholic who ate too much, he nevertheless succeeded him by an overwhelming vote in 1992. By then he had with great good luck survived a major heart attack and taken up hill walking. The Sun, not always a good guide to the future, greeted his triumph with the eerily accurate and predictive headline: ‘He’s fat, he’s fifty-three, he’s had a heart attack and he’s taking on a stress-loaded job.’
Though Smith swiftly advanced the careers of the brightest younger stars, Tony Blair and Gordon Brown, they swiftly became depressed by his style of leadership. He did not believe Labour needed to be transformed, merely improved. He was reluctant at first to take on the party over issues such as one-person, one-vote internal democracy. He had an instantaneous dislike of the Mephistopheles of the modernizers, Peter Mandelson, which may have been tinged with Scottish Presbyterian homophobia. Blair, Brown and Mandelson thought Smith was smug and idle. He on the other hand was equally sure they were making too much fuss and that Labour could regain power with something of its traditional spirit. A little-known newspaper journalist called Alastair Campbell divided the party into two camps, the ‘frantics’, led by Brown, Blair and Jack Straw, and the ‘long-gamers’, led by Smith. At one point Blair was contemplating leaving politics, so despairing was he of Smith’s leadership. He should, he reflected, have stuck to the law, where his elder brother was doing so well. What was there in politics for him?
Smith died of a second heart attack on 12 May 1994. After the initial shock and grieving had finished, Labour moved rapidly away from his legacy. There is, however, one part of the Smith agenda which survived intact and is a big influence on the shape of Britain today. As the minister who had struggled to achieve devolution for Scotland in the dark years of 1978-9 he remained a passionate supporter of the ‘unfinished business’ of establishing a Scottish Parliament and Welsh Assembly. With his friend Donald Dewar he had committed Labour so utterly to the idea in Opposition that Blair, no particular fan of devolution, found this one part of old Labour’s agenda that stuck and had to be implemented later.
103
Black Wednesday and Party Suicide
The crisis that now engulfed the Conservative government was a complicated, devilish interaction of themes but in other ways very simple. The first thing that happened was that they lost their economic policy in a single day when the pound fell out of the European exchange rate mechanism. Major’s opening words in the chapter of his book that deals with this are a fair summary: ‘Black Wednesday – 16 September 1992, the day the pound toppled out of the ERM – was a political and economic calamity. It unleashed havoc in the Conservative Party and it changed the political landscape of Britain.’ It is worth recalling just what the ERM was and why it mattered so much in the early nineties.
Europe’s old currencies, the marks, francs, lira, crowns and the rest, were supposed to move in close alignment, like a flight of mismatched aircraft in tight formation. They would stick together against outsider currencies, notably the US dollar, behaving almost as if they were one currency. Speculators would not be able to drive them apart. Eventually, they would fuse and become one, which is where the aircraft analogy falls down, because so would the aircraft. The strongest currency by far was the German Deutschmark, so the rest followed it up and down.
Like the others the pound had a narrow band of values against the mark – its own airspace, as it were – which it had to keep to, as it swept through the turbulence and storms caused by the international money markets. Once it had chosen its entry rate, the value in marks that sterling would try to maintain, the government’s only steering mechanism was interest rates – plus, at the margin, protestation. What was the point of this? Dangerously, that depended on your vantage point. For Major and his government, the point was that because the German central bank had a deserved and ferocious reputation for anti-inflationary rigour, having to follow or ‘shadow’ the mark meant Britain had purchased a respected off-the-shelf policy. Sticking to the mighty mark was a useful signal to the rest of the world that this government, after all the inflationary booms of the past, was serious about inflation. On the continent the point of the ERM, however, was entirely different. It would lead to a strong new single currency. So a policy which Mrs Thatcher had earlier agreed to, in order to bring down British inflation, became a policy Lady Thatcher abhorred, because it drew Britain towards a European superstate. Confused? So was most of the Conservative Party.
Thus the bomb was prepared. What happened to set it off was that the US dollar began to fall because interest rates there were being cut, and pulled the pound down with it. Worse, the money flowed into Deutschmarks which duly rose; so the lead aircraft was gaining altitude, just as the pound was plunging. The government raised interest rates, up to an eye-watering 10 per cent, to try to lift the pound. But this did not work. The obvious next move was for the Germans to cut their interest rates, lowering the altitude of the mark, and keeping the ERM formation intact. This would have helped not just the pound but other weak currencies such as the Italian lira. But Germany had just reunited after the downfall of communism. The huge costs of bringing the poorer East Germans into West Germany’s embrace meant a real fear of renewed inflation and all those Weimar memories. So the Germans, heedless of the pain of Britain, Italy and the rest, wanted their interest rates high. Major begged, cajoled, warned and wrote stiff letters of protest to Chancellor Kohl who would not move. He warned of the danger of the new Maastricht Treaty failing completely, for the Danes had just rejected it in a referendum and the French were now having a plebiscite of their own. None of that cut any ice either.
In public, the British government insisted the pound would stay in the ERM at all costs. The mechanism was no mere technicality. It was Major’s anti-inflation strategy. Ever since as Chancellor he had told the unemployment-hit and house-repossessed British that ‘if it isn’t hurting, it isn’t working’, his credibility had been tied to the ERM. But it was his foreign policy too. British membership of the ERM showed the country was serious about being ‘at the heart of Europe’. It was Major’s big idea for Britain’s economic and diplomatic survival. Norman Lamont, who as Chancellor was as apparently committed as Major himself, told the markets Britain would neither leave the ERM nor devalue. It was ‘at the centre of our policy’ and there should not be a ‘scintilla of doubt’. Major then went further, telling an audience in Scotland that with inflation down to 3.7 per cent and falling, it would be madness to leave the ERM. ‘The soft option, the devaluer’s option, the inflationary option, would be a betrayal of our future.’
But he could hold out for not much longer. The lira crashed out of the ERM formation. The international money traders turned their attention to the weak pound and carried on selling. They were betting Major and Lamont would not keep interest rates so high the pound could remain up there with the mark – an easy, one-way bet. For in the real world, British interest rates at 10 per cent were already painfully high. On the morning of Black Wednesday, at 11 a.m., the Bank of England raised them by another two points. This would be agonizing for home-owners and business alike. But Lamont said he would take ‘whatever measures are necessary’ to keep the pound in the system. The sense of panic mounted. The selling went on. A shaken Lamont rushed round to tell Major the interest rate rise had not worked. But sitting in Admiralty House – Number Ten was being refurbished after the IRA mortar attack – Major and his key ministers decided to stay in the poker game. The Bank announced that interest rates would go up again, by three points, to 15 per cent, which if sustained would have caused multiple bankruptcies across the country. This made no difference either. Eventually, at 4 p.m., Major phoned the Queen to tell her he was recalling Parliament. The government cracked. At 7.30 p.m., Lamont left the Treasury with his closest advisers, including David Cameron, to announce to a throng of cameramen and bystanders in Whitehall that he was ‘suspending’ the pound’s membership of
the ERM and was reversing the first of the day’s interest rate rises. Major wrote out his resignation statement for broadcast. It was the most humiliating moment for British politics since the IMF crisis of September 1976, sixteen years earlier.
If Major had actually resigned Lamont would have had to go as well. The country would have lost the two senior ministers in the middle of a terrible crisis. So Major decided to stay on, though he was forever diminished by what had happened. Lamont, always a bubblier and more resilient figure, better suited perhaps to the Regency than the fag-end of the twentieth century, announced that he had been singing in the bath after the ERM debacle, and later added to the insouciant impression by quoting Edith Piaf’s song ‘Je ne regrette rien’. He decided that he was delighted as the economy began to react to lower interest rates, and the slow recovery began. While others could see only endless sleet and frozen mud of unemployment, repossession and bankruptcy, he was forever spotting the ‘green shoots’ of economic rebirth. Perhaps it was the twitcher in him; keen bird-watchers are alert to nature.
In the following months Lamont created a new unified budget system and took tough decisions to repair the public finances but as the country wearied of recession, he became an increasingly easy butt of media derision. A few trivial incidents combined to make him something of a laughing-stock. To Lamont’s complete surprise and utter shock, Major sacked him as Chancellor a little over six months after Black Wednesday. Lamont retaliated later in a Commons statement. The government listened too much to pollsters and party managers, he said: ‘We give the impression of being in office, but not in power.’ It was a well-aimed and painful blow. Major appointed Kenneth Clarke, one of the great characters of modern Toryism, a pugnacious, pro-European, beer-drinking, jazz-loving One Nation brawler, to replace Lamont. Though Lamont then moved increasingly towards full-on Euro-scepticism and never forgave Major, these three unlikely musketeers were jointly responsible for the strong economy inherited by New Labour four years later.
As to Major himself, his stony road just got flintier and steeper. In the Commons the struggle to ratify the Maastricht Treaty, hailed as such a success before the election, became a long and bloody one, conducted in late-night cabals, parliamentary bars and close votes night after night. Major’s small majority was more than wiped out by the number of anti-Maastricht rebels, egged on by Lady Thatcher and her former party chairman, Norman Tebbit, now also in the Lords. Black Wednesday emboldened those who saw the ERM and every aspect of European federalism as disastrous for Britain. As John Major later wrote, it turned ‘a quarter century of unease into a flat rejection of any wider involvement in Europe…emotional rivers burst their banks.’ Had not the Germans let us down again? And had lower interest rates and ‘green shoots’ of recovery not followed Britain’s self-expulsion? If the ERM had been bad, so surely was the whole federal project? Most of the newspapers which had welcomed Maastricht were now as vehemently against it. The most powerful Conservative voices in the media were hostile both to the treaty and to Major. Lady Thatcher’s new oppositionism echoed loudly through Westminster. Principle, pique and snobbery swirled together. Major’s often leaden use of English, his resolute lack of panache or cool, led many of England’s High Tories to brand him shockingly ill-educated and third-rate for a national leader. His own sensitivity to criticism and occasional exhibitions of self-pity simply made things worse. He lacked that layer of nerveless flesh leaders today require.
The story of the long progress through Parliament of the Maastricht bill during the autumn, winter and spring of 1992-3 is too convoluted to be recorded here. Suffice it to say that a constantly shifting group of around forty to sixty Tory MPs regularly worked with the Labour opposition to defeat key parts of their government’s main piece of legislation, and that Major’s day-to-day survival was always in doubt. Whenever he called a vote of confidence and threatened his rebellious MPs with an election, he won. Wherever John Smith’s Labour Party and the anti-Maastricht rebels could find some common cause, however thin, he was in danger of losing. The rebels ranged from the most fastidious and high-minded MPs who were profoundly worried about the constitutional damage European Union would do an ancient parliamentary democracy, to the mischievous and the embittered. Some backbench rebels found that they were interviewed constantly on television. Their views were sought by the papers and they became very minor national characters. This can be, as the current author witnesses, dangerously intoxicating. In the end Major got his legislation and Britain signed the Maastricht Treaty but it came at appalling personal and political cost. Talking in the general direction of an eavesdropping microphone, he spoke of three anti-European ‘bastards’ in his cabinet – a reference to Michael Portillo, Peter Lilley and John Redwood. The country watched a divided party tearing at itself and the country was unimpressed.
By the autumn of 1993 Norman Lamont was speculating aloud that Britain might have to leave the European Union altogether, and the financier Sir James Goldsmith was preparing to launch his Referendum Party to force a national plebiscite. The next row to break was over the voting system to be used when the EU expanded, a murky matter of realpolitik which directly affected each country’s leverage. Forced to choose between a deal which weakened Britain’s hand and stopping the enlargement from happening at all by vetoing it, the new Foreign Secretary, Douglas Hurd, went for a compromise. In Parliament, once again, all hell broke loose. Tory rebels began talking of a challenge to Major as leader. This subsided briefly but battle began again over the European budget, and fisheries policy. Formal membership of the Tory Party was withdrawn from eight rebels. By now Smith, who had given Major some of the worst parliamentary moments of his life, had suddenly died, and had been replaced by Tony Blair. When Major readmitted the rebels, the young Opposition leader told him: ‘I lead my party, you follow yours.’ As with Lamont’s ‘in office but not in power’ this caricatured the dreadful dilemma Major was in. But like Lamont’s remark, Blair’s struck a chord with the country.
104
The Age of Major
While the central story of British politics in the seven years between the fall of Thatcher and the arrival of Blair was taken up by Europe, at home the government tried to continue the British revolution. After many years of dithering, British Rail was broken up and privatized, as was the remaining coal industry. After the 1992 election it was decided that over half of the remaining coalmining jobs must go, in a closure programme of thirty-one pits to prepare the industry for privatization. This depressed or angered many Tory MPs who felt the strike-breaking effect of the Nottinghamshire-dominated Union of Democratic Mine-workers deserved a better reward, and it roused much public protest. Nevertheless, with power companies moving towards gas and oil, and the union muscle of the miners broken long since, the sale went ahead two years later. Faced with a plan by Michael Heseltine to sell off the Post Office too, Major baulked. It was a service with the stamp of Royalty on it and a long tradition. His refusal was probably good for the country. Why? Because the privatization of the railways was a catastrophe.
There has long been a problem with some politicians and railways. Perhaps it was all those Hornby models in boys’ bedrooms or attics. Perhaps it was the simple romance of an industry which has beauty and complexity, which appeals to the mathematically minded in the structuring of its timetables, and to romantics in its engineering. At any rate, fiddling with the railway system became a dangerous obsession of governments of different colours. Thatcher, not being a boy, knew that railways were also too much part of the working life of millions to be lightly broken up or sold. She is said to have told Nicholas Ridley when he was Transport Secretary, ‘Railway privatization will be the Waterloo of this government. Please never mention the railways to me again.’ Yet just before she resigned, under pressure from a Treasury privatization unit with too little left to do, she began to soften, and rail privatization was taken up by John Major with gusto. Trains! What could be more fun? Was not old-fashioned, curled-sandw
ich-serving, rail accident prone British Rail a national joke? Could not any reforming government worth its salt, brimming with nostalgia for the old days of brightly painted trains run by private companies, do better than that?
The problems with selling off an elderly, loss-making railway system on which millions of people depend, are obvious. If your first aim is to raise money, then you have to accept that fares will rise briskly, and services may be cut, as the new owners try to make a profit. This will make you less popular. If, however, your aim is to increase competition, just how do you do that? Each route has only one railway line. Different train companies can hardly compete directly, racing each other up and down the same track. Do you give up on competition and sell off all of British Rail as a single unit? The Conservatives decided against that which left them essentially with two options. They could cut up BR geographically, selling off both trains and track for each region, together, so that the railway system would end up looking much as it had in the thirties. Competition would not be direct, but it would become clear that, say, the Great North Eastern operator was offering a pleasanter and more efficient service than the company running trains to Cornwall and Devon, and in due course one might lose, and the other gain, market power. Licences could be revoked, or there might be takeovers. Alternatively, the railway could be split vertically, so that the State owned the track, some companies owned the stations, and others the trains. This could be called the Complete Horlicks option.
