Thatcher (9 page)

The first duty of monetarists is to reduce the amount of money in the marketplace – literally to take currency out of use. If there is a lot of currency in use, then the principles of the marketplace imply that it will not have value. Therefore, the cause of inflation – the monster of the post-war years, where more actual money was constantly needed to pay for goods – was increases in the money supply. The government must stop spending money. They must remove subsidies to industry, reduce welfare spending, reduce government expenditure. The only money available to government was money taken from individuals through taxation: high taxation took away people's responsibility to spend their own money wisely. Some industries would go out of business, but they would be replaced by new, stronger, more profitable industries. In the meantime, there would be unemployment but it was not up to the government to prevent that. Nor was it up to the government to support people who could work if there were jobs.

Conflict with the trade unions was inevitable, but Margaret Thatcher, bloodied by the fall of the Heath government, had no intention of taking them on except on her own terms. In her first Prime Minister's question time, asked about the unions, she said,
I am not confronting anyone
, and perhaps with more warning,
I hope that they are not confronting me, either
.
⁷
Jim Priors' employment bill, published at the end of the year, was cautious. First came the budget, in June. There were election pledges to be kept. Money had to be spent on defence, on public-sector wages, on old age pensions (although this was only a short-term expense: this budget broke the link between pensions and wages, making long-term savings possible). Spending on the National Health Service had to be protected for at least three years. Despite being boxed in by these considerations, Howe did manage to save considerable amounts from a variety of sources, including local government spending. Prescription charges were raised for the first time in eight years. The civil service was cut drastically, departmental budgets were cut, shares in public-sector assets were sold. These savings made room for tax cuts. Tax cuts were designed to shift responsibility for spending on health, welfare and entrepreneurial activity from the government to the individual – people with more money in their pockets would spend it on things they thought important. This benefited the economy. It also, as a matter of Thatcherite principle, benefited individuals by increasing their independence.

In the short term, these measures would increase inflation and unemployment. This was radical medicine, and signalled real change. The first casualty was the steel industry. Steel workers went on strike early in 1980. Thirteen weeks later, Keith Joseph made funds available to settle the dispute, but there were massive losses of customers at home and overseas. The government did not renew the subsidy to prevent the ensuing massive redundancies. The steel unions lost credibility in the face of huge unemployment. The monetarist point was made. Government was not going to provide full employment – only a competitive industry could survive. Competition meant that wages must remain within the parameters of possibility in a capitalist world: the government would not help employers pay more in wages than they earned in the marketplace.

Over the next two years the government's popularity fell as unemployment rose. There were riots in many inner-city areas – especially those with large immigrant populations, where unemployment was disproportionately high. Worse, there was no sign of inflation falling – in Thatcher's first year of office, it rose from 10.3 per cent to 21.0 per cent. The only possible remedy was to raise interest rates still further – against Margaret Thatcher's instincts, since it would also raise the cost of mortgages. Margaret Thatcher never wavered in public, but in private she was concerned. She knew that she needed at least two terms to put in place lasting reforms. The 1980 Conservative party conference was painful, with rioters and protesters camped outside the doors and record levels of unemployment, bankruptcy and home repossessions. In her memoirs, Margaret Thatcher said:
Our strategy was the right one, but the price of putting it into effect was proving so high, and there was such limited understanding of what we were trying to do, that we had great electoral difficulties. However, I was utterly convinced of one thing: there was no chance of achieving that fundamental change of attitudes which was required to wrench Britain out of decline if people believed that we were prepared to alter course under pressure
.
⁸
She made the point in a line provided by Ronnie Millar:
The lady's not for turning
.

The critical period for economic policy came in 1981. The government's third budget was as stringently anti-Keynesian as the preceding ones, but there was rising concern in the party. If Willie Whitelaw, the Tory grandee, had joined the dissenters, it is extremely unlikely that Margaret Thatcher would have retained the leadership. But he didn't. In September she reshuffled her Cabinet. Lord Soames and Ian Gilmour were asked to resign. Mark Carlisle, who had fought for the education budget, made way for Keith Joseph. Nigel Lawson joined the Cabinet: Nicolas Ridley and Jock (now Lord) Bruce Gardyne joined the treasury, ensuring financial control by monetarists. This was also the moment to take a stand in employment. Jim Prior went to Northern Ireland. His team was broken up, and his place was taken by Norman Tebbit.

The way was now clear for the second strand of monetarism – strict limitation of the power of the unions. Freedom for employers to manage their workforce should be as complete as possible. The unions, with their ability to use industrial unrest as a way of demanding higher wages, were as big an interference in the free market as government subsidies had been. Conflict with the unions had brought down Heath's government while union action had caused the ‘Winter of Discontent'. To Margaret Thatcher, the unions were as big a force for evil as socialism.

Electorally, the slide in Conservative fortunes began to slow in January 1982, despite unemployment standing at over three million. Perhaps sales of council houses helped. This was a very popular move, although Margaret Thatcher had initially had reservations about it. In 1975, she was arguing against substantial discounts because they were unfair to people who had bought unsupported in the private market –
What will they say on my Wates estates?
.
⁹
By 1979, the ‘right to buy' was a manifesto commitment, introduced in the 1980 Housing Act. In October 1982, she was able to tell the party conference that
half a million people will now live and grow up as freeholders with a real stake in the country and with something to pass on to their children... This is the largest transfer of assets from the state to the family in British History
.
¹⁰
Of course, a large part of what was being transferred were the houses built in Attlee's ‘Jerusalem', so that every working person would have a home for himself and his family, paid for from taxation in a post-war economy. The best of these were sold quickly, to tenants with jobs. Rents on poorer housing increased as it became scarcer, and poorer or unemployed people were priced out of even the poorest estates. Council housing on any significant scale has not returned – profits from sales were ring-fenced, so that local authorities could not re-build.

If a general election had been called in early 1982, it is doubtful whether Margaret Thatcher would have been returned to power. Her radical alternative had been limited in this first term to a concerted attempt to limit the money supply by reducing subsidy to industry, transferring responsibility for welfare from the government to the individual by reducing taxation, and making some modest cuts in welfare spending. The immediate results were increasing hardship among poor people. She herself knew that she needed to have more than one term in office for the medicine to begin to work, and an electoral mandate to make the sweeping changes she believed were needed.

In April 1982, Argentina invaded the Falkland Islands, and Margaret Thatcher went to war. This was not part of an integrated foreign policy, but it was very much part of her personal credo. The lady who was not for turning and who had grown up believing that the British Empire was an absolute force for good and civilisation could not allow part of the British heritage to be lost through invasion. She was supported by Denis, who as an ex-military man reassured her that the war was winnable. It would be expensive, not only in monetary terms. For once, monetarism took a back seat in policy-making. Winning this war was both a personal and a national crusade. By mid-June the fighting was over and the war was won. The fallout from that victory continued throughout the remainder of Margaret Thatcher's career, not least in the form of Tam Dalyell's constant fight to prove that the initial act of war, the sinking of the Argentinean cruiser
General Belgrano
was unjustified. Her relationship with the BBC, whose even-handedness in calling forces ‘Argentinian' instead of ‘the enemy' she saw as being anti-war and anti-her, never recovered. The war was a Quixotic and romantic and very British escapade, full of sound and fury but gaining little or nothing. It did improve the image of British troops abroad – the conquest had been completed professionally and quickly. It did increase Margaret Thatcher's personal standing at home. It cost, when the immediate expense and the ongoing costs of supporting the Falklands and replacing ordinance lost is included, somewhere in the region of £3 billion, and 255 British servicemen were killed and 777 injured. When Margaret and Denis Thatcher visited the Islands, she saw a discarded ammunition case left to rust.
What a waste
, she cried. ‘For God's sake woman,' said Denis, ‘don't get out and count them.'
¹¹

The war also took its toll on Margaret Thatcher. She was now 57 years old, and had been head of a government that was, at least for a while, one of the most unpopular ever. She was a very visible head, and worked as hard as she had done as an unknown backbencher. In the summer after the Falklands, she and Denis took a holiday in Switzerland. She then had an operation, privately, for varicose veins – a painful and debilitating procedure. During this time, the work on the manifesto for the next election continued. At the start of 1982, she was perhaps in danger of losing the possibility of a second term. This was unlikely now, and she must be ready to take advantage.

When Margaret Thatcher took the party to the polls in June 1983, their decisive majority of 144 was partly a response to a strong leader, who had not turned back from her economic policy and who had decisively won back British property and self-esteem in the South Atlantic. It was also partly because the right wing of the Labour Party had seceded and formed the Social Democratic Party in 1981, leaving the anti-Conservative vote split both in Parliament and in the country. On her part, she was starting to sense economic recovery. She now had a Cabinet made up in most important aspects of people who supported monetarism, although shortly after the election she replaced Geoffrey Howe as Chancellor with Nigel Lawson. Perhaps more importantly, the grocer's daughter from Grantham had seen her earliest beliefs in individual strength and heroism vindicated. The old rhymes from her childhood must have come back to her, stressing the need to take individual decisions and stand by them. Certainly in the second term she took on collectivism, socialism and the trade unions head-on. Her manifesto had three major strands – control of the unions, privatisation, and control of local government. She dominated legislation, with her personal authority and stature.

The trade union battle soon began. In March 1984, the National Union of Mineworkers went on strike. Most coalmines were in the north of England, and Margaret Thatcher's Conservatives held few Northern seats. The miners, with their ability to control the fuel that was central to British industry, had proved themselves over and over again as the union force to be reckoned with. Margaret Thatcher knew that this was the union that would make or break monetarist policies. As early as 1981, she had begun quietly building up coal reserves in case of an industrial dispute. In 1983, she was ready. Ian McGregor, who had overseen the removal of subsidies from the steel companies, took over at the National Coal Board. His job was to decide what was to become of pits that were not profitable. Arthur Scargill, for the miners, argued that such pits could and should be made profitable with more investment: Ian McGregor, for the government, argued that a profitable industry relied on each and every pit being profitable. Unprofitable pits should be closed – otherwise, in Margaret Thatchers' words, mining would become a
system of outdoor relief
.
¹²
In March, the National Coal Board announced the closure of Cortonwood colliery in Yorkshire. It would have been in the Mineworkers' interests to delay any strike until the winter, but they were committed to the defence of all pits. They went on strike. The resulting battle was bitter and bloody – literally bloody. Police and miners fought at pit heads, and some miners and supporters lost their lives. The battle for public support was equally bloody. Margaret Thatcher's view that the BBC was left-wing and biased, formed during the Falklands War, was consolidated now. The strike lasted until March 1985, and ended in defeat for the miners. It opened the door for tougher legislation to control trade union action, already started by Jim Prior and continued by Norman Tebbit in 1982. Perhaps the most important limitations on the unions was the requirement to hold a secret ballot of members before any action, and limitations on the extent to which unions could work together. This, coupled with changes in the benefits system that removed benefits from strikers, allowed the government to control strikes and strikers.