When Pym and Mrs Thatcher met on 18 October, the conversation was sufficiently unpleasant for Butler to write John Coles a covering note on his record of the meeting saying: ‘I propose to keep it in my cupboard for the time being and not show it to anyone.’58 Pym ‘said that he found it difficult to understand’ why Mrs Thatcher had not consulted him earlier. Of course she should have advice, ‘but not in a form which would create divisions between her and himself. He was already disturbed by reports of such divisions.’ Mrs Thatcher replied tartly that ‘she was surprised that anyone should contest her wish to have more support on these matters within her own office.’59 With an ill grace, Pym accepted Parsons’s appointment a day later, but when the story leaked on the same day, he had what Ferdinand Mount remembered as ‘a complete hissy fit’.60 He saw Mrs Thatcher in the Commons and accused her staff of leaking against him. ‘It was clear to him that such an article would not have been written without guidance from 10 Downing Street.’61
Pym had some reason for his complaint: Mrs Thatcher admitted that she had seen Anthony Shrimsley, the author of the article, though she denied saying anything slighting about her Foreign Secretary. The fact was that Mrs Thatcher did indeed have a low opinion of Pym, and made little effort to conceal it. Parsons was appointed as her foreign affairs adviser, and Roger Jackling, a less senior official from the Ministry of Defence, became her adviser on defence and intelligence. The latter post turned out to make little difference to things. Even the appointment of Parsons did not fulfil Pym’s fears. He was, in most of his views, a ‘Foreign Office man’, and did not antagonize his old department. His genial, well-informed presence in fact helped to make Mrs Thatcher less jumpy about what the Foreign Office might be up to. It would nowadays be considered strange indeed if the Prime Minister had no adviser on foreign affairs.
The second consequence of the CPRS leak, however, was bad for Mrs Thatcher. The impetus for reform of the great spending programmes of government was gravely slowed. When the Cabinet met on 30 September 1982, it gloomily reviewed the aftermath of the leak. Norman Fowler, the Health and Social Services Secretary, was in the middle of an NHS pay battle. He told colleagues that the CPRS story ‘added a new dimension to the dispute. We are under attack for wanting to abolish the NHS.’62 The annual party conference was imminent. Willie Whitelaw intoned (again as abbreviated by Armstrong): ‘Grave political danger abt NHS, following CPRS paper. The PM alone can kill it.’ George Younger, the Scottish Secretary, warned, ‘There will be a lot of pretty nurses at Brighton [where the conference was being held]. Be careful with the media.’63 When Mrs Thatcher addressed the conference, therefore, she had to box herself in more than she would have liked:
let me make one thing absolutely clear. The National Health Service is safe with us. As I said in the House of Commons on December 1 last [this example was chosen to show that the policy was in place before the CPRS leak rather than cooked up as a desperate response to it], ‘The principle that adequate health care should be provided for all, regardless of ability to pay, must be the foundation of any arrangements for financing the Health Service.’ We stand by that.64
Between then and the general election the following June, Mrs Thatcher made no speeches about any of the social policy areas covered in the CPRS report. She was frequently criticized for trying ‘to dismantle the welfare state’, but in truth she was more open to the very different charge that she shied away from serious reform. The effects of this hesitation would be visible throughout her time in office.
Not that policy work on all these subjects abruptly ceased. In education, where the Conservatives felt slightly less nervous than in health, Keith Joseph* – ever restless for improvement, though ever susceptible to official obfuscation – was active. At the beginning of November 1982, he fulfilled Mrs Thatcher’s request for a report on education vouchers. This long-standing idea, put forward by market-minded people, was that parents should be offered state-funded vouchers for the value of a school education which they could then redeem at the school of their choice. After a year’s cogitation, Joseph had concluded that a full voucher scheme was not possible all at once, because of the transitional difficulties. Instead, he offered vouchers for those wishing to send their children to independent schools, and what he called more ‘open enrolment’ in state schools for education authorities which wanted to take part in pilot projects. The experiment would begin in Tory-run Kent. Learning from the mistake of the CPRS leak, the bureaucracy did not circulate Joseph’s ideas to colleagues. Geoffrey Howe was the only other Cabinet minister informed. The obvious problem with this proposal was that it would only be quickly and widely effective within the independent sector, and was therefore, in effect, little more than a larger version of the existing Assisted Places Scheme. Ferdinand Mount sent his own commentary to Mrs Thatcher: ‘It has been a tremendous struggle for Keith to advance the cause of vouchers as far as this. At every step, the opposition of the bureaucracy has been fierce and unremitting. We are facing nearly 40 years of fossilised prejudice.’65 Joseph’s scheme, he went on, ‘bears too many scars inflicted by a hostile DES [Department of Education and Science]’. It must be made clear that every parent would receive a voucher. Joseph should be encouraged to produce ‘a shorter, simpler and more positive version’. Beside this, Mrs Thatcher drew an arrow and underscored her support. ‘If we just go on saying that “vouchers are under consideration”,’ Mount wrote, ‘the whole idea will dribble away into the sand.’66
Due to Mount’s pushing, Joseph’s ideas were put before the relevant Cabinet sub-committee, MISC 91, early in February 1983. It asked Joseph to come back quickly with a full scheme of education vouchers. But when Joseph returned with his adjustments, which included the idea that most parents who availed themselves of the voucher would have to pay something towards their children’s education, Mount commented that ‘In many ways, the latest draft is worse than the first. It is obviously politically dangerous. I also think it is both unjust and unnecessary.’67 Mount proposed amendments to help the idea along, but the MISC 91 meeting on 24 February 1983 to discuss it all was cancelled because of political sensitivity. Instead, Mrs Thatcher met Joseph on 8 March: ‘the Prime Minister said that it was clear that the scheme as set out in the paper before the meeting was neither politically nor educationally acceptable,’ but ‘vouchers remained at the heart of Conservative education policy.’68 Searching for ‘a more modest scheme’, the ever complicated Joseph then came up with two new alternatives, but it became clear to all involved that nothing would be ready in time for the election. Discussion now, fulfilling Mount’s fear, deteriorated into anxiety about referring to vouchers at all, and whether ‘a system of credits’ would be better.69 According to Oliver Letwin,* Joseph’s special adviser, there was ‘nothing Keith liked more than being asked to think again … he was devoted to reason as opposed to dogma.’70 The trouble was that if what Mount called ‘the architect of the whole enterprise’ was so prone to doubt, it was hard for Mrs Thatcher to push on with the scheme. Joseph was the intellectual driving force of Thatcherism, but he was also, by character, a Hamlet. So education reform was ‘sicklied o’er with the pale cast of thought’. A key moment was missed.
The choice of election date also affected the progress of privatization. Privatization policy had taken shape only gradually and was still, even by 1982, far from settled. Until 1979, the Conservatives had usually opposed the Labour nationalizations of the post-war years, but had been cautious about reversing them. As leader of the Opposition, Mrs Thatcher certainly favoured denationalization, and had commissioned Nicholas Ridley to study the possibilities. But when he reported in 1977, she decided that the subject was too dangerous to pursue at the time. As Nigel Lawson† recalled, ‘In the 1970s, Mrs Thatcher was far more nervous of the trade unions than she ever made out.’71 A seventh of the British workforce was employed by nationalized industries. She feared the claim that privatization would produce mass unemployment: it could provoke an unstoppabl
e wave of strikes if those industries were brought to market. In addition, it was believed that the state of most of the nationalized industries was simply too parlous for them to be able to find a buyer.
This was a widespread view, even among those attracted to privatization. In 1976, John Redwood, who, as head of the Prime Minister’s Policy Unit, was later to become a leading figure in pushing privatization forward, wrote that ‘It is neither possible nor desirable to return to a free market economy. There would be too much upheaval involved in dismantling the large State and private monopolies currently operating in the economy.’72 This way of thinking was unsurprising given the wide range of industry in the state sector before May 1979. Coal, rail, ports, steel, shipbuilding, aerospace, electricity, water, telecoms, gas, large parts of the motor, airline and oil industries, and many more, were either nationalized or controlled by a state majority shareholding. A mass change in their status seemed too daunting to contemplate. The word ‘privatization’ was not used in the party’s manifesto for the 1979 general election. The only sell-offs mentioned there were those of the recently nationalized shipbuilding and aircraft industries, and the sale of shares in the National Freight Corporation.
After the Conservative victory in May 1979, it was the Treasury, more than Mrs Thatcher, who had pushed the subject forward. In his first Budget speech, Geoffrey Howe spoke about the ‘substantial’ scope for the sale of public assets: ‘such sales are not justified simply by the help they give to the short-term reduction of the PSBR [the Public Sector Borrowing Requirement: what is now known as the budget deficit]. They are an essential part of our long-term programme for promoting the widest possible participation by the people in the ownership of British industry.’73 The word ‘privatization’ was first officially used in a Cabinet sub-committee meeting on 20 June 1979,74 but Mrs Thatcher herself did not use it in public until July 1981, and she still avoided it in her party conference speech that autumn. She preferred the word ‘denationalization’. Ministers tended to speak of ‘disposals’ and ‘special asset sales’. The inability of government to settle on a single agreed term more than two years into office is evidence that the policy was somewhat improvised.
Although Howe set out from the start some of the wider aims of privatization, the most immediate reason for sell-offs was the need for money. Any sale by which the government gave up control of the industry in question counted as a reduction in the PSBR. In November 1979, £290 million was raised from the sale of part of the government’s remaining 51 per cent stake in BP (a precedent for such a sale had been set by the Labour government, desperate for money in 1977). A sub-committee of the powerful economic E Committee of the Cabinet was established, with three Treasury ministers sitting on it.* It was known as E(DL). ‘DL’ stood for ‘disposals’. In the early days, by far the most important privatization – though it was not usually, then or later, so described – was the sale of council houses permitted by the 1980 Housing Act. Its form was quite unlike that of the privatization of nationalized industries. It had none of the particular problems associated with the placing and pricing of shares. But its success in spreading popular ownership and getting the state out of a large area of life showed that such an approach could reap political rewards. Council house sales helped create a political climate in which privatization began to make sense.
Gradually, progress was made. At this early stage, the focus was on asset sales (usually shares in private companies that, through historical accident, had ended up on the government’s books). In February 1981, the first of two tranches of shares in British Aerospace (BAe) were offered for sale. In October, the sale of Cable and Wireless was oversubscribed 5.6 times. In February 1982, Amersham International, a specialist producer of radioactive isotopes for use in medicine, was floated. The offer was oversubscribed 24 times. ‘I was acutely embarrassed,’75 recalled Nigel Lawson who, as energy secretary at the time, had refused the idea of a ‘tender’ for the shares in favour of a fixed-price offer to encourage small investors. But the underpricing did send out a clear message to the markets that there was money to be made in privatizations. In the same month, agreement was reached for a management buy-out of the National Freight Corporation. And in October 1981, Lawson announced the privatization of the entire oil-producing business of the British National Oil Corporation (BNOC) and the British Gas Corporation’s offshore oil assets. Arguing his case, Lawson enunciated the general doctrine: ‘No industry should remain under State ownership unless there is a positive and overwhelming case for it so doing.’76
When it finally came to market just over a year later, Britoil – as the company hived off from BNOC was named – found its sale by tender severely undersubscribed because of the vagaries of the oil market. Nevertheless, the sale’s gross receipts for the government of £549 million were the largest yet. By the end of 1981, privatization had become a major aim of the Thatcher government, rather than a chapter of accidents or a mere scramble for cash. Increasingly, the ministers concerned tried to establish the general intentions of privatization, weighing the desire to maximize proceeds against other claims – wider share ownership, employee share ownership, greater management efficiency and the creation of competition. In July 1982, Howe wrote to Mrs Thatcher complaining that most departments were still not paying enough attention to the opportunities for privatization: ‘We need a major push now if we are to achieve maximum progress before the election and to put ourselves in the best position to make further progress on major candidates after it.’77 At his request, Mrs Thatcher sent him a ‘personal minute’, to be copied to all Cabinet ministers, to urge them on. ‘Suitable candidates (institutions and functions) need to be identified,’ she wrote. ‘And subsequent preparations for privatisation need to be pursued as vigorously as possible.’78
Given that privatization eventually became Mrs Thatcher’s best-known global export, it is notable that she was not yet its cheerleader. Lawson regarded her, in the first term, as ‘distinctly unenthusiastic about privatisation’. She ‘went along with it initially entirely because of the money it could raise’.79 Some colleagues, officials and advisers – Cecil Parkinson,* David Norgrove† – analysed her quite differently. They considered that her main interest in the subject derived from her desire for wider share ownership. But more believed that privatization was for her, at first at least, more of a solution to a problem than a grand ideological principle in itself. The problem – ‘much the top of her priorities’, according to Oliver Letwin – was ‘getting the industries concerned to run properly and getting rid of their subsidy’.80 In the case of natural monopolies, such as water, she started from the proposition that they would be better regulated by government, and ‘had no strong feeling that these citadels should be stormed’.81 She nourished certain superstitions, maintaining, for example, that the Post Office should not be privatized because, as the name Royal Mail implied, ‘It’s Her Majesty’s.’82 She worried that the sale of Britoil might threaten ‘our oil’. Partly to solve these anxieties, Lawson introduced the concept of the ‘golden share’, which retained government control in extremis.
Although she supported the general principle, Mrs Thatcher was always ready to make exceptions if the time was not ripe. In February 1983, for example, when Mount wrote to tell her that the Scottish Secretary, George Younger, should not be allowed to exempt the Scottish Transport Group from privatization, she did not disagree, but she was nervous. ‘Do not circulate,’ she wrote on the document. ‘These things are best said. Orally!’83 Perhaps the simple fact that she disliked the word ‘privatization’ (‘a dreadful bit of jargon to inflict on the language of Shakespeare’, she later complained),84 yet could not find a substitute, slowed her down a bit. She did come to believe that, as she wrote in her memoirs, ‘privatization is at the centre of any programme of reclaiming territory for freedom’,85 but she also was immensely cautious (on this her memoirs are less explicit) about when and how that territory should be reclaimed. According to Peter Gregson,
who was working at the Department of Trade and then at the Cabinet Office in Mrs Thatcher’s first term, there was ‘not a lot of “We must forge ahead with this” from Mrs Thatcher; more, “I hope they know what they’re doing” ’.86
Mrs Thatcher did not make the common ministerial mistake of getting so excited by improvements in nationalized industries that she allowed them to expand their monopoly power. At the heavily loss-making British Leyland, she was reluctant to give the dynamic chairman, Michael Edwardes, the extra backing he constantly demanded. After her chosen candidate, Ian MacGregor,* had become the chairman of British Steel, he wanted to grow the company by buying an American firm, Kaiser Steel.87 She forbade him. ‘You do not sell off the public sector by expanding it,’ she told David Young.88† In the view of Michael Scholar, her Treasury private secretary, she was assisted in the Kaiser case by Denis, who, with his superior knowledge of business, often gave her advice on particular companies. ‘I’d sometimes see Denis’s writing on a submission. She would have rubbed it out inadequately.’89
By far the most important first-term test of privatization and of Mrs Thatcher’s attitude to it came with the case of British Telecom. This gigantic monopoly, spun out of the Post Office on 1 October 1981, controlled almost all the telephones in Britain. The entire company, employing nearly 250,000 people, was unionized. It had no serious internal accounting and did not really know from which parts of the business its profits derived. George Jefferson,* who became the new company’s chairman and chief executive, recalled that, in that year, there was a waiting list of a quarter of a million people for a new phone line, and no promise from BT of a date by which each line could be installed. Towards the end of his first year, he went to tea with Gordon Richardson, the Governor of the Bank of England: ‘He told me that, unless I could rapidly improve telecom services in the City, it was almost certain that the City would lose its position as major financial centre.’90† There was a desperate need for modernization, but no prospect of increasing the External Financing Limit – the system by which the Treasury controlled the spending of nationalized industries – which would have an unpleasant impact on the PSBR. So the search for new money was on.
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