Although there is a danger of being too reductive, it was surely no accident that Joy Division came from Manchester. At the end of the 1970s, the great old Victorian city, once seen as a symbol of Britain’s industrial ingenuity and commercial might, was in wretched shape. The music journalist Jon Savage, who moved to Manchester from London in 1978, found it ‘grim beyond belief’, its canals murky and listless, its chimneys cracked and cold, its warehouses silent and empty. Having ripped down the terraced houses immortalized in Coronation Street, Manchester’s planners had moved thousands of people into concrete towers and crescents, which soon became bywords for drugs, vandalism and violence. In the city centre hundreds of shops stood vacant, while the supposedly space-age Arndale shopping centre, completed in 1979, was dubbed ‘the longest lavatory wall in Europe’. Culturally Manchester seemed a backwater, a dreary, drizzly sort of place, a city where nothing happened.6
When the journalist Godfrey Hodgson visited Manchester after many years away, he was struck by the total disappearance of the industrial landscape he had known in the 1960s. Then it had been a world of warehouses and workshops, a ‘dirty, shabby world, but crowded and busy’. Now the warehouses were empty, the workshops had closed and almost one in three men was out of work. As a result, by the early 1980s Manchester had an estimated 20 million square feet of abandoned industrial floor space, much of it in the mills and factories that had fallen victim to technological change. It was grimly ironic, then, that Joy Division’s record label was called Factory Records, a name coined after the label’s co-founder had seen a gigantic neon sign reading ‘Factory For Sale’. Even Factory’s legendary nightclub, the Haçienda, which opened in 1982, embodied Manchester’s industrial decline. Once it had been just another brick warehouse, belonging to a steel firm. In the long run it became a symbol of the city’s cultural rebirth. But that was only half of the story.7
Manchester’s plight was far from unusual. Its leading rival as industrial England’s pre-eminent city, Birmingham, had entered the new decade in a similar agony of the spirit. In 1964, impressed by Birmingham’s inner-city expressways, concrete new market and Bull Ring shopping centre, the travel writer Geoffrey Moorhouse had called it ‘the most go-ahead city in Europe’. Nobody called it that now. As younger, more skilled and ambitious families moved out to the suburbs, poorer immigrant families were moving in, sending property prices into a spiral of decline. And as the factory gates clanged shut and unemployment headed towards 20 per cent, the fabric of the city visibly deteriorated. Now the flyovers and tower blocks were symbols, not of optimism and progress, but of modernization gone terribly wrong. The Second City was in a ‘wretched state’, said one report in 1980, citing the ‘horribly dirty, dispiriting and sometimes dangerous underpasses’, as well as the ‘ever-present litter that is the despair of many and must make visitors shudder with disgust’. When the novelist Beryl Bainbridge visited Birmingham she found it ‘frightening’, a ‘labyrinth of subterranean passages and overhead tunnels’. She was struck by the sight of an elderly couple, ‘clinging to each other … marooned on the pavement beneath the massive bulk of a multi-storey car park’. Somehow that image seemed to sum Birmingham up.8
At the beginning of the 1980s, Britain’s cities seemed in terminal crisis. In the previous decade, Manchester and Birmingham had lost at least 90,000 people each; inner London had seen its population fall by a whopping half a million; and perhaps most strikingly, Glasgow’s population had fallen from 982,000 to just 763,000, a 22 per cent drop in just ten years. Across the country, inner-city neighbourhoods were becoming ghettos for the old, the poor, immigrants and the unemployed. Urban manufacturing, one of the most obvious physical legacies of the Victorian age, was becoming a thing of the past. It sometimes seemed, wrote the journalist David Walker, that ‘planners, socialist city councillors and international capitalists’ were ‘working to the same end: killing inner city jobs’. And decline became self-perpetuating: as a study by the Department of the Environment concluded in 1982, it was not just the high rents that put businesses off; it was the perception of ‘congestion, vandalism and crime’.9
At the end of August 1981, The Times began a week-long series on ‘Crumbling Britain’. ‘For the last 60 years’, it said bleakly, ‘Britain has been living off the Victorian engineering legacy of railways, bridges, canals, sewers and buildings. They have not been – and are not being – adequately maintained or replaced. That legacy is now crumbling at an accelerating rate.’ What followed was a vision of abandoned factories, run-down schools and polluted canals; barbed wire, corrugated iron and broken windows; ‘the burst water main in the high street at the height of a drought; the letter posted in one part of London which reaches its destination in another part weeks later; … the legion of fitters required to mend a broken gas main’. The supreme symbol of the state of the public realm, The Times thought, was ‘the rotting school window frame, unpainted for a decade past because the local authority has chosen to spend on staff rather than on maintenance’. In the cities, one in four primary-school children was educated in a building built before Victoria’s death, while a quarter of schools still had outdoor toilets. In Manchester, local officials measured the city’s collapsed sewers in DDBs. A ‘four-DDB hole’ was ‘one into which four double-decker buses would fit’.10
Over this cracked and crippled landscape the recession broke with the force of a tidal wave. On Tuesday 22 July 1980, the day the government officially confirmed that Britain was in recession, 630 stationery-firm employees lost their jobs at plants in London, Liverpool and Hemel Hempstead, while 230 furniture factory jobs disappeared in Wigan, 238 chicken factory jobs went in Cambuslang, fifty timber workers lost their jobs in Boston and a further thirty foundry workers were made redundant in Kettering. On Wednesday, GKN Fasteners closed a subsidiary in Birmingham with the loss of 830 jobs. On Thursday, Ford and British Leyland put almost 10,000 workers on short-time working. On Friday, the chemicals firm British Celanese laid off 226 people in Derby. And so it went on, every single working day that summer: 740 tractor makers in Doncaster, 125 engineers in Derby, 500 potters in Stoke-on-Trent, 600 diesel-engine makers in Darlington, 600 truck-factory workers in Cheshire, 300 gear-box makers in Port Talbot, 9,000 truck makers in Lancashire, 680 Massey-Ferguson employees in Coventry, 1,600 paper millers in Ellesmere Port, 430 Timex employees in Washington, 600 tyre makers in Wrexham … on and on and on, unwanted makers of this, unloved makers of that, a relentless drumbeat of disappointment and disaster.11
By the end of August the unemployment figures, including school-leavers, had reached 2 million, the highest total since 1935. ‘Our jobless are growing over twice as fast as those in any other EEC country; and yet we are still only at the start of a long road,’ said an editorial in the Guardian. It was a long road indeed. The recession lasted for five quarters, from the beginning of 1980 until the spring of 1981. In the first year alone Britain’s GDP fell by fully 2 per cent, dropping a further 1.2 per cent in 1981. Company liquidations, meanwhile, rose from some 4,500 in 1979 to almost 6,900 in 1980, 8,600 in 1981 and more than 12,000 in 1982. The total did not begin to fall until three years later, which says a great deal about the lasting damage of the downturn.
Perhaps the most telling indicator, though, was the collapse of manufacturing output, which fell by a staggering 8.7 per cent in 1980 and a further 6 per cent in 1981. Not since the Depression had British manufacturers taken such a battering. The difference, though, was that this time many never recovered. Even the greatest names were not safe. In eight years after 1979, the nation’s most celebrated industrial manufacturer, ICI, cut its workforce from more than 89,000 people to just 56,000, while the Midlands engineering giant GKN saw its workforce fall from more than 60,000 to barely 19,000. In all, most estimates agree that during Mrs Thatcher’s first term Britain lost as much as a quarter of its manufacturing capacity.12
By the time it was all over, Britain’s manufacturing heartlands had been changed almost beyond recog
nition. Entire industries, from toy cars to machine tools, had been virtually annihilated. In areas like the West Midlands, the North, Scotland and Wales, manufacturing employment fell by at least a third in just eight years. The irony was that at the same time, imports were booming. With the pound so strong, foreign products were cheaper than ever: great news for Volkswagen, Zanussi, Samsung and Toshiba, but not for their British competitors. As late as 1980, Britain had run a £4 billion trade surplus in manufactured goods. Then the recession came. By 1982 the surplus was already down to just £1.3 billion. In 1983 it vanished completely, replaced by a deficit of some £2.6 billion. The surplus never returned; the deficit steadily widened. There could hardly have been a more powerful symbol of what had happened to the workshop of the world.13
One of the things people often forget about the Thatcher years is that there was always likely to be a recession in the early 1980s. Her government had taken over at the precise point that the aftershocks of the Iranian Revolution were rippling through the international economy, with world oil prices trebling in just two years. Even if Labour had won the 1979 election, Britain would have been exposed to the global slump. Even so, the fact that the recession was so much worse in Britain than anywhere else, with more losses, more bankruptcies and far more unemployment, demands an explanation. The real problem, despite what Conservative ministers claimed, was not the world downturn, the obstructiveness of the trade unions or the supposed backwardness of the British worker. The real problem was the punishingly high exchange rate.14
One factor in all this was obviously North Sea oil, which had turned the pound into a turbo-charged petro-currency. In November 1980 British Leyland’s chairman, Michael Edwardes, won huge applause when he told the Confederation of British Industry that ‘if the Cabinet do not have the wit and imagination to reconcile our industrial needs with the fact of North Sea oil, they would do better to leave the bloody stuff in the ground’.fn1 In reality, Mrs Thatcher never had the option to leave it in the ground, because the previous Labour government had signed a deal with the oil companies ruling out major production curbs until 1982. Even so, plenty of people thought Edwardes had a point. The Treasury’s own figures suggested that at least a third of the pound’s punitive rise in 1979–80 was down to oil. ‘Looking round at the industrial havoc caused by the steepest recession since the war,’ wrote Frances Williams in The Times a year later, ‘it is certainly hard to believe that the British people have benefited from oil.’ It had, she thought, become ‘a burden rather than a blessing on the British people. Sir Michael Edwardes was right. We should have left the “bloody stuff” beneath the waves.’15
The role of North Sea oil in Britain’s recent history is still hotly debated. At the time, Mrs Thatcher’s critics often suggested that instead of absorbing the oil money into the general budget, she should have invested it all in industry. The problem, as the former Labour minister Edmund Dell pointed out, was that Whitehall had a dire record of investing in industry, having already wasted billions on an entire flock of lame, dying or dead ducks. Even if ministers had successfully identified the hi-tech businesses of the future, it would have taken years to produce significant results, which would not have been much good to the millions on the dole in 1981. In reality, political pressures would probably have forced an interventionist government to blow the money on ailing behemoths like British Steel or the National Coal Board. But Mrs Thatcher’s ministers shuddered at the thought of reviving the industrial interventionism of the mid-1970s. In Nigel Lawson’s words, they preferred to use their oil winnings ‘to reduce Government borrowing, to cut taxes where this could be done on a sustainable basis, and generally improve the climate for enterprise’.16
A more enticing argument is that Mrs Thatcher should have put the money into a sovereign wealth fund, as Norway did. To cut a very complicated story short, the Norwegians set up a gigantic pension fund, which was worth around £150,000 for every living Norwegian by mid-2019. Yet it was Jim Callaghan, not Mrs Thatcher, who decided against investing in a wealth fund. As he told the Commons, he wanted to use the oil money to cut personal taxes and ‘increase take-home pay and work incentives’, which is exactly how Mrs Thatcher justified her own approach. The only difference was that Callaghan promised to put some of it into industrial retraining and social services too. But even if Callaghan or Thatcher had chosen to put the money into a fund, Britain’s population is more than twelve times larger than Norway’s. Even if a British fund had been just as big as the Norwegian one, it would be worth around £12,000 per head at the time of writing, and that is a very generous estimate. So it would hardly be a silver-bullet solution to the problem of an ageing population, as its advocates sometimes claim.
The other obvious point, as the historian Graham Stewart observes, is that if the oil money had been invested, this would have left a gaping hole in the national budget. By 1983 the Treasury was banking more than £8 billion a year from North Sea oil. To fill the gap, Mrs Thatcher would have probably cut spending even more aggressively, with the impact inevitably falling on the poorest, the oldest and the unemployed. For although it is often said that North Sea oil paid for her tax cuts, it also paid for millions of people’s unemployment benefits, as well as a host of other services and benefits that otherwise would have been threatened. To put it very starkly, the pressures of globalization and technological change, which were making so many old industries redundant and piling pressure on the public finances, meant Britain could have either a reasonably generous welfare state or a sovereign wealth fund, but not both. As so often, there was no easy answer, and certainly no magic wand.17
Back, though, to the recession. Since leaving North Sea oil in the ground was not an option, sterling was always going to be higher in the early 1980s than it had been in the mid-1970s, when it had sunk to the depths of the $1.60s. That meant industry was always likely to face a tough time. Even so, the surge after Mrs Thatcher took office was simply colossal. On the day she walked into Number 10, the pound was just over $2.07, but by the summer of 1979 it had already reached the dizzy heights of the $2.30s. It then fell back again, but when Howe raised interest rates to 17 per cent after the autumn gilt strike, it once again began to climb, hitting $2.31 in February 1980. Then came another brief respite; and then the long, agonizing summer surge, sending the pound to a peak of $2.46 in late October 1980. As the former president of West Germany’s Bundesbank told a Commons committee two years later, it had been ‘by far the most excessive overvaluation which any major currency has experienced in recent monetary history’.18
Why did Mrs Thatcher’s ministers do nothing about it? One answer is that the Bank of England strongly advised them to let the pound take care of itself. On Howe’s first day, Gordon Richardson had explicitly told him that the Bank was dead against intervening in the currency markets ‘because of the dangers of destabilising the exchange rate’. It was barely three years since the humiliation of 1976, when the Bank’s mismanaged intervention had sent sterling into meltdown. With world exchange rates in chaos and Britain’s international reputation still very shaky, Richardson could hardly be blamed for being jittery about a repeat performance.19
What was more, at least one of Howe’s closest confidants thought a strong pound might be a blessing in disguise, because it would help to bring inflation down. As Nigel Lawson told the Chancellor in August 1979, ‘the strong pound is the biggest thing we have going for us. Not only is it an integral part of our anti-inflation policy, but any attempt to weaken it would very quickly lead to a very serious loss of confidence in our resolve to stick to that policy.’ Lawson conceded that things would be different if they were faced with a ‘rapidly and inexorably rising pound’, but he thought that was very unlikely. In this, though, he turned out to be completely wrong. As he later admitted, when inflation was taken into account, sterling actually rose by something between 30 and 50 per cent in the government’s first eighteen months.20
Later, Lawson and Co. were at pains to
present the rise of sterling as the economic equivalent of an act of God, a natural disaster over which they had little control. The cause, they argued, was North Sea oil. But was it? In January 1981 the ultra-Thatcherite Centre for Policy Studies commissioned a secret report by the Swiss monetarist Jürg Niehans, who found that the ‘principal cause’ was actually the excessive restrictiveness of their monetary policy. To put it in layman’s terms, with every upward tick in interest rates, the government had sent the pound a little bit higher. In the end, obsessed with controlling the money supply, they had simply squeezed too tightly. Not surprisingly, Mrs Thatcher found Niehans’s findings very inconvenient. When John Hoskyns advised her that ‘we had had a tighter monetary policy than we realised, by accident’, she warned him of ‘the fatal error of saying such a thing – that it would come through in speeches and undermine Geoffrey’s position. There were many in the Cabinet who would exploit that.’ She said much the same to her new economic adviser, Alan Walters: ‘NO-ONE must know about it – especially Bank of England.’21
There is little doubt, then, that Mrs Thatcher’s policies made the recession worse. In an ideal world, Howe might not have rushed his inflationary tax changes through so quickly. Nor would he have abolished exchange controls and scrapped the corset at the very moment he was trying to get the money supply under control. He might have done better to cut public borrowing straight away, and he should have reacted more quickly to the mounting exchange rate, relaxing his monetary policy as soon as it became clear that the squeeze had been too tight. But politicians do not live in an ideal world. In an age characterized by high inflation, low growth and currency instability, the world’s finance ministers were feeling their way through a thick fog. Howe certainly made mistakes, but so had Denis Healey and Anthony Barber before him. That was not because they were all idiots. It was because, in Howe’s words, economic management in the post-oil-shock era had become a ‘long trudge through a seemingly endless series of multiple-choice examination questions’. And although his critics rarely admitted it, none of the potential answers offered much comfort.22
Who Dares Wins Page 38
