domination of the Cabinet and Government machine, despite the barely concealed scepticism of many of her senior colleagues. By her mastery of detail and clarity of purpose she had asserted her command of the House of Commons despite having to shout over a perpetual hubbub of heckling and interruption.
She had achieved a notable coup in November by her unprecedentedly full disclosure of the facts surrounding the unmasking of the distinguished art historian Sir Anthony Blunt – the Keeper of the Queen’s Pictures – as a one-time Soviet spy, the ‘fourth man’ who had tipped off his friends Guy Burgess and Donald Maclean, enabling them to escape to the Soviet Union in 1951, and then done the same for Kim Philby in 1963. It was a tricky task for a new Prime Minister to reveal that Blunt’s treachery had been suspected since 1951 and known to the security services since 1964, but covered up by successive Home Secretaries and Attorneys-General in return for a full confession. But she carried it off with considerable aplomb, raising hopes – not to be fulfilled – that she would inaugurate a more open regime where MI5 and MI6 were concerned. Willie Whitelaw was actually working on a new Protection of Information Bill to replace the catch-all provisions of the 1911 Official Secrets Act; but this was abandoned when Andrew Boyle, the journalist who had exposed Blunt, asserted that he could not have done so under the new provisions. It was another ten years before her government returned to the reform of the Official Secrets Act, and then it was to tighten, not loosen, its provisions.
Mrs Thatcher also won considerable admiration for her response to further Irish atrocities. At the end of August the former Viceroy of India, Lord Mountbatten, and two members of his family were blown up while on holiday in the Irish Republic; and the same day eighteen British soldiers were killed at Warrenpoint in County Down. Mrs Thatcher not only condemned the attacks but paid an unannounced visit to Northern Ireland two days later to demonstrate her defiance of the terrorists and her support for the troops. She visited some of the victims of previous IRA bombs in hospital, went on a courageous walkabout in the centre of Belfast protected by just a handful of flak-jacketed policemen, had lunch with army commanders at Portadown and then flew by helicopter to the republican stronghold of Crossmaglen, where she ‘enthusiastically donned a combat jacket and a beret of the Ulster Defence Regiment’.78 This ‘nation-rallying trip,’
She enjoyed a rapturous victory conference at Blackpool in October, at which she thanked her party for keeping faith during the years of opposition and boldly looked forward to ‘the far longer years of Conservative government that are to come’.80 In this and other speeches Mrs Thatcher repeated the Government’s determination to tackle the four linked problems of inflation, public spending, taxation and industrial relations. But by the end of 1979, as the commentators looked back on the Government’s first six months, it seemed that in every one of those areas its first actions had only made a bad situation worse. On the credit side, opinion polls still showed overwhelming public support for action to curb the unions, and the Government was further heartened by votes against strike action by the miners and the British Leyland car workers.Yet despite lurching hard to the left since losing office, Labour was once again ahead in the polls. Even those who wished the Government well were holding their breath. Fred Emery, political editor of
The Government was sailing into stormy waters.
12
Heading for the Rocks
The failure of monetarism
THE two years 1980 and 1981 were the critical period for the Thatcher Government, when the Prime Minister and her Chancellor, with dwindling support even from former true believers in the Cabinet, confronted by appalling economic indicators and widespread predictions of disaster, set their faces against the storm and stubbornly held – more or less – their predetermined course. Economically, in truth, things did not go according to plan. Some targets were quietly abandoned, others were hit only at huge cost: economists still dispute whether more lasting good or harm was done to the economy by the monetarist experiment. Politically, however, Mrs Thatcher won through without being seen to change course. There was no overt U-turn, such as her critics had confidently predicted. Instead, by the end of 1981 she had purged her Cabinet of the most persistent doubters and laid the basis of the reputation for unwavering resolution which would keep her in Downing Street for another nine years.
By all the normal measures of economic management the Government’s performance was dismal during 1980. Inflation went on climbing for several months, reaching 22 per cent in May before finally starting to fall. By the end of the year it had fallen to 13 per cent, but that was still higher than it had been when the Conservatives came in. Meanwhile unemployment continued to soar, reaching 2.8 million by the end of 1980: the sort of level no one had ever expected to see again. The Tories’ 1978 poster showing a winding dole queue with the caption ‘Labour Isn’t Working’ was revealed as a cynical mockery.
The worst problem was the pound, which reached $2.40 in September 1980 (compared with $2.08 in May 1979). The rise was partly due to the rising oil price, partly to the falling dollar and partly – some economists would say mainly – to the Government’s determination to keep interest rates high, which impressed the markets. Whatever the cause, the effect on British manufacturing industry was devastating. Hundreds of small companies went out of business, while even the giants struggled. Industrial leaders queued up to blame the Government. In November the chairman of the CBI (Confederation of British Industry), Sir Terence Beckett, called dramatically for ‘a bare-knuckle fight’ with the Government.1 Sir Michael Edwardes of British Leyland said it would be better to leave North Sea oil in the seabed than let it do such damage.2 In principle, however, she was inclined to believe that the high pound was a good thing: first because she always had a simple patriotic belief that the currency was a barometer of national prosperity, and second because she thought it would administer a healthy shock to industry, forcing it to become more competitive to survive. Industrialists faced with closure were not so sanguine. ‘I am aware that the exchange rate is causing some difficulty for some exporters,’ Mrs Thatcher conceded, ‘but it is also keeping down the rate of increase in inflation in this country.’3 The monetarists’ real problem, one sceptic told the
The critics’ case is that by sticking to their predetermined strategy, despite the oil-price increase and deepening world recession, Mrs Thatcher and her Treasury team wilfully exacerbated an already threatening situation. ‘Undeterred by the prospect of a world recession ahead,’ Ian Gilmour later wrote, ‘they proceeded to create their own far worse recession at home’, permanently destroying in the process much of Britain’s manufacturing base.5 The Thatcherites, by contrast, argued at the time – and still argue – that British industry was overmanned and featherbedded and needed shaking out. A shift from old manufacturing to new service industries – what Mrs Thatcher called ‘tomorrow’s jobs’6 – was both inevitable and necessary: the recession of 1980 – 81 merely accelerated this process which was the precondition for subsequent recovery. To which the Keynesians reply that there was bound to be some recovery eventually from such a deep trough, but that it was only partial, and more delayed than it need have been, while much of manufacturing industry never recovered at all.
Geoffrey Howe’s second budget, introduced in March 1980, unveiled what Lady Thatcher later called the ‘cornerstone’ of her Government’s success – the so-called Medium Term Financial Strategy (MTFS).7 Its purpose was to bring down public spending and monetary growth by announcing fixed targets for several years ahead, instead of just one year at a time. The strategy was the brainchild of Nigel
