The Downing Street Years

by Margaret Thatcher

  If we were serious about turning BSC round — with all the closures, job losses, and challenges to restrictive practices that would involve — we faced the risk of a very damaging steel strike. There was only one worse alternative: to allow the present situation to continue.

  BSC’s cash limit for 1980–81 was first set in June 1979: the aim was for it to break even by March 1980. This objective had, in fact, been set by the previous Labour Government. But by 29 November 1979 BSC had announced a £146 million half-year loss and abandoned its break-even target for March, putting it back a further twelve months. The crisis was fast approaching.

  On 6 December Keith Joseph let me know what the implications were. BSC could not afford any general wage increase from 1 January other than the consolidation of certain additional increases agreed the previous year — amounting to 2 per cent. Any further increase would be dependent on local negotiations and conditional on the equivalent improvements in productivity. The Corporation had told the unions the week before that 5 million tonnes of surplus capacity, over and above the closure of iron- and steel-making at Corby and Shotton, would have to be shut down. Already Bill Sirs was threatening a strike. I agreed with Keith that we must back the Corporation in its stand. We also agreed that BSC must win the support of public opinion and bring home to the unions the harm which a strike would do to their own members.

  As the strike loomed, there was much disquiet about whether the management of BSC had properly prepared its ground for it. The figures used to justify the management’s position were questioned, even by Nicholas Edwards, the Secretary of State for Wales. He might have been right. But I said that we must not attempt to substitute our judgement as politicians for that of the industry. It was up to the management of BSC — at last — to manage.

  On 10 December the BSC Board confirmed that 52,000 steel jobs would have to go. The business prospects for BSC were still worsening. Indeed, when we looked at their figures for future steel demand we thought that they were, if anything, slightly optimistic. But again, there was no intention to set our judgement against that of the Board and management. Even before the strike, we had been searching for a successor to the present Chairman, Sir Charles Villiers, whose contract was due shortly to come to an end. We had already received seven or eight firm refusals from suitable candidates and it was clear that fear of government interference was one of the main deterrents.

  It was difficult to be sure about the outcome of the strike. BSC, the private steel producers and the steel users all had healthy levels of stocks. The fact that the steel users and stockholders were effectively given three weeks’ notice of the strike allowed them to build up stockpiles. Moreover, because of the depressed state of industry many steel-using companies were operating well below capacity. But, on the other hand, there would be serious problems for the users of tin plate, and possibly for the car industry, and the situation could, of course, rapidly worsen if dockers and transport workers took effective action to stop steel moving around the country and to halt imports. However, BSC and its workforce would suffer most. Its current prices were already above those of our European competitors and the domestic market for steel was likely to be lost permanently to foreign steel companies which could ensure a reliable supply in the future.

  From the end of December I chaired regular meetings of a small group of ministers and officials to monitor the steel situation and decide what action needed to be taken. It was a frustrating and anxious time. The details of the BSC offer were not well understood either by the steel workers or by the public. BSC did little to explain its position. It would not put out broadsheets or buy newspaper space, on the ground that such actions might be seen as provocative. The hope was that other pressures could be brought to bear on the ISTC and the National Union of Boilermakers (NUB). Moreover, in a misguided attempt to canvass support for various pay offers which they had made, BSC allowed a bewildering array of different figures to gain currency, pleasing no one: to the general public the figures always seemed to be increasing, while to the unions they never seemed sufficient.

  For its part, the ISTC was more conscious of pay settlements to other groups of workers — the ‘going rate’ — than it was of the bleak commercial realities of the industry in which its members worked. On 28 November Ford workers had voted to accept a 21.5 per cent wage increase. On 5 December coal miners had accepted a 20 per cent settlement — and been publicly praised for their moderation. All this undoubtedly added to the strength of feeling among the steelmen. On 7 January Len Murray and Bill Sirs asked for a settlement of 8 per cent plus 5 per cent ‘on account’ for the local productivity deals. BSC offered 8 per cent plus 4 per cent in advance for a limited period. The next day negotiations collapsed. The General and Municipal Workers’ Union (GMWU) joined the strike; on the following day the craftsmen struck, and although on 10 February the craft union leaders accepted a separate settlement of 10 per cent plus 4 per cent, later that week its members rejected the offer. In the meantime, on 16 January, the ISTC had spread the strike to the private steel sector, where the uncertain legal position and the violent mass picketing added to our difficulties.

  It became clear to me fairly early on, however, that the steel strike was not going to bring British industry to a halt. At my strategy meeting on 18 January the figures showed that the strike had so far had little effect on industrial production, which had fallen about 2 per cent the previous week and was perhaps marginally lower by the time we met. Even if private steel production were suspended altogether, there would be enough stocks to support normal manufacturing for another four to six weeks, with problems in some particular areas within two to three weeks. As we had foreseen, it was in the specialist area of food canning that the greatest difficulty might arise.

  It was against this background that I met first the unions at their request and then the management of BSC on Monday 21 January at No. 10. The union leaders had seen Keith Joseph and Jim Prior the previous Saturday. One difficulty we had was that the unions might have drawn the wrong impression from widely reported remarks made by Jim, criticizing the BSC management. I had been angry to read this. But, when a week later I was asked about it by Robin Day on Panorama, my reply was sweetly dismissive: ‘we all make mistakes now and then. I think it was a mistake, and Jim Prior was very, very sorry indeed for it, and very apologetic. But you don’t just sack a chap for one mistake.’

  In my discussion with Mr Sirs and Mr Smith (the leaders respectively of the ISTC and NUB), I said that the Government was not going to intervene in the dispute. I did not know enough about the steel industry to become involved in the negotiations though, of course, I was keen to hear their views. The unions wanted the Government to bring pressure on BSC to make an increased offer. They wanted some ‘new money’, but I pointed out that there is no such thing: money for the steel industry could only come from other industries which were making a profit. The real issue, I said, was productivity where — although Bill Sirs disputed the figures — it was generally accepted that BSC’s performance lagged far behind. Luxemburg had reduced its steel workforce from 24,000 to 16,000 and substantially increased its productivity, with the result that it was now exporting railway lines to the UK. When I had heard this the previous autumn I had been cut to the quick, and I told him so.

  That same afternoon I met Sir Charles Villiers and Bob Scholey, the Chairman and Chief Executive of BSC. They described to me precisely what was on offer and the very limited scope for flexibility. I gave them my full support.

  On the following day Bob Scholey and Bill Sirs held a meeting, but to no avail. Bill Sirs continued to ask for 20 per cent, a figure which was obviously unrealistic. The only thing we could do was see the strike through. At my meeting of ministers and officials on 1 February we were told that steel was still moving from the docks. There was little or no evidence of shortages except for the deteriorating position in Metal Box, the food can producers. The report for the week ending 2 February again showed a strong p
osition: manufacturing production was at 96 per cent of its normal level. On 12 February we received clearer evidence still about how industry was coping. Ninety per cent of steel stockholders were continuing to maintain a satisfactory level of deliveries. Limited imports were continuing and getting past the obstacles the unions put up against them. Not surprisingly, perhaps, steel users were reluctant to divulge the size of their steel stocks and potential endurance, but their morale was good. Metal Box expected to deliver 50 per cent of what customers demanded. At British Leyland full production could continue until the end of February.

  The real problem was now arising in the private steel sector. The mass picketing at Hadfields raised the stakes. It had overtones of the kind of intimidation and violence which had led to the closure of the Saltley Coke Depot during the miners’ strike in 1972: it was vital that we win through.

  British business proved resilient and resourceful in meeting the strike: this turned out to be the decisive factor. Somehow, they got hold of the steel they needed. In the reports presented to my meetings the crunch point at which serious problems for steel users would arise never seemed to come any closer. At the meeting on 4 March all information confirmed that the strike could not succeed. The potential endurance of steel users was being increased by the continued flow of imported steel. If anything the outlook seemed slightly better than the week before. By 14 March all but one of the private sector steel companies were back in production and by the time we met on 18 March that too was working.

  Although it was now obvious that the unions had lost — with the strike clearly failing to cripple industry and the strikers themselves increasingly demoralized — the precise terms on which the Government and management had won remained in the balance. On 9 March BSC had held a ‘ballot about a ballot’, asking workers whether they wanted a ballot on pay, which the ISTC had hitherto denied them, and this had shown strong evidence of disenchantment with the ISTC’s tactics and leadership. The union wanted a way out which would save face. BSC had formally proposed arbitration on 17 February and, although rejected, the offer had remained open. There was strong pressure — which I wanted to resist — for a Court of Enquiry into the strike which would propose a settlement. I would have preferred the involvement of ACAS (the Advisory, Conciliation and Arbitration Service). It seemed to me that if ACAS had any reason for existing at all, it should surely have a role in a situation such as this. In fact, we were condemned to watch while BSC and the unions agreed to the appointment of a three-man enquiry consisting of Lords Lever and Marsh (both former Labour Cabinet ministers) and Bill Keyes of SOG AT, which on 31 March recommended a settlement well above the figure originally offered by BSC but substantially below what the ISTC had demanded. The offer was accepted.

  At its final meeting on 9 April my committee was told that all the BSC plants were back in operation. Production and steel deliveries were both about 95 per cent of what they would have been without the dispute. The outcome, in spite of the size of the final settlement, was generally seen as a victory for the Government, if not for the BSC management.

  The bills, however, kept on coming in. On 6 June Sir Charles Villiers wrote to Keith Joseph saying that he foresaw the need for an additional £400 million in the financial year 1980–81, over and above the £450 million already allocated. The proposals made by BSC to stay within the borrowing limit set by the Government (its EFL or External Financing Limit) involved various financial devices including the sale and lease-back of assets. The only alternative they had to suggest was that in effect BSC should go into liquidation. Clearly, whatever the pressures imposed by the strike, matters should never have been allowed to come to such a pass and it reflected badly on the management. But we had already decided what to do about that. In spite of some outcry over the terms offered, Ian MacGregor had been appointed to succeed Sir Charles Villiers. I expected him to deal with the appalling commercial and financial legacy and in due course we approved very large increases in the funding of BSC to allow him to do this. Nor were we disappointed. Another cost, which we did not begrudge, was the money made available to encourage new development in areas badly affected by redundancies, such as Llanwern, Port Talbot, Consett and Scunthorpe.

  This had been a battle fought and won not simply for the Government and for our policies, but for the economic well-being of the country as a whole. It was necessary to stand up to unions which thought that because they were in the public sector they should be allowed to ignore commercial reality and the need for higher productivity. In future, pay had to depend on the state of the employing industry, and not on some notion of ‘comparability’ with what other people received. But it was always going to be more difficult to induce such realism where the state was owner, banker, and at times tempted to be manager as well.

  BRITISH LEYLAND: 1979–1980

  In many ways British Leyland presented a similar challenge to the Government as BSC, though in a still more acute and politically difficult form. Like BSC, BL was effectively state-owned and controlled, though technically it was not a nationalized industry. The company had become a symbol of Britain’s industrial decline and of trade union bloody-mindedness. However, by the time I entered No. 10 it had also begun to symbolize the fightback by management. Michael Edwardes, BL’s Chairman, had already demonstrated his grit in taking on the trade union militants who had brought the British car industry to its knees. I knew that whatever we decided to do about BL would have an impact on the psychology and morale of British managers as a whole, and I was determined to send the right signals. Unfortunately, unlike the case of BSC, it became increasingly clear that the action required to support BL’s stand against trade union obstruction diverged form what was required on purely commercoal grounds. This was a problem: but we had to back Michael Edwardes.

  We had indicated in Opposition our hostility to the Ryder Plan for BL with its enormous cost, unmatched by sufficiently rigorous measures to increase productivity and earn profits.* My first direct experience as Prime Minister of BL’s difficulties came in September 1979 when Keith Joseph informed me of BL’s dreadful half-yearly results and of the measures the Chairman and Board intended to take. The new plan involved the closure of BL’s Coventry plant. At least 25,000 jobs would be lost. Productivity would be increased. The development of BL’s medium car range of models would be accelerated. The BL Board said that the Company would require additional funds beyond the £225 million remaining of the £1 billion which Labour, under the Ryder Plan, had in principle committed. In response, Keith made no financial promises. He told BL to look at the scope for raising money from its own resources — that is sales of profitable parts of the company. There was no immediate need to take decisions about funding until the Government received the new BL Corporate Plan from the National Enterprise Board (NEB) in November.

  BL’s workers were to be balloted on the Corporate Plan. If it received substantial majority support the Government would find it very difficult to turn down and, as quickly became apparent, the company would want a further £200 million above and beyond the final tranche of Ryder money. The ballot, of which the result would be announced on 1 November, seemed likely to go the company’s way. But it might not; and that would present its own immediate problems. For if the ballot showed anything other than overwhelming support for the company’s proposals there would be speculation about its future, with the prospect of BL’s many small and medium-sized creditors demanding immediate payment and the large holders of loan stock adding to the pressure. BL might be forced precipitately into liquidation in circumstances which would make it impossible for us to formulate a sensible response and for an orderly disposal of its assets to take place. The economic implications of such a collapse were appalling. One hundred and fifty thousand people were employed by the company in the UK; there were perhaps an equal number of jobs in the component and other supplying industries dependent on BL. It was suggested that complete closure would mean a net loss to the balance of trade of around £2,
200 million a year and according to the NEB it might cost the Government as much as £1 billion.

  There was no mistaking the political and economic gravity of the decisions required. Closure would have some awful consequences, but we must never give the impression that it was unthinkable. If ever the company and workforce came to believe that, there would be no limit to their demands on the public purse. For this reason Keith and I decided not to agree to BL’s request for the Government to issue an undertaking to honour the company’s debt. They had wanted us to publish a letter to this effect even before the ballot result. In fact, 87.2 per cent of those voting supported BL’s plan and BL immediately sought approval from the NEB to go ahead with it. A firm request for money was made to the Government.

  Our consideration of the BL Corporate Plan was delayed by two other events. First, as a result of our (unconnected) decision to remove Rolls-Royce from the purview of the NEB, Sir Leslie Murphy and his colleagues resigned and a new Board had to be appointed under Sir Arthur Knight. Second, the Amalgamated Union of Engineering Workers (AUEW) now threatened the very survival of BL by calling a strike following the dismissal on 19 November of Derek Robinson, a notorious agitator, convenor of the shop stewards at Longbridge and chairman of the so-called ‘Leyland Combine Trade Union Committee’. Robinson and others had continued to campaign against the BL plan even after its approval. The management had been right to sack him, pending the outcome of an inquiry by the AUEW.

  On Monday 10 December ministers, under my chairmanship, considered the Corporate Plan. The first thing I noticed was that BL’s performance had deteriorated even since it had been drawn up. So I asked for up-to-date forecasts of profits and cash flow. I wanted from Michael Edwardes a proper definition of the circumstances under which the BL Board would abandon the plan. There had to be clear bench marks against which to measure future performance. I also wanted to know whether Michael Edwardes himself intended to remain as Chairman: officially, his contract had only another year to run.