Mrs Thatcher came steaming back from the Alps to London, even less relaxed than she had been when she left. She was furious at what she had heard. Wishing to arraign the Bank of England, she called for the Governor and his deputy, only to find that both were on holiday. This did not improve her temper. Instead she had to make do with two more junior officials, one of whom was Eddie George, who was subsequently to become the Governor of the Bank.* When Gordon Richardson finally returned from his break, he was summoned too, and carpeted. The Prime Minister was in an ill temper with the Bank, regarding Richardson as being vain and indecisive, and saying of his deputy, Kit McMahon, ‘He’ll never be Governor of the Bank of England while I’m Prime Minister.’50*
Mrs Thatcher became ever more convinced of the need to move away from targeting the broad M3 monetary aggregate in favour of some form of monetary base control. Although officially both the Bank of England and the Treasury opposed this move, she found a sympathizer within the Treasury machine. On 2 September 1980, Michael Pattison, her private secretary, sent her a document with a covering note which said: ‘Here is an anonymous (i.e. Peter Middleton) agenda for tomorrow’s meeting on monetary policy. Peter Middleton would be most grateful if you could avoid waving this piece of paper around. He has not admitted to the Chancellor or Treasury colleagues that he has produced it.’51 Middleton’s covert role as Thatcher spy was itself a symptom of the uneasiness between the Treasury and No. 10. None of the most senior Treasury officials – Douglas Wass, Anthony Rawlinson, Bill Ryrie and Kenneth Couzens – really believed in Mrs Thatcher’s approach. Middleton, more junior, but in charge of the detail of monetary policy, was the main defender of the monetarist approach within the Treasury as well as a skilled and ambitious operator. The Middleton document asked whether it was time to try monetary base control. Terry Burns, who attended the meetings with Mrs Thatcher and Geoffrey Howe which followed, remembered being treated to ‘a bit of a rant’,52 with Mrs Thatcher, as was her wont when on the warpath, ‘making the same few points over and over again’. Banks were being allowed to lend as freely as they liked, she complained, with disastrous consequences for interest rates. She sought other methods of control: ‘She had in her head what she had learnt in an early phase of life about reserve asset ratios’53 and did not fully recognize that the internationalization to which her own measures had contributed so much meant that money could no longer be physically controlled in the way that had once been the case. Nevertheless, she was not trying to repudiate Geoffrey Howe – ‘They were still together in the same, small tent’54 – but to find better ways of controlling spending, public borrowing and inflation within the agreed framework.
From across the Atlantic, Professor Alan Walters, with whom Mrs Thatcher had stayed in touch since their conversations in opposition, also favoured monetary base control. In September, she persuaded him to come to Downing Street from 1 January 1981 as her economic adviser. But, speaking to John Hoskyns on the telephone having read his various papers on the current situation, Walters told him: ‘These things still haven’t been done? I keep wondering whether it’s already too late.’55
Perhaps it would have been too late if Mrs Thatcher had lost the support of her backbenchers or of the party in the country, but this had not happened. Ian Gow’s assiduity with Conservative MPs reaped rewards, and there were, proportionally, far more rebels in the Cabinet than on the back benches.* It was obviously vital, however, for Mrs Thatcher to work to retain the support of the party grass-roots, and so she prepared for the party’s annual conference at Brighton in the second week of October 1980 with even greater care than usual.
The strain of composing her most important party conference speech yet put Mrs Thatcher into a frenzy. John Hoskyns, who deeply resented what he called ‘the waste of time on this bloody speech’,56 was, with Ronnie Millar, the main draftsman. His diary describes Mrs Thatcher as being ‘obviously in a panic’ on 6 October, having herself written what Hoskyns called ‘some dross on economics’ for the speech, as having ‘a shouting match at dinner’ with Millar on 7 October, and as needing a draft or she ‘would never sleep a wink’ on 8 October.57 On Thursday 9 October, the day before the speech was to be delivered, she calmed down a little:
Ian [Gow] and Clive [Whitmore] beginning to handle Margaret more firmly, Denis showing a more robust impatience – ‘Honestly, love, we’re not trying to write the Old Testament.’ Clive and Tim [Lankester] frequently convulsed with concealed giggles … We had a laugh about something while Margaret was still in the bedroom, changing. Sure enough, Clive told us this went down badly and she said to Caroline [Stephens], ‘Make sure they keep their noses to the grindstone.’58
When she spoke the following day, Mrs Thatcher took advantage of what had happened at the Labour conference in Blackpool the week before, where the left, led by Tony Benn, had showed itself stronger than ever, convulsing the party with a row about how to elect the next leader and carrying a motion in favour of unilateral nuclear disarmament. At home, she said, there were practices like the intimidation of those wanting to work which offended against ‘the deepest instincts of our people’. Abroad, in the aftermath of the Soviet invasion of Afghanistan at Christmas 1979, there were ‘darkening horizons’. Unemployment was a ‘human tragedy’, but it could never be successfully addressed until the fight against inflation had been won. Then she addressed the unspoken fear – or, depending on point of view, hope – that the government would change course, as it had done under Ted Heath: ‘To those waiting with bated breath for that favourite media catchphrase, the “U” turn, I have only one thing to say, “You turn if you want to. The lady’s not for turning.” ’59 The phrase, which stuck, was a characteristic Ronnie Millar word-play, adapting the title of the by then unfashionable play The Lady’s Not for Burning by Christopher Fry. In the view of Hoskyns, as he listened, it did the trick: ‘The punchline worked perfectly and she delivered it just right … Prolonged laughter and applause.’60
Mrs Thatcher closed by pointing up the political division in the country: ‘Let Labour’s Orwellian nightmare of the left be the spur for us to dedicate with a new urgency our every ounce of energy and moral strength to rebuild the fortunes of this free nation.’61 She won a six-minute, heartfelt standing ovation from the hall and extreme hostility from left-wing demonstrators outside. Five days later, Jim Callaghan resigned as Labour leader. On 10 November, he was replaced by Michael Foot, the most left-wing of the candidates, rather than the original favourite, Denis Healey. It was as if the Labour Party was determined to realize Mrs Thatcher’s binary, divided picture of British politics. Its choice of Foot benefited her enormously. The leaders of Labour’s social democratic right – Shirley Williams, David Owen and Bill Rodgers – had, in the summer, begun to look for a future outside the Labour Party, and to enlist Roy Jenkins, across the water in Brussels. Now there could be little doubt that Labour would split.
Within the government, though, the pounding got ever harder. In October 1980, the latest figures for earnings that month showed that central government pay had risen by 34.5 per cent in a year, as opposed to 20.5 per cent for the private sector. Jim Prior wanted these figures to be played down, by putting them in what he called a ‘proper perspective’, but John Hoskyns minuted Mrs Thatcher with the opposite suggestion: ‘Better to say that we’ve all behaved like greedy idiots and are now paying the price.’62 Mrs Thatcher picked up this point, scribbling to Tim Lankester, ‘You cannot talk down the figures … So use their message – no Government has given the public sector a better deal than this one. This cannot continue unless and until the private sector recovers its trade.’63
At a meeting on 12 November, preparing for the Chancellor’s Autumn Statement, Howe and Mrs Thatcher agreed to cut interest rates by 2 per cent to 14 per cent, and contemplated gloomy facts and gloomy prospects: ‘The Prime Minister said the most disappointing feature of the current PESC [Public Expenditure Survey Committee] review was the deteriorating financial position of the
nationalised industries. They had undermined the Government’s whole public expenditure strategy.’64 Howe commented that ‘the Government’s experience with the nationalised industries over the last 18 months reinforced the arguments for denationalisation.’65 Nothing, for the present, came of this point, since the government still felt too financially beleaguered and politically weak to launch large nationalized industries upon an uncertain market. What was becoming clear was that, to maintain course, the government might have to get tougher still. As the official note put it, ‘questions would be raised as to whether the Government was doing enough to get the fiscal balance right, and this might mean that the next budget would have to be even more restrictive.’66
The Cabinet was not agreeable to further stringency. The Wets still believed that, ultimately, Mrs Thatcher would be forced to reverse course: ‘she is mad to cut off so many possibilities,’ Francis Pym told Hugo Young in confidence. ‘Why the hell does she keep on saying that she’s not for turning, etc. etc.?’67 In her memoirs, Mrs Thatcher says that the Cabinet agreed in principle to further cuts in public spending for 1981–2, on 30 October 1980, when Howe told the assembled company that the expected PSBR of £11.75 billion was intolerable and that ‘If we are to have a chance of success, we have to face questions from which most Cabinets have run away.’68 Rebellious and, in her view, cowardly ministers chose instead to fight about most of the specifics. It is true that the Wets preferred not to confront Mrs Thatcher and her ideas directly, Prior being the only exception. As Hoskyns remembered, with exasperated affection, ‘Jim was the only person with the guts. God, he was a stupid man.’69 But in fact the ‘agreement’ reached on 30 October, though formally recorded, was not really given. Sir Robert Armstrong’s Cabinet notebook shows several ministers, notably Prior, Walker, Pym and Soames, jibbing at agreement, proposed by Willie Whitelaw, to a 2 per cent cut across the board. ‘I don’t think we are agreeing the same thing,’ protested Prior.70 The Wets felt supported by the leadership of the CBI, meeting for their annual conference. On 11 November, the conference backed Prior’s ‘softly, softly’ approach to union reform, and the CBI’s director-general, Sir Terence Beckett, promised a ‘bare-knuckle fight’ with the government over interest rates. Michael Edwardes, the chairman of British Leyland, told the conference that since North Sea oil was having such a punitive effect on the exchange rate it would really be better to ‘leave the bloody stuff in the ground’.
On 13 November 1980, Howe told colleagues in Cabinet that they should save money by breaking the indexing of benefits to inflation. Prior warned of social unrest and said, ‘If we believe in One Nation, we can’t do it.’71 Even the loyal Willie Whitelaw said, ‘We should be putting a noose round the neck of the Conservative Party for a long time.’72 Benefit de-indexation was rejected, but the Cabinet agreed to increase employees’ National Insurance contributions by 1 per cent. Some of these arguments leaked, and newspapers began to run articles about division and loss of confidence. Peter Jenkins, in the Guardian, wrote of the ‘dawning of disbelief’ in Thatcherism and also claimed that Mrs Thatcher had lost confidence in her Chancellor.73 As Howe ruefully admitted in his memoirs, his Autumn Statement had turned ‘despite all our protestations to the contrary’ into one of the mini-Budgets which, in the era of Denis Healey, the Tories had excoriated.74 The statement was a poor piece of presentation, and this was made worse by the fact that Howe omitted to mention the automatic increases in National Insurance payments caused by the rise of wage levels. There was general outrage – about direction, about handling, about honesty. The Treasury Select Committee, chaired by the fair-weather friend Edward Du Cann, duly attacked the Chancellor’s approach. The government had reached a low point. In her memoirs, Mrs Thatcher recalled that ‘By the end of 1980, I began to feel that we risked forfeiting the public’s confidence in our economic strategy.’75 Just before Christmas, Bill Deedes, the editor of the Daily Telegraph, noted a conversation with Brian Griffiths, who had just been to see Mrs Thatcher at No. 10. Griffiths was:
met by G Howe who hustled into adjoining room – begged BG not to be too critical – ‘She’s in a very odd mood …’ Hour with PM. Twice, says BG, near to tears. What had gone wrong? Speechless on the Governor of the Bank of England … BG much depressed by the experience. Clearly feels that Chancellor has lost grip. (Remind him how far PM & C o E are tied together. Shades of Macmillan/Selwyn Lloyd in 1962.) [Griffiths] left unclear as to purpose of summons, save that we agree January 1981 may prove decisive …76
Mrs Thatcher was very badly rattled, and doubtful of her lieutenants.
It was Geoffrey Howe, though, who gave the fairest assessment of the situation. At the turn of the year, he wrote to Mrs Thatcher to comment on the latest caustic and pessimistic strategy paper from John Hoskyns. ‘You will be disconcerted, as I was,’ he told the Prime Minister, ‘to find the transatlantic commentators referring to “Thatcherisation” as a condition to be avoided, if possible!’, but he went on to say, with a touch of flattery, that there was an underlying strength in the government’s position: ‘the Thatcher factor. People do have a sense that this Government – more particularly you … is possessed of a tenacity, which might just work, if only its [sic] sustained.’ ‘More than a few people think we’re quite mad!’ he continued. ‘Yet very few are able … to proffer … a coherent alternative solution.’77 Bernard Ingham minuted the Prime Minister with the prediction from the latest edition of the venerable soothsaying publication Old Moore’s Almanack: ‘There are rare moments in history,’ it said, ‘when one man or woman can, almost alone, shape the future of the nation. Now is such a moment. Margaret Thatcher is such a woman. The compelling pattern of her fate is so intimately interwoven with the present destiny of the UK that it is impossible to imagine that she will pass from power before her mission to heal and reinvigorate Britain is complete.’78 Howe, Ingham and Old Moore were on to something. ‘Thatcherism’ was never a philosophy, but a disposition of mind and character embodied in a highly unusual woman.
Brooding over Christmas, Mrs Thatcher planned a reshuffle. Given her irritation with several in her Cabinet, the smallness of the changes shows that she did not feel in a strong position. No one seemed to have noticed a wide-ranging and remarkably frank interview that she had given to the American magazine People Weekly at the end of July. There she was asked what she thought of being called the ‘Leaderene’, a satirical coinage of the Leader of the House, Norman St John-Stevas. She replied ominously that the author was usually a witty person and should have shown ‘a bit more style’.79 St John-Stevas was the notable casualty of her reshuffle, which was announced on 5 January 1981. Francis Pym, whose stout and largely successful resistance to defence cuts had annoyed her, was moved to replace Stevas. He was also put in charge of policy presentation, an extraordinary choice given his own scepticism about the direction of policy and his melancholy, nervous disposition. John Nott replaced him at Defence. John Biffen, who had not been strong enough in the spending negotiations, replaced Nott at Trade, and was in turn replaced by Leon Brittan, a close friend and ally of Geoffrey Howe. Mrs Thatcher had shifted the centre of gravity only very slightly in her favour.
Bernard Ingham, her press secretary, wrote a blunt note to the newly installed Pym, copied to the Prime Minister. The government, he said, ‘is prone to operate on the basis of that well-known hymn: you in your small corner and I in mine … The Government is divided and seen to be divided; nothing has done more damage than the 1981–82 public expenditure review. This was taken as a licence to hold the Cabinet in public … It is to be hoped that the reshuffle marks the point of departure.’ The government was also getting the worst of both worlds, said Ingham: ‘it is criticised at once for unfeeling monetarism, while at the same time money supply, on one definition at least, is soaring along with the PSBR.’80
In their attempt to bring the nationalized industries under proper financial control, Mrs Thatcher and Geoffrey Howe did not intend to spare the coal industr
y. As soon as she had come into office in May 1979, Mrs Thatcher had demanded action to prepare for battle with the National Union of Mineworkers. She summoned Willie Whitelaw and Sir Robert Wade-Gery, the Deputy Secretary to the Cabinet, and announced: ‘The last Conservative Government was destroyed by the miners’ strike. We’ll have another one, and we’ll win. And you, Willie, will do it.’81 Whitelaw chaired the Civil Contingencies Unit, which tried to draw up the strategic principles and practical measures. It realized, for example, that if there was to be a strike it should begin in the spring and it should be over pit closures, which tended to divide miners, rather than over pay, which tended to unite them. It also sought to persuade the Treasury of the need for the ‘dual firing’ of power stations by oil and coal, and above all to plan the accumulation of coal stocks, not only at pitheads but at power stations. The immediate problem the unit encountered, however, was to get any department to listen. As Wade-Gery remembered it, people said, ‘The woman’s mad. You can’t win miners’ strikes. All you can do is buy them off.’82 Besides, there was as yet no co-ordination in government between civil contingencies – the thinking that had emerged in reaction to the General Strike of 1926, which was essentially a military task – and the management of tactics about pay and closures.
There was a further problem. While it might make political sense to pile up the coal, it made no immediate financial sense. From the first, the Treasury sought to run down coal production and cut where it could in order to help bring the industry’s atrocious overspending under control. The lack of overall strategy meant that this conflict was not, for a long time, resolved. The Treasury itself recognized this. In April 1980, Howe’s private secretary wrote to Clive Whitmore about the need to co-ordinate policy, giving as his example ‘the cost to electricity including of coal stocks versus the risk of a miners’ strike. We tried to raise this whole question with the Prime Minister in the context of the miners’ pay award last autumn, but it was not at the time sufficiently near the top of everybody’s list.’83
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