There quickly followed two more parliamentary rebuffs. On 13 July the Government gave the new House an early opportunity to debate the reintroduction of capital punishment. With a large influx of new Tory Members, supporters of hanging, including the Prime Minister, hoped that this time – having failed in 1979 – they might be able to restore the death penalty, at least for terrorist murders and the killing of policemen. The new Home Secretary, Leon Brittan, reversed his previous opposition and spoke in favour of restoration. In the event capital punishment was still rejected by unexpectedly decisive majorities.
The second slap in the face was on the question of MPs’ pay. The Government threw out a recommendation by the Top Salaries Review Body that would have given Members an increase of 31 per cent. ‘We thought that Ministers could not possibly take increases of that magnitude,’ Mrs Thatcher explained. ‘And we trusted that Members of Parliament would take the same view.’2 She was too sanguine. The Government’s offer of just 4 per cent provoked fury on both sides of the House. In the event John Biffen was able to negotiate a compromise: increases of 5.5 per cent every year for the 1983 Parliament. This was further evidence that Mrs Thatcher’s swollen majority would not always do her bidding, at least where their own interests were involved.
Just before the summer recess Lawson signalled his arrival at the Treasury by announcing a £500 million package of emergency spending cuts designed to reassure the City that there was to be no loosening of monetary policy. The cuts fell most heavily on defence and on the NHS, thus angering both the Tory right and the opposition simultaneously. The health cuts caused particular outrage, coming so soon after an election at which Mrs Thatcher had promised that the NHS was ‘safe’ with the Tories.
For some time Mrs Thatcher had been suffering from a torn retina in her right eye, which was affecting her vision. So, at the beginning of August, she underwent a laser operation at a private hospital in Windsor. This time she was obliged to stay in for three days – she was said to have done some work on the third day – and emerged wearing tinted glasses. She then went to Switzerland for a full two-week holiday to recover.
During September she visited first Holland and Germany, then the United States and Canada, returning just in time to face a new headache when Private Eye broke the story of Cecil Parkinson’s adulterous affair. Mrs Thatcher tried hard to save him – she was remarkably relaxed about sexual matters – but in the end he was forced to resign. ‘The only person who comes out of the affair with any credit is the Prime Minister,’ Norman St John Stevas wrote in the Sunday Express. ‘She has been compassionate, concerned, tolerant and Christian.’3 By insisting that Parkinson should go back to his wife she was represented as fighting for the sanctity of marriage. In truth she too was fighting for her man. Parkinson was not just a personal favourite, but her chosen heir, whom she had been grooming for the eventual succession. Even after his resignation she remained keen to bring him back as soon as possible.
Parkinson’s downfall necessitated the first unintended Cabinet reshuffle. Norman Tebbit moved to the DTI; Tom King took over the Department of Employment; and Nicholas Ridley finally made it to the Cabinet, taking King’s place at Transport. In addition Mrs Thatcher had already taken the precaution, before the conference, of appointing a new party chairman: her surprising choice was the youthful but lightweight John Selwyn Gummer. Her reasoning was that she needed someone young – Gummer was forty-four – to combat Kinnock, Steel and Owen;4 but Gummer was not a success and lasted only two years in the job. John Major, at the time an assistant whip, remembers being ‘astonished’ at Ridley’s elevation: he had ‘an original mind’ but was ‘wonderfully politically incorrect’.5 Once arrived, Ridley was to remain one of the Prime Minister’s most loyal disciples until one final indiscretion brought him down just before her own fall.
The worst embarrassment of all was the American invasion of Grenada – a Commonwealth country – to put down a Communist coup, with minimal reference to Britain. Both Geoffrey Howe, who in the Commons just the day before had confidently ruled out any prospect of American action, and Mrs Thatcher herself, whose vaunted special relationship with President Reagan was called into question, were publicly humiliated. ‘There are always banana skins,’ Mrs Thatcher had told the BBC’s John Cole in May, ‘but you don’t have to tread on them.’6 Since June she seemed unable to avoid them.
From bust to boom
Amid all the Government’s minor embarrassments, however, the central political front was, as always, the economy: and here there were definite signs of recovery. An OECD (Organisation for Economic Cooperation and Development) report in December showed Britain enjoying the fastest growth in Europe. GDP, Mrs Thatcher told the Commons, was now back to its 1979 level – a somewhat limited success after four and a half years, but one which had been achieved, she pointed out, ‘with 1.7 million fewer people in the workforce’.7 In other words unemployment was up, but so was productivity. She insisted that unemployment would soon start to fall with the creation of new jobs.
In Nigel Lawson she now had a Chancellor who shared her own ability to project a bullish sense of optimism. Her relationship with Lawson was very different from that with Geoffrey Howe. Whereas she was frequently impatient with Howe’s pedestrian manner, knowing that he was no more of an economist than she was, she respected Lawson’s expertise to the extent that she was slightly in awe of him. This was a recipe for trouble in the long run, since their views increasingly diverged; but for the moment she was happy to indulge him
Lawson’s first budget, in March 1984, delighted her. In their respective memoirs he recalled that the Prime Minister was ‘ecstatic’, while she characterised it as ‘Nigel at his brilliant best’.8 Though no further cut in the basic rate was possible just yet, the new Chancellor boldly signalled his ambitions as a tax reformer. First, he took Howe’s switch from direct to indirect taxation a stage further by raising personal thresholds, taking 850,000 low earners out of income tax altogether, compensating by raising excise duties and extending VAT. More important, he cut corporation tax; abolished the 15 per cent surcharge on investment income; and completed Howe’s phasing out of the National Insurance surcharge (the so-called ‘tax on jobs’). One friendly commentator called this ‘the most Thatcherite’ budget so far.9
Clever tax changes, however, did nothing – at least in the short term – to meet the rising clamour for action to tackle unemployment. The Falklands Factor was now double-edged: if Mrs Thatcher could spend millions recapturing and now defending some barely inhabited islands in the South Atlantic, it was asked, why could she not apply some of the same resolution to conquering the great social evil on her doorstep? She now enjoyed a huge majority; the recession was officially over and the economy was supposed to be recovering; yet unemployment was still rising. She was running out of alibis. Just before the summer recess, Mrs Thatcher was forced to make an unusually defensive reply to Neil Kinnock’s first no-confidence motion since becoming Labour leader.
‘Creating new jobs is the main challenge of our time,’ she acknowledged. But the Government was meeting it by tackling the ‘fundamental causes’ of unemployment, not just the symptoms. Thanks to the ‘prudent financial policies’ of Howe and Lawson, she insisted, ‘the prize of lower inflation has been won, and we shall not put it in jeopardy now. Stable prices remain our eventual goal.’ New jobs would come from new technology, but she accepted an obligation to mitigate the hardship of transition ‘by generous redundancy payments, by retraining and by helping to create new businesses’.10
This was all very well, but it did not cut much ice against the relentlessly rising headline figure of 3.2 million unemployed. In August Mrs Thatcher bowed to pressure to be seen to be doing something by appointing David Young from the Manpower Services Commission (MSC) as an unpaid Minister without Portfolio to head a new ‘Enterprise Unit’ in the Cabinet Office – or, as Bernard Ingham encouraged the press to spin it, ‘Minister for Jobs’. His appointment inevitably ups
et the Employment Secretary, Tom King, on whose territory he was set to trespass.11 But Mrs Thatcher would hear not a word against her latest favourite. ‘Others bring me problems,’ she was reported as saying. ‘David brings me solutions.’12
At the party conference at Brighton in October – this was the conference overshadowed by the IRA’s bombing of the Grand Hotel – she devoted the longest section of her speech to unemployment. ‘To suggest… that we do not care about it is as deeply wounding as it is utterly false.’ Rejecting ‘Keynesian’ arguments for government stimulation of the economy, she asserted that Keynes’ modern followers misrepresented what he actually believed. ‘It was all set out in the 1944 White Paper on employment. I bought it then. I have it still…I re-read it frequently,’ she claimed. ‘On page one it states, “employment cannot be created by Act of Parliament or by Government action alone”… It was true then. It is true now.’ The White Paper, she said, was full of ‘basic truths’ about the danger of inflation and the importance of enterprise.
She listed some projects for which the Government had – ‘by careful budgeting’ – found money: the M25 motorway, the electrification of British Rail (‘if it can make it pay’), forty-nine new hospitals since 1979. ‘Of course we look at various things like new power stations, and in a year after drought we look at things like more investment in the water supply industry.’ But the overriding message was clear: there would be no massive spending programme to create jobs.13 On the contrary, she specifically repeated during the autumn that the road to prosperity lay through tax cuts.
Accordingly the chorus of criticism swelled. Pym, Heath, Walker – the usual dissidents – were joined in December by Harold Macmillan, making his maiden speech in the House of Lords at the age of ninety, twenty years after leaving the Commons. The alarm of these grandees was magnified by the news that for the first time in modern history the UK was about to record a trading deficit on manufactured goods. This, combined with the strength of the dollar, caused a sharp fall in the value of sterling, leading in January 1985 to a full-scale crisis when the pound – from a value of $1.40 twelve months earlier – practically touched parity with the dollar. To show that the Government was not prepared to let sterling fall any further, Lawson raised interest rates by 2 per cent and then had to repeat the dose, to 14 per cent, when a second panic followed at the end of the month; while Mrs Thatcher privately persuaded President Reagan to lend American support and publicly went on television to ‘talk up’ the pound by insisting that its current valuation was too low (and the dollar too high). The medicine worked. By March the pound was back to $1.25, and Lawson was able to start bringing interest rates down again. But it had been a nasty few weeks.
So the pressure was unrelenting. At Mrs Thatcher’s insistence, Lawson was obliged to flag his 1985 budget as ‘a budget for jobs’. This was not at all his real priority. The previous autumn he had declared that unemployment was a social, not an economic problem, and cheerfully told an American journalist that ‘economically and politically, Britain can get along with double-digit unemployment’.14 His headline priority was sterling, and his real interest was further tax reform. He wanted to finance a further reduction in the basic rate by cutting middle-class tax perks – not only mortgage-interest tax relief but also relief on private pension payments. Lawson believed as a matter of principle in phasing out the accumulated clutter of sticks and carrots in pursuit of a ‘neutral’ tax system. But Mrs Thatcher would not hear of it. ‘Our people won’t stand for it,’ she told him.15 Second, Lawson wanted to extend VAT to newspapers and magazines and to children’s clothes: the latter was an obvious vote loser, which the Prime Minister was firmly pledged against, while she insisted that it was no time to antagonise the press. All he could do – with patently little enthusiasm – was cut National Insurance contributions, and put another £400 million into the Youth Training Scheme and the Community Programme. After the plaudits for his first budget twelve months earlier, this lacklustre package pleased nobody.
That spring, for the first time since before the Falklands war, there was talk of a leadership challenge in the autumn. Francis Pym launched a new Tory dissident group, Centre Forward, asserting in a speech at Cambridge that ‘responsible financial management does not itself constitute an economic strategy’.16 In fact most of the grumblers were still afraid to put their heads above the parapet and the group entirely failed to establish an identity. But the evidence of discontent – focused perhaps more effectively in a new all-party pressure group, the Employment Institute – was sufficient to force Mrs Thatcher to promise, in a radio interview on 24 May, that the Government would take further action if unemployment did not fall within a year.
The traditional response to party jitters is a Cabinet reshuffle; so at the beginning of September Mrs Thatcher rearranged her pack to bring on some fresh faces – mainly from the Heathite wing of the party. ‘I generally found’, she wrote in her memoirs, ‘that the Left seemed to be best at presentation’.17 Better presentation was what the Government badly needed at this moment. First she moved David Young to the Department of Employment, with the rumbustious Kenneth Clarke to represent him in the Commons; then she replaced Patrick Jenkin with the smooth-tongued Kenneth Baker at Environment; and finally she moved Norman Tebbit from the DTI to replace Gummer as party chairman. In another populist touch she appointed the millionaire novelist Jeffrey Archer – a former Tory MP – to be deputy chairman to help re-enthuse the faithful in the constituencies. Mrs Thatcher never trusted Archer very far, but she thought he could do no serious harm, and might possibly raise morale, as a cheerleader.
Tebbit’s replacement at the DTI was Leon Brittan, woundingly removed from the Home Office where he had never looked convincing. Douglas Hurd, a much safer pair of hands, stepped up from Belfast to be the new Home Secretary, while Tom King took over Northern Ireland. The old wets had been severely culled since 1979, and the Thatcherite true believers had begun to take their places in September 1981; but September 1985 marked a third stage in the evolution of the Thatcher Cabinet, with the advance of a new generation who – though happy to serve her – were not instinctive Thatcher supporters. As it happened, the Westland imbroglio forced yet another reshuffle only four months later, in January 1986.The effect of the rapidly changing personnel around her was to focus attention more than ever on Mrs Thatcher herself.
The autumn of 1985 brought no relief. In September and early October another wave of rioting broke out. The spark in every case was tension between black youths and the police. But despair arising from unemployment, not race, was clearly the underlying cause. Soon afterwards a House of Lords select committee published a report warning of the irreparable loss of industrial capacity since 1979 and challenging the Government’s belief that expanding service industries would fill the gap. Services could not bridge the looming balance-of-payments deficit for the simple reason that they were not exportable. As the Observer’s William Keegan put it, ‘A proliferation of part-time barmaids was not enough.’18 Again at the party conference Mrs Thatcher insisted that there was ‘no problem which occupies more of my thinking’ than unemployment.19 But still unemployment went on rising. In December the Church of England joined in the chorus of concern with a report on social breakdown and demoralisation in the inner cities, entitled Faith in the City. An unnamed Cabinet Minister’s attempt to dismiss the report as ‘Marxist’ was ridiculed as ludicrously wide of the mark.
A significant divide now began to open between the Prime Minister and her Chancellor over monetary policy. In a speech in the City of London in October Lawson signalled his abandonment of formal monetarism. In its pure form, at the time of the Medium Term Financial Strategy, monetary targets – £M3 – had been the ‘judge and jury’. Hit those, Lawson had then believed, and low inflation would inevitably follow. Now he had lost faith in £M3. Inflation had fallen since 1982 even though £M3 had far exceeded its target. Seeking a more reliable indicator, he had started targeting the exchange rat
e instead, believing that a stable pound would keep inflation under control.
It was the traumatic plunge and recovery of sterling at the beginning of 1985 which converted Lawson to the idea that the time had come to join the Exchange Rate Mechanism of the European Monetary System. Initially sceptical of international cooperation, he had become fascinated – Lady Thatcher would later say seduced – at meetings of the G7 finance ministers by the flattering delusion that a handful of wise men could manage the money markets. The first fruit of this international action was the Plaza Agreement – signed in the Plaza Hotel, New York – in September 1985, by which the Americans agreed to try to drive the dollar down by 10 per cent. As part of this process Lawson was ready to recommend to Mrs Thatcher that Britain should sign up to the ERM. He was supported by all his senior officials, by his predecessor Geoffrey Howe, now converted to the Foreign Office line, and by the Governor of the Bank. But Mrs Thatcher was resolutely opposed.
‘I knew they were ganging up on me,’ she later declared on television.20 So on 13 November she convened a carefully chosen meeting of colleagues whom she thought she could count on to support her: Leon Brittan, Norman Tebbit, John Biffen and Willie Whitelaw. Contrary to her expectations, however, Brittan and Tebbit both supported Lawson, which persuaded Whitelaw to lend his weight, as usual, to what he thought was the consensus. Faced with the unanimity of her senior colleagues, Mrs Thatcher told them bluntly: ‘I disagree. If you join the EMS you will have to do so without me.’21 ‘There was a deathly silence,’ Lawson recalled, ‘and then she left the room.’22 Lawson wondered if he should resign; but Whitelaw and Tebbit assured him that if he persisted she would eventually come round, as she did on so many other issues to which she was initially opposed.23 In fact this was one matter on which she remained immovable right up to October 1990.
The Iron Lady Page 31
