Nigel Lawson strongly disagreed. As Chancellor, with responsibility for national but not local taxes, he had an innate disinclination for major tax reform not led by him and his department. ‘Rather than launch a review which would wrongly hold out hopes of a totally new system the emphasis should be on improving the working of existing arrangements where they were most inequitable.’32 Lawson would not countenance any root-and-branch reform at all.
Looking for the sort of consensus which, despite her rhetoric, she often sought when in a tight spot, Mrs Thatcher said that Jenkin should be allowed to have his review and to announce it at the party conference. On the other hand, it should concentrate – this was her nod to Lawson – only on ‘serious inequities’. It should not be called a review – the eventual preferred term was ‘studies in the field’ – and there should be no fanfare about it.
A week later, with the conference now a few days away, the Treasury tried to throw a spanner in the works. Peter Rees, the Chief Secretary, wrote to Mrs Thatcher, ‘concerned’ that Jenkin’s speech might ‘raise expectations of major change in the system of financing local government. I think this would be a mistake … It is not clear that we will be able to devise and deliver a solution to the intractable problems of the rating system.’33 Nigel Lawson’s department did not think much of Jenkin’s officials. (They were ‘useless’, Lawson recalled thirty years later.)34 It flatly opposed reform of the financing system. Perhaps because local government was not a Treasury responsibility, no one noticed the storm cone being hoisted. Mrs Thatcher did not answer Rees’s letter. Perhaps if Lawson himself, rather than his deputy, had written, she would have given the matter more thought.
As it turned out, whatever was said at the party conference was instantly forgotten because of the Brighton bomb. Jenkin’s speech, in which his field studies were announced, was little noticed. In the original draft of Mrs Thatcher’s setpiece speech, the issue of local government had been an important part of her argument. Mrs Thatcher had planned to denounce the violence and intimidation of the miners’ strike and all – especially at the previous week’s Labour Party conference – who supported these things. Her draft extended this argument to the ‘high spending Town Halls’, where ‘the new left seeks to use Councils to burst apart our carefully established programme for rational economic recovery’.35 They were ‘using public money to poison the public mind’, and she directly quoted Livingstone and named Labour MPs who seemed to condone breaking the law and were ready to ‘defy Parliament’. As she had told the 1922 Committee just before the summer recess, she considered the hard-left council leaders as well as Scargill’s NUM leadership part of ‘the enemy within’. As the miners’ strike reached its climax, and the campaign against her reforms to local government gained strength, she fully intended to meet fire with fire.
After the bomb, she reduced her mention of local government issues to a couple of paragraphs. She reiterated (without explanation) the planned abolition of the GLC and the mets, praised Conservative councillors and competitive tendering, and left it at that. But while the IRA’s carnage had made her change her partisan tone, it strengthened, if anything, her determination to defeat what she saw as a coalition against freedom.*
After a brief collective convalescence from the shock of the bomb, normal business resumed. At the end of October, those most closely involved in Jenkin’s field studies – William Waldegrave, the number-three minister at the Department of the Environment, Terry Heiser, Letwin and Andrew Turnbull, Mrs Thatcher’s Treasury private secretary – gathered at Chequers to give Mrs Thatcher a ‘teach-in’ (the phrase used) on how local government finance worked, or didn’t. No new form of local tax was argued for (or against) at the meeting, but the deficiencies of the existing system were fully aired. Waldegrave, who was enthusiastic for change because ‘I thought the problem was soluble and would make my name,’36 asked for six months to work with Heiser and a small team of independent minds on ‘ground-clearing’ before opening their ideas up to Cabinet consultation and later to the public.*
Mrs Thatcher herself suggested that the independent team be run by Lord Rothschild,† the former head of Ted Heath’s Central Policy Review Staff (the Think Tank). In this she was prompted by Waldegrave,37 who had worked under Rothschild there and had been engaged, at one time, to marry his daughter Victoria. Waldegrave was fond of Rothschild, and realized that his involvement would provide the clout which, as a very junior minister, he would lack if acting alone. Mrs Thatcher ‘liked Victor being a scientist and she liked him being a Rothschild’.38 She wrote to Rothschild two days after the meeting, explaining that she had asked Jenkin ‘to have another look, starting from first principles, at the whole vexed subject of local government finance’,39 and inviting him to give the subject ‘a really fresh look’: ‘We need sharp advice from the outside.’ She did not ask, however, for a replacement for domestic rates to be dreamed up. This was not yet clearly envisaged. The initial task of the team was to look at taxes that were supplementary to the rates, not alternatives to them.40
Rothschild accepted Mrs Thatcher’s invitation. He loved what later came to be called ‘thinking outside the box’, but, according to Robin Butler who, like Waldegrave, was a Rothschild Think Tank product, ‘he never did it himself. He always had some brilliant source.’41 For this task, Rothschild duly roped in a small band of allies, including Lennie Hoffmann,‡ a leading barrister. His motives, thought Butler, were ‘mischief, fun, influence and being in on the act. He had a short attention span and his political judgment was nil, but he had originality.’42 Always excited by bright ideas, Letwin was delighted by the Rothschild world in which clever people bathed difficult problems in the light of reason and ate good lunches at the Capital Hotel to discuss them: ‘I fell rather in love with it all.’43 The same can be said of Mrs Thatcher, who relied heavily on the twenty-eight-year-old Letwin. ‘Because I was learning on the job,’ Letwin recalled, ‘so was she.’44
While Waldegrave and his advisers got on with ground-clearing, the politics of local government grew hotter. As well as advising closely on the policy, Letwin gave Mrs Thatcher extensive reports from the battlefields. The opposition to rate-capping and GLC abolition was becoming ‘ever more vigorous and intelligent’, he warned her in the middle of November.45 A mole within the advertising company Boase Massimi Pollitt (BMP) informed the Policy Unit about the propaganda films the firm was making for the GLC. The Local Government Campaign Unit, founded by David Blunkett,* the leader of Sheffield Council, was disseminating information about ‘successful methods of attack’. Islington Council was paying ‘Short Life User Groups’ made up of ‘politically aware squatters’ to occupy its many empty houses.46 Yet there was not enough urgency: ‘The rate-capping revolt is just about to begin in earnest; but there has not yet been a clear statement of Government policy. Experience with the miners’ strike shows that a clear line needs to be established from the start.’ Letwin recommended that officials prepare for the revolt and for co-operation with the government’s Civil Contingencies Unit. The tactic he urged in face of the revolt was ‘brinkmanship’: ‘if services break down, do nothing for as long as possible, explaining constantly that the council has the remedy in its own hands’.47†
This sense of political siege drove Mrs Thatcher faster towards root-and-branch reform. A few days after Letwin’s note, the Cabinet Office made the subject of the local government finance studies more explicit for Mrs Thatcher. There were problems of excessive local government expenditure and of central government intervention. There was also a disconnect between rating and voting inherent in the existing tax system, and the relationship between central and local government.48 Beside this, Mrs Thatcher wrote ‘Voter & payer’.
The controversies about local government issues dogged Mrs Thatcher wherever she went. In the astonishingly busy week in December 1984 in which Mrs Thatcher met Mikhail Gorbachev for the first time at Chequers, and then flew to China to sign the Hong Kong Agreement, a telegra
m reached her in Peking informing her of trouble. ‘The Environment Secretary’s statement on local authority capital spending went very badly today. In addition to the expected Opposition uproar, there was a consistently hostile reaction from Government backbenchers.’49 There was a three-line whip (the severest form of whipping) for the debate the next day: ‘The consequences of a defeat for the Government’s economic strategy and for the international image of the Government are being strongly emphasised.’
So ended the year.
The new one began for Mrs Thatcher with a typically challenging letter from Lord Rothschild. Under the heading ‘The Local Authority Problem Viewed by an Outsider’, he told her that ‘the outsider is most forcibly struck by the lack of harmony and ill feeling among those concerned’.50 He complained of the low quality of Department of Environment officials and of the ‘incredible complexity of the arrangements which the Government has allowed to develop’. Deliberately undercutting his own raison d’être and methods of working, he wrote that ‘The malaise underlying these symptoms will not be cured by a small group of Officials and Consultants supervised, part-time, by a Minister or Ministers, with the odd Oxbridge seminar thrown in for good measure.’51 This remark was really a means of putting Mrs Thatcher on her mettle: ‘Has the time not come for the Prime Minister to say “Stop it”? … A new and ruthless broom is needed.’ It was exactly as a new broom, and a ruthless one at that, that ‘Maggie’, the housewife-superstar, liked to see herself.
Kenneth Baker, much more political than his senior, Patrick Jenkin, also pushed a message of urgency. Having favourably impressed Mrs Thatcher as minister for information technology in her first administration, he had joined Environment, as minister for local government, the previous year. Although originally a Heathite, he had started to prosper under Mrs Thatcher because of two qualities which she liked: he was ‘hugely enthusiastic and positive’ about whatever he was doing, and he ‘carried his ministerial responsibilities lightly’.52 He and Waldegrave, thought Stephen Sherbourne, were ‘terribly keen to curry favour with the Prime Minister’, and Baker’s way of doing this was to incite her to battle. He tapped into what he called her ‘Grantham-speak’.53 He tried to raise awareness within government of ‘The Developing Political Crisis in our Cities’.54 The hard-left councils – Liverpool, Hackney, Lambeth, Islington, Greenwich, Southwark and Manchester – he wrote, were using ‘municipal control of all activities’ as ‘the bedrock of their policies’. The hard left ‘really do hope’, Baker went on, ‘that the Government can be brought down by widespread action in the inner cities’. He quoted Ken Livingstone, speaking earlier in the month: ‘We will effectively operate within the State in defiance of the State. That will prove the most dramatic challenge, apart from the challenge of the miners, that this Government has faced since 1979.’ It was vital, Baker argued, to set local government policy within this political context.55
At the same time, a northern front opened up. Because of its different legal framework, Scotland was now compelled to have a rating revaluation. (England and Wales were overdue for one, but were freer, in law, to postpone. Michael Heseltine, as environment secretary, had done this. So had Patrick Jenkin, at Mrs Thatcher’s insistence.) Its results were announced on 13 February 1985. The next day, the Chairman of the Scottish Conservative Party, Sir James Goold, came to tell Mrs Thatcher exactly how bad things would now be. There would be a 170 per cent increase in domestic rateable values,* he said, and ‘only 20 per cent of Scottish householders were liable to pay full rates, and most of this small residue of householders were Conservatives’.56 Jenners, the big department store in Edinburgh, would now pay twice the rates of Harrods in London though it had only one-tenth of the floor space. In Tory Perth and Kinross, rates would rise by 70 per cent. Mrs Thatcher shuddered at the political thought and told Sir James that the implementation of the revaluation should be postponed.57
In fact, delay was not in her legal power, as the Scottish Secretary, George Younger, later explained to her. The ‘only course’,58 he claimed, was for the Treasury to hand him another £64 million which he could pass on to Scottish councils, thereby halving the domestic rate increases. The Treasury resisted, and eventually Younger was forced to settle for £38.5 million. The politics looked awful for the Tories in Scotland. ‘I’ve never seen anyone more worried about anything,’59 Letwin recalled. Sir Hector Monro, a senior Scottish Conservative MP, told Mrs Thatcher that she must prevent a ‘complete loss of confidence amongst Conservatives in Scotland’.60 She herself was exasperated that this crisis had broken without warning. ‘It is pretty pathetic,’ she wrote on a begging letter from Younger, referring to the money from the Treasury, ‘but Scotland must carry the can for not remedying the situation in time.’61 It was apparent to her, as she struggled with the wider issue of local government finance, that she would have to carry the can in the rest of the United Kingdom if the problem could not be remedied in time to prevent electoral punishment. This lent urgency to the meeting of the Waldegrave–Rothschild studies team planned for the end of March at Chequers. Mrs Thatcher and many of her ministers were yearning for a big idea. Rothschild and his band of bright young brains did not intend to disappoint.
Even more important, perhaps, was Willie Whitelaw. Rudely heckled about the rate revaluation by a normally loyal Conservative audience in Bearsden, the prosperous Glasgow suburb where he had cut his political teeth, Whitelaw returned to London, badly shaken, to warn Mrs Thatcher of looming disaster. His fear of the effect of the revaluation made him cast aside his habitual dislike of radical reform. The man normally most likely to persuade Mrs Thatcher to hold back was ardent for change.*
Rothschild got to work on Mrs Thatcher. He was coming to see her, warned Robin Butler, to ask her a question about the review. ‘He has been characteristically mysterious [Mrs Thatcher underlined these words and the ones following] about the question … I suspect that he wants to ask you whether you would like to abolish domestic rates completely.’62 Butler then permitted himself a comment: ‘He hankers after this, partly (I suspect) because it would be a dramatic solution to the problem. But abolition would involve a larger poll tax’ (than the idea of a combined poll tax and rate which was also being canvassed). This would ‘fall more heavily than the rates on people with low incomes’. The Thatcher–Rothschild encounter was not recorded, but it seems that he did indeed make such a suggestion. She was being softened up for the full-dress presentation of the big idea.†
In the run-up to the Chequers meeting, Andrew Turnbull had made a strenuous effort, supported by Mrs Thatcher, who always disliked large meetings, to keep out what he called ‘gate-crashers’. At that stage, however, the name of the Chancellor of the Exchequer was firmly on the list, along with about half the Cabinet. Later in the month, it was not. The Treasury noticed this and asked to be represented at the meeting. ‘I suggest we press hard to have the Chancellor himself,’ Robin Butler wrote to Mrs Thatcher. To which Mrs Thatcher replied, ‘Yes.’63 According to Butler, no one had deliberately tried to exclude the Treasury from Chequers.64 In the event, and at this very short notice, Lawson refused the invitation, ‘being bolshy about it because it was on a Sunday’.65 He may well have been tired, and felt politically weak, having just delivered a lacklustre Budget (see Chapter 13). Besides, he thought the meeting would be ‘exploratory’ rather than decisive.66 ‘I regret not attending,’ he told the present author. He did not think that Mrs Thatcher had behaved wrongly in holding such an important meeting in the rather informal way she did: ‘It was not impropriety, just folly.’67 In Lawson’s stead went Peter Rees, the Chief Secretary to the Treasury, who arrived without any brief from Lawson to speak against what might be proposed.68
Confusingly, just before the Chequers meeting, Rothschild reported to Butler that his brilliant friend Lennie Hoffmann did not think that the ‘Community Charge (Poll Tax)’ could be a ‘complete substitute’69 for domestic rates, although Waldegrave thought it might be. This is the first
known instance where the phrase ‘community charge’ – the name eventually adopted for the new tax – appears in official records.
The meeting was held at Chequers on Sunday 31 March 1985. ‘William [Waldegrave] has done a first-rate job,’70 Redwood and Letwin minuted Mrs Thatcher in advance. They agreed with him that ‘rates should be replaced by [a] poll tax.’ They raised questions about some aspects of the proposals and called for extensive consultation, a Green Paper and then a White Paper.* But they argued strongly that this was the moment for Mrs Thatcher to seize:
We believe that this review offers the only real hope of winning back the confidence of the Party. We also believe that it offers the prospect of a lasting change for the better in local Government. After years of half-remedies, you should now attempt a fundamental reform on the lines proposed.71
It is evidence of the importance attached to the Chequers seminar and the likely incendiary effect of what was discussed that only five copies, each numbered, were made of Robin Butler’s record of it. In acknowledgment, perhaps, of the potentially pivotal and potentially unfriendly attitude of the Treasury, one of the five copies went to Peter Rees. No other minister, except, of course, Patrick Jenkin, received one.
According to that record, Kenneth Baker and Waldegrave both spoke, to complementary effect. Baker concentrated on the defects of the rating system. Waldegrave then set out the proposed solution. This, he said, included ‘abolishing domestic rates and replacing them with a local residents’ or community charge,* falling equally on all adults in each local area. This would achieve the objective of accountability better than any alternative tax.’ There would need to be rebates for those on low incomes ‘but not such as to insulate them from increases in the community charge by high-spending councils’.72 The likely cost of the charge per head per year was guessed to be £50.73 Although Waldegrave’s last words were not reported in the official account, some of those present remember him ending with a flourish: ‘So, Prime Minister, you will have succeeded in abolishing the rates.’74 Waldegrave was ‘persuasive and sensible and charming’, recalled Letwin, and Mrs Thatcher was ‘purring at all this’. She had ‘a weak spot for Fellows of All Souls’.75† ‘The presentation’, recalled Terry Heiser, ‘swept the board.’76
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