Margaret Thatcher: The Authorized Biography, Volume 2

by Charles Moore

  On the morning of 22 December, before leaving for Camp David, Mrs Thatcher was at the British Embassy in Washington. She had flown in from Hong Kong the day before (see Chapter 4). Her main preparatory discussions were about Reagan’s Strategic Defense Initiative (SDI), but she nevertheless found fifty-five minutes to interrogate Roger Maynard, the Embassy’s aviation and shipping counsellor, about the Laker case. ‘She had a brief from London and she’d written all over it … At the end, she said, “Thank you very much, I’m going to talk to the President about this. I’ve got to stop this. The privatization has to go ahead.” ’109

  At Camp David, the conversation between President and Prime Minister largely turned on East–West relations and SDI (see Chapter 8). This took up the whole morning. But when Reagan proposed lunch, Mrs Thatcher asked that they discuss civil aviation first, tirelessly making the familiar arguments. She thanked Reagan for dropping the Grand Jury and ‘noted her relief that his decision did not result in a bad press for the President’,110 a fairly unsubtle hint that the decision had not been as difficult as the Americans had made out. Then she berated the administration for dropping their proposal to remove the treble-damages remedy, which hung over British Airways ‘like a dark cloud’: American action was ‘denying her the ability to denationalize British Airways’. Reagan’s tone was sympathetic, but he told her that Congress would reject a proposal to waive treble damages. ‘You could see how fiercely she fought for British economic interests,’ recalled George Shultz. ‘She was absolutely fierce about it.’111 Over cocktails and then lunch, Mrs Thatcher worried the issue like a dog with a bone: ‘Noting it had just been discussed, Mrs Thatcher said she wished to return briefly to civil aviation.’112 And off she went again. This time, Reagan said nothing, and Shultz and Price argued back. No progress was made.

  When one remembers that, in the course of the previous six days, Mrs Thatcher had met Mikhail Gorbachev for the first time (at Chequers), flown to Peking to sign the Hong Kong Agreement, flown on to Hong Kong to sell it to the colony’s people, and then flown to Washington via Honolulu; and when one further reflects that the Cold War issues at stake at Camp David were so important and demanding, it is well nigh incredible that she could have summoned the energy to argue the BA–Laker case again and again with her hosts. Almost any other British leader would have let himself be overcome by boredom, embarrassment, good manners or sycophancy towards his powerful hosts. But Mrs Thatcher was impervious to boredom if she thought a point mattered, especially a point about British trade advantage, and she almost never considered repetition a fault. ‘I think Margaret Thatcher always expected what she wanted to be done,’ said Charles Powell. ‘One of her great strengths was her single-mindedness and her absolute refusal to see that there could be another side to any case.’113 Her hosts – much more interested in what she had to say about the world-historical issues of the Cold War and SDI – were impressed and exasperated in equal measure.

  Realizing that she could not prevail over treble damages, Mrs Thatcher changed tack. Instead of the legislative route, she sought more informal ways of settling the civil suits. In February, she asked for Reagan’s help in agreeing a favourable settlement for BA out of court with Ex-Im Bank, its largest creditor. ‘The President observed that the Exim Bank has autonomy of operation, but we were in communication with the Director. Ambassador Price … has been trying to work something out, and he (the President) would weigh in if necessary.’114

  At last, the logjam broke. A settlement was agreed that saw Ex-Im Bank recoup its principal, but without the penalty interest originally sought.115 In July 1985, a broader private settlement was reached covering most of Laker’s outstanding claims for far less than the $1.1 billion potential liability. Thanks, in considerable part, to Mrs Thatcher’s relationship with President Reagan, the privatization of British Airways could take place.

  The company was finally sold to the public – 100 per cent and without a government ‘golden’ (or ‘special’) share allowing state buyback in emergency* – in February 1987. It was presented by BA as a proud moment for popular capitalism, which it was. People were keen to own a bit of the country’s now successful airline. The sale raised £900 million and was underpriced, being eleven times oversubscribed. The whole process had taken seven years.

  ‘The Treasury should be given encouragement to keep up the pressure on reluctant departments. In particular,’ wrote John Redwood impatiently to Mrs Thatcher in July 1984, ‘you should expect much more urgency from the Department of Energy in pursuing the ideas on British Gas.’116 He called for a special progress-chasing meeting of the relevant Cabinet sub-committee to goad the laggards forward. The 1983 manifesto had pointed towards opening up the gas and electricity industries. The approaching sale of a quasi-monopoly, quasi-utility, British Telecom, showed that the government was prepared to attack public ownership of industry near its heart and ready to handle the vast financial scale of the flotations involved. The Chancellor had long wanted British Gas (BG) to be broken up and sold once BT was done. So had the Prime Minister. Yet the whole issue was proving extremely difficult.

  The problem, from Mrs Thatcher’s point of view, began with the chairman of British Gas. Sir Denis Rooke was the classic nationalized industry chief of the successful sort. (Most were unsuccessful.) Rising through the industry as an engineer, he had been responsible for converting every household from the previously prevailing (and poisonous) ‘town gas’ to the large supplies of natural gas found in the North Sea from the 1960s. He was a bully and, according to Nigel Lawson, ‘a megalomaniac’117 who believed that he alone understood his trade, ‘treating Ministers and officials alike with a mixture of distrust, dislike and contempt’.118 Rooke had brought semi-related companies (for example, Britain’s only onshore oilfield, Wytch Farm) under his wing, thus increasing his power. He had a famously short fuse, and had to take pills to prevent himself shouting at people.119* He was ‘a big tree in whose shade no sapling ever grew’.120

  After becoming energy secretary in 1981, Nigel Lawson had worked hard to, as he put it, ‘weaken Rooke’s empire’,121 by announcing the privatizations of the oil-producing business of the British National Oil Corporation (later Britoil) and British Gas’s offshore oil business, and by abolishing BG’s statutory monopoly on the purchase of gas and control of the onshore gas pipeline grid. He had tried, but failed, after well-organized opposition by Rooke and the trade unions, to arrange the sell-off of BG’s gas showrooms. It had been Lawson’s last act as energy secretary to sign a letter to Rooke enforcing the disposal of the offshore oil assets (which later became known as Enterprise Oil). He gave the letter to his private secretary for safe-keeping during the campaign, with instructions to send it on to the BG chairman if the Conservatives won. It was duly sent to Rooke the day before Lawson was made Chancellor of the Exchequer.122

  Mrs Thatcher, however, had, for unrelated reasons, made Peter Walker Lawson’s successor at Energy (see here). Walker did not share his predecessor’s views, or his closeness to the Prime Minister. He regarded Denis Rooke as ‘the best nationalised industry chairman I met’.123 Although not adamantly opposed to privatization in all its forms, he had little objection to BG’s monopoly power. He stood with Rooke on the idea that the company should be a ‘national champion’, and indeed wanted it to become a European entity, rather in the way the French EDF much later became.124 If it must be sold, he believed, it must be sold whole.

  In principle, neither Lawson nor Mrs Thatcher agreed with this, but principle could not be the only consideration in the difficult circumstances in which they found themselves. On the memo from John Redwood quoted above, Andrew Turnbull wrote: ‘I think John’s judgment may be rather harsh. On gas, Mr Walker has broached the subject with Sir D. Rooke but given the controversial nature of the proposals feels he needs to move carefully. I doubt if a progress chasing meeting will do more than irritate Ministers. Mr Walker feels that the references to BGC privatisation are unhelpful to him in the t
ricky task he is engaged upon.’125 Following her private secretary rather than her Policy Unit head, Mrs Thatcher wrote, ‘No meeting at present.’

  The ‘tricky task’ was the management of the alarming Rooke, who ‘loomed over’ everything and with whom Walker made a ‘Faustian pact’.126 Ministers believed Rooke had the capacity to undermine confidence in the privatization of the industry and so had to be handled with great care. Peter Gregson, who became permanent secretary of the Department of Energy in May 1985, remembered Mrs Thatcher ‘sometimes sucking her teeth and saying how convenient it would be if we could get rid of Denis; but she saw that he was a force of nature.’ John Redwood advised her to ‘change the chairman’.127 She did not want to take the risk. The tactic of humouring Rooke worked, in its own terms at least. Gregson noticed the chairman gradually coming to see that something might be made out of privatization ‘so long as he could wield great power’.128 Walker was skilled at handling Rooke, and, as a minister, ‘decisive, and a good seller and deliverer of policy’.

  Given the joint power of Thatcher and Lawson, it might, in more ordinary circumstances, have been possible to overrule what David Young called the ‘unholy combination’129 of Rooke and Walker; but the circumstances were extreme. BG privatization could not take place until BT’s sale was well out of the way. BT was sold at the height of the miners’ strike. Discussions of BG privatization began before the strike and finished after it. Mrs Thatcher felt that she could not afford to fall out with Walker, the minister in the front line of the conflict with Arthur Scargill, while the strike was in progress, or to punish him after its successful conclusion. She could not move Rooke against Walker’s will. Walker advised that gas privatization would be doable but that, in the context of the miners’ strike, electricity would not. He insisted that the sale must be of a single entity. Mrs Thatcher recognized that she did not have much choice but to accept Walker’s advice, though it involved ignoring what Redwood and the Policy Unit told her. Although she saw Rooke as ‘a huge tombstone in the way of what the Government wanted to do’,130 she felt she could not get rid of him once privatization was ‘hurtling down the track’.

  Andrew Turnbull recalled ruefully that when he was off work, suffering from shingles, in late March 1985, two momentous and unhappy decisions were made. The first was agreement, in principle, to the poll tax (‘community charge’) (see Chapter 11). The second was that ‘The Treasury had settled the form of gas privatization with Peter Walker.’ The thing was squared between Mrs Thatcher, Lawson, John Moore and Walker on 26 March 1985. BG would be sold off in full and as one unit, provided that this happened without delay. ‘Walker’s support was better than endless argument.’131 In her memoirs, Mrs Thatcher defended the decision on the grounds that the sale had to take place before the next election, so that the most important reason for not breaking the company up was, ‘curiously enough … the lack of parliamentary time’.132 This was true, but not the whole truth. She was also scared.

  There were secondary reasons, too, for not breaking the company up. More than he liked to admit, Lawson was – almost ex officio as Chancellor – keen on maximizing the proceeds. Mrs Thatcher was not immune to this either. After the success of the British Telecom sale, she had said to Gerry Grimstone, ‘What can we do that’s twice the size of BT?’133 The stronger the monopoly, after all, the higher the price. The need to press on with the sale was genuine, and later became stronger as other privatizations, such as BA, BL, water and the Royal Ordnance Factories, for one reason or another were delayed or fell by the wayside. It was understandable to take the view advocated by Turnbull’s successor as Mrs Thatcher’s Treasury private secretary, David Norgrove, that ‘It is better to give in, because you can always change the rules later.’134

  Nevertheless, there was ‘something disreputable’ in this way of proceeding,135 and something, by Mrs Thatcher’s very high standards of due diligence, negligent. Martin Jacomb noticed that, in relation to BG (of which he was a director), Mrs Thatcher had ‘perceptibly lost the desire to master the detail’.136 The biggest problem was that the sale of a monopoly was not adequately compensated for by new regulation. Although the government recognized the need and legislated for a regulator, it did so rather cautiously because of fears of further explosions from Sir Denis Rooke. ‘Walker said, “Don’t pick someone too difficult as the regulator,” ’ Peter Gregson recalled.137 The failure to regulate rigorously was to give rise to a great many difficulties in the years ahead and produce a certain disillusionment with privatization, so far, at least, as the utilities were concerned. Although sales of share issues continued to do well throughout this period, Turnbull noticed an odd, emerging phenomenon that ‘each privatization seemed to be more unpopular than the last’.138

  Once the sale of BG as a unit was agreed, however, the full energy of the government could at least go into getting the sale right. Great attention was given to tight pricing, and a huge effort was made to sell as many shares as possible to record numbers of the general public. Rothschilds, led by the great networker Michael Richardson,* handled the sale. The advertising company Young and Rubicam devised a famous campaign which cleverly exploited the rules restricting the puffing of a stock by inventing an invisible character called Sid, who might, or might not, learn about the sale. The advertisement concerned only the fact of the sale, not its details. ‘If you see Sid, tell him,’ was the catchphrase. ‘Sids’ became the name for all ordinary buyers of privatization stocks, and ‘Siddery’ the sometimes disparaging term for trying to lure the buyers in. Market research showed that 98 per cent of the adult population had heard of the BG offer.139 The whole of BG (except for the government’s golden share) was sold in November–December 1986. Its handling was a triumph for the new world begun only a few weeks earlier in the City’s ‘Big Bang’ reform of the Stock Exchange. Over 4.5 million applications were received, which made BG the company with the largest number of shareholders in the history of the world. The sale raised £5.434 billion for the government. The stagging was not nearly as bad as in the past. Two million of the buyers had never before bought shares, so this was a giant leap for the policy of popular share ownership. Not coincidentally, it was also a good way of securing Conservative votes in the election pencilled in for the following year.

  On 27 October 1986, the City of London experienced what was known as Big Bang.† On a single day, all the reforms of the Stock Exchange were implemented at once. The phrase was apt, because the changes which came into force that day were indeed explosive, but the phenomenon had small beginnings.

  At first, the question had seemed almost technical. When she came into office in 1979, Mrs Thatcher had inherited from the period of Labour government a commitment by the Office of Fair Trading (OFT) to investigate the Stock Exchange for restrictive practices. The OFT estimated that there were more than eighty such practices,140 but there were three that mattered. Membership of the Stock Exchange was severely controlled, and excluded all foreign firms; the members of the exchange operated on fixed commissions; and the ‘single capacity’ rule meant that brokers could not themselves trade in shares but must buy and sell shares for their clients via ‘jobbers’, who could. Single capacity had been introduced in 1911, on ethical grounds because it avoided conflicts of interest, but restrictive was exactly what these practices were. They maintained the Stock Exchange as a sort of old boys’ club (it was heavily dominated and hereditarily filled by pupils educated at the major public schools) which did well by its members, but kept charges high and new entrants out.

  Because the Conservatives were regarded as the friends of the City establishment, it was widely assumed that the new Tory government would reverse Labour’s decision and exempt the Stock Exchange from the OFT’s investigation. But, for precisely this reason, it was reluctant to do so. Indeed, the normal political situations were reversed. The Labour former Prime Minister Harold Wilson, who had chaired a committee reviewing the functioning of financial institutions, wrote to Mrs Thatche
r in the autumn of 1980 asking her to lift the case against the Stock Exchange. She declined, arguing that ‘propriety’ made it difficult to remove a case from the legal process.141 For the same reason, Mrs Thatcher did not get involved in policy discussions on the matter at this stage. Gordon Borrie,* the director-general of the OFT, also refused to countenance a deal with the Stock Exchange. So the investigation trundled on.

  It began to become clear to many of those involved, however, that the court case which would inevitably result if no deal were done would be disastrous for the Stock Exchange. For as long as any case lasted, uncertainty about the system’s future would damage the City. This would also be dangerous for the government, since the Exchange was the market for raising government debt. People like David Walker† at the Bank of England and Lord Cockfield, Mrs Thatcher’s last Trade Secretary before the 1983 election, saw the danger. So did Nicholas Goodison,‡ the chairman of the Stock Exchange, who was concerned that ‘the court would make a sudden-death decision and there would be chaos.’142 ‘He knew that the court might declare the Stock Exchange’s rulebook illegal and not say what would be legal.’143 Despite objections from many of his more conservative members, Goodison believed that the Stock Exchange should not resist outright, but should reform itself, rather than having change imposed upon it by a court. All these men argued that reform was not only unavoidable, but also desirable. The unreformed Stock Exchange was turning London into a backwater. The only foreign equities traded in London at that time were South African gold stocks and a few Australian mining shares.144 The small British firms which composed the Stock Exchange had little access to capital. London dominated some markets, such as foreign exchange and commodities, but ‘the securities business was the one weak link. There was not enough capital because of the old partnership system, and there never would be.’145 New York, which had introduced stock exchange reform in the mid-1970s, was leaving London behind. In 1982, the turnover of equities in New York was more than fifteen times greater than that of London. As Jacob Rothschild* pointed out in a speech at the time reform was first announced, Salomon Brothers alone, in New York, made $500 million in 1982, while ‘I think I am on fairly safe ground if I state that the combined profits of the London Stock Exchange came to less than this figure.’146 Only seven UK financial services executives in the whole country received six-figure salaries. The pressure to adapt or die was becoming unstoppable.