Yet the economic upturn was slow to materialise. Though Geoffrey Howe declared that the recession had officially ended in the third quarter of 1981, growth during 1982 was still only 0.5 per cent; industrial output was the lowest since 1965. Several times the Department of Employment massaged the basis of calculating the unemployment figure, but still it went on rising. Many analysts reckoned the true figure to be nearer four million than the three million the Government admitted. From within the Cabinet, too, Jim Prior continued to warn that the present level of unemployment was unsustainable and claimed that it could easily be relieved by ‘some additional activity’ which need not involve any more Government spending.4 Howe and Mrs Thatcher rejected such siren voices as firmly as ever. ‘When the rulers of old started to debase and clip the coinage,’ she asserted, ‘they were in difficulty. That’s what reflation is and I’ll have nothing of it.’5
On the other hand inflation – the Government’s preferred measure of its success – continued to fall. It was down to 5 per cent by the end of 1982, enabling Howe to reduce interest rates steadily (to 9 per cent by November), which helped raise both living standards and the sense of wellbeing of those in work. The heavy shedding of manpower eventually produced higher productivity in those parts of the manufacturing economy that had survived, while industry was relieved by a steep fall in sterling – due largely to a fall in the oil price – which eventually forced Howe to raise interest rates again in December. While maintaining a tight spending framework overall, Howe also pursued an imaginative supply-side programme of deregulation and targeted incentives: more free ports, double the number of enterprise zones, loan guarantee schemes, grants to assist in the introduction of computers. For all these reasons, economic activity slowly picked up. Public spending, though still higher as a proportion of GDP than in 1979, was at last coming under control – despite the war, which was indeed paid for out of the contingency reserve, as Mrs Thatcher had promised – so that by the spring of 1983 Howe was in a position to make some modest but timely tax concessions in what was likely to be his election-year budget.
Then after three years of restraint the Chancellor and Prime Minister provoked general amazement in late 1982 by suddenly urging local authorities and other public bodies to spend more on capital investment. In fact, she was not telling local authorities to spend more, but rather to spend more of the money provided on capital projects and less on wages.
She was much more confident now in dismissing Labour allegations that she did not care about unemployment. ‘I have come to the conclusion,’ she retorted, ‘that they do not want to get rid of unemployment. They wallow in it.’6 In a changing economy, new jobs came from new industries and small businesses, not from declining industries. ‘It is no good the Opposition yowling about it. It is a fact.’ 7 The Government, she insisted, could not create jobs. ‘One gains jobs by gaining customers. There is no other way.’8
By the time Mrs Thatcher went to the country in June 1983, the Government could plausibly claim, against all its critics, that its central economic strategy was working: inflation was being squeezed out of the economy and the way was now clear for a soundly based recovery which would soon bring real jobs. Sceptics countered that, on the contrary, Britain had suffered a more severe recession than the rest of Europe, while the Government’s boasted recovery was shallow and patchy and concentrated in the south of England, leaving the manufacturing regions of Scotland, South Wales and the north of England permanently devastated. Economically this is undeniable; the impact of the Government’s policies was cruelly unbalanced. The political fact, however, was that the Government had won the argument. Mrs Thatcher’s toughness could be seen to be showing results.A level of unemployment hitherto held to be insupportable was discovered to be tolerable after all: there were no more riots. Meanwhile, as the political world adjusted to the probability of a second Thatcher term, a number of distinctively ‘Thatcherite’ policies were beginning to take shape.
First, Norman Tebbit carried the Government’s second instalment of trade-union reform. With the reputation of a right-wing hard man,Tebbit had been appointed Employment Secretary in September 1981 specifically to do what Prior had successfully resisted. In fact he displayed a more subtle touch than his aggressive rhetoric suggested and produced another carefully judged package which was considerably less punitive than the Institute of Directors and right-wing backbenchers had been demanding.
The main thrust of his Employment Bill, introduced in January 1982, was to remove the unions’ immunity from civil action arising out of unlawful trade disputes, while narrowing the definition of what constituted lawful action, thus rendering unions liable for damages (up to ?250,000) for secondary and sympathetic strikes. Henceforth the law would only recognise disputes over pay, jobs and working conditions between groups of workers and their own employers. This was the crucial step which ended the privileged legal status granted the unions in 1906 – the anomaly on which the whole history of the abuse of union power since the 1960s had been founded.
Tebbit’s Bill simultaneously tightened restrictions on the operation of closed shops; made it easier for employers to dismiss persistent troublemakers and offered Government funds to finance union ballots. But it still did not require ballots to be held before official strikes. It did not try to outlaw strikes in essential services. Nor did it touch the Tories’ oldest grievance, the unions’ political levy, which still required members to contribute to the Labour party unless they specifically opted out. Strike ballots and abolition of the political levy were foreshadowed in another Green Paper in January 1983, but their implementation was left to a third instalment of reform brought in by Tebbit’s successor, Tom King, in 1984.
Once again this was shrewd strategy, which disarmed opposition by its carefully calculated moderation. As usual trade-union and Labour leaders furiously denounced the proposed legislation. But polls showed that public opinion overwhelmingly supported Tebbit’s Bill; more important, the great majority of ordinary trade unionists supported it. By acting moderately but firmly to curb the abuses of the past fifteen years the Government was seen to be redeeming one of the clearest promises on which it had been elected.
The unions were additionally weakened by the level of unemployment, which severely cut their bargaining power. 1982 saw two long-running public-sector strikes – one on the railways, one by NHS workers – both of which ended in clear defeat for the unions without the Government’s new legislation even being called upon. Mrs Thatcher vigorously condemned the strikers. ‘If you want more unemployment and more job losses,’ she told them bluntly, ‘then keep on striking. Don’t blame me.’9 Tebbit’s Bill was really a case of kicking the unions when they were already down. The industrial climate had been transformed since 1979. The unions’ power to enforce unproductive overmanning and delay the introduction of new technology was already broken; management was recovering the power to manage. Some major battles still lay ahead, but by 1982 the dinosaur which had humbled Wilson, Heath and Callaghan was already mortally wounded.
The second distinctively Thatcherite policy which began to take clear shape in 1982 was large-scale privatisation. The breakthrough from a limited programme of asset disposals to the selling of whole industries came about quite suddenly as a result of the convergence of a number of factors. First the arrival of Patrick Jenkin at the Department of Industry and Nigel Lawson at the Department of Energy gave a new impetus to policies which Keith Joseph and David Howell had initiated but failed to carry through. Then the easing of the recession offered a more propitious economic climate. The likelihood of the Government winning a second term on the back of post- Falklands euphoria gave potential investors the confidence to buy shares in privatised companies without fear of a returning Labour Government immediately renationalising them. Perhaps most important, the newly established telephone company British Telecom urgently needed a massive injection of capital to finance the new digital technology. Mrs Thatcher took some persuading that privatisation was practical; but she eventually gave Jenkin the green light to go ahead.
She also needed some persuasion to privatise Britoil (the former British National Oil Corporation). This time her reservations were patriotic, reflecting a widely shared feeling that North Sea oil was a national asset which should remain under national control. Lawson’s solution was to split the production side of the business from the trading side and sell only the former, retaining for the Government a ‘golden share’ to prevent the company falling into unsuitable (that is, foreign) hands. The first 51 per cent of Britoil shares were put on the market in November 1982. Despite an unexpected drop in the price of oil which left the underwriters with large losses, the sale raised ?334 million for the Treasury, making it by far the biggest privatisation to date. The BT privatisation – much bigger again – was not ready to go before the 1983 election and had to be restarted in the next Parliament.
‘We are only in our first term,’ Mrs Thatcher told the party conference in October 1982. ‘But already we have done more to roll back the frontiers of socialism than any previous Conservative Government. In the next Parliament we intend to do a lot more.’10 In due course the 1983 manifesto earmarked BT, British Airways and ‘substantial parts’ of British Steel, British Shipbuilders and British Leyland, plus the offshore interests of British Gas, as targets for the second term. As it turned out, building on the unexpected success of the BT sale,
