11
Poll tax
‘Voter & payer’
Because Mrs Thatcher believed in property, she did not like property taxes. To get rid of them, she embarked on a quest which reached its goal in her second term. The replacement she eventually chose turned out, once put into practice in her third term, to be the most unpopular domestic measure of her premiership. Although she adamantly refused to use the name, it became notorious as the ‘poll tax’.
When she came into office in 1979, local government in Britain was, in principle at least, funded chiefly by the rates – business and domestic. The rates were property taxes, levied on the notional rental value of the property in question. Business rates upset Mrs Thatcher, because they were a form of taxation without representation.* Domestic rates seemed to her to punish the property-owning instinct which she so admired. ‘Any property tax’, she wrote in her memoirs, ‘is essentially a tax on improving one’s own home.’1 Worse, domestic rates fell chiefly upon such improvers, and often did not tax other, non-property-owning voters – because of a system of rebates – in local elections at all. Those who made the greatest use of local government services – social services, for instance – were the least likely to pay for them. ‘The people who benefit don’t pay. The people who pay don’t benefit’ was how Mrs Thatcher encapsulated the problem.2
Rates also punished the sort of poor with whom Mrs Thatcher was most sympathetic: her favourite example was the elderly widow living alone, next door to a family of four workers in a similar house. The two households would face a similar rates bill and so the widow ended up paying four times as much as each of the workers. Non-ratepaying voters could, and often did, elect high-spending Labour councils, secure in the knowledge that they would not have to put their money where their vote was. These Labour councils increased the rates year after year – rises of 30 per cent were not uncommon in the early 1980s – confident that the non-paying voters would not mind, and that higher spending could, thanks to the curious system of ‘rate support’ invented in the 1920s by John Maynard Keynes, attract higher central government grants. Increasingly, hard-left Labour councils exploited the system not only to win local elections, but also to build socialist ‘republics’ (as they were often referred to) at the expense of their ratepayers and to the detriment of ratepaying, non-voting businesses. By the time Mrs Thatcher came into office in 1979, the central government Rate Support Grant accounted for over 60 per cent of total local government spending. Rates assailed those whom Mrs Thatcher liked to call ‘our people’, and their deficiencies had to be made up, on a grand scale, by general, national taxation. Local government spending was ultimately, in financial terms, the responsibility of the Treasury. It could have a major effect on the PSBR. If it went awry, therefore, her national battle against excessive public spending could not be won. She hated rates for both ideological and political reasons. It was her dream to abolish them. She also considered it her promise, first made in October 1974.
In the run-up to the 1983 general election Mrs Thatcher had struggled to advance this cause but failed (see Chapter 2). The Tory manifesto merely promised legislation to ‘curb excessive and irresponsible rate increases by high-spending councils’ and the introduction of ‘a general scheme for limitation of rate increases for all local authorities’. It also pledged, rather at the last minute, to abolish the Greater London Council and the metropolitan counties – such as Greater Manchester and the West Midlands. These overarching bodies – particularly the GLC – had relatively few duties: the real work was done by the London boroughs and the city councils. But they did have considerable prominence and considerable sums of ratepayers’ money which they liked to use in political campaigns. They – especially the GLC – became well known for promoting the causes of what the papers called the ‘loony left’, such as supporting Sinn Fein–IRA and undermining the police. They sought to fight the government, with ratepayers’ money. It seemed to Mrs Thatcher and her supporters that they could be abolished with financial and political advantage and without affront to the constitution.* Some of her colleagues doubted this. Michael Heseltine, recently promoted from environment to defence secretary, predicted in Cabinet in May 1983 that ‘In some cases, the possibility of confrontation will not be a threat, but an incentive.’3 This was prescient. The manifesto said nothing about reforming the rates themselves.
So, early on in her second term as prime minister, Mrs Thatcher set to work to enact these pledges, but the path to more fundamental reform remained unclear. Stephen Sherbourne, the head of Mrs Thatcher’s political office, bumped into Terry Heiser,* the Deputy Secretary at the Department of the Environment (which had responsibility for local government), at a reception at No. 10 shortly after the 1983 election victory. ‘I’d love to know what she wants to do with local government,’ Heiser said.4 Sherbourne felt he did not know the answer.
Nor, perhaps, did Mrs Thatcher herself. It has often been claimed that she was hostile to local government. Some have tried to explain this psychologically, as being a reaction against her father, the Grantham alderman, or against the way he was thrown out of office by Labour councillors,5 or both.† But there is no real evidence for this. She liked municipal pride and municipal competence. What she always disliked, from her earliest political days, was a lack of relationship between who votes and who pays. She felt that Labour had weakened this link, removed powers from local government and thus undermined its quality. In 1949, when a parliamentary candidate in Dartford for the first time, she contributed an article on local government to a magazine called Conservative Oxford. In it, she complained that nationalization had removed councils’ revenue-raising powers by taking utilities out of their control and by grabbing entities such as hospitals from council management. There was a ‘loss of local responsibility’.6 Councils were left to deal only with little things, she said, and so ‘Civic pride … will disappear.’ This remained her view, and the rise of politically extreme, financially irresponsible Labour councils in the 1970s and early 1980s seemed to confirm it. If only local government could be largely self-financing (as late as the early 1960s, the Rate Support Grant had been only about 35 per cent of its total spending), and if only most voters understood the cost because they would have to pay it, then sanity would prevail, and Conservative votes would accumulate. These truths seemed so simple to her that she found the complications of actually reaching the happy state she sought intensely frustrating.
The manifesto policies on local government were scarcely more tractable to implement than the replacement of rates themselves. After some three months of argument following her electoral landslide, Mrs Thatcher’s new Secretary of State for the Environment, Patrick Jenkin, sent her a warning. Local government issues, he predicted, are ‘going to cause the Government lots of trouble over the next few years … I am not sure that senior colleagues yet appreciate the rows which, starting this autumn, are going to continue right up to the next election and beyond.’7 He was understating the case.*
The rows were almost as great among Conservatives as with Labour opponents. Except for a few bold reformers, mainly in London, Conservatives in local government were conservative. They did not see much wrong with the system so long as they were in charge, and they were as proud as Labour about extracting money from Whitehall for local purposes. They knew, from bitter experience, that complicated, centrally devised formulae designed to restrain spending often had perverse effects, making the prudent subsidize the profligate. So they were cynical about change. Councillors from Barnet, which included Mrs Thatcher’s own constituency of Finchley, made a point, from time to time, of reminding her of these uncomfortable realities. As for the GLC abolition, to many it just did not feel right. Much as they disliked Ken Livingstone, many Tories had constitutional objections. Mrs Thatcher herself, who always put a much higher value than most of her party on political warfare with the left, had discussed abolition in Cabinet committee in 1982 but, for fear of leaks, did not widen the d
iscussion until just before the general election,8 so the pitch had not been rolled.
Besides, the more pragmatic, pessimistic strain of Tories – locally, in Parliament and in government – foresaw too much trouble. This, in essence, was the Willie Whitelaw position. From his new perch leading the House of Lords, Whitelaw continued to advise Mrs Thatcher on all major policy issues. He was not so interested in whether or not, in principle, it was right for central government to intervene to improve local. He was simply worried about what would actually happen. Oliver Letwin, Mrs Thatcher’s main Policy Unit adviser on rates and local government, recalled a meeting in which Mrs Thatcher and others discussed whether or not to send government commissioners in to Liverpool, which was deliberately proposing to set an illegal budget. ‘Well, Margaret,’ said Whitelaw, ‘of course you can send commissioners in. Of course you can. But how will you get them OUT?’9 His pragmatic argument prevailed in that case, but more generally it did not. Central government started to go in, often without safeguarding its passage back.
Whitelaw was so worried, indeed, that he acted out of character and explicitly (though not, of course, publicly) opposed Mrs Thatcher’s policy. In the autumn and winter of 1983, ministers had debated all sorts of half-considered consequences, even as they published the White Paper on GLC abolition (7 October) and introduced the rate-capping Bill (21 December). Which bits of the GLC would be run by ‘residuary bodies’ and which would pass to the London boroughs? When, if at all, would they abolish the Inner London Education Authority (ILEA), which employed more non-teaching staff (over 20,000) than teachers, and was as great a force for the left as the GLC from which it sprang? Would much money really be saved? Shouldn’t there be a ‘voice for London’ of some sort? (Mrs Thatcher’s eccentric answer to this last was that the Lord Mayor of London, who was chosen only by and for the old City of London, and not through any democratic process, ‘already provided the necessary representative office’.)10 Even the politics of the matter – attacking the ‘loony left’ – began to look less good as it became clear that the mild, unpolitical Patrick Jenkin was no match for his Labour local government opponents. In December, Bernard Ingham wrote to him to protest that ‘we cannot allow the Opposition to dictate the game for much longer.’11 ‘I was in dead trouble,’ Jenkin recalled.12
In February 1984, Whitelaw came to see Mrs Thatcher. He was already shaken by how hard it was proving to get the privatization of British Telecom through the House of Lords; but in this case, he explained, his anxiety was not just about parliamentary tactics: ‘His concern was not that the Bills could not be got through Parliament, but that the proposals themselves might be defective.’13 On the matter of the GLC, in particular, he felt that the government did not have proper answers to all the questions raised.
Mrs Thatcher listened – she always treated Whitelaw respectfully – but did not back down. Having said his piece, Whitelaw resisted no longer. But Mrs Thatcher acknowledged, tacitly, at least, the amount of political and policy work still needed. Because ‘she increasingly lost confidence in Jenkin’s ability to deal with Ken Livingstone’,14* she began to rely more heavily on her Policy Unit to drive change through. She was, according to her Treasury private secretary, Michael Scholar, ‘in a bullying mood with ministers’.15
Her mood was not improved by the growth of revolts against the proposed rate-capping. In Liverpool, where the Labour city council was now, in effect though not in name, controlled by the hard-left Militant Tendency,† the game got going. The council, claiming that central government forbade them the money they needed to fulfil their election promises, announced their illegal budget plan. ‘It is better to break the law than break the poor’ was their slogan. The councillors involved knew that this threat, if enacted, would make them liable to personal surcharge and disqualification, but they also knew that the government would be gravely embarrassed at being blamed for the breakdown of local services. Jenkin offered the council more money (out of a pot for housing), allowing Militant to declare that they had Mrs Thatcher on the run. The cocky, charismatic deputy leader of the council, Derek Hatton,‡ who was part of Militant and effectively ran the council, started to become a household name. ‘[Tony] Benn appears alongside Liverpool’s Hatton at rally in support of illegal budget,’ Bernard Ingham’s press digest informed Mrs Thatcher, ‘– says Liverpool is graveyard of capitalism and birthplace of socialism: Council committee votes to set illegal rate.’16 Like Livingstone, Hatton acquired a popular following, though he was demonized by much of the press.
At the No. 10 Policy Unit, Oliver Letwin, working under its director, John Redwood, was clear that Mrs Thatcher’s dislike of what was happening in local government was motivated even more by the behaviour of left-wing extremists than by concerns about financial control. She saw them as threatening the ‘stability of the United Kingdom’.17 Since the smashing defeat of Labour in the 1983 general election, the hard core of opposition to ‘Thatcher’ prided itself on being extra-parliamentary. It hoped, by strikes, disruption, street protest, declaring ‘nuclear-free zones’, suborning parts of the public services and the building up of local centres of power, to be able to challenge the government. Much of this was mocked for its politically correct* posturing but, mad though some of it was, it was also powerful, and good at exploiting the divisions within the Labour Party. There was a close relationship in this enterprise between the left of the trade union movement and the left in local government, which the Daily Mail described as the ‘Fascist Left’.18 From the start of the miners’ strike in March 1984, this semi-revolutionary struggle acquired sharp focus.
Despatched by Mrs Thatcher to visit Hatton and his cohorts in Liverpool alone, Letwin felt ‘physically frightened’ by the gang rule he observed in City Hall. He also noted how local government finance ‘intersected with this. Underneath, there was no real accountability or democratic check.’19 ‘I got interested in this,’ Letwin recalled, ‘and I discovered that no one knew how it worked.’20†
From the late spring of 1984, it was Letwin who did most of the unit’s work on the subject and Mrs Thatcher ‘put a surprising amount of trust in him’.21 His memos had an urgency and contained a level of detail and intellectual power which answered Mrs Thatcher’s needs. Writing to Mrs Thatcher’s office about rate-capping, for example, at the end of May, he protested that the relevant Cabinet sub-committee had ‘sanctioned a near-absurdity’.22 Under its proposed ‘solution’, some councils – Brent, Sheffield and Merseyside – would be rate-capped and yet their rates would rise sharply.‡ There might be ‘respectable technical reasons for this’, but ‘Any Minister who is sufficiently foolhardy to attempt a complicated explanation of such results on a TV programme will be torn to shreds by an Opposition spokesman.’ Couldn’t the government adjust to avoid ‘making a laughing stock of our entire rates policy’? ‘The answer’, said Letwin, ‘is to recoup our losses by being tough on the GLC and ILEA.’ ‘Agreed,’ wrote Mrs Thatcher.
At this time, Letwin recalled, he ‘wasn’t thinking about the promise to get rid of the rates’.23 In the course of 1984, however, as the problems of reforming the existing system became ever more apparent, it was natural to do so.
The incentive grew as the politics got worse. Ken Livingstone advanced his case for the GLC under the slogan ‘SAY NO TO NO SAY’. The media consensus was that the government was being ‘outspent, out-sloganised and out-advertised by Ken Livingstone’.24 At the end of June, Bernard Ingham was so worried that he wrote to Whitelaw about the need to ‘regain the initiative’.25 On the same day, the government was defeated in the House of Lords on the ‘Paving’ Bill for GLC abolition. Peers complained that abolition was being pushed through without the new governmental arrangements to replace the authorities having been worked out. It looked bad for Mrs Thatcher that she was abolishing something for which people had voted, and trying to remove from elected office those who had been voted to it. Indeed, she herself had originally opposed this idea, preferring to keep
elected councillors in post after abolition, but had eventually let herself be persuaded by Jenkin’s unpolitical arguments about efficiency. Many of the peers had been ferried to and from the Lords, and fed and watered within it, by a well-organized GLC campaign.26 There was a feeling, Ingham feared, that the government was ‘losing out with the public; that the devil has all the best tunes’. The press secretary sketched out the main arguments in best Ingham style – ‘London has no need of GLC representation when the Lord Mayor of London has not looked back since Dick Whittington.’ ‘I believe that we need a new speech written by someone – eg me – who is not too close to it all [an implied criticism of Jenkin], which takes on frontally all the arguments.’27 The GLC and the mets were spending £3 million on politicized advertising in favour of themselves, so it was urgent for ministers to hit back.
Reconvening after her August break, Mrs Thatcher tried to get a grip on the problem. She invited leading ministers to a lunch at Chequers on 2 September to discuss the forthcoming annual party conference. In preparation for this, John Redwood set out all the issues her guests should consider. He told her that, even with rate-capping and abolition of the GLC achieved in the course of the year, the unfairness of the rates remained and the attempt by the left to break government policies had not been properly confronted. This ‘remains for us a very vulnerable area of policy’, he concluded.28
At Chequers, Patrick Jenkin urged Mrs Thatcher to order a review of the whole system of local government finance. She was not terribly pleased at the idea: ‘there had been two previous reviews … and only the most modest of mice had emerged.’29 At the end of the month, she held a more formal meeting of ministers and officials concerned. Briefing her for it, John Redwood argued how disastrous it would be if yet another review recommended no change, or change so radical as to be unworkable. ‘Of all the options on offer,’ he wrote, ‘some kind of poll tax which is paid by every elector is the most likely to meet the requirements of accountability and visibility.’30 There is no sign that Mrs Thatcher was immediately struck with this suggestion as the idea whose time had come. At the meeting, she let Jenkin begin proceedings with an extremely gloomy account of the situation: ‘the whole system of local government finance was suffering severe strains and present policies could not hold the position very far into the life of the next Parliament.’31 He wanted to be able to announce a review at the party conference in two weeks’ time.
Margaret Thatcher: The Authorized Biography, Volume 2 Page 45
