Who Dares Wins

by Dominic Sandbrook

  On 10 February, Howe and Mrs Thatcher held the first of five fractious Budget meetings. Howe kicked off with the cheerful news that the deficit forecast had now risen to a whopping £13 billion. Since higher direct taxes were definitely out, his initial plan was to put a levy on bank deposits and freeze personal tax allowances, which were meant to increase in line with inflation. But to Hoskyns, Walters and the self-styled irregulars, this was not remotely enough. Whether from endemic pessimism, temperamental excitability or simply a bad case of institutional rivalry, they had become convinced that Howe was a dead loss, the Treasury was preparing to sell them all out and Britain was about to disappear down the plughole. So, later that day, Walters sent Mrs Thatcher a note warning that the deficit was really much worse than Howe had claimed, and that, without genuinely ‘painful decisions’, she would lose the next election. Then, very late that evening, Hoskyns, Walters and their colleague David Wolfson cornered her in Number 10. Treasury forecasts were always too optimistic, they told her, and the dangers of an ‘underkill’ Budget were too terrible to imagine. So, in Hoskyns’s words, the Prime Minister ‘must say she absolutely refuses to accept GH’s forecast’ and should insist on an ‘overkill’ Budget to slash the deficit.16

  At the time, Mrs Thatcher appeared to agree with everything they were saying. But when Wolfson spoke to her the next morning, she ‘seemed scarcely to remember what we’d discussed last night’. ‘Oh dear!’ recorded Hoskyns. ‘I think she’d had one or two drinks on an empty stomach and was v. tired as well – hence it had all seemed so easy.’ This was a bit ungallant: the truth was probably that she was barely listening and just wanted them to go home. So the next day, the self-styled irregulars sent her another melodramatic note, repeating the prescription of a really painful ‘overkill’ Budget. This, they wrote, was ‘like the choice about where to cut a firebreak to stop a forest fire … You choose the strategy which makes the worst outcome least likely. WE HAVE NO CHOICE BUT TO GO FOR REALISM … The 1981 Budget is absolutely the last chance for realism to take over from wishful thinking.’ All this was good apocalyptic stuff. But when they went to see her the next day, they discovered she had not bothered to read it.17

  After this rather tense build-up, the next performance was scheduled for 13 February. As Walters had predicted, the Treasury’s deficit forecast had now risen to a staggering £13¾ billion. At this rate it was deteriorating at the rate of almost £1 billion a week. And after the cast had assembled in Number 10, Howe admitted that yes, ideally they would get the deficit down to below £11 billion, ‘but he did not believe this was politically possible’. Raising income tax would be electorally disastrous, while ‘he did not believe that colleagues would agree to a further round of public spending cuts’. Now Walters spoke up. A deficit of £11 billion, he said, would not satisfy the markets. It would mean a ‘funding crisis either in the summer or the autumn’, which would bring higher interest rates and throttle the economy beyond recovery. So they should have an immensely stringent Budget now, raising income tax by 1 or 2 per cent.

  That was just not possible, Howe said. Given that they were already in ‘the deepest recession since the 1930s’, it would be political suicide to impose so much austerity. Mrs Thatcher agreed with him, and it was at about this point that things began to get very heated. Hoskyns remembered her advancing across the room towards them and saying: ‘It’s all very well for you, you don’t have to stand up and sell this in the House.’ Walters, meanwhile, remembered her ‘screaming’ at him: ‘You are just an academic and you don’t know what the political implications are.’ Afterwards, when the two advisers retreated to Hoskyns’s office, Walters said he was wondering ‘whether he ought to leave, whether the whole thing wasn’t a waste of time’.18

  But the squabbling went on. When Mrs Thatcher used the excuse of the miners’ dispute to cancel another late-night meeting with Hoskyns, Walters and Wolfson, the three irregulars spent the rest of the evening ‘discussing how to bring her to her senses’. Their mood was bleak, and Hoskyns was now thinking of resigning. Given that the differences were actually pretty marginal, this speaks volumes about the hysterical urgency that had always prevailed in some corners of Mrs Thatcher’s court. Indeed, on the 20th the prophets of doom sent her what Walters called a ‘FACING DISASTER manuscript’, warning that unless she insisted on a much tougher Budget, ‘we shall be locked almost immediately into a vicious circle from which there will be no escape … IN SHORT, WE BELIEVE THAT THE BUDGET PRESENTED ON 10 MARCH WILL LARGELY DETERMINE WHETHER WE WIN OR LOSE THE NEXT ELECTION.’ By now, though, she had clearly read enough apocalyptic memos in capital letters to last her a lifetime. In the margin she scribbled just two words: ‘Hardly’ and ‘No’.19

  Mrs Thatcher’s patience with her own advisers was now exhausted. Before her next meeting with the Chancellor on 24 February, she expressly told Tim Lankester that neither Hoskyns nor Walters would be welcome, even though Howe was bringing his senior official, Sir Douglas Wass. ‘All very secret,’ scribbled the disgruntled Walters. But she had heard their arguments a hundred times and had no desire to hear them again. Howe said he could get the deficit down to just over £11 billion, but probably no further. She preferred £10½ billion, and suggested putting an extra penny on income tax. But Howe thought that would be ‘extremely difficult politically and would be very bad for business morale’. She was still not entirely convinced. But as so often – and contrary to the stereotype – she was prepared to accede to Howe’s judgement. She had pushed him as far as he would go, and by the time the meeting broke up they had settled on a deficit of about £11¼ billion.20

  There was, however, a last twist. Having slept on it, Howe told his officials the next morning that he had changed his mind.fn2 If they froze personal tax allowances, they would be able to get the deficit down to £10½ billion after all, which would allow them to cut interest rates by 2 per cent. A couple of hours later, he went into Number 10 to tell Mrs Thatcher. As it happened, she was due to fly to Washington that afternoon to meet President Reagan, and was already preoccupied with all things American. When Howe explained his change of heart, she simply nodded. To Lankester, ‘it seemed she almost no longer wanted to know: it was now his Budget’. Lankester wondered if she was deliberately distancing herself from the final decision, ‘in case it all went badly wrong’.21

  That afternoon, Mrs Thatcher left for Heathrow. Before leaving, she had expressly ordered Lankester not to tell Hoskyns and Walters about the Budget agreement. Lankester thought this was ‘ridiculous; it wasn’t the way they should be treated’. So he did tell them, and they took it just as badly as she had feared. Walters, in particular, flew off the handle. The decision to freeze tax allowances, he wrote in his diary, was ‘stupid politically, indefensible morally and economically’. The next day, he told Sir Douglas Wass that the Budget was far too weak. They would soon be forced into ‘crisis measures’, and had given themselves no room to cut interest rates. Soon afterwards, he, Hoskyns and Wolfson drafted a joint resignation letter, to be delivered after the Budget. ‘The opportunity to turn the UK economy round, presented by the May 1979 mandate, has passed,’ they wrote. ‘The best that can happen now is that the Tories win the next election on the back of Labour’s disarray; and the UK decline continues in relative terms.’ Fortunately for them, they never sent it.22

  Mrs Thatcher’s American trip was a perfectly timed break from the bickering about the Budget. When the British ambassador in Washington, Nicholas Henderson, discussed it with her beforehand, he initially found her ‘a little worried’. ‘She did not quite see how it would go,’ he wrote. ‘She admitted to being nervous about it. She looked drawn – pale and rather distinguished.’ Yet, as they talked, ‘the worries seemed to flow off her and she became less taut’. She seemed relieved, Henderson thought, at the prospect of visiting a country she loved, where she could briefly forget her domestic troubles. Indeed, as her departure for the United States approached, she seemed giddy with anticipation. Sh
e was ‘intolerable’, one of her Cabinet colleagues remarked. She was ‘on a complete high’, and ‘tremendously worked up about seeing Reagan alone’.23

  Mrs Thatcher had first met the new President in April 1975. In her own words, she was ‘won over by his charm, directness and sense of humour’, while Reagan was delighted to find that they were ‘soul mates when it came to reducing government and expanding freedom’. And in some ways they were natural partners. They both hated Communism, they were both preoccupied with national decline, they both blamed the advance of social democracy and they were both committed to free-market capitalism. But there were deeper similarities, too. Both liked to talk in highly moralistic terms: as Hugo Young remarked, they shared a ‘wonderful measure of certainty’. They were patriotic populists, seeing themselves as standing up for ordinary families against the intellectual elites, yet in office both proved more pragmatic than their critics often admitted. Above all, both drew on instinct rather than theory, taking inspiration from the axioms of their small-town childhoods. ‘I am not a politician,’ Reagan once said. ‘I am an ordinary citizen with a deep-seated belief that much of what troubles us has been brought about by politicians; and it’s high time that more ordinary citizens brought the fresh air of common-sense thinking to bear on these problems.’ Common-sense thinking: that was Mrs Thatcher’s kind of thinking.24

  There were some striking differences, though. Mrs Thatcher was more abrasive, whereas Reagan always wanted people to like him. She rarely managed to rise above narrow partisanship; by contrast, Reagan, a former Democrat, loved playing the national statesman. And their economic tactics were quite different. When Howe and his officials met their American counterparts in September 1981, there was a palpable sense of mutual disapproval. Reagan’s men kept asking why Howe had raised VAT, and seemed surprised when the Chancellor said he wanted to cut government borrowing. For while Mrs Thatcher and her allies believed in balanced budgets, Reagan had been converted to ‘supply-side’ theory, which held that if he cut taxes deeply enough, the economy would grow so quickly that he could throw around as much money as he liked. Not for nothing did The Economist call them ‘Lord Wishful’ and ‘Lady Rigorous’. Reagan, the supreme optimist, promised jam today, tomorrow and always. By contrast, Mrs Thatcher offered cold porridge today with only the vague promise of jam tomorrow – as long as the voters were good.25

  What this reflected was a difference that was as much temperamental as it was ideological. The Methodist grocer’s daughter stayed up late with her red boxes before rising at dawn to crack on with the paperwork. But the Hollywood divorcee was so relaxed that, as President, he took Wednesdays off and ended early on Fridays. Of course this was partly an act, and Reagan was much more astute than many people imagined. Still, Mrs Thatcher was well aware of his limitations. Lord Carrington recalled their first meeting in the White House, where the President unburdened himself of his views on South Africa. ‘Well of course, the South Africans are whites and they fought for us during the war,’ Reagan said cheerfully. ‘The blacks are black and they are Communists.’ As Carrington put it, ‘even Margaret thought this was rather a simplification’. As soon as they were out of the Oval Office, she turned to her Foreign Secretary and pointed at her head. ‘Peter,’ she whispered in horror, ‘there’s nothing there!’26

  But Reagan had charisma, the most important political quality of all. At their first meeting, Mrs Thatcher had been struck by his ‘warmth, charm and complete lack of affectation’, which made for such a contrast with, say, Valéry Giscard d’Estaing. While Giscard embodied everything she disliked in a man, Reagan was the complete opposite, a ‘buoyant, self-confident, good-natured American’ who treated her with gallant respect. Later, François Mitterrand told friends of his disbelief that ‘Mrs Thatcher, who can be so tough when she talks to her European partners, is like a little girl of eight when she talks to the President of the United States’. And, for his part, Reagan was secure enough not to feel irritated when she embarked on yet another lecture about the horrors of socialism. The story goes that once, when she had telephoned to harangue him about something, he put his hand over the receiver and beamed at his aides. ‘Isn’t she marvellous?’ he said happily.27

  On the morning of 26 February, Mrs Thatcher arrived at the White House to a spectacular welcome. Reagan had told his aides to ‘make it special’, and she was duly greeted by trumpeters, an honour guard, a Marine band and a nineteen-gun salute. Yet some of Reagan’s advisers were nervous about associating themselves with somebody presiding over such a calamitous recession. According to a State Department briefing, Mrs Thatcher’s team had ‘failed to implement effectively’ their economic goals, had ‘failed to give due weight’ to events outside their control, and had even ‘implemented their strategy inefficiently’. Humiliatingly, the State Department thought Reagan should bring all this up with her, so that he could ‘learn from British mistakes’. And on her first full day in Washington, the White House prepared another briefing on the differences between Reaganism and Thatcherism, criticizing her for increasing VAT and failing to cut spending. At lunchtime, Reagan’s press secretary handed out copies to the media, clearly trying to disassociate his boss from a Prime Minister whose record seemed so unpromising.28

  When Mrs Thatcher had settled into the Oval Office, Reagan duly asked about the economy. But she did not seem to mind. ‘She is as firm as ever re the Soviets and for reduction of govt,’ he recorded afterwards. ‘Expressed regret that she tried to reduce govt spending a step at a time & was defeated in each attempt. Said she should have done it our way – an entire package – all or nothing.’ Embarrassingly, however, that very morning the US Treasury Secretary, Don Regan, told a congressional committee that he had no intention of copying her policies, which had produced an ‘explosive inflationary surge’ and ‘ruined their export trade’. By contrast, he said, ‘our programme is much more sensible, much more comprehensive, and with a greater degree of chance of success than the British experience’. This could have been a disaster, but Mrs Thatcher made nothing of it. That speaks volumes about her eagerness to impress her hosts. Indeed, after she had visited Congress the next day, Reagan recorded that she ‘was literally an advocate for our ec. program. Some of the Sen’s. tried to give her a bad time. She put them down firmly & with typical British courtesy.’29

  The high point came that evening at the British Embassy, where she was on extraordinarily effusive form. She and Reagan, she told the guests, shared ‘the same way of looking at and doing things’. Addressing the new President directly, she told him that there would be times ‘when yours perhaps is the loneliest job in the world, times when you need what one of my great friends in politics once called “two o’clock in the morning courage”’. She knew very well ‘what this two o’clock in the morning courage means, what a lonely job it is, and how in the end only one thing will sustain you, that you have total integrity and at the end of the day you have to live with the decision you have made’.

  According to Charles Moore, she had written these lines herself. They were perfectly judged, since this was precisely the sort of melodramatic stuff that Reagan loved. His reply was pure Hollywood. ‘The British people, who nourish the great civilized ideas, know the forces of good ultimately rally and triumph over evil,’ he said. ‘That, after all, is the legend of the Knights of the Round Table, the legend of the man who lived on Baker Street, the story of London in the Blitz, the meaning of the Union Jack snapping briskly in the wind.’ Private Eye’s Denis Thatcher calls it a ‘balls-aching encomium of the British Breed, apparently under the impression that Winston Churchill was still alive, and comparing the Boss with Boadicea standing up to the Trots’. But the real Denis probably enjoyed it, and Reagan meant every word. ‘Truly a warm & beautiful occasion,’ he wrote in his diary. Later, one of his aides told Henderson, ‘without any prompting, that the President had been moved by Mrs T’s embassy speech, especially the passage about two o’clock courage’.30

 
For Mrs Thatcher, it was an unforgettable evening. The Reagans left before the band got going, which was a shame because she had specifically asked to have dancing. At first nobody dared to invite her on to the floor, so Henderson stepped in. ‘Prime Minister,’ he said gallantly, ‘would you like to dance?’ She accepted, he wrote, ‘without complication or inhibition, and, once we were well launched on the floor, confessed to me that that was what she had been wanting to do all the evening. She loved dancing, something, so I found out, that she did extremely well.’ When they had finished, Denis materialized, presumably from the bar, and told her it was time to go to bed. Henderson suggested one more dance. ‘Yes, come on,’ she said eagerly. ‘It was with some difficulty’, Henderson recorded, ‘that Denis eventually managed to extract her.’ Even then she was clearly still buzzing with adrenaline, and said something about wanting to see Washington’s monuments by night. ‘But Denis put his foot down,’ Henderson wrote, and said firmly: ‘Bed.’31

  The next morning, the Thatcher party flew on to New York. At the Waldorf Hotel she addressed an audience of old CIA hands, waxing lyrical about her admiration for Reagan, ‘a man committed to … the virtues of plain speaking and less government – virtues in the defence of which I have myself earned some battle scars’. The two of them, she said, had embarked on a crusade ‘to prevent aggression and to oppose tyranny’. Her audience loved it; so did Denis, who was spotted wiping away tears. Afterwards, Henderson recorded, they went up to her suite for a last drink before the flight home. But ‘Mrs T was still in a state of euphoria from the applause she had received which was indeed very loud and genuine and she burst out: “You know we all ought to go dancing again.”’ Alas, Henderson pointed out that her plane was waiting on the tarmac at JFK, so she had to abandon her dancing plans for the time being.32