Margaret Thatcher: The Autobiography

But Enoch was wrong. In Rudyard Kipling’s words, Keith Joseph and I had ‘had no end of a lesson’:

Let us admit it fairly, as a business people should;

We have had no end of a lesson; it will do us no end of good. * (#ulink_9b766eeb-25f2-51b7-bd27-5d76727c3357)

In this sense, we owed our later successes to our inside knowledge and to our understanding of the earlier failures. The Heath Government showed, in particular, that socialist policies pursued by Tory politicians are if anything even more disastrous than socialist policies pursued by Labour politicians. Collectivism, without even the tincture of egalitarian idealism to redeem it, is a deeply unattractive creed.

How did it happen? In spite of the acclaim for the Selsdon Park manifesto, we had thought through our policies a good deal less thoroughly than appeared. In particular that was true of our economic policy. We had no clear theory of inflation or the role of wage settlements within it. And without such a theory we drifted into the superstition that inflation was the direct result of wage increases and the power of trade unions. So we were pushed inexorably along the path of regulating incomes and prices.

Ted was also impatient. I share this characteristic. I am often impatient with people. But I knew that, in a broader sense, patience is required if a policy for long-term change is to work. This is especially true if, like Ted’s Government in 1970 and mine in 1979, you are committed to a non-interventionist economic policy that relies on setting a framework rather than designing a plan. Sudden shifts of direction, taken because the results are too long in appearing, can have devastating effects in undermining the credibility of the strategy. And so a government which came to power proud of its principle and consistency left behind it, among other embarrassing legacies, a host of quips about ‘the U-turn’. Ted’s own words in his introduction to the 1970 manifesto came back to haunt him:

Once a decision is made, once a policy is established, the Prime Minister and his colleagues should have the courage to stick to it. Nothing has done Britain more harm in the world than the endless backing and filling which we have seen in recent years.

At another level, however – the level of day-to-day human experience in government – the explanation of what happened is to be found in the forces which buffeted us and in our reactions to them. We thought we were well enough prepared to face these. But we were not. Little by little we were blown off course until eventually, in a fit of desperation, we tore up the map, threw the compass overboard and, sailing under new colours but with the same helmsman, still supremely confident of his navigational sense, set off towards unknown and rock-strewn waters.

The squalls began early. Within weeks of taking office the Government had been forced to declare a State of Emergency* (#ulink_ad135e70-0d99-5968-9a6a-10f8e4162dfe) as a national docks strike began to bite. At the same time a Court of Inquiry was set up to find an expensive solution. Although the strike evaporated within a fortnight, it was an ambiguous triumph.

The following month the crisis was international. On Sunday 6 September terrorists from the Popular Front for the Liberation of Palestine (PFLP) hijacked four aircraft (none of them British) and demanded that they be flown to Jordan. Three of the hijacks were successful, but on the fourth – an Israeli plane en route to London – the hijackers were overpowered by security men. The surviving terrorist, Leila Khalid, was arrested at Heathrow.

The PFLP demanded her release, and just before Cabinet met on Wednesday 9 September they hijacked a British aircraft in order to bring more pressure to bear. The plane was flying to Beirut as we met. It was explained to Cabinet that we had already acquiesced in an American suggestion to offer the release of Leila Khalid in return for the freedom of the hostages. Over the next few weeks Cabinet discussed the question many times as negotiations ran on. Meanwhile, Jordan fell into a state of civil war as King Hussein fought the Palestinians for control of his country and the Syrians invaded and occupied much of the north. Ted resisted any British involvement on the King’s side and was certain that we were right to negotiate with the PFLP. Though it went against the grain to release Khalid, in the end the deal was made. In due course all the hostages were released, though the hijacked aircraft were blown up by the terrorists, and King Hussein survived the events of ‘Black September’ – barely but triumphantly.

But by then the Government had already suffered a blow from which, perhaps, we never fully recovered. In mid-July Iain Macleod had gone into hospital for a small abdominal operation. It had been a success and he had returned to No. 11 for a few days’ rest. At about midnight on Monday 20 July my telephone rang. It was Francis Pym, the Chief Whip. Iain had suffered a heart attack that evening and had just died. He was only fifty-six.

I felt the blow personally, for Iain had always been a generous and kind man for whom to work. But I also immediately recognized that we had lost our shrewdest political intellect and best communicator. How Iain would have performed as Chancellor I do not know. But if one accepts that the worst mistakes of economic policy derived from Ted’s overruling the Treasury, it is reasonable to suppose that matters might have turned out better if Iain had lived. He was succeeded by Tony Barber, a man of considerable intellectual ability, who by and large had an unhappy time at the Treasury. The economic problems of the next few years were founded in this transition.

The Cabinet which met after Iain Macleod’s death was a sombre one. Around the Cabinet table already sat nearly all of those who would be my colleagues over the next four and a half years. Their personal qualities would be severely tested. Tony Barber was an old if not particularly close friend from the Bar, an able tax lawyer, but not someone to stand up against Ted. Reggie Maudling, Home Secretary until his resignation over the Poulson affair in 1972,* (#ulink_22f21c01-3998-5f41-b4f2-b5586cf1c74b) was still interested in and had strong views about economic policy. By contrast, he was less than fascinated by his new brief. He was unlikely to oppose any shift back towards a more interventionist economic policy, which indeed he had always favoured.

Alec Douglas-Home had returned effortlessly to his old Foreign Office brief where, however, plenty of effort was soon required in giving effect to our promises made in Opposition to lift the arms embargo on South Africa and in trying to devise an affordable way of retaining a British military presence east of Suez. He was unlikely to take much part in domestic political affairs now. Quintin Hailsham had found his ideal role as Lord Chancellor, beginning a long spell in that office under Ted and then me, where he managed to combine his old sense of mischief and theatre with the sedate traditions of the Upper House. Peter Carrington was Defence Secretary, a post for which he was well suited and which he filled with aplomb. I knew that he was close to Ted. He doubtless became still closer when later as Party Chairman and Energy Secretary he had a crucial role in dealing with the final miners’ strike which precipitated the general election of February 1974. He was one of Ted’s ‘inner circle’.

Keith Joseph, by contrast, though a senior Cabinet figure and someone whose views had always to be taken seriously, was certainly not part of that circle and was never, so far as I know, invited to join it. Having been appointed to be Secretary of State for Social Services, Keith’s compassionate, social reforming side had become uppermost at the expense of his more conservative economic convictions, though he retained a profound distrust of corporatism in all its forms. His passion became the need to tackle the problem of the ‘cycle of deprivation’ which condemned successive generations to poverty. Like me, Keith had been given a high-spending ‘social’ department, and there was a natural opposition between what he (also like me) wanted for his own preferred programmes and the requirements of tight public expenditure control. Whether by chance or calculation, Ted had ensured that the two most economically conservative members of his Cabinet were kept well out of economic decision-making, which was left to those over whom he could wield maximum influence.

John Davies, the former Director-General of the Confederation of British Industry (CBI) (who knew nothing of politics when he was summoned after Iain Macleod’s death to become Minister of Technology), certainly fell into that category. John was someone I liked, but his warmest admirer would have been hard put to make a case for his handling of the turbulent industrial politics which would now become his responsibility. John also represented ‘business’, a concept which Ted, with his latent corporatism, considered had some kind of ‘role’ in government.

With Tony Barber and John Davies, Robert Carr was, as Employment Secretary, the third key figure responsible for economic strategy under Ted. He was a good deal senior to me and we had different views and temperaments. He was a decent, hard-working though not a colourful personality. But he had a difficult, arguably impossible, brief in trying to make the flawed Industrial Relations Act work. His reputation as a left winger in Conservative terms was less useful than some might have expected; trade unionists used to regard left-wing Conservatives not as more compassionate but merely as less candid. As Employment Secretary at the time of the first (1972) miners’ strike and Home Secretary at the time of the second (1974), few people faced greater difficulties during these years.

One who did was Willie Whitelaw as, successively, Leader of the House, Northern Ireland Secretary and finally Employment Secretary at the time of the three-day week. We seemed to have little in common and neither of us, I am sure, suspected how closely our political destinies would come to be linked. Since Education was not a department requiring at this time a heavy legislative programme, our paths rarely crossed. But I was already aware of Willie as a wise, reassuring figure whose manner, voice and stature made him an excellent Leader of the House. Willie’s bluff public persona, however, concealed a shrewd political intelligence and instinct for managing men.

After Iain Macleod’s untimely death, Geoffrey Rippon was given responsibility for negotiating the terms of our entry into the European Economic Community. Although we had superficially similar backgrounds, Geoffrey and I were never close. It always seemed to me that he tried to overwhelm opponents with the force of his personality rather than with the force of his argument. This may have been because Ted had given him the task of getting the best deal he could in negotiations with the EEC – and that deal was not always in our best long-term interests.

My impression was that the two members of Cabinet Ted trusted most were Jim Prior and Peter Walker. Both had proved their loyalty, Jim as Ted’s PPS in Opposition, and Peter as organizer of his 1965 leadership campaign. Jim was Agriculture minister, a post which his farming background and rubicund features helped him make his own, before becoming Deputy Chairman of the Party under Peter Carrington in April 1972. Peter Walker’s thirst for the ‘modernization’ of British institutions must have helped draw him closer to Ted. He soon became Secretary of State for the huge new Department of the Environment, where he embarked with vigour upon the most unpopular local government reforms until my own Community Charge – and at the cost of far greater bureaucracy. Later he would go to the other conglomerate, the Department of Trade and Industry (DTI). Jim and, still more so, Peter were younger than me, but both had far more influence over the general direction of government. Although their political views were very different from mine, I respected their loyalty to Ted and their political effectiveness.

The other members of Cabinet – Gordon Campbell at Scotland, George Jellicoe as Lord Privy Seal and Leader of the Lords, Peter Thomas, a close parliamentary neighbour and friend, as Secretary of State for Wales and Party Chairman, and Michael Noble briefly at Trade – did not figure large in discussions. I therefore found myself with just one political friend in Cabinet – Keith.

But for all the difficulties which were quickly upon us that summer and autumn of 1970, such melancholy reflections were still far from our thoughts. Indeed, Ted Heath, Tony Barber, Robert Carr and John Davies set out on the course of radical reform with impressive zeal; and the rest of us in the Cabinet were enthusiastic cheerleaders.

First, the Government embarked with a will on cutting public spending. Discussions began at the end of July. A target was agreed of £1,700 million net reduction in planned spending by 1974/75, and Ted circulated a paper on the economy to show his commitment to the strategy. The cuts were to fall most heavily on industrial spending, though as already noted I had my own departmental spending battles at Education. Investment grants were ended. The Industrial Re-organization Corporation (IRC) would be closed down. Aircraft and space projects would be subject to the closest scrutiny. Even with the reprieve of the hugely expensive Concorde project, largely on European policy grounds, it was an impressive freemarket economic programme. And it made possible a tax-cutting budget in October, which reduced the standard rate of income tax by 6d, down from 8s.3d in the pound (just over 41p), and made reductions in corporation tax to take effect at the beginning of the next financial year.

Nor was there any delay in bringing forward the other key feature of our economic programme – the Industrial Relations Bill. The framework of the Bill was already familiar: this was one of the areas of policy most thoroughly worked out in Opposition and we had published our proposals in 1968. The main principles were that collective bargaining agreements should be legally enforceable unless the parties to them agreed otherwise, and that the unions’ historic immunities from civil action should be significantly narrowed and confined to those whose rule books met certain minimum standards (‘registered unions’).

Cases brought under this legislation would be dealt with by a new system of industrial courts and tribunals, headed by a branch of the High Court – the National Industrial Relations Court (NIRC). The Bill also gave new powers to the Secretary of State for Employment, when negotiation had failed, to apply to the NIRC either for an order deferring industrial action for up to sixty days – a ‘cooling off’ period – or for one requiring a secret ballot of the workers involved before a strike.

There was a good deal in the Bill that actively favoured trade unionism, for all the hostility it encountered on the Left. For the first time in English law there would be a legally enforceable right to belong (or not to belong) to a trade union. There would be statutory protection against unfair dismissal. Finally, the Bill would repeal provisions that made it a criminal offence for gas, water and electricity workers to strike during the lifetime of their contracts.

At the time I was a strong supporter of the Bill, although I had doubts about particular parts, such as the measure on essential services. We were all conscious that the previous Labour Government had backed off from its In Place of Strife proposals for trade union reform under a mixture of union and Party pressure. We were, therefore, doubly determined to make the changes required.

In retrospect, the philosophy of the Bill was muddled. It assumed that if the unions were in general confirmed in their powers they would discipline their members industrially, reducing wildcat strikes for instance, and use their industrial strength in a regulated and orderly fashion. But it also contained provisions to strengthen the powers of individuals against the unions. So the Bill was in part corporatist and in part libertarian.

Finally, we naively assumed that our opponents would play by the same rules as we did. In particular, we imagined that there would not be either mass opposition to laws passed by a democratically elected government or mass infringement of the criminal law, as in the miners’ strike of 1972. We did not recognize that we were involved in a struggle with unscrupulous people whose principal objectives lay not in industrial relations but in politics. It was later, as Leader of the Opposition, that I realized how far the extreme Left had penetrated into trade union leaderships and why that ‘giant’s strength’, of which the Tory pamphlet had spoken in the late 1950s, was now being used in such a ruthless manner. The communists knew that they could not be returned to Parliament, so they chose to advance their cause by getting into office in the trade union movement. And the fact that both the Wilson and Heath Governments had stood up to the unions and then lost, increased their influence more than if we had not challenged their power in the first place.

But at this early stage we pressed ahead. The TUC was told by Robert Carr in October 1970 that the central aspects of the Industrial Relations Bill were not negotiable. The Bill had its Second Reading in December. February and March 1971 saw mass protests and strikes against it. Labour used every device to fight the Bill, but in August 1971 it duly reached the Statute Book. The TUC Congress passed a resolution instructing unions to de-register. It therefore remained to be seen, when the Act came into force at the end of February 1972, what its practical effects would be – revolution, reform or business as usual. We were soon to find out.

Meanwhile other problems preoccupied us. It is sometimes suggested – and was at the time by Enoch Powell – that the Government’s decision in February 1971 to take control of the aerospace division of Rolls-Royce marked the first U-turn. This is not so. Shortly before the company told the Government of the impossible financial problems it faced (as a result of the escalating cost of the contract with Lockheed to build the RB-211 engine for its Tri-star aircraft), a constituent of mine had told me that he was worried about the company. So I asked Denis to look at the figures. I arrived home late one evening to find him surrounded by six years’ accounts. He told me that Rolls-Royce had been treating research and development costs as capital, rather than charging it to the profit and loss account. This spelt real trouble.

A few days later I was suddenly called to a Cabinet meeting and found Fred Corfield, the Aviation Minister, waiting in the Cabinet ante-room. ‘What are you here for, Fred?’ I asked. He replied gloomily: ‘Rolls-Royce.’ His expression said it all. At the meeting itself we heard the full story. To the amazement of my colleagues I confirmed the analysis, based on what Denis had told me. We decided without much debate to let the company itself go into liquidation but to nationalize the aerospace division. Over the next few months we renegotiated the original contract with Lockheed, which was then itself in financial difficulties. One could argue – and people did – about the terms and the sum which needed to be provided. But I do not think any of us doubted that on defence grounds it was important to keep an indigenous aircraft engine capability. And in the long term, of course, this was one ‘lame duck’ which eventually found the strength to fly away again into the private sector, when I was Prime Minister.

It was to be a year before the serious economic U-turns – reflation, subsidies to industry, prices and incomes policy – occurred, and began the alienation of the Conservative right in Parliament and of many Tory supporters outside it. The failure of these U-turns to deliver success divided the Party still further and had other consequences. It created an inflationary boom which caused property prices to soar and encouraged a great deal of dubious financial speculation, tarnishing capitalism, and, in spite of all the disclaimers, the Conservative Party with it. I shall return to the economic developments which led to all this shortly. But it is important not to underrate the impact on the Party of two non-economic issues – Europe and immigration.

I was wholeheartedly in favour of British entry into the EEC, and General de Gaulle’s departure from the Elysée Palace in April 1969 had transformed the prospects. His successor, Georges Pompidou, was keen to have Britain in; and no one on our side of the Channel was keener than the new Prime Minister, Ted Heath. Many people across the political spectrum opposed it. These included some of the most effective parliamentarians such as Michael Foot, Peter Shore and Enoch Powell. But the worlds of business, the media and fashionable opinion generally were strongly in favour.

Talks formally opened in Brussels at the end of October 1970, with Geoffrey Rippon reporting back to Ted and a Cabinet Committee and, on occasion, to the rest of us in full Cabinet. There was no doubt that the financial cost of entry would be high. It was estimated that the best we could hope for would be a gross British contribution of 17 per cent of total EEC expenditure, with a five-year transition, and three years of so-called ‘correctives’ after that (to hold it at 17 per cent). To defuse the inevitable criticism, Geoffrey Rippon also hoped to negotiate a special review provision which we could invoke at any time if the burden of our net contributions to the budget threatened to become intolerable; but he seemed to attach little significance to it, and assumed that we could reopen the question whether there was a formal review mechanism or not.

At the time Ted resolved discussion about the costs of entry by saying that no one was arguing that the burden would be so intolerable that we should break off negotiations. But this whole question of finance should have been considered more carefully. It came to dominate Britain’s relations with the EEC for more than a decade, and it did not prove so easy to reopen. Though the Community made a declaration during the entry negotiations that ‘should an unacceptable situation arise within the present Community or an enlarged Community, the very survival of the Community would demand that the Institutions find equitable solutions’, the net British contribution quickly grew. The Labour Government of 1974–79 made no progress in reducing it. It was left to me to do so later.

Cabinet discussed the matter again in early May 1971, by which time the talks were reported to be ‘deadlocked’. There were difficulties outstanding on preferential arrangements for New Zealand products (butter and lamb) and Commonwealth sugar, and shadow-boxing by the French about the role of sterling as an international currency. But the budget was still the real problem. We had an idea what deal might be on offer: promises to cut the cost of the Common Agricultural Policy and the creation of a Regional Development Fund from which Britain would benefit disproportionately. It was still not the settlement we would have wanted – promises are not bankable – but at the time none of us foresaw how large the burden would turn out to be. Ted ended the discussion by telling us that he was planning a summit with President Pompidou in Paris to cut through the argument.

Ted spent two days talking to the French President. In view of all the past difficulties with the French, the summit was seen as a veritable triumph for him. Negotiations were completed rapidly afterwards – other than for the Common Fisheries Policy, which took years to resolve – and the terms approved by Cabinet the following month. Parliamentary approval could not be assumed, for both parties were deeply split and Labour had reversed its former support for British entry. In the end, the Government decided that there would be a free vote on the Conservative side on the principle of entry. This embarrassed Labour, especially when sixty-nine Labour MPs ignored their own party whip and voted in favour, giving a majority of 112 for entry. But when it came to the terms rather than the principle of entry, the argument was far from won. The Second Reading of the European Communities Bill in February 1972 was only passed by 309 to 301.

The dog that barely barked at the time was the issue of sovereignty – both national and parliamentary – which, as the years have gone by, has assumed ever greater importance. There was some discussion of the question in Cabinet in July 1971, but only in the context of the general presentation of the case for entry in the White Paper. The resulting passages of the document – paragraphs 29–32 – can now be read in the light of events, and stand out as an extraordinary example of artful confusion to conceal fundamental issues. In particular, two sentences are masterpieces:

There is no question of any erosion of essential national sovereignty; what is proposed is a sharing and an enlargement of individual national sovereignties in the general interest.

And:

The common law will remain the basis of our legal system, and our Courts will continue to operate as they do at present.

I can claim to have had no special insight into these matters at the time. It then seemed to me, as it did to my colleagues, that the arguments about sovereignty advanced by Enoch Powell and others were theoretical points used as rhetorical devices.

In the debate on Clause 2 of the Bill, Geoffrey Howe, as Solicitor-General, gave what appeared to be satisfactory assurances on the matter in answer to criticisms from Derek Walker-Smith, saying that ‘at the end of the day if repeal [of the European Communities Act], lock, stock and barrel, was proposed, the ultimate sovereignty of Parliament must remain intact’. Asking himself the question: ‘What will happen if there is a future Act of Parliament which inadvertently, to a greater or lesser extent, may be in conflict with Community law?’ Geoffrey said: ‘The courts would … try in accordance with the traditional approach to interpret Statute in accordance with our international obligations.’ But what if they could not be reconciled? He went on, elliptically:

One cannot do more than that to reconcile the inescapable and enduring sovereignty of Parliament at the end of the road with the proposition that we should give effect to our treaty obligations to provide for the precedence of Community law … If through inadvertence any such conflict arose, that would be a matter for consideration by the Government and Parliament of the day …* (#ulink_f31f3ec1-4f42-5469-8469-a45f825951c2)

It was not, however, this question which was to make the Common Market such a difficult issue for the Government. The main political error was to overplay the advantages due to come from membership. As regards the Government itself, this tendency led ministers to adopt and excuse unsound policies. In order to ‘equip’ British industry to meet the challenges of Europe, subsidies and intervention were said to be necessary – reasoning endorsed in the 1972 budget speech. Still worse, loose monetary and fiscal policies were justified on the grounds that high levels of economic growth – of the order of 5 per cent or so – were now sustainable within the new European market of some 300 million people. It was also suggested that competition from Europe would compel the trade unions to act more responsibly. As regards the general public, expectations of the benefits of membership rose – and then were sharply dashed as economic conditions deteriorated and industrial disruption worsened.

The success of the negotiations for British entry and their ratification by Parliament seemed to have a psychological effect on Ted Heath. His enthusiasm for Europe had already developed into a passion. As the years went by it was to become an obsession – one increasingly shared by the great and the good. The argument became less and less about what was best for Britain and more and more about the importance of being good Europeans.

January and February 1972 saw three events which tried the Government’s resolve and found it wanting – the miners’ strike, the financial problems of Upper Clyde Shipbuilders (UCS) and the unemployment total reaching one million. It is always a shock when unemployment reaches a new high figure, especially one as dramatic as a million. But the rise of unemployment in 1971 was in fact the consequence of Roy Jenkins’s tight fiscal and monetary policies of 1969–70. Since monetary policy had already been significantly eased in 1971, largely as a result of financial decontrol, we could have sat tight and waited for it to work through in lower unemployment from 1972 onwards. In fact, Ted never bought this analysis, and he greatly underestimated the stimulating effects of removing credit controls. He felt that emergency fiscal measures were necessary to boost demand and reduce unemployment. And this conviction influenced his decisions across the board. Ironically, because it led to higher inflation whose main effects were suffered under the following Labour Government, and because inflation destroys jobs rather than preserves them, it ultimately led to higher unemployment as well.

In particular, the approach of the Government to Upper Clyde Shipbuilders flowed from fear of the consequences of higher unemployment. But it was also seen as caving in to the threats of left-wing militants. When we first discussed the company’s problems in December 1970 the Cabinet agreed that existing government support for the UCS Group would not be continued, though there was a lifeline: we would continue with credit guarantees so long as the management agreed to close the Clydebank yard and separate Yarrow Shipbuilders from the rest of the group. Yarrow – an important Royal Navy supplier – seemed salvageable. But by June 1971 the UCS Group was insolvent and its liquidation was announced. There followed a protest strike on Clydeside. In July trade unionists occupied the four UCS shipyards.