Who Dares Wins

by Dominic Sandbrook

  But if the mood at the SDP conference was upbeat, it was as nothing compared with the euphoria when their Liberal partners met in Llandudno. Almost overnight David Steel’s party had been catapulted into the limelight, with a plausible chance of power for perhaps the first time since the early 1920s. A few Liberals, fearful of losing their independence, hesitated at the thought of a formal deal with the newcomers. But when Jenkins and Williams joined Steel and the former Liberal leader Jo Grimond to address 2,000 people in the Pier Pavilion, even experienced reporters were stunned by the delegates’ fervour. As one speaker after another endorsed the alliance, the audience stamped and roared with approval. By the end, some were so overcome they had started crying.51

  The following day, by a crushing margin, the delegates formally endorsed the alliance with the Social Democrats. As waves of applause rolled around the hall, some looked up to the gallery, where Jenkins, Williams and Rodgers were beaming with approval. Only Owen was missing. But the day belonged to David Steel. The Alliance, he told his audience that afternoon, was the only way forward for Britain, the only chance of ‘hope for the future’. And in his last words, the embodiment of Scottish Liberal sobriety yielded at last to the intoxication of enthusiasm. ‘I have the good fortune’, Steel told the hall, ‘to be the first Liberal leader for over half a century to be able to say to you at the end of our annual assembly: “Go back to your constituencies and prepare for government!”’

  Later, people laughed at that line. But nobody laughed at the time. Instead, they stood and cheered him for five minutes.52

  18

  Up Yours from the Chancellor

  I said I hoped that the intimations of gloom were a double bluff and in fact there might be some ‘good news’ in the Budget. Jim Prior leant over my chair and said, ‘Has it not occurred to you that the rumours of badness are simply to soften you up for something even worse?’

  Alan Clark’s diary, 10 March 1981

  My verdict on that amazing attack on the Government by 364 economists: Insolent, conceited, cowardly, academic twaddle!

  George Gale, Daily Express, 31 March 1981

  On the first Sunday of 1981, Mrs Thatcher welcomed one of her keenest admirers, the Sun’s owner Rupert Murdoch, to Chequers for lunch. With Murdoch putting together a bid for The Times and the Sunday Times, she was keen to wish him well, but she had an interview with Radio Four’s The World This Weekend to get through first. For an hour she sparred earnestly with the presenter, Gordon Clough, about the dreadful state of the economy. Then, at the end, Clough threw in a googly. Her predecessor, he said, had ‘got into the habit of giving the year ahead a sobriquet, a tag. One year I remember it was the year of the pendulum, another year was the year of decision.’ If she had to choose a phrase to capture the spirit of 1981, what would it be?

  For a second, Mrs Thatcher hesitated. And then, in true Sun spirit, she reached for the patriotic card. ‘Well you know, in adversity,’ she said. ‘We’ve beaten most of the nations who are now our main competitors. If we stick at doing the right thing we shall win through. So we’ve got to do the right thing and we’ve got to stick at it and then we shall win through and we shall be a very formidable nation. And other nations know it.’1

  Despite all the gossip about doubts and divisions, these were not the words of somebody who was giving up. Two days later, her speechwriter Ronnie Millar wrote to congratulate her on a ‘quite splendid’ performance. It was a treat to hear her ‘sane and balanced optimism’, he wrote, especially when compared with the ‘eternal gloom and doom of the economic “forecasters” … Oh, we are going to win through – I never felt it so strongly … Up spirits!’ A few hours after receiving his note, Mrs Thatcher went on Thames Television’s Afternoon Plus to be grilled by Judith Chalmers. Again she struck a defiantly optimistic note. At one point Chalmers asked if she ever dreaded the day ahead. Mrs Thatcher shook her head. ‘I look forward to every day, every day has new opportunities,’ she said earnestly. ‘I like battling. I like battling … And if there’s a row I never mind it, because I can cope.’2

  ‘I like battling’ would have made a fitting epitaph for a leader who defined herself through conflict. But since her officers seemed to be losing heart, it was time for one of them to go, pour encourager les autres. On 5 January, in the first reshuffle of her premiership, Mrs Thatcher moved John Biffen to Trade, replacing John Nott, who moved to Defence. The Defence Secretary, Francis Pym, moved in turn to become Leader of the Commons, replacing Norman St John-Stevas, who was sacked outright. It was hardly butchery, but each step was highly revealing. Biffen was paying the price for his doubts about their monetary policy. Pym lost Defence because he had refused to make cuts, but got another senior job as Leader of the House. Nott was a loyalist, methodical and economically dry, who could, in Howe’s words, ‘be relied upon to get on top of the brass hats’. But for the Wets, the most ominous change was the dismissal of St John-Stevas. Flippant, gossipy and flamboyantly camp, Westminster’s answer to Larry Grayson had seen himself as Mrs Thatcher’s court jester.fn1 But because so many people saw him as an essentially frivolous figure, he was a soft target. When Mrs Thatcher booted him out, none of his fellow Wets lifted a finger to save him.3

  In the short term, the reshuffle changed nothing. On 19 January the party chairman, Lord Thorneycroft, warned Number 10 that ‘even among our loyalest supporters’ the government’s message was failing to cut through. The rationale for their economic policies, he wrote, was ‘virtually incomprehensible to any ordinary man or woman’, and in the meantime ‘the voters suffer and wonder why’. Six days later, the Gang of Four issued the Limehouse Declaration. And although there was no immediate rush of Tory MPs to join the new party, many of Mrs Thatcher’s supporters were seriously worried. Two days after Limehouse, Alan Clark went to a dinner of the Burke Club, where the conversation was ‘exclusively devoted to the Social Democratic Centre Party, Shirley Williams ad nauseam’. Clark maintained that ‘the whole thing was balls, no one would vote for them, they would blow themselves out, quarrel, sub-divide, etc., long before the general election’. But his colleagues were less sanguine. Afterwards, when they went around the table discussing the government’s ‘achievements’, Clark’s answer was ‘that we have really succeeded in putting a lot of people out of work’. There was grim laughter at that, but he was absolutely serious. The unions, he thought, had been ‘disciplined by the fear of being put on the dole and this is a considerable, though brutal, achievement’. But apart from that, he could think of nothing else.4

  At this point, the National Union of Mineworkers (NUM) entered the fray. Britain’s coal mines were haemorrhaging money, and right from the start Mrs Thatcher had put the Coal Board under pressure to cut costs. But when, in early February 1981, it confirmed plans to close twenty-three pits, the union demanded a national strike. Given that less than a decade earlier the miners had won two strikes and destroyed the Heath government, this was clearly a moment of maximum danger. On 13 February, Bernard Ingham told Mrs Thatcher that the Coal Board was ‘trying to achieve too much too quickly’. As ‘the most cohesive industrial force in Britain’, the miners would be very hard to beat, and the government was woefully unprepared. Three days later, her Energy Secretary, David Howell, told her that coal stocks were too low to sustain a protracted strike. So that was that. On 18 February the Coal Board backed down. Across the coalfields, jubilation reigned. ‘The lady said she was not for turning’, the leader of Nottinghamshire’s 34,000 miners said gleefully, ‘but now she has become an expert in doing double somersaults.’5

  For Mrs Thatcher, the next day’s front pages made awful reading. ‘VICTORY TO THE MINERS!’ exulted the Mirror, which thought that the NUM had ‘achieved more than any other union or employer in forcing the Government to change its tune completely’. The Express, unsurprisingly, was less jubilant. ‘SURRENDER TO OLD KING COAL’, read the headline, above a front-page editorial lamenting a ‘terrible industrial nightmare, all too familiar in Br
itain these days’. Mrs Thatcher’s decision, it said, ‘will be called a U-turn, will be branded as weakness and it will add spice to the arguments of the Left’. But even if she had wanted to fight, her government was completely unprepared. So although the surrender cost an estimated £500 million, it was worth it. As John Hoskyns put it, ‘pragmatic withdrawal’ was the only sensible option.6

  Like Heath before her, Mrs Thatcher was in danger of being submerged by the sheer weight of events. On 5 February the Gang of Four published their advert in the Guardian. On 13 February the latest figures showed that manufacturing output had fallen to its lowest level since 1968. On 18 February the Coal Board surrendered to the miners. ‘I am sorry to say there has been a noticeable deterioration in the morale of our backbenchers,’ reported Ian Gow. He blamed not just the ‘perceived defeat’ in the pits but ‘increasing concern about the extent of the recession and unemployment’, and urged Mrs Thatcher to consider ‘how we can restore the morale of our Party’. But had they already passed the point of no return? The party was ‘much divided against itself’, wrote Alan Clark on the 25th, noting that the rank and file were ‘deeply gloomy about the absence of an industrial, or indeed any other kind of, strategy, and the way we seem to be reacting ad hoc and in panic to instant crises’. That afternoon, another MP, the experienced Michael McNair-Wilson, told him that the ‘morale of the Party had never been lower’. As McNair-Wilson saw it, Mrs Thatcher was merely staggering from day to day, ‘making decisions on impulse … just like Eden during the Suez Crisis’.7

  As so often at Westminster, there was a considerable element of hysteria in all this. The key relationship, between Mrs Thatcher and her Chancellor, was just about intact. And while her inner circle despaired of her abrasive style, she had inspired a strong team spirit and even a kind of protectiveness among her closest advisers. But the same had been true of Ted Heath, too, and his own MPs had brought him down. Nobody could be sure that Mrs Thatcher would not suffer a similar fate. After a dinner on 5 March, Hoskyns recorded that, ‘quite unprompted’, two young ministers, Norman Lamont and Cecil Parkinson, had told him ‘how appalled they were by the state of the Government, the miners surrender, the “all piss and wind” mood about MT – and they are really loyal supporters’. The worst thing, they said, was the growing indiscipline. In front of their officials, senior ministers were openly gossiping about ‘how awful she was this morning’. To the loyalists, the fact that Mrs Thatcher’s ministers no longer watched what they said was a very bad sign indeed.8

  On Monday 5 January the Mirror welcomed Mrs Thatcher’s latest recruit:

  If first impressions are anything to go by, Professor Alan Walters will do for the British economy what Basil Fawlty did for the hotel trade.

  As he packed his bags in Washington at the weekend, Mrs Thatcher’s £1,000-a-week mastermind commented that Britain was ‘not doing too badly’.

  With views like that, he will feel at home inside No. 10.

  The characters there are straight out of The Wizard of Oz.

  They follow a yellow-brick road, paved with redundancies and bankruptcies, but always see gold at the end of the rainbow.

  Walters was Mrs Thatcher’s kind of person. Born in 1926, the son of a Leicester greengrocer, he had never been part of the political establishment. Self-made and self-confident, ‘with a shock of white hair and somewhat cadaverous appearance’, he had failed his 11-plus, left school at 15 to work in a shoe factory, served in the army and then became an academic economist. After teaching at the London School of Economics, he had worked briefly for Ted Heath, but was sacked after accusing his boss of being ‘hooked on easy money’. That was typical Walters. Few advisers derived greater pleasure from telling their masters that they had gone disastrously wrong.9

  Having been lured home from the United States to become Mrs Thatcher’s chief economic adviser, Walters started as he meant to go on. On 6 January he began his first meeting by telling his new boss that her monetary policy ‘had worked, if anything, too well’, which was code for saying she had squeezed too hard. To the press, he was even more outspoken. When a Financial Times reporter asked what advice he would be giving the Prime Minister, Walters said cheerfully: ‘I’ll tell her that the money supply is far too tight.’ ‘But Alan, M3 is completely out of control,’ the journalist said. ‘Oh, bugger M3!’ Walters said. ‘Sterling is obviously far too high. That can only mean sterling is scarce.’10

  To support his case, Walters brought in the Swiss economist Jürg Niehans, who briefed Mrs Thatcher’s Policy Unit the next day. Niehans vehemently agreed that ‘monetary policy has been too tight’. It had, he said, been the single biggest factor in the excruciating rise of the pound: ‘If the Government goes on with its present monetary squeeze, you won’t just have a recession; you’ll have a slump.’ Indeed, Niehans argued that, as a matter of urgency, they should intervene in the currency markets to get the exchange rate down. ‘Very risky – but better than ruining much of the export industry,’ scribbled Walters. For his part, John Hoskyns, who was shocked by the diagnosis, thought the Swiss economist had been ‘v. impressive’. And although Mrs Thatcher ordered her aides to keep Niehans’s analysis secret, she did not argue with it. In truth, it was exactly what she wanted to hear. Monetary policy was too tight, so interest rates should come down. And as she and her advisers saw it, the only way to bring rates down without losing the trust of the markets was to cut spending.11

  By this point, Mrs Thatcher was already haggling with Sir Geoffrey Howe over what they knew would be a make-or-break Budget on 10 March. The preparation of a Budget is rarely the stuff of thrilling melodrama. But this was different: not just an extraordinarily controversial moment in the life of her government, but one of the most contentious moments in Britain’s modern economic history. Later, after the dramatis personae had discovered the joys of stabbing each other in the back, Mrs Thatcher tried to present herself as the Budget’s true author, while Hoskyns presented his ‘Downing Street irregulars’ at the Policy Unit as the heroes of the hour. In fact, the archives show that responsibility always lay with the Treasury, and that despite their minor differences Thatcher and Howe were always singing from the same hymn sheet. Both wanted to see interest rates fall, both believed they had to cut borrowing, and both agreed there should be some combination of spending cuts and tax rises. In effect, their negotiations were an exercise in sorting out the details and reinforcing each other’s resolve. ‘The more ready she was to be tough,’ writes Edmund Dell, ‘the more readily he could be tough.’12

  So what made it all so fraught? Part of the answer is simply the intense political pressure. The emergence of the SDP and the surrender to the miners had sent Tory backbenchers into a panic, while every day brought more headlines about closing factories and rising unemployment. The other obvious factor was the volatile tone of life at Number 10. Not only were Hoskyns and Walters unusually given to apocalyptic pessimism, but Mrs Thatcher’s overtly emotional style never made for a quiet life. As her aide Tim Lankester recalled, she took bad news personally and ‘found it hard to understand how and why, under her overall direction, things had gone so badly wrong’. When Hoskyns and Walters bombarded her with memos claiming that everything was falling apart and that the Budget was going to be a disaster, she was not best pleased. To cap it all, her confidence in Howe was fast evaporating: on one occasion her aides claimed to have overheard her telling him that if the Budget went wrong, ‘you are for the chop’. This is surely an exaggeration, but there is little doubt that she thought it – and that her Chancellor knew it.13

  By now Howe had perfected his performance as the lugubrious bearer of unwelcome news: the doctor who recommends an immensely painful operation, the accountant who spots a gaping hole in his client’s finances, the vet who regrets that the family dog must immediately be put down. Briefing Mrs Thatcher’s inner circle at Chequers on 17 January, he announced that, with tax receipts down and the unemployment bill soaring, and with Britain’s nat
ionalized industries still requiring huge injections of public money, the deficit was likely to be well over £11 billion, far more than the £8½ billion target in the last Budget. ‘We should really have taken some of these measures a year ago,’ Mrs Thatcher said bitterly. When Howe sent her a breakdown of the spending totals, she covered it with blue ink. ‘Tim – I cannot just do nothing about this,’ she scribbled to Lankester. ‘We appear to have no control over expenditure …’14

  Howe knew that with the economy in such a deep recession, even the slightest cuts would be immensely controversial. Yet even as his Cabinet colleagues badgered him for extra funds, he remained grimly focused. The deficit, he warned Mrs Thatcher on 5 February, was widening every day, which gave him no choice but to bring in a ‘tough Budget’, ideally slashing borrowing to no more than £10 billion. This would not, of course, be easy, since he had no desire to put VAT or income tax up. And with so many businesses struggling to stay alive, he could hardly squeeze more money out of corporation tax. But it tallied with the advice he was getting from the Bank of England, whose deficit forecast was even more pessimistic. High borrowing, Gordon Richardson told Howe the next day, would mean high interest rates, which would make it impossible to bring down the pound. So although it might seem perverse to cut spending in a recession, everybody thought they should do it. The only dissenters were the Wets, the opposition parties, most academic economists, much of the press and the overwhelming majority of the general public.15