Partly as a means of raising money for the CPS, Joseph embarked on a series of setpiece speeches examining the basis of economic policy, in both its technical and its political aspects, and then ranging wider still. In his first, at Upminster on 22 June, he called for greater attention to ‘a market economy within a framework of humane laws and institutions’ and developed the international comparisons which were part of his brief:
Compare our position today with that of our neighbours in Germany, Sweden, Holland, France. They are no more talented than we are. Yet, compared with them, we have the longest working hours, the lowest pay and the lowest production per head. We have the highest taxes and the lowest investment. We have the least prosperity, the most poor and the lowest pensions.
He said that Britain was becoming a socialist country, and that Conservative governments, including the one of which he had been a part, had not dared to repudiate socialism, but had ‘tried to build on its very uncertain foundations instead’. The tone of Joseph’s speech marked a clear break from that of the Heathites, and this division was made more apparent by the fact that the Conservative Research Department, with Ian Gilmour as its new chairman and Chris Patten* as its new director, was becoming more eloquently consensual and social democratic. In the previous month, Gilmour had published three articles in The Times, developing the theme of ‘national unity’.84
As the long-expected general election approached in the early autumn, Joseph took greater risks. On the day after the Labour government had agreed the full terms of its new, pre-election Social Contract with the trade unions – a corporatist deal involving price controls, rent freezes and the repeal of Tory union legislation in return for moderate wage claims – Joseph offered something much less cosy. At Preston on 5 September 1974, he gave the fullest airing yet to the theory of monetarism, and its application to the political crisis. In his drafting, he was assisted not only by Sherman, but by Alan Walters* and by Samuel Brittan† of the Financial Times. Worried about what Joseph might say, but feeling too weak to forbid it, Heath asked Mrs Thatcher and Geoffrey Howe to inspect the text and prevent trouble. They duly inspected, but made no decisive alterations.
‘Inflation is threatening to destroy our society,’ was Joseph’s opening sentence, and he warned of ‘the processes of despair and disintegration which ultimately invite dictatorship’. He expounded the notion that inflation was caused not by wage rises or even by world commodity prices, but by excessive increases in the supply of money, a matter which governments had the means to control. Repudiating the suggestion that ‘monetarism’ was the answer to everything, he said rather that it was ‘a pre-essential for everything else we need and want to do’. The most devastating and, for Heath, embarrassing part of the speech was Joseph’s admission of collective and repeated error by Conservative as well as Labour governments in ignoring this pre-essential. ‘For the past thirty years in this country governments have had unprecedented power over economic life,’ Joseph said. ‘It is only fair that we should accept correspondingly heightened responsibility for what has gone wrong.’ The motive for the error had been honourable – a fear of a return to the unemployment of the early 1930s – but it was an error nonetheless. The weapons of the 1930s were being used to fight the battles of the 1970s. Governments had believed that a bit of inflation would help unemployment, economic growth and the funding of the social services: now it had turned out to be a ‘mortal threat to all three’. The ‘menacing tensions’ created by inflation ‘cannot be cured by incomes policy’. Incomes policy as a means of curbing inflation was ‘like trying to stop water coming out of a leaky hose without turning off the tap; if you stop one hole it will find two others.’ Joseph advocated that incomes policy be abandoned, and that governments sustain a clear, gradual policy of bearing down upon the excessive supply of money. Within three or four years, this would yield the right results, which would include, he emphasized, a more sustainable form of full employment than that provided by the current governmental attempts to manage demand.
Joseph flagellated himself harder than anyone else, but this did not conceal the fact that his argument undermined the economic basis on which Heath had governed the country, had fought and lost the previous election, and was about to fight the next. Joseph’s words were neither unexpected nor, like some of Enoch Powell’s interventions in the years of the Heath government, mischievous. The Preston speech was simply the full enunciation of arguments he had been making privately to colleagues since March and in several speeches, including one to the House of Commons on 8 July. Its effect, however, was to raise the standard of revolt for a battle which could be fought only after the next general election was out of the way.*
Within the Tory Party, only a small minority understood the precise nature of the monetarist arguments, but a much larger number were looking for a different approach to the economic problems which beset them. The respect in which Joseph was held meant that many gravitated towards his views. In the Shadow Cabinet, Margaret Thatcher, along with the much more low-key Geoffrey Howe, whose interest in the IEA’s liberal economics predated her own, were the only two who supported Joseph’s rethink. Contrary to her memory,85 it was not true that Heath forbade all discussion of these matters, though he certainly did not welcome it. On three occasions, including one on 3 May when it met in the form of its manifesto group, the Shadow Cabinet did give some consideration to Joseph’s views on the causes of inflation. But the case was presented in rather tentative form and Joseph himself did not argue flat out that a prices and incomes policy should be abandoned, only that it should be reassessed.† Even in the minds of the radicals, the growing belief that the control of the money supply was the key to beating inflation seemed to be at war with a feeling that union demands for wage rises had to be held back, and also that the rise for one group could not be too different from that of another. They were groping their way towards coherence. When Mrs Thatcher told the Shadow Cabinet of her support for Joseph, she did so quite cautiously. She said things like ‘I think we should give careful attention to what Keith is saying’86 rather than arguing for a complete break with the past.
Partly because they all expected an election at any time, Mrs Thatcher also kept her public expressions of dissent to a minimum. In May, in a radio interview with the right-wing former editor of the Spectator George Gale, she let her hair down enough to say, ‘I do hope that we shall return to being the party which I believe can get the economy right,’ and ‘I think we shall finish up being the more radical party,’ but, when Gale invited her to declare herself a Powellite, she easily deflected him by concentrating on Powell’s wickedness in turning against the party at the election.87 People began to point her out more often as a rising star. A newspaper interview in June described Mrs Thatcher as ‘currently the person whose name is rustling along the corridors of power as someone who could supplant Ted Heath as Tory Party leader’;88 but she was careful not to promote herself excessively, and even in private gave no indication of any personal ambition for Heath’s job. Between February and the election in October, there were only a handful of occasions when Mrs Thatcher spoke in public on anything beyond her shadow brief.
In giving Mrs Thatcher the subject of the environment, which included housing and local taxation, Heath put her at the centre of his strategy for the coming election, although he brought her no nearer to his inner circle. As Alison Ward, her secretary, remembered it, ‘Ted piled more and more on her because he resented her, but she did better and better.’89 Prompted by a discussion with Pierre Trudeau, the Prime Minister of Canada, Heath had become obsessed with the idea that he had lost the February election because he had been too honest and not given people enough of what they wanted.90 In particular, he believed that it was the middle classes, denied the goodies which they expected from a Conservative government, who had defected to the Liberals. After the property boom of the early Heath years, house values had slumped, and the introduction of Peter Walker’s unpopular reorganizat
ion of local government had produced large rises in the rates (as local property taxes were known). Heath therefore decided that a fairly shameless electoral pitch should be made for these votes, and that housing and rates were the ground on which to make it.
In one sense, Mrs Thatcher was happy to oblige. Housing was one of her interests, and she identified absolutely with the bourgeois aspiration to own one’s own home. In another, she was chary of what Heath wanted. She was cautious about reform of the rates, because she had already seen the difficulties of the alternatives, and about government intervention in the housing market. One of her strongest criticisms of socialism was that its controls had damaged housing. It had taken rented housing off the market, and forced people to live in council tower blocks rather than the Victorian and Edwardian terraces which they preferred. Of such blocks, she complained that ‘The architects who build them don’t live in them.’91 ‘If we are anxious to have maximum housing standards it pays to have as many people as possible as owner-occupiers,’ she told the House of Commons,92 and in principle she favoured the idea, long current in Tory circles, that council house tenants should be free to buy their homes. In practice, however, she worried that such purchase, if put into law as a right and offered at too great a discount, would annoy ‘our people’ who were having to pay full prices on the open market. She later came to see her own objections as ‘narrow and unimaginative’.93
Mrs Thatcher formed a housing policy group, on which sat, among others, a new MP and former editor of the Spectator, Nigel Lawson,* who had helped to draft the February manifesto. As an economist and free-marketeer, Lawson opposed government subsidy for mortgages. Mrs Thatcher worried about the size and effects of subsidy too, but, despite Lawson, her housing group worked on the assumption, politically encouraged by Heath, that there would be subsidy in some form.94 Dispute was to come about how much the subsidy should be, and how specific the promises made about it. When the group presented its report to Heath towards the end of June, it recommended a reduction in the tax rate paid by building societies and, for first-time buyers, a lump sum to match the amount of savings they had accumulated in building societies. Another idea to which Mrs Thatcher gave encouragement was that of ‘shared purchase’, by which owners could acquire equity in stages.95 She worried that a publicly stated commitment to hold mortgages to a particular rate would prove irresponsibly expensive. She preferred to speak only of keeping the rate within ‘reasonable limits’.96
Similarly, on rates, Mrs Thatcher was cautious. At a Shadow Cabinet meeting in late June she unsuccessfully advocated an all-party study of rate reform rather than a Tory commitment to abolition.97 And in a debate in the Commons on 27 June in which the Conservatives succeeded in defeating the government in two votes, she called for ‘a fundamental reform of the rating system’,98 but declined to say exactly what that would be. She spoke of interim rate relief, a central government power to cap local council spending and an investigation of the possibility of local income tax, but went no further than that. Her performance disappointed Airey Neave: ‘Margaret Thatcher a little uncertain. We seem to be very coy in pressing home our advantage about rates and Crosland* demolished most of her arguments.’99
It was a fairly dismal summer. ‘The weather continues cold and windy and the Stock Exchange gets lower and lower,’ wrote Neave.100 Increasingly desperate, Heath, urged on by Peter Walker, who was boldly populist on the subject of housing, decided to toughen up the policies for the election. Fed up with Mrs Thatcher’s resistance to promising an exact figure for the mortgage rate, he summoned her back from holiday in Lamberhurst for a meeting on 1 August at his house in Wilton Street with Walker, Ian Gilmour and Robert Carr. They prevailed on her to accept that a figure of ‘below 10 per cent’ could be promised. The next step came at the end of the month.† Heath’s purpose was to ensure that, rather than say ‘below 10 per cent’, Mrs Thatcher be as specific, and set her rate as low, as possible. She said she would accept 9.5 per cent, but would go no lower. Heath put on similar pressure over the rates, again summoning Mrs Thatcher to Wilton Street, again backed by senior colleagues, this time on 16 August, to make her promise to abolish domestic rates in the next Parliament. This she reluctantly did, even though none of them really knew what the replacement would be. Part of the rate burden, at her suggestion, would be transferred to central government, which would pay directly for the salaries of teachers.
It is typical of Mrs Thatcher’s political professionalism that, despite her reluctance, and her resentment at being strong-armed, she seized the chance and made the most of the policies which she had not wanted. At a press conference on 28 August, she announced that a Conservative government would reduce the mortgage rate from 11 to 9.5 per cent and make that rate the future ceiling. She also drew attention to the ‘real problem’ of domestic rates, seeking financial independence for local authorities ‘in such a way that they are responsible to those whom they tax. (Only a minority of electors are ratepayers.)’ There were 9 million more income taxpayers than ratepayers, she pointed out,101 and pledged to get rid of the rating system. On her party political broadcast that night with a voice-over that said, ‘For the first time someone has gone back to basics,’ Mrs Thatcher repeated her mortgage promise and attacked rates because they ‘often have nothing to do with what you can afford to pay or with the services you receive’. Whatever new system the Tories brought in would be ‘based on what you can afford’. Her performance made a strong impression, even among those who saw the policies (rightly) as electoral bribery. ‘This almost gave Crosland apoplexy,’ wrote Neave of the 9.5 per cent promise, ‘and he said it was irresponsible.’102
Events rushed forward, most of them unhappy ones for Ted Heath. On 2 September his yacht, Morning Cloud, was capsized in a storm. Heath was not on board, but two of her crew, one of them his godson, died. On 8 September, while Heath was away in Washington, the Conservative manifesto for the expected general election was leaked to several newspapers. For it, Mrs Thatcher had made another concession in her area of policy. She had consented to the idea that the Conservatives would offer a ‘right to buy’ to all council house tenants, and that a third of the market price should be discounted. The manifesto said that the Tories would ‘place a duty on every council to sell homes on these terms’. Variation of the ‘composite rate’ of tax on the building societies would allow the government to keep the mortgage rate at 9.5 per cent or below. Rates would be replaced by taxes ‘more broadly based and related to people’s ability to pay’. Unable to resolve the party’s own internal confusion about the causes of inflation, the Conservative manifesto mentioned control of the money supply as one of the necessary tools, but also spoke of the need for a prices and incomes policy. It preferred a voluntary one, it said, but ‘no government could honestly say that it would never be necessary to use the law in the national interest to support an effective policy for fighting inflation.’
On 18 September 1974, Harold Wilson called a general election for 10 October. He felt justified in doing so by the need to get an overall majority, and he had spent the summer making what he hoped would be electorally beneficial deals with the trade unions. Partly because the Conservatives were anxious to preserve a studied vagueness and moderation in their approach to the great economic and industrial questions of the moment, Mrs Thatcher’s specific policy promises were almost the only important ones of the Tory campaign. She fought it with gusto, and without embarrassment, strongly promoting the middle-class interests which Heath criticized himself for having neglected when in office. It was the first campaign in which party strategists made her nationally prominent, and she profited from this, proving herself combative, persuasive and much better than people had expected on television. Home ownership, she argued, ‘gives people independence and a stake in their country’103 and ‘provides the best possible protection for people’s savings against inflation’.104 ‘A home, like food,’ she told constituents in Finchley, ‘is a basic need in our lives. All gove
rnments avoid taxing food for that reason … And yet we single out the home for an extra tax.’ At a Central Office election press conference devoted to her policies, on 27 September, she declared: ‘The right to own the land on which your house stands is quite emotive in English history … I do not propose to deny that right to people because they live in council houses’; she upped the excitement about her mortgage-rate offer by promising that it would come into effect before Christmas. And she even turned the inconsistency with her pure economic doctrines into a sort of virtue. ‘I am dealing with a problem’, she told the monetarist interviewer Peter Jay, ‘in which the economics are probably different from the human answer.’105 As election day approached, Mrs Thatcher was one of those chosen to present the culminating party political broadcast. The pledges on rates, she said, were ‘firm, unshakeable, categorical’. She delivered such lines very well, and they rattled the Labour Party. Bernard Donoughue recorded in his diary: ‘The only new issue is Thatcher’s 9½ percent mortgage commitment, and everybody is frightened of that – and furious with Tony Crosland for failing to deal with it.’106
But there was another reason why Mrs Thatcher’s were almost the only concrete Conservative promises of the campaign. It was because Heath had decided to push the notion of ‘national unity’, with its implicit suggestion of coalition. He therefore wanted as few policies as possible which would quarrel with this aim. The manifesto said that ‘as a national party we will pursue a national policy in the interests of the nation as a whole. We will lead a national effort. In normal times, the party struggle is the safeguard of freedom. But the times are far from normal. In a crisis like this, it is the national interest that must prevail.’ The atmosphere of doom was to be built up, the details of possible solutions to be played down: ‘we see this as part of the Tory strategy’, wrote Donoughue, ‘to create a sense of cataclysmic crisis, like 1940, as the build-up to the necessary coalition.’107
Margaret Thatcher: The Authorized Biography Page 36
