The Iron Lady

and within three more months it came to a head.

The catalyst was the return of Alan Walters as Mrs Thatcher’s personal economic adviser. Lawson had warned her when she first mooted it that this was a bad idea. His difficulty was not simply that Walters reinforced her refusal to join the ERM. He had been living with that difference of opinion since 1986 and could have gone on living with it. His more serious problem was that Walters made no secret of his view that the Chancellor’s determination to hold the value of sterling above three Deutschmarks was misguided and unsustainable. Thus what Lawson calls the ‘countdown to resignation’ was triggered at the beginning of October by the Bundesbank’s decision to raise German interest rates, forcing Britain to follow suit with yet another increase at the worst possible political moment, just before the Tory Party Conference. Despite Walters’ warning that high interest rates were already threatening to drive Britain into recession, Mrs Thatcher reluctantly agreed to go to 15 per cent, provoking further howls of protest. But the next day, despite the interest-rate hike, sterling fell below DM₃.

The Daily Mail, representing the hard-pressed mortgage payers of Middle England, ran a front-page splash denouncing ‘This Bankrupt Chancellor’, and Fleet Street seethed with rumours of his imminent resignation.¹¹ Yet two days later Lawson still managed to win a standing ovation at Blackpool for a fighting speech defending high interest rates in the short term as the only way to beat inflation; and the next day Mrs Thatcher backed him with only an imperceptible difference of emphasis. Then she flew off for ten days to the Commonwealth Conference in Kuala Lumpur.

In her absence the Financial Times stirred the pot by printing extracts from an article by Walters congratulating himself that ‘so far Mrs Thatcher has concurred’ with his advice to keep out of the ‘half-baked’ ERM.¹² It had actually been written for an American magazine the previous year, some months before Walters returned to England. Mrs Thatcher maintained that this made it unobjectionable. Since it was still due to be published in America, and since Walters himself had given it to the Financial Times, Lawson was entitled to feel differently. It was not so much the fact of his difference with the Prime Minister which mattered. ‘It was her persistent public exposure of that difference, of which Walters was the most obvious outward and visible symbol.’¹³ He felt that his position was becoming untenable.

The two protagonists later published their own accounts of the series of meetings – four in all – that took place before his decision was announced. Thursday 26 October was an exceptionally fraught day for Mrs Thatcher. She had only got back from Malaysia at four o’clock on Wednesday morning, after an eighteen-hour flight, and was obviously ‘absolutely exhausted’. In the circumstances Lawson felt it would be unfair to tackle her at their regular bilateral meeting that afternoon, but warned her that they needed to talk about the Walters problem. ‘She replied that she saw no problem’ – but she agreed to see him first thing on Thursday morning, with no secretaries present.

She listened quietly while Lawson told her that either Walters or he would have to go: he did not want to resign but unless she agreed that Walters should leave by the end of the year, he would have no choice. She begged him to reconsider and arranged to see him again at two o’clock. Later that morning he attended Cabinet as normal, betraying no hint of what was in his mind. But at two o’clock he was back, bringing with him his letter of resignation.

After Prime Minister’s Questions Mrs Thatcher called John Major to her room at the Commons and told him, ‘I have a problem.’ When Lawson met her for the last time at around five o’clock, he says that she asked his advice about his successor; she says that she told him she had already chosen Major. Either way, they parted in what Lawson called ‘an atmosphere of suppressed emotion’.¹⁴ When she called Major in again he found her close to tears and felt the need to hold her hand for a moment.¹⁵

Mrs Thatcher wasted no time in carrying out a swift, limited and unusually well-received reshuffle, announced that same evening, which rectified some of the mistakes of July. Major was clearly much better suited to the Treasury than to the Foreign Office, and it was the job he had always wanted.¹⁶ Yet he was initially reluctant to move again when he was just getting used to the Foreign Office. ‘I told him that we all had to accept second best occasionally. That applied to me just as much as to him.’¹⁷ Equally Douglas Hurd was still the obvious choice for the Foreign Office, as he had been in July. When she rang at about six to make the offer she was clearly ‘still in shock’ at Lawson’s resignation – Hurd himself was ‘flabbergasted’ – and did not disguise her doubts. ‘You won’t let those Europeans get on top of you, will you, Douglas?’¹⁸ The one move she was really happy with was the choice of David Waddington to go to the Home Office. This was the first time in four attempts, that she had managed to send a right-winger there.¹⁹

She was able to put a positive gloss on the whole reshuffle by emphasising that all three principal appointments – Major, Hurd and Waddington – had achieved their lifetime’s dream. ‘We are very sad to be without Nigel, but we have an excellent Chancellor of the Exchequer, an excellent Foreign Secretary, an excellent Home Secretary for each of whom it was their ambition.’²⁰ The press for the most part agreed. The ironic fallout of Lawson’s resignation, however, was that Walters resigned too. He was in America when the news broke but immediately realised that his position would be impossible and, despite Mrs Thatcher’s efforts to dissuade him, insisted on stepping down as well. Thus by sacrificing Lawson to try to keep Walters, Mrs Thatcher ended by losing both of them. Lawson reflected wryly that, ‘however painful it was to me personally, I had performed a signal service to my successor and to the Government in general’.²¹

Despite the swift reshuffle, which arguably improved the Government, Lawson’s resignation, following so soon after Howe’s demotion, damaged Mrs Thatcher by throwing a fresh spotlight on her inability to retain her closest colleagues. The damage was compounded when Mrs Thatcher appeared on Brian Walden’s Sunday morning interview programme on 29 October. Instead of telling the truth – that there had developed between herself and her Chancellor a difference of view which regrettably made it impossible for him to carry on – she gushingly repeated her claim that she had ‘fully backed and supported’ him. ‘To me the Chancellor’s position was unassailable,’ she insisted; but she floundered when Walden asked the killer question:

Do you deny that Nigel would have stayed if you had sacked Professor Alan Walters?

I don’t know. I don’t know.
You never even thought to ask him that?
I… that is not… I don’t know.²²

The second instalment of this two-part trial by television the following Sunday gave Lawson the opportunity flatly to contradict her. He told Walden that he had made perfectly clear to the Prime Minister in their three conversations on the Thursday why he was resigning – ‘quite clearly and categorically’ because she refused to part with Walters.²³

No one who watched these two programmes could have had any doubt which witness was telling the truth. Not for the first time, but more publicly than over Westland three years earlier, Mrs Thatcher’s reputation for straight speaking had taken a severe knock. It was no longer a question about which of them was right about the economics of the ERM and the exchange rate. Most economists would now say Lawson was wrong. But if she really did not understand why Lawson had resigned she was too insensitive to continue long in office. If she did understand, but chose to keep Walters anyway, that only confirmed that she valued her advisers more than her elected colleagues. Either way she was increasingly living in a world of her own.

The start of a new parliamentary session gave the Prime Minister’s critics in her own party a chance to test their level of support. The rules under which Mrs Thatcher had successfully challenged Ted Heath in 1975 allowed for a leadership contest to be held every year. Alec Douglas-Home had never imagined that this provision would be used against an incumbent Prime Minister; but in November 1989, for the first time, an unlikely champion came forward in the person of Sir Anthony Meyer, a sixty-nine-year-old baronet whose political passion was a united Europe. Meyer was not a serious challenger; yet he attracted a significant degree of support. Only thirty-three Tory MPs voted for him, but another twenty-seven abstained. A margin of 314–33 was a convincing endorsement, but it was also a warning shot. The real significance lay not in the figures but in the fact that the contest had taken place at all. If Mrs Thatcher did not make a visible effort to address her backbenchers’ mounting worries, she was likely to face a more serious challenge next year.