Mrs Thatcher’s Instincts

What have Margaret Thatcher and David Steel in common, apart from holding the leadership of their respective political parties? Both are highly intelligent and educated persons with academic qualifications – Thatcher in chemistry and law, Steel in arts and law. Both have been called to the bar, and for both politics has been the main preoccupation of their adult lives. Thatcher entered Parliament at the General Election of 1959 at the age of 34. Steel followed six years later at a by-election three days before his 27th birthday. Both are married: Thatcher has one son and daughter (twins) and Steel also has one son and one daughter.

These, however, are two very different books about two very different persons by two different authors. As editor of the Times Business News, Hugh Stephenson has clearly had access to information in government circles not accessible to the man in the street, and he has produced a narrative of remarkable objectivity and also of compelling readability. He begins with a vivid picture of our new PM embarking on a policy of ‘Tory Radicalism’ from the moment she entered No 10 in the firm conviction that for years the British people had been overgoverned, overtaxed, deprived of initiative, and threatened by the ever-growing power of the trade unions.

This policy was almost as foreign to the traditions of her own party as it was to her opponents. Hitherto, Stephenson says, she had ‘never shown signs of being a particularly original thinker’ and on ‘economic policy she had at that stage no views as all’. However, this deficiency she quickly made good by swallowing whole the monetarist doctrine and the fanatical devotion to the free market economy to which Keith Joseph had become converted. Under his guidance her economic studies seem to have been confined to the publications of the Institute of Economic Affairs and the teachings of Milton Friedman and Friedrich Hayek; but she had not ‘acquired the critical capacity to apply tests of commonsense when it came to putting ideas into action’. It may be tempting to think that, had her university course included economics in place of chemistry, she might have clung less obstinately to these doctrines: at least she would have heard alternatives persuasively argued (she was ten years old when the publication of Keynes’s General Theory of Employment created a revolution in university economics which endured for many years thereafter). However, since the old saying that whenever two or three economists are gathered together, there will be three or four opinions, holds good today more perhaps than ever before, Joseph’s influence might still have prevailed, particularly as, in Stephenson’s judgment, ‘he provided for her an intellectual framework that fitted her political instincts perfectly.’

One paradoxical effect of the new Tory Radicalism was the ‘culture shock’ that it inflicted on the Civil Service. Accustomed as the Service is ‘to think of itself as the guardian and trustee of national continuity’, ‘the arrival of Margaret Thatcher’s Government in the corridors of Whitehall in May 1979 was the biggest jolt that the Civil Service had experienced in living memory.’ Having for years tried to contain the radicalism of the Left, Whitehall now had to stand on its head in order to envisage the Conservatives as the radicals, while Labour was ‘manifesting itself as the party of the status quo’; and to make matters worse, the PM, in enforcing her policy, set about playing the game between politicians and officials according to a strict construction of the Whitehall rules, rather than as parodied in the BBC series Yes, Minister.

Economic naivety soon showed itself in the Government’s first Budget, which Stephenson finds to have been increasingly regarded as a serious mistake. In order to keep election promises, the government gave away sums estimated to amount in a full year to £4,610 million in income-tax reductions. In conflict apparently with the original plans of her Chancellor, Mrs Thatcher insisted that there must be some reduction of the basic rate, so that every taxpayer would get something. Nevertheless only £730 million of the total reductions went to the 41 per cent of taxpayers whose incomes did not exceed £4,000 per annum, whereas the 7 per cent of persons with over £10,000 per annum got £1,560 million (£690 million of this going to the 1 per cent with £20,000 or more per annum).

The theory behind this astonishing bonanza to the well-to-do was that its fortunate recipients would be motivated to devote it to new productive investments (in accordance with the simplistic doctrine that the prospect of personal profit is the only incentive which stimulates the economy). That gamble did not, however, come off. As might have been expected, the affluent classes, whose standards of living had been eroded by an 83 per cent top tax rate, appear to have used the reduction of this to a maximum of 60 per cent as an opportunity to make up what they had lost – the Caribbean holiday, the second or third car and so on; or if, alternatively, they thought it prudent to invest their winnings, they probably regarded the acquisition of shares in established enterprises as preferable to launching out into the uncharted waters of new businesses. While this restoration of former standards might be expected to rank at all levels as the first claim on increased income, it would be particularly tempting to those at the very top, many of whom would have reached an age at which security is more attractive than more demanding or more speculative investments. At least we must presume that such reactions to the Chancellor’s generosity were typical, as it was subsequently admitted by Government spokesmen that the expected stimulus to industry never materialised, and that the whole experiment had ‘gone sour’.

By the time of the next Budget, the Government had learned their lesson – or rather, they had learned half of it. No more largesse for the rich or even for the middle-income groups! Savage cuts in almost all public services except defence, together with reductions in the real value of short-term social security benefits, such as sick pay and unemployment benefit, became the order of the day – in defiance of the other half of the lesson which Stephenson derives from ‘conventional economics’. This would have directed the Chancellor (a lawyer by profession and no more versed in economic matters than his chief) to ‘do something to increase the level of demand in the economy’. But he ‘chose instead to do the opposite’. Thus, far from deserting the new economics at the end of her first year, Mrs Thatcher clearly decided to ‘stay in the game and to double the stakes ... The British economy was to be used in a controlled experiment to see whether Professor Friedman’s particular economic theories were right.’

These policies were of course anathema to the trade unions, with whom Mrs Thatcher’s pre-election contacts had been scanty and unfortunate. Her first meeting with union leaders had been at a drinks party in 1977 which was described by them as a total failure, as she gave the impression that she ‘neither understood their problems nor wanted to learn about them’. Again, at her first meeting as PM with the TUC, she seems to have made it clear that it was no part of the unions’ business ‘to be drawn into the process of running the country’. At the same time, she is too good a politician to be able to tell the unions to go to hell as candidly as her mentor Professor Hayek.

This dichotomy soon resulted in a tug of war in her Cabinet between the hawks and the doves on the restriction of unions’ legal immunities promised in the Election Manifesto. In this contest, vividly described by Stephenson in his chapter on the ‘Over-Mighty Barons’, Mrs Thatcher seems to have switched sides more than once, and when she could not get her way in Cabinet, she defied constitutional convention by using television to present as still undecided proposals that the Cabinet had in fact rejected.

Although Mrs Thatcher’s adherence to her economic policies has a quality of almost religious fanaticism, she is by no means incapable of changing her mind, as was most strikingly demonstrated in relation to Zimbabwe-Rhodesia. At the end of June 1979, while in Canberra, she virtually committed her Government to recognition of the Muzorewa Government and the early abolition of sanctions, thus alarming her Cabinet and raising the expectations of the White Rhodesian lobby on her arrival at the Commonwealth Conference in Lusaka at the end of the month. At the Conference itself, however, she ‘totally switched her own position’ and ‘became an even greater enthusiast for a settlement involving the Patriotic Front than Lord Carrington himself’; nor did she blench at the prospect that legitimate power would be transferred to Robert Mugabe, whom three months before she had described as a ‘terrorist no better than the IRA’. In Stephenson’s view, her conversion actually occurred immediately after her return from Australia a month before the Conference, as a result of Lord Carrington’s persuasive arguments against the line she had taken in her Canberra speech. (I myself suspect that Kenneth Kaunda also did his bit while she was at Lusaka.) Anyhow by the time she was back in London again after the Conference, she was ready to out-Carrington Carrington through all the ups and downs of the Lancaster House negotiations. Stephenson accordingly infers that the main credit for the successful outcome of those negotiations should go to Mrs Thatcher herself and to the Commonwealth Secretary-General, Sir Sonny Ramphal, who between them overcame Carrington’s reluctance to take Mugabe at his word.

Throughout this book, the author has kept personalities to a minimum, allowing himself only one paragraph about Mrs Thatcher as a woman. ‘In projecting her personal and political image to the public,’ he writes, ‘Margaret Thatcher has certainly played the “mother and housewife card” for all it is worth, evoking response and sympathy from other women. Many women too have envied the way in which her appearance, clothes, grooming, hair, are always just right, if in a conventional and almost classless style. But she does not have that extra dimension, obvious for example in people like Barbara Castle or Shirley Williams as ministers, of being a warm personality in an essentially male environment.’

Certainly a personality does come across in these pages. Our PM clearly has both mental and physical courage (witness her visit to Armagh) and she lacks that maddening inability to reach a decision which so frequently characterises persons in authority. On the contrary, her decisions often seem to be reached too quickly, and publicised without sufficient consultation with colleagues and others concerned – a trait already apparent in the early days of her first ministerial office in the Department of Education and Science. More than one example will be found in this book of cases where she has chosen television in preference to Parliament as the forum in which to reveal her policies. But whatever the reader’s reaction to Mrs Thatcher and her Government, Hugh Stephenson’s presentation of their record must rank as a masterpiece of political journalism in miniature.

By contrast, I find David Steel’s book disappointing – the more so as for me he is the one politician who can turn to good account those ghastly performances known as Party Political Broadcasts. One may sympathise with his revulsion against the prospect of continuing to lead a party which can never be more than a ‘nice debating society’; and one may accept the realism of his conviction that the party will never get within sight of real power by constantly putting up Parliamentary candidates under an electoral system which guarantees that their successes will never match up to the number of votes cast in their favour. So long therefore as both major parties resolutely reject any form of proportional representation, only by some kind of power-sharing can the Liberals hope to bribe one or other of those parties into accepting PR as the price of guaranteed support for some of their own policies. But once that has been achieved, Liberal Members may be returned to Parliament in numbers sufficient at least to bring a government of their party within the horizon of the possible. That is the basis of Steel’s strategy.

After the General Election of February 1974 Edward Heath, faced with the prospect of heading a minority government, discussed with the then Liberal leader Jeremy Thorpe the possibility of some sort of coalition. But Steel reports that it was ‘the almost universal opinion’ of Liberal MPs that no such offer should be accepted, as it would merely give them a seat or two in an essentially Tory government. They would, however, have considered either sharing in an all-party ‘government of national recovery’, or, alternatively, giving support from the opposition benches to ‘an agreed programme in the national interest’.

Three years later, this last offer was repeated in identical terms to Jim Callaghan, and its acceptance led to the Lib-Lab pact which is the subject of this book. But, alas, instead of telling an intelligible narrative about the formation of the pact, its problems, successes and failures until its final dissolution in the autumn of 1978, Steel has elected to fill many pages of his book with apparently verbatim extracts from the personal diaries which he kept throughout this period. The result is that the reader gets completely bogged down in the toings and froings of politicians, in an endless succession of phone calls, intrigues, meetings (public and private), TV performances, journeys by plane and train, squabbles and reconciliations. Nothing is spared except details of what the participants ate and drank at their numerous lunches and dinners. No doubt it all made some sort of sense at the time to those involved, and Steel himself may be glad to have the record to recall those heady days. But the reader is entitled to ask an author to do better than publish what amounts to scarcely more than the entries in his engagement calendar together with extracts from his post-bag in the higgledy piggledy form characteristic of such documents, when they have not been subjected to editing and comment in the light of subsequent experience.

However, as and when the diary format is suspended, some of the inside workings of a pact (as distinct from a coalition) do reveal themselves. Its key instrument in this case was a Lib-Lab Committee of prominent Members on both sides to which Government Bills were referred for discussion before being introduced into the House; and at that stage amendments were sometimes made to please the Liberals.

Throughout the whole episode of the pact, PR remained a sticking point. In his initial approach to the PM, Steel had included a stipulation that in any future debate no government whip should be applied against the use of PR in election of the proposed Scottish and Welsh assemblies; but the Government refused to specify in a written agreement the things they would refuse to do. In fact, of course, the devolved assemblies never came into existence at all, and the Liberals’ battle for PR was transferred to elections for the European Parliament, until finally defeated in December 1977 on a free vote. Thereafter the fate of the Lib-Lab pact was sealed by the 1978 Budget, when the Liberals rebelled against the proposed increases in taxes on fuel, and against the Government’s refusal to pay for income-tax reductions by a surcharge on employers’ National Insurance contributions, the final death blow being Callaghan’s decision to face an autumn election.

The book concludes with chapters on ‘Lessons of the Lib-Lab Pact’ and on ‘The Future’. In the first, in answer to the question whether he would have made the pact, had he known at the time what he knows now, Steel takes credit for the fact that the duration of the pact was undeniably ‘the only successful counter-inflation period of government’ since ‘inflation started rocketing in the Barber boom of 1973 and continued upwards under Labour from 1974-1977.’ In the 18 months of the pact the inflation rate had indeed come down from 20 per cent to under 9 per cent, but it ‘started upwards again during the last months of Labour-only government, and has escalated back to 19 per cent in the first year of the new 1979 Conservative Government’. That may be. Certainly John Pardoe, the Liberal spokesman on economics, is an unwavering advocate of pay policy as an essential weapon against inflation, and Steel himself contended that such a policy was a sine qua non of renewal of the pact in the summer of 1977. In fact, however, the only pay policy operated during the pact was contained in Callaghan’s largely ineffectual guide-lines. Nor does Steel produce any evidence that Liberal influence on the control of inflation amounted to more than a formal endorsement of the Government’s own view that this should be a top priority.

Secondly, Steel sees the pact as having been useful to the Government in persuading the unions to accept policies over which it might have had trouble. (Do the unions really listen more to Liberal MPs than to a Labour government?) Thirdly, Steel claims that the pact put a stop to further nationalisation (not that any proposals of that kind appear to have been on the Government’s agenda anyway). Finally, and with more credibility, he asserts that the Liberals ‘presented the country with the first taste of a distinctive Liberal policy, employee shareholding’, along with a tax incentive scheme which has been adopted more widely than even its authors expected.

On the debit side, the chief item was ‘being lambasted for keeping in office a government which had outstayed its welcome’. On balance, the pact is said to have showed what the Liberals could achieve with ‘even an unsatisfactory and belated fingerhold on power’, which gives Steel confidence that with ‘a firm grip’ they could ‘transform Britain’s failure’. Despite the author’s widely-recognised concern for the public welfare, the messianic tone of this last message may sound a little out of character. Presumably it will not escape Roy Jenkins’s notice.