Who Dares Wins

by Dominic Sandbrook

  Even today, Mrs Thatcher’s most strident critics still cling to a very simplistic account of what went wrong. According to the hard left, she and Howe, driven by their maniacal devotion to a twisted creed, deliberately conspired to create a recession, destroy British manufacturing and throw millions of people out of work. But this is almost self-evidently nonsensical. Why would they want to destroy the industries in which millions of working-class Conservatives made a living? Why would they want to imperil their political survival by causing a recession? It is true that they knew beating inflation would involve a degree of economic pain, just as they knew their drive for better productivity would mean some people losing their jobs. But there is no evidence that they planned to eviscerate British manufacturing and crush the working class, or for any of the other sinister ambitions often attributed to them. Nor is there any evidence that they envisaged mass unemployment on the scale of the Great Depression. After all, Mrs Thatcher had spent the late 1970s promising to rebuild British manufacturing ‘on the rock-hard and well-tested foundations of incentive and profit’, an unlikely thing to say if she were planning to destroy it. Would she really have gone out of her way to point out that, under Labour, unemployment had ‘risen by more than in almost any other major industrial country’, if she had been planning to throw millions more on to the scrapheap a year later?23

  Time and again in history, cock-up is a much better explanation than conspiracy. As some of Mrs Thatcher’s ministers later admitted, they never expected the downturn to be so severe. They assumed that the pound would stop rising; they hoped their money supply targets would dampen inflationary expectations, job losses would be contained and recovery would not be long delayed. They were, of course, completely wrong. The historian Jim Tomlinson accuses them, not unreasonably, of ‘“adventurism” – a determination to pursue a radical policy shift with little serious analysis of what might follow’. Another way of putting it is that, faced with a series of extremely unpleasant options, they succumbed to wishful thinking and were shocked when reality failed to match their expectations. But this was hardly unprecedented. After all, Reginald Maudling’s dash for growth, Harold Wilson’s reluctance to devalue, Anthony Barber’s reckless boom and Denis Healey’s refusal to deflate had not exactly been shining examples of tough-minded realism. In this respect, the Thatcher government was not so exceptional after all.24

  In the popular imagination, the recession of the early 1980s is often seen as the moment when a lost paradise of booming factories, steady jobs and settled communities was unforgivably destroyed. But that world was already in deep decline. Deindustrialization had been underway since the 1960s, and while Mrs Thatcher accelerated it, she did not start it. The shift from manufacturing to services had deep roots, and almost without exception the major industries supposedly destroyed during her time in office, such as steel, coal and car making, had been in dire straits for years. The industrial landscape was blighted by years of poor investment, persistent strikes and declining market share: when Mrs Thatcher took office, Britain had already lost almost 1½ million manufacturing jobs since 1966. In fact, one reason she was able to survive the recession is that factory closures had been making the headlines for years already. To the Scottish shipbuilders who lost their jobs in the early 1970s or the Ebbw Vale steelworkers who saw their plant close in 1975, what happened in Mrs Thatcher’s first term probably sounded depressingly familiar.25

  No doubt Britain would have been better off if the recession had never happened, although the downside might have been a longer period of high inflation. It is also true that the exchange rate took a dreadful toll on smaller firms that might otherwise have survived for years. Even so, when Sir Geoffrey Howe insisted that manufacturing had written ‘its own suicide note’ years earlier, he was not necessarily wrong. Of course Howe was hardly unbiased. But Edmund Dell, who had been ICI’s vice president of plastics before entering politics, agreed that much of the industrial capacity lost in the early 1980s was bound ‘for the scrapheap in any case’. If the recession had never happened, would the factories and foundries built in the Victorian age really have survived into the twenty-first century? Would Britain seriously have escaped the deindustrialization that swept through other industrial nations, from the car plants of Detroit to the steel towns of Lorraine? The answer is only too obvious.26

  One of the myths about Mrs Thatcher’s first term is that by the time it was over, Britain was finished as a manufacturing nation. Actually, twenty-first-century Britain is still one of the world’s top ten manufacturers, behind Germany but roughly level with France. And there are plenty of commentators who believe that the shock of the early-1980s recession actually saved British industry from even greater sclerosis. Lawson, for example, claimed that ‘our industrial base emerged from the fire more productive, more efficient, more competitive in the best sense, and very much better managed’. In his definitive history of post-war industry, the former Financial Times editor Geoffrey Owen agrees that the trauma of the recession ‘stimulated an urgent drive for lower costs and greater efficiency’. Perhaps most strikingly, Marxism Today, in a special issue to mark ten years under Mrs Thatcher, agreed that the recession had triggered a ‘long overdue’ clear-out of Britain’s industrial ‘dead wood’. The manufacturing ‘rump’ that survived the recession, explained the Cambridge economist John Wells, was ‘leaner, fitter, employs a vastly reduced labour force more productively and is considerably more profitable’.

  That word ‘rump’, though, is crucial. Despite the government’s assurances that new factories would rise from the ashes of the old, British manufacturing never recovered its lost jobs and vanished capacity. Perhaps both were always doomed. Even so, this was hardly what most voters had imagined when they heard Mrs Thatcher promising to rebuild British industry on ‘rock-hard and well-tested’ foundations. Nor did they ever imagine that a fervently patriotic Prime Minister would preside over an economy that became so dependent on manufactured imports, which rose by a staggering 92 per cent in the ten years after 1979.27

  And there was, of course, another dimension to all this. Every time a factory closed, the cost could be measured not just in vanished profits but in the sense of loss as an entire culture began to disintegrate. The future Sunday Times economics editor David Smith grew up in the 1950s and 1960s in the Black Country, not far from the seventy-five-acre Darlaston works of Rubery Owen. A long-established family engineering firm, Rubery Owen controlled twenty constituent companies, making nuts and bolts, wheels and ploughs, chains and tools, motor-industry components, aircraft landing gear and prefabricated houses. It owned entire streets, offering subsidized housing to its workers. The Darlaston factory had a day nursery for working mothers’ children, as well as a Sons of Rest workshop for older men who did not want to retire. It organized cricket and football teams, theatre groups and coach tours. It even maintained a convalescent home in Barmouth, on the Welsh coast, for employees who had been ill or injured at work. It was more than a company; it was a community.

  On 1 July 1981 Rubery Owen announced that the Darlaston factory was to close. Collapsing demand, exacerbated by the ordeal of the car giant British Leyland, had made the end inevitable. Two months later, the bullhorn sounded for the last time, and was forever silenced. The nursery, the cricket team, the convalescent home, the subsidized housing: all were gone. Once, wrote Smith, the factory had been a ‘hubbub of noise and banter’, ringing with ‘human stories: stories of men and women who believed they had a job for life, people who often complained but for whom work, and taking home a pay packet at the end of the week, was their life’. Not any more. Now silence had descended where once all was clamour.

  Two years later, one in five people in Darlaston was still out of work.28

  As the hurricane roared through Britain’s factories, Mrs Thatcher knew perfectly well what was happening. On 20 June 1980 the Treasury warned Number 10 that there was little prospect of any manufacturing recovery, since Britain’s exceptional
ly weak competitiveness and productivity, coupled with the horrendous exchange rate, would almost certainly turn ‘a modest recession for the world economy into a major decline for the UK’. Yet the Prime Minister showed few signs of self-doubt. A few weeks later, just before she left for her summer holiday, she gave an interview to the Sunday Times’s Hugo Young. More than ever, she believed she alone understood what the British people wanted. ‘Deep in their instincts’, she said,

  they find what I am saying and doing right, and I know it is, because that is the way I was brought up. I’m eternally grateful for the way I was brought up in a small town. We knew everyone, we knew what people felt. I sort of regard myself as a very normal, ordinary person with, all the right, instinctive antennae.

  Most people, she said, knew there was a price to pay for the mistakes of the past, but they also knew recovery would come eventually. And then ‘they will be able to look forward to a different kind of life to the one they were having at the end of socialism’. Could she really turn things around? ‘Other people still believe we can do it,’ she said earnestly. ‘But, if I give up, we will lose. If I give that up I just think we will lose all that faith in the future.’ And then, as if remembering herself: ‘I hope that doesn’t sound too … arrogant.’29

  Mrs Thatcher spent her holiday in Switzerland, where she and Denis stayed with the former Tory backbencher Sir Donald Glover and his wife, a Swiss industrialist’s widow, near the shore of Lake Zug. Since the Prime Minister was notoriously uninterested in relaxing, Lady Glover made sure to invite a series of interesting people for lunch. On 20 August her guests included the Swiss economist Karl Brunner, who was based in New York. Since Brunner was one of the founding fathers of monetarism, Mrs Thatcher was keen to hear his thoughts about her economic policy. But to her horror, he was not encouraging. Her strategy was fine, he said, but her tactics were terrible. By concentrating on sterling M3 instead of the wider monetary base, the Bank of England was badly letting her down. To cut a long story short, the money supply was completely out of control. And unless she took drastic action, the result would be disaster.30

  By the time Mrs Thatcher returned to England three days later, she had worked herself into a blazing fury. She demanded to see the Governor of the Bank, Gordon Richardson, but he was on holiday. To inflame her further, the economic picture was even darker than at the beginning of the summer. Sterling was heading towards the eye-watering heights of the $2.40s. Company profits were tumbling; unemployment was mounting by the day. The borrowing figures were horrendous, thanks largely to a series of massive public sector pay increases and the desperate plight of the car, steel and coal industries, which needed regular injections of public money to keep going. And above all, the monetary position was simply abysmal. According to the MTFS, money supply growth for 1980–81 was supposed to be between 7 and 11 per cent. Yet in July and August alone, sterling M3 had increased by 8 per cent! As the Prime Minister’s private secretary Tim Lankester wrote later, even the truest of true believers could not deny that they were now in ‘a serious mess’.31

  By the summer of 1980, it had become common to compare Mrs Thatcher’s government to the British high command during the First World War. This is Leslie Gibbard in the Guardian (27 August 1980).

  On 3 September, a few days after Mrs Thatcher had got back from holiday, the Treasury’s chief economic adviser, Terry Burns, sent over their latest forecast. Unemployment was rising steeply, the money supply was growing much faster than the target, competitiveness was in free-fall and inflation in nationalized industry prices was running at 25 per cent. Mrs Thatcher covered her copy with outraged exclamation marks and ferocious underlinings. And when, later that day, the Treasury ministers and Bank of England officials finally trooped in to see her, she was seething. What followed, remembered Burns, was a ‘bit of a rant’. She began by reporting Karl Brunner’s view ‘that British money supply was out of control, that her strategy was right, but that it was not being properly operated’. Now they had given her these disastrous figures. ‘She was determined to see both money supply and public expenditure back under control.’ What did they propose to do about it?

  For Sir Geoffrey Howe and Gordon Richardson, the next hour was pure agony. Whenever they tried to explain why so much money was sloshing around, she broke in to argue with them. Much of her fury was directed at Richardson, who at one stage told her that she ‘did not properly understand’ what she was talking about. ‘The centre-piece of Government strategy was being undermined by her own supporters,’ she said bitterly. At that, the Bank’s Charles Goodhart pointed out that banks could not just stop lending money to industry, ‘or many more businesses would go bust’. That, she snapped back, ‘confirmed comments from her Swiss friends that the Bank was simply unwilling to implement Government strategy’. At one point she even threatened to call in the heads of the major banks herself, which Howe hastily said would be a very bad idea. All in all, the atmosphere could scarcely have been worse. Afterwards, one of her private secretaries, Michael Pattison, advised his fellow officials that relations with Richardson were now ‘appalling – at least in the PM’s eye’. Even five days later, Pattison warned his colleagues that she was still on the warpath. She could not be dissuaded, he wrote, from ‘what the Swiss bankers told her when she was on holiday … that the Bank of England is not interested in running her policy’.32

  By this stage, Mrs Thatcher had been in Number 10 for less than one and a half years. But already she was showing signs of one of her worst qualities, her tendency to hector and bully her own ministers. Sitting through her ‘tantrums’ that autumn, Lawson was struck by her ‘embarrassing tendency to abuse Geoffrey Howe in front of officials’, while even Howe, apparently so imperturbable, was frequently ‘angry with her often ceaseless and hectoring interruptions’.33

  Her chief whipping boy, though, was Richardson. The atmosphere at their meetings, recalled Tim Lankester, was positively ‘poisonous’, and on 19 September Richardson actually rang Number 10 to complain about her behaviour. According to the official record, Lankester admitted that ‘this sort of uncomfortable meeting has happened before both on the foreign and the domestic side and the Governor should not be alarmed about it. He noted that the Prime Minister had not done her homework having commanded that work be done at great speed.’ ‘Perhaps’, Richardson said witheringly, ‘the answer was not just to seize on the first weapon that came to hand’, and Mrs Thatcher ought to know that ‘the whole problem [should] be looked at coolly’. Since Richardson clearly did not enjoy being lectured by a woman, there may have been an element of hurt pride in all this. Even so, he was far from the last person to find Mrs Thatcher’s behaviour pretty shocking.34

  By now almost everybody agreed that the pound had to come down. From Howe’s perspective, the obvious solution was to cut interest rates. But one reason rates were so high was that investors had refused to buy government debt during the gilt strike of late 1979. The Chancellor could ill afford a repeat performance. As his officials pointed out, the markets would only let him cut interest rates if he cut government spending at the same time. That, of course, would be immensely contentious, since it meant piling on misery during a recession. But the high pound was doing so much damage to industry that if cutting spending was the price for lower interest rates, they simply had to pay it.35

  For his part, Howe knew perfectly well that cutting spending would provoke a furious reaction. Yet many people on the right, including many business leaders, were now saying he had made a terrible mistake not to cut more deeply in 1979, because borrowing had got completely out of hand. This tallied with the message from Hoskyns’s Policy Unit, which was begging Mrs Thatcher to bring spending down. And on 10 October, as she was preparing to address the Conservatives’ party conference, Howe sent her a ‘warning of further serious problems’. Thanks to the atrocious finances of the car, coal and steel industries, borrowing was ‘worse than ever’. The Treasury now expected a deficit of some £11 billion in
1981–2, which meant Howe would need cuts of at least £2 billion, particularly in health, defence and social security. He knew, of course, that this would be ‘strongly resisted’ by his Cabinet colleagues. ‘But the overall arithmetic will persuade you, as it has persuaded me, that we have to think in this kind of way.’36

  In the meantime, the industrial picture was worsening by the hour. Thanks to the high pound, the competitiveness of British industry had deteriorated by almost a third since 1978. With order books blank, manufacturing output had fallen to its lowest level since the late 1960s – and still it kept falling. It was clear, said The Times on the first day of September, that this was not just another recession. In the City, experts told the paper that ‘the industries and factories that are closing down can never be replaced … For the first time the basic fabric of British industry is being threatened.’ And although other industrial nations were facing similar problems – in France, unemployment passed 1½ million in October – nowhere were they remotely as bad as in Britain.37

  Almost every day brought a fresh reminder of the plight of the jobless. ‘I’m afraid of answering the phone,’ one union leader remarked: ‘every time it rings there is news of even more redundancies.’ On 14 October the chemical giant ICI announced 4,000 further job cuts, most of them in Scotland, Northern Ireland and northern England. On 17 October the Mirror reported that a group of teenage girls in the bleak New Town of Washington, Tyne and Wear, were so frustrated by the lack of opportunities that they were ‘hiring themselves out to tackle any job’, no matter how menial, for a pound a day. That evening, hecklers shouting about unemployment disrupted the BBC’s Any Questions?, which was being recorded down the road at Newcastle Polytechnic. And three days later came the news that officials at the Department of Health and Social Security were on the hunt for some new computers. According to the latest projections, unemployment would reach 2.8 million by the end of 1981. But the DHSS’s existing machines could only process 2.7 million claims. Like so many of the assumptions that had governed British political life, the old computers had been left behind by the tide of change.38