Margaret Thatcher: The Authorized Biography, Volume 2

by Charles Moore

  The BT offer for sale was made on 20 November 1984, at a price of 130 pence, with the offer closing on 28 November. City institutions (such as pension funds) bought 45.8 per cent of the total offered, the public 34 per cent, overseas investors 14 per cent and employees 3.8 per cent. Defying the anathemas of their union, 95 per cent of BT employees bought shares. Everyone applying for 400 shares or fewer got 100 per cent of what they sought. Those who had applied for 100,000 shares or more got nothing. This was controversial in the City but good for the popular perception of the sale’s purpose. The total proceeds of the sale were £3.615 billion. About 2.15 million people bought BT shares, roughly the same as the total number of British citizens who had owned shares of any kind when Mrs Thatcher first came into office. ‘Just a few years ago, in Britain, privatisation was thought to be a pipe dream,’ Mrs Thatcher declared, speaking to the US Congress in February 1985. ‘Now it is a reality and a popular one,’78 and, she could have added, the first of its kind in the world. The BT sale ended the previously prevailing scepticism about whether the City could do it. ‘We are seeing the birth of people’s capitalism,’ said Nigel Lawson, happily conscious that a sale to so many made privatization ‘irreversible’.79 Mrs Thatcher was uneasy with the word ‘people’s’ because it reminded her of Communist countries which were called ‘the people’s republic’ of this and that. She preferred the phrase ‘popular capitalism’.80 But Prime Minister and Chancellor were at one about the concept.

  Each privatization was different. There was an overarching common idea, but no template. As Mrs Thatcher herself put it, ‘It is one of the disadvantages of being in the vanguard of reform – as the British who pioneered the industrial revolution know well – that the only experience you can learn from is your own.’81 Realizing that the field was too big and varied for her to be useful in all circumstances, Mrs Thatcher intervened much more in some than in others. BT, though by a long way the biggest privatization yet attempted, had not, for some years, been losing the government money. Companies like British Leyland (BL) and British Airways (BA) were losing very large sums, often in politically controversial ways. It was these which excited her interest the most and where she felt she could make a difference.

  The BA story is a good example of the thorny and circuitous path that privatization often had to take, and of Mrs Thatcher’s striking methods of getting her way. It was one of the first privatizations legislated for by the Thatcher government (in the Civil Aviation Act of 1980), but an early sale became impossible when the extent of the company’s losses was uncovered. The company had expected profits of £180 million over 1980–83, but an outside accountants’ investigation revised this figure to a loss of £400 million.

  In February 1981, the government appointed Sir John King* as chairman. He took the job only on the understanding that he would be able to sell the company. King was a ruthless, charming, buccaneering man with a gleam in his eye, an expert in most industries connected with wheels and wings, and the sort of individualistic and inspiring leader who endeared himself to Mrs Thatcher. A man of poor origins who successfully concealed the identity of his real father and lied about his age (so as not to be made to retire), King had started as a car salesman, and did well out of defence engineering work during the war. He later made a small fortune from manufacturing ball-bearings and became chairman of Babcock International in 1970. He was also a master of foxhounds, married to the daughter of a viscount, and famously good at building up a web of contacts. King had been so annoyed with the CBI’s anti-Thatcher stance during the recession of the early 1980s that he took Babcock out of the organization and joined the more free-market Institute of Directors. Babcock gave a good deal of money to the Conservative Party and King, behind the scenes, helped organize a City–industrial Conservative fund-raising link. He was a long-time associate of other Thatcher supporters in business, notably Lord Hanson* and Sir Gordon White.†

  In King’s dealings with Mrs Thatcher in her first term as prime minister, his main link was her PPS Ian Gow, who had been his family solicitor. King quickly learnt how, via Gow, to bypass any Cabinet minister who was giving him trouble and see Mrs Thatcher herself. He also understood that the chairman of BA had enormous influence over MPs by the simple ruse of giving them free flights. This could be plausibly justified, in those less rule-governed days, as a way of facilitating the work of legislators, but it was widely abused by MPs of all parties demanding upgrades and tickets to holiday destinations. The minor scandals that it caused, however, tended to damage not King but the MPs, who looked greedy. Perhaps more than any other industrialist of the time, King built up a vital network of parliamentary support for his company’s interests. At the height of BA’s campaign for privatization, it gave what is thought to have been the biggest lobbying lunch in British history, entertaining 151 Tory MPs in the River Room of the Savoy Hotel.

  King presented to Mrs Thatcher a characteristic puzzle of privatization. On the one hand, he was exactly the kind of man she wanted to sort out a nationalized industry. He had the nous and gumption which she admired. Indeed, he was known in the press – and she never complained of it – as ‘Mrs Thatcher’s favourite businessman’. On the other, he had the great industrialist’s natural desire to aggrandize his company and squash all rivals, fighting as hard as possible for every sort of privilege that government could confer. So while he would accomplish the turn-round of the company and the eventual sale which she wanted, he would do so at a price.

  In April 1982, King went to see Mrs Thatcher and told her that he needed two more years to make BA a successful airline. He demanded ‘freedom of action’ – by which he meant the right to pay private-sector-style salaries – to recruit the people to do it. The Trade Secretary, Lord Cockfield, on his second day in the job, objected that BA was a massive loss-maker: overpaying managers would set a bad example in nationalized industries. But Mrs Thatcher airily declared that ‘Sir John should go ahead and look for the three people he had in mind.’82 She doubted the alleged danger of the ‘repercussive effect’ in the public sector – look at the benefit, she said, of paying lots of money to Ian MacGregor at British Steel.

  In the coming weeks, the Department of Trade continued to try to frustrate the increased salary proposals. King fought back and kept Gow informed. Gow wrote to Mrs Thatcher,

  Although I have considerable reservations about this salary [£55,000 a year for BA’s proposed new finance director] (greatly in excess of that paid to the Queen’s First Minister) I have the highest regard for John King and think we ought to let him run British Airways as he thinks best, with the earliest possible prospect of privatisation.83

  King was allowed to get his new man. Two months later, Mrs Thatcher marked with approval Peter Gregson’s suggestion that, although privatization might have to be postponed until late 1984, it ‘might help to sustain the momentum which Sir John King appears to have created’ if the provisional target remained late 1983.84 E Committee agreed to this.

  By September, however, Mrs Thatcher was appalled by BA’s newly uncovered loss of £600 million on ‘extraordinary items’, and complained about its high redundancy payments (King was cutting the staff from the 51,000 with which he began to under 35,000). Then she pitched in: ‘why any increase in pay? We cannot just agree to any request which private companies could not afford.’85 In apparent contradiction of her earlier indulgence of King, she supported a pay cut, or at least freeze, and the minimum possible redundancy payments. Now it fell to Cockfield to defend BA’s position: ‘we cannot pick out BA to impose a pay freeze which we are not prepared to impose elsewhere.’86 Mrs Thatcher underlined this phrase with her squiggly line of disapproval. ‘Why not,’ she metaphorically shouted back, ‘when they are losing or have lost so much? … I feel we have been bounced.’

  As it became clear that BA was most unlikely to be sold off before the general election, Mrs Thatcher also began to realize that the strengthening of BA for privatization would involve the weakening of i
ts main British rival, British Caledonian (BCal). Would this not damage the competition dear to her heart? As her chief of staff, David Wolfson, put it to her, a privatized BA with 80 per cent of the market ‘would be able to destroy British Caledonian whenever it chose’.87 Sir Adam Thomson, the chairman of British Caledonian, begged her to let him have more BA routes. Although she often wrote expressions of anxiety about BCal’s fate in the margins of government documents, she let herself be beaten down by John Redwood’s argument that BA’s real competitors were foreign airlines and so BA privatization ‘is light years away from the substitution of a private for a public monopoly’.88 She readily agreed to see King to discuss these matters, while fending off poor Thomson.

  King lobbied her against the reallocation of routes to small airlines by the Civil Aviation Authority (CAA), and called in many favours by writing to all MPs in the same strain. There followed a heated battle in Whitehall and beyond, with Lord King* lobbying Mrs Thatcher hard through his connections with the influential family of Lord McAlpine, the Tory treasurer. Unusually, the Cabinet minutes for 1 August formally recorded that the Cabinet had been ‘unable to make a decision’ over the allocation of routes. Nicholas Ridley, the Transport Secretary and therefore the minister responsible, favoured more routes for BCal. So did Willie Whitelaw, whose son-in-law, David Coltman, was its chief executive. Lawson and Tebbit supported King. Mrs Thatcher, advised in favour of conceding the routes by Andrew Turnbull, but against by Redwood and the Policy Unit, wavered. At a ministerial meeting in September, she summed up the problem. The CAA review of routes ‘touched on important elements of the Government’s philosophy – its wish to encourage competition and enterprise and to reduce the boundaries of the public sector’, she said, but then, with an untypical admission of ambiguity, added: ‘Some of these objectives were in conflict with one another.’89 The propaganda war now turned quite nasty. King annoyed Mrs Thatcher by threatening to resign. He also lobbied for the sacking of Ridley – an overreach for which he was rebuked by Cecil Parkinson on behalf of the Prime Minister.90

  At last, towards the end of 1984, a compromise was patched together in which BA conceded and BCal accepted a ‘route swap’. This was favourable to BCal, but much less so than the changes originally proposed by the CAA. It cleared this particular block to privatization without seriously hurting BA.†

  Quite a different barrier, however, still stood in the way. At the Cabinet on 1 August 1984, ministers had been told that legal suits in the United States against British Airways, first mooted after the collapse of Laker Airways in 1982, might yet delay privatization. This issue proved astonishingly tough, but Mrs Thatcher proved even tougher.

  In March 1982, the ‘cheap and cheerful’ Laker Airways had gone bust, following a price war with the big monopolistic carriers which it had been set up to fight. The US Justice Department, rightly suspecting collusion between the airlines, was considering prosecuting BA under antitrust legislation. Civil suits also loomed. With this potentially ruinous threat hanging over BA, privatization seemed impossible.*

  Mrs Thatcher went to war. She felt guilty, perhaps, that Laker had gone under. She had always supported Freddie Laker’s emancipating, no-frills, transatlantic service which opened up flights to the United States to poorer people for the first time. She had praised Laker by name in her 1981 party conference speech. When the airline had started to go down, she had contemplated a rescue (‘My passengers! My poor passengers!’),91 until she discovered that the cost might be open-ended (‘Oh dear! An open-ended situation! I couldn’t wish that on my poor taxpayers’).92 Laker, like King, who had just ruined Laker’s airline, was the sort of businessman Mrs Thatcher admired. She resented American claims to extraterritoriality. More important, she could not stand the thought of privatization being indefinitely delayed, which was tantamount, given the demands of the political timetable, to being dropped. As the then British Ambassador in Washington, Oliver Wright, put it, ‘I think that BA were as guilty as hell, but Margaret intervened.’93

  The US Justice Department answered, ultimately, to the President. Therefore, in March 1983, Mrs Thatcher wrote to Reagan, asking him ‘personally and urgently’ to prevent the imminent announcement of an official antitrust investigation and to handle the matter through existing aviation agreements. ‘I am most disturbed about it,’ she wrote.94 His answer was no. Although technically possible, a presidential intervention would amount to interference in an accepted legal process. ‘This gets us into Nixon territory,’ administration officials complained to the British Embassy.95 ‘You know how highly I value our personal relationship …’ Reagan told Mrs Thatcher. ‘However in this case I feel I do not have the latitude …’96

  Immediately after her election victory in June 1983, Mrs Thatcher retaliated, effectively banning British airlines from co-operating with the US investigation. The US administration became uneasy. ‘Perhaps we can help put the brakes on Justice, who may have a tendency to overreact,’ minuted one NSC staffer.97 A compromise was agreed whereby the investigation would proceed more cautiously. But BA could not go forward to privatization while this cloud still lingered. Following efforts in the English courts by Laker’s liquidators to counteract the ban on BA’s co-operation, in July 1984 the House of Lords found against BA’s position and declared that the case could be tried in the United States. A US Grand Jury was now considering a range of indictments against BA and its employees.

  Mrs Thatcher mounted an attack on all levels. Ministers and messages were despatched to Washington. In London, a few days after Reagan had been safely re-elected president in November 1984, Mrs Thatcher herself saw the US Ambassador, Charlie Price, who was left shaken by his reception: ‘She confirmed our worst fears about how she and her senior Cabinet ministers will react to an indictment decision … if there were any doubts before today about how seriously Thatcher herself views the matter, they surely have vanished.’98 Price, who was a close friend of the President and always cultivated the Reagan–Thatcher relationship, urged the White House counsel to persuade the Justice Department to alter course but without success. Price’s concerns were broadly shared within the State Department, where no one wanted to see a repeat of the sharp Reagan–Thatcher clash over the Siberian pipeline (see Volume I, pp. 576–8). The Justice Department, however, proved implacable.

  On 16 November, the Laker arguments were laid before the President. George Shultz, the Secretary of State, argued in favour of dropping the indictments and Carol Dinkins, the Deputy Attorney-General, against. Bud McFarlane, the National Security Advisor, had briefed Reagan: ‘This is a problem presenting two conflicting constitutional obligations of the President – your duty to enforce the laws and your obligation to conduct the nation’s foreign affairs.’99 McFarlane advised Reagan to side with Shultz and order Justice to drop the investigation.

  At the meeting, Shultz put his case. Dinkins put hers. Jim Baker, the Chief of Staff, who later had presidential ambitions of his own, said, ‘Mr President, this is one of those rare times that no one in this room wants to be sitting in your seat!’ Robert Kimmitt, General Counsel of the NSC, recalled: ‘The President had a quick laugh, paused for a second and said … “We live in a very dangerous world. We don’t have any friends better than Margaret Thatcher. If this is important to her, even I, as a law and order man, am not going to proceed, in the interests of US national security.’100 Fresh from his election victory, Reagan did not appear to find the decision particularly agonizing. ‘P.M. Thatcher has really dug in her heels,’ he wrote in his diary. ‘… Hearing both sides I came down on the side of foreign relations – case closed.’101

  It was an astonishing, almost unprecedented decision for a president to turn down a formal recommendation from the Department of Justice for a criminal prosecution. It infuriated Justice, which felt it had wasted two to three years’ work. Reagan’s decision was testimony to the unique strength of his relationship with Mrs Thatcher.

  He did, however, expect something back
. Allen Wallis, the Under-Secretary for Economic Affairs, was despatched to London to inform Mrs Thatcher of the decision. He was instructed, disingenuously, to quote ‘one of the President’s aides’ as saying that ‘he has never seen the President more concerned in reaching a decision.’102 Reagan, he was to tell her, had taken her side even though the allegations involved ‘deliberate, knowing, repeated violations of fundamental requirement of the US anti-trust law’. The British should now concede greater flexibility in pricing and capacity in transatlantic routes and pledge to abide by US antitrust law in the future: ‘The United States needs to be able to demonstrate that its act of extreme restraint has advanced the interests which strict law enforcement in this case would have served.’103

  Mrs Thatcher had been expecting bad news, so when Wallis told her Reagan’s decision she was ‘positively effusive. She said that she was “thrilled” … and underscored her euphoria with gestures and movements showing genuine appreciation.’104 She conceded nothing, however, on the substance: ‘Simply stated, the UK did not accept our conclusions.’105 She wrote to Reagan on the same day and in a similar strain (‘I admire your courage’),106 agreeing on the need to ‘complete the negotiations’ to mutual satisfaction.

  In fact, however, the British offered virtually nothing in return for Reagan’s generous decision. Instead, they made a further demand. If the Americans wanted any movement on pricing, capacity and so on, the US administration would have to seek British aviation’s exemption from the so-called ‘treble-damage provisions’ which permitted injured parties in civil suits to sue for three times the value of the damage they had actually suffered. The US administration had dangled this idea in earlier talks with the British, but withdrawn it after Reagan dropped the indictments. This withdrawal allowed Mrs Thatcher to write to Reagan to say that she was ‘very disappointed’;107 but it was the Americans who had cause to feel unsynthetic indignation. ‘Since your courageous decision on indictments,’ Charlie Price wrote to the President, ‘we have been going backward rather than forward … They thanked us when we quashed the indictments – but so far we have nothing in hand but a bag of air.’108 The issue now loomed uncomfortably as both sides prepared for Mrs Thatcher’s visit to Camp David just before Christmas.