Margaret Thatcher: The Authorized Biography

by Charles Moore

  Luckily for Mrs Thatcher, the mood on the back benches, though hardly rapturous, was not as mutinous as the Guardian reported. They relieved their feelings by focusing on a side-issue of particular relevance to rural constituencies, the increases in the duty on DERV (diesel), and Howe was able to make a concession at no net cost to the Budget by cutting the DERV duty and making up for it with yet higher imposts on tobacco. But there could be no mistaking the emergence of a clear and semi-concerted opposition within Mrs Thatcher’s Cabinet. There might not be a proper plot to get rid of her – there was certainly a want of boldness among the dissidents – but there was now a move, clothed in demands for changes in process, to isolate her, or create a situation in which her lack of majority among her own ministers could be made to work against her. This coincided with a time when the ranks of her trusted associates had thinned out. About a week after the Budget, John Hoskyns noted in his diary that:

  Ronnie [Millar] was very worried indeed about the way Margaret had lost or allowed the departure of so many supporters – Richard Ryder* [leaving No. 10 to prepare to become an MP at the next election], Gordon Reece [who was working for Armand Hammer in the United States] … Alistair McAlpine [who had been temporarily pushed off his Treasurer’s perch in Central Office by Lord Thorneycroft], and so on. He said that Gordon had heard in the US that Kissinger says his friends in the Cabinet (Carrington?) say she’ll be out within a year. He feels we’ve got to move fast to save her.37

  It was probably helpful that, at this moment, to use Ingham’s words, ‘364 economists cook up round-robin to condemn your economic policies’.38 The letter, published in The Times, was signed by five former chief economic advisers to the government, including Terry Burns’s immediate predecessor, Fred Atkinson. It was also signed by Kenneth Berrill, the former head of the CPRS, and by Mervyn King, who much later became the Governor of the Bank of England. It read:

  There is no basis in economic theory or supporting evidence for the Government’s belief that by deflating demand they will bring inflation permanently under control and thereby introduce an automatic recovery in output and employment;

  Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability;

  There are alternative policies;

  The time has come to reject monetarist policies and consider which alternative offers the best hope of sustained recovery.

  Whatever its distaste for the government’s policies, the public was not particularly likely to be impressed by the views of economists, nor to think that 364 of them were better than one. On the same day as the letter, Ingham’s digest also reported: ‘Sam Brittan, FT, says this could be a favourable leading indicator for economic recovery.’39 Peter Middleton remembered that, as soon as the 364 had spoken, ‘Everything began to look up.’40

  As Nigel Lawson put it in his memoirs, ‘The timing was exquisite.’41 Output touched its lowest point in the quarter that ended on the day when the 364 economists’ letter was published. In the eight years from 1981 to 1989, real GDP growth averaged 3.2 per cent, whereas there were sixteen months of negative growth during 1980 and 1981. From the first quarter of 1983, the number of people employed began to rise, and from the third quarter of 1986 the number of unemployed began to fall. Alan Walters’s prediction that the inflation rate would fall to 5 per cent in 1982 was over-optimistic, but the rate for 1983 was 4.6 per cent. As for the PSBR, its eventual outturn was £8.5 billion, £2 billion better than budgeted for. Neither the 364 nor their opponents were, of course, to know this at the time, but it was significant that, beyond stating that alternative policies existed, the Times letter did not say anything about them. As with internal critiques by the Wets, the letter was clear in its revulsion at what the government was doing, but much less confident about what to do instead. What the critics failed to recognize was that the old remedies of fiscal expansion did not work if confidence was low. The Budget, as Peter Middleton described it, was ‘all about the demonstration effect of what was happening’.42 As Alan Walters argued, fiscal expansion became, in such circumstances, a symptom of trouble and therefore the actual effect of a deficit intended to be ‘expansionary’ was to contract the economy. The ‘toughest peacetime Budget in memory’ was therefore, perversely, the one to inspire the confidence required.43 As Douglas Wass, no monetarist, recalled: ‘The 1981 Budget did enable us to have lower interest rates and therefore did lower exchange rates.’44

  Not that confidence and calm returned quickly. There was some good economic news – a stock market high, for example – but there was also trouble. At the end of March, the Civil Service unions began a ‘selective’ strike, which soon impeded the flow of government revenue and therefore worsened the public finances still further. It was typical of the situation in which Mrs Thatcher’s government found itself that the day when industrial production turned up for the first time in ten months was also the day when serious rioting broke out in the streets of London. Anti-police riots by mainly black youths in Brixton, south London, on 13 April 1981 injured 150 police, produced more than 200 arrests and gave rise to widespread looting. Four days earlier, the IRA hunger striker Bobby Sands, in prison and still on hunger strike, had been elected to Parliament in the Fermanagh and South Tyrone by-election. Extremists were involved in stirring up trouble in Brixton; against a report, in Ingham’s digest, that the ‘riot started when supporters of IRA H block prisoners [in the Maze] announced stabbed black youth had died’, Mrs Thatcher wrote a strong squiggle of excited disapproval.45 She came out strongly, saying there was ‘no excuse’ for the riots, and that public money had already been ‘poured into’ Lambeth to little effect.46 She probably benefited politically from the fact that the left wing of the Labour Party, including the controversial Labour Leader of Lambeth Council, ‘Red Ted’ Knight, were involved in anti-police agitation. The public were deeply shocked by the scale of the violence, and were disposed, unlike the metropolitan elites, to blame it on the people who had rioted. On the other hand, Mrs Thatcher did not appear to offer any practical ‘Thatcherite’ answer to the problems of rioting, and she allowed Willie Whitelaw, the Home Secretary, to appoint a left-liberal judge, Lord Scarman, to conduct the inquiry into the riots. It was natural that her critics should allege that the disturbances were a response to the unemployment she was creating: Wets could claim that their prophecies of tears in the social fabric had come true.

  The month of May was no merrier. On 4 May, Bobby Sands died of his hunger strike, his death provoking violence in Northern Ireland and worldwide protests. On 7 May, Labour took control of the Greater London Council and the very next day, in an internal coup predicted before the polls, replaced their moderate leader with the rising star of what the tabloids called the ‘loony left’, Ken Livingstone.* On 10 May, François Mitterrand† was elected the first Socialist president of France’s Fifth Republic, on a programme which included the nationalization of the banks. On 13 May, Pope John Paul II was shot and nearly killed in St Peter’s Square in Rome by a professional assassin who, it much later emerged, probably had links with the Bulgarian secret services and ultimately the Soviet KGB. On 18 May, Mrs Thatcher felt compelled to sack her Navy Minister, Keith Speed, for resisting the unpopular cuts which John Nott, with her encouragement, was imposing. At this time, she was exhausted by the pressure of events and by trouble with her teeth which was a recurrent intrusion upon her generally very good health. As a result, her staff had to cancel a session with Wolfson, Hoskyns and others at Chequers, planned as part of the great fight over public spending which, after the Budget, was the next area of Cabinet conflict.47

  Mrs Thatcher was extremely wary of her colleagues’ demand for discussions of economic strategy. Unlike the ever conciliatory Geoffrey Howe, who reasoned with her that ‘If we cannot convince colleagues that we are right, then we shall find it difficult to convince the country,’48 she had an obsession, based on painful experience, with the danger of leak
s; she also feared, again with reason, being ambushed and outnumbered. She did eventually accept, however, that some discussion must take place, in the context of the control of public expenditure, and she decided that, unlike the Burns ‘lecture’ of the previous year, this should be based on a paper by Howe himself. Howe’s paper was circulated, and ministers had the chance before the meeting to give notice of questions they might raise. Howe set out the extent of the growth in public spending since 1979 and concluded that, unless the policy changed, ‘we shall enter the election with the overall tax burden much heavier than the one we inherited. Not only politically, but also economically, that is not tolerable.’ On his draft, Mrs Thatcher added the one area of proposed reform which was common ground between her and the Wets. ‘Plans to train and occupy young people,’ she wrote.49 In advance of the meeting, Robert Armstrong warned Mrs Thatcher that Prior would call for a debate on whether 3 million unemployed was politically acceptable and that Michael Heseltine would demand higher capital expenditure financed by savings on current account. In best mandarin style, he added, ‘You may also want to agree in the Cabinet the line to be taken with the press – and to invite them to resist the temptation to embroider it.’50

  At the meeting, on 17 June 1981, Prior led the charge. ‘Don’t know how we shall get through the coming year,’ Armstrong recorded him as saying. ‘I see solution not in cutting public expenditure but in getting growth.’ Walker, Carrington, Pym and others also expressed unhappiness. Even Willie Whitelaw allowed himself to say, ‘I fear the effects of unemployment on crime are very serious,’ and warned of the risks of ‘future Brixtons’.51 The next day’s press carried excited accounts of how Mrs Thatcher had seen off the rebels (‘Maggie Crushes Jobs Revolt by Wets – Lonely Prior’s Jobs Plea is Rejected’), which rather suggested that Ingham had done some embroidering of his own. There followed a fierce row at the regular Cabinet that day about the morning’s leaks, and an additional row about the proposed defence cuts. Mrs Thatcher began to be written up in the papers as a successfully ruthless politician. On the following day, the rate of inflation reached a two-year low and the Financial Times reported that profits of UK firms had recovered sharply in the first quarter of the year. In a debate on unemployment on 24 June, following the publication of the monthly figure of 2,680,977 unemployed, Mrs Thatcher was generally agreed to have trounced Michael Foot, whose rambling and facetiousness were reported by The Times to have ‘totally misjudged the House’. She was probably assisted, as usual, by the tone of an attack from Ted Heath, who said that the government’s economic policies were ‘incomprehensible’. He warned of severe social and racial strife.

  But the sense of conflict and crisis grew. New riots, which began in Southall, west London, on 4 July 1981, spread to many other parts of the country, including Moss Side in Manchester, where a mob besieged a police station shouting ‘kill, kill’, and, most notably, in the Toxteth area of Liverpool. There were attacks, previously almost unknown in mainland Britain, on firemen and ambulance crews. Using a party political broadcast which was mainly a defence of policy on unemployment, Mrs Thatcher inserted a preamble about the riots. She was tough. She emphasized that 200 police had been injured in Liverpool alone. ‘The law must be upheld,’ she said. ‘People must be protected.’ She denied the link between unemployment and rioting.52 But the fact that she settled for the uncomfortable mixture of subjects rather than devoting an entire broadcast to the shocking events showed that she was not sure how best to handle the crisis. It was alleged that Mrs Thatcher’s private reaction to seeing the news of the rioting was to exclaim, ‘Those poor shopkeepers!’ The phrase made a chapter title in Hugo Young’s largely hostile biography One of Us,53 and it was considered laughable, almost contemptible, that she should have reacted in this way. In fact, the quotation has not been verified, and may be apocryphal, but, as often in matters concerning social order, Mrs Thatcher’s sentiments may have been closer to those of the general population than were those of her critics. The problem was not that her feelings were at odds with the voters, but that she did not seem to have the situation in hand. Her rhetoric was strong, yet she seemed impotent. On 10 July there was rioting in twelve cities, the most extensive yet.

  In the middle of this, Bernard Ingham wrote to Francis Pym in his (Pym’s) capacity as head of government presentation. ‘I held a meeting yesterday,’ he explained, with the heads of information in the economic departments. ‘The consensus can be summarised in two words: deeply worried.’ July was always a dangerous time, and now there were riots, the Warrington by-election with its first test of the new SDP approaching, bad unemployment figures expected, and the possibility for the royal wedding at the end of the month of a ‘national atmosphere soured’. The Tories, he said, would go into the parliamentary recess ‘in a state of profound agitation’.54

  At Cabinet on 9 July, Whitelaw reported from the riot zone. ‘The area is shattering,’ he said. ‘The damage is worse than Belfast in 1972.’ He called for better headgear for the police. Mrs Thatcher asked for the return of the Riot Act, which, once read out at the scene of a disturbance, had given extensive powers to the police to arrest, disperse and even open fire. She wanted summary courts too. Whitelaw murmured that these would have ‘little real effect’. Michael Heseltine reported how much damage left-wing penetration of the Labour Party and of councils was doing in the riot areas, and called for ‘ways of giving Government support for job creation and wealth creation’. There were several calls for intervention, on the model of Harold Macmillan, who had sent Lord Hailsham as special minister for the depressed north-east in the early 1960s. Mrs Thatcher was unconvinced: ‘We have poured money into big employments in Merseyside; a failure,’ Labour authorities had created problems with ‘horrible housing, high rise etc’ and ‘We have a whole generation brought up on 5 hours a day of TV.’ ‘Perhaps,’ she ended rather lamely, ‘we must call some of the media together.’ Heseltine returned to the charge, demanding a Hailsham-style minister, with the unspoken implication that he was the man for the job. Mrs Thatcher asked for time to think.55

  On 13 July she visited Liverpool herself where, as Ingham’s press digest put it, she was ‘pelted with tomatoes and toilet rolls; most [newspapers] feature your 10 most worrying days since you took office.’56 By the time the Cabinet met a week after its previous meeting, she had decided to send Heseltine to Liverpool for a fortnight to see what could be done, though she emphasized cautiously that this was not ‘a special, ministerial appointment’ but a ‘pilot, prototype scheme’.57* This was the day of the Warrington by-election. Although the Conservatives did badly, losing their deposit, this fact was overshadowed by the damage to Labour. Challenged, with huge publicity, by the SDP candidate, Roy Jenkins, in the previously rock-solid Labour seat, Labour clung on with a majority of only 1,759 and a swing against it of 13.3 per cent. On polling day, the inflation rate was announced as 11.3 per cent, the lowest since Mrs Thatcher took office.

  The Cabinet met on 23 July to discuss the public expenditure survey for 1981. Mrs Thatcher had just returned from the summit of the G7 in Ottawa. There, the final communiqué had pleased her by its emphasis on the role of the market and on the need ‘urgently to reduce public borrowing’. In private, Mrs Thatcher had told President Reagan how worried she was about high US interest rates because of their effect on Britain: ‘It would be difficult to get it [inflation] down any further now that the pound had fallen against the dollar because of US interest rates. We were, in effect, importing inflation.’58 But in the sessions of the summit she had resisted French and German attempts (Helmut Schmidt spoke of the highest interest rates ‘since the birth of Jesus Christ’) to gang up on Reagan about this. She felt protective towards the President, who had only recently appeared on the public stage after having been shot and badly wounded by a lone, crazed gunman on 30 March. Her view was that Reagan, facing his first summit of this kind, needed support in his attempt to persuade Congress to cut taxes and spending. ‘Presiden
t Reagan was the new kid on the block, and most of the Europeans thought he was a Hollywood character without a brain,’ recalled Reagan’s close aide Mike Deaver. ‘Margaret Thatcher not only helped Reagan to learn the ropes, but was the right flank.’59As the summit began, it was Reagan, and Reagan alone, who received a very public kiss on the cheek from Mrs Thatcher.60 Over dinner with his fellow world leaders, the President tried to explain his own economic approach, but was criticized, if not ridiculed, from all sides. As Reagan later recalled it, the only person who came to his defence was Margaret Thatcher. After dinner, he caught up with her to express his thanks. As he told the story, ‘she leaned over to me and patted my elbow and said, “Don’t worry about it, Ronnie, it’s just boys being boys.” ’61 She stored up much goodwill. On his way home from the summit, Reagan expressed his due gratitude in an interview: ‘There were times in those meetings when Margaret Thatcher spoke up and put her finger on the thing we were trying to resolve.’62 In his diary, he wrote: ‘It was a successful summit – not divisive although it could have been with regard to our interest rates … Margaret Thatcher is a tower of strength and a solid friend of the U.S.’63 Mrs Thatcher told the Cabinet that it had been ‘quite the best economic conference the Government could have had’.*