‘All we could do’, she wrote in her memoirs, ‘was cut our losses and live to fight another day.’53 But the NUM’s crowing, and her own supporters’ undisguised dismay, must have been hard to bear. The Observer gleefully reported that the Government ‘did not even wait to see the whites of their eyes before climbing down’. The NUM was unwise to gloat, however. In the long war between the miners and the Tories, 1981 was a Pyrrhic victory. Her ignominious retreat only hardened Mrs Thatcher’s determination to exact a decisive revenge when the time was ripe.group of workers she had no compunction about taking on, however, was the Civil Service. Any Government intent on cutting public spending was bound to start with its own servants. But more than that, it was Mrs Thatcher’s positive intention to ‘deprivilege’ the Civil Service. Though she admired individual officials, she regarded the bureaucracy as a whole as an obstacle to the culture she was trying to create. One of Geoffrey Howe’s first actions in 1979 was to set a target to cut the Civil Service by 100,000 jobs over the next five years. At the beginning of 1981 he announced that the 6 per cent cash limit already set for local authorities would also apply to central government. The nine Civil Service unions promptly rejected an offer of 7 per cent and started a highly effective campaign of selective strikes directed at Inland Revenue collection, customs and excise, vehicle licences and other Government agencies – including the secret intelligence monitoring centre at Cheltenham (GCHQ).last enraged Mrs Thatcher more than all the others; but after three months the loss of revenue to the Government was becoming serious. The Cabinet Office minister responsible for the Civil Service, Christopher Soames – fresh from his proconsular triumph in Zimbabwe – applied his heavyweight experience to trying to negotiate a settlement. He succeeded, with a very modestly increased offer of 7.5 per cent; but Mrs Thatcher would not have it. She wanted to make a demonstration of the Government’s determination to stick to its cash limit, whatever the cost. In fact a few weeks later – at the end of July – she was persuaded to settle at the same figure that she had earlier rejected, plus an inquiry to be chaired by a High Court judge. It was an expensive display of Prime Ministerial stubbornness which was estimated to have cost the Government anything between £350 million and £500 million. Nigel Lawson, still at the Treasury, thought it was worth it; but Geoffrey Howe felt that ‘the line on which we were obliged to stand was not well chosen’.54 As usual she took her revenge. In her Cabinet reshuffle that September Soames was sacked. More than that, the Civil Service Department itself was abolished, its Permanent Secretary prematurely retired and the management of the Civil Service split between the Treasury and the Cabinet Office. This was not only a matter of public spending, but a critical assertion of Mrs Thatcher’s subordination of Whitehall.1981 budget and the routing of the wetskey turning point in the critical first two and a half years was Geoffrey Howe’s third budget in March 1981. This was the make-or-break moment when the increasingly embattled Prime Minister and her dogged Chancellor defied the whole weight of conventional economic wisdom and political punditry to demonstrate beyond doubt their determination to stick to their fundamental strategy. The timing was important. It was just coming up to two years since the Government had taken office – exactly the point at which so many previous Governments which had started out with high ambitions had run into a brick wall of economic reality. Despite her defiant declaration at the party conference, there was widespread scepticism that Mrs Thatcher’s experience would be any different.Thatcher was acutely sensitive to such criticism. She believed that the Government’s radicalism was being continually undermined by leaked whispers of the wets’ unhappiness. In fact the dissenting ministers did not only voice their reservations off the record. Several of them, including Gilmour, Pym and Walker, did not shrink from making their barely coded criticism public. Over Christmas 1980, therefore, Mrs Thatcher determined on her first reshuffle.single victim, however, was the Leader of the House, Norman St John Stevas – the softest target among the wets. She wanted to move Francis Pym, who had fought too successfully against cuts in his defence budget, embarrassing her by turning her own arguments against her. Pym was too senior to be easily sacked, but the Leadership of the House offered a suitably dignified sideways move, appropriate for a former Chief Whip. So Stevas – an amusing lightweight who had tested her tolerance by inventing satirical nicknames for her – was the scapegoat. He was devastated.just this one dismissal Mrs Thatcher simultaneously achieved a significant rebalancing of the Cabinet. As well as Pym from Defence, she also moved John Biffen from the Treasury, where he had proved a disappointingly soft touch as Chief Secretary. Biffen was switched to Trade, while John Nott was sent to sort out the Ministry of Defence. Overall the effect of the changes represented a slight tilt to the right.something more dramatic was required. The first weeks of 1981 saw the British Leyland rescue, and the Government’s retreat from confrontation with the NUM. At the end of February Ian Gow warned Mrs Thatcher of ‘a serious deterioration in the morale of our backbenchers.’55 In this atmosphere Howe’s forthcoming budget took on huge importance. Though there were differences of emphasis, the Prime Minister with her private advisers essentially agreed with Howe and his Treasury team that the first priority must still be to maintain the pressure on inflation by redoubling the attack on public borrowing. Their argument among themselves was about how, and by how much, the borrowing requirement could be cut. The alternative strategy – the orthodox Keynesian approach, followed by every previous British Government since the war – prescribed on the contrary that at a time of increasing unemployment, public spending must be allowed to rise. This would have been the policy of three-quarters of the Cabinet, had they been consulted. But they were not.Thatcher had staked her reputation on the need to keep on cutting borrowing, yet so far it had only kept on rising. What she wanted from the budget was above all an emphatic demonstration that the Lady was not for turning. Having cut income tax in 1979 she and Howe were determined not to have to raise it again. The solution was eventually provided by Lord Cockfield – the Tory party’s long-standing tax specialist. By freezing personal allowances, withholding the usual increases in tax thresholds, he suggested, the Chancellor could achieve the same effect without the political odium.1981 budget actually marked the abandonment of strict monetarism in favour of what has been termed ‘fiscalism’.56 But it delivered a massive deflationary squeeze to an already depressed economy. This was what horrified the wets when the budget was revealed to the Cabinet a few hours before Howe was due to present it in the House of Commons. It was also the objection of the 364 university economists – including five former Chief Economic Advisers to successive governments – who famously wrote to The Times to denounce it.57 The budget’s authors, on the contrary, argued that it was not deflationary at all, merely an unavoidable response to the Government’s inability to control public expenditure. If anything it was actually reflationary.Gilmour, the most cerebral of the wets, rejected this – as he rejected the whole philosophy of Thatcherism – maintaining that the homely analogy of ‘housewife’ economics is false, since when Government cuts its spending it also cuts its income: it merely balances the books at a lower level of economic activity. This is what happened in 1981. In the short term the budget did further depress the economy – or would have done if the Government had stuck to its monetarist guns. Instead, the loosening of personal credit controls in the summer fuelled an expansion of demand which led to the beginnings of a recovery.58 The fact is, once again, that the budget was less an act of economic management than of political will. Its strictly economic effect is still disputed. Howe and Lawson insist that it laid the foundations of the recovery, which took off spectacularly after 1983; Gilmour counters that recovery from the Government-exacerbated recession of 1979 – 81 would have come anyway, and was actually delayed by the budget. This is an argument that can never be settled. What is indisputable is that the budget marked a decisive stage in Mrs Thatcher’s routing of the wets.real weakness of the wets’ position was that – as Mrs Thatcher contemptuously jeered – they had no practical or principled alternative. They knew that they did not like the policy of deflation and high unemployment, and feared the social consequences; they congratulated themselves when the money supply turned out not to be the philosopher’s stone the monetarists had pretended. But their criticism amounted to warning that the Government’s measures were too harsh in current circumstances. As Conservatives they accepted in principle that public spending took too large a share of GDP and should be reduced: they were simply afraid of the consequences of trying to cut it during a recession. Right or wrong, the Prime Minister and her Chancellor were following a positive strategy which attracted admiration for its sheer conviction; by contrast the wets’ anguished mutterings were easily portrayed as feeble. The universal adoption of the term ‘wet’ damned them to irrelevance.of the press comment on the budget was fiercely critical. Even before the 364 economists published their anathema, words like ‘disastrous’, ‘perverse’ and ‘economically illiterate’ were common currency. The majority of Tory MPs were said to be ‘bewildered and uneasy’.59 The smack of unpopular measures, however, was just what those who feared that the Government had lost its way were looking for. The Daily Telegraph hailed the budget as ‘bold, harsh and courageous’; The Times, rather more hesitantly, agreed.60 ‘Her enemies in the Cabinet and elsewhere began to realise that if she and Geoffrey could do what they had done, then they were far tougher and stronger than people had thought.’61 Speaking to the Conservative Central Council in Cardiff at the end of the month, Mrs Thatcher dramatically reaffirmed, in characteristically personal terms, her determination to hold the moral high ground. ‘I do not greatly care what people say about me… This is the road I am resolved to follow.This is the path I must go.’62 She won a standing ovation. Boldness was its own reward.had flattened the wets and she could always trounce Michael Foot in the House of Commons, puncturing his windy outrage with reminders of his own record laced with helpful quotations from Callaghan and Healey. Within weeks of the budget, however, two new developments occurred which were harder to deal with. First, at the end of March the Labour party finally split. The pro-European right led by Roy Jenkins (recently returned from Brussels) and three former Cabinet Ministers (Shirley Williams, David Owen and Bill Rodgers) sealed their disillusion with the leftward direction of the party and resigned to form a new Social Democratic Party (SDP), which immediately linked up with the Liberals and began to register high levels of support in the opinion polls. In July, at the new party’s first electoral test, Jenkins came within 2,000 votes of capturing the safe Labour seat of Warrington. The SDP’s direct challenge was to Labour; but the huge appeal of the new Alliance sent a warning to worried Tories of the danger of abandoning the middle ground. One Conservative MP crossed the floor to join the SDP, and all summer there were rumours that others might follow., beginning in April in Brixton, then spreading in July to other rundown areas of Liverpool, Birmingham and other cities, there was a frightening explosion of riots and looting on a scale not seen in Britain since Victorian times. This was precisely the sort of civil disorder that Prior and Gilmour had predicted if the Government was not seen to show more concern about unemployment. The riots seemed to confirm the conventional analysis that a level of 2.5 million unemployed was not politically sustainable, and increased the pressure from worried backbenchers for a change of policy.Thatcher reacted characteristically to both challenges. She despised the SDP defectors for running away instead of fighting their corner in the Labour party. There was no room in her conviction politics for centre parties. In her memoirs she called them ‘retread socialists who… only developed second thoughts about socialism when their ministerial salaries stopped in 1979’.63 There was enough truth in this to make it an effective argument. Though the Alliance undoubtedly represented an unpredictable electoral danger to the Government, tapping a deep well of public distaste for both the ‘extremes’ of militant Labour and Thatcherite Conservatism, it lacked a clear political identity; while clarity was Mrs Thatcher’s principal asset. The SDP was just another gang of wets.was shaken by the riots, on two levels. First, she was genuinely shocked at the violence and destruction of property. Her famous exclamation, on seeing the extent of the damage, ‘Oh, those poor shopkeepers!’, was a heartfelt cry of identification with the victims.64 She felt no sympathy whatever with the rioters, or interest in what might drive a normally quiescent population to rebel. She was determined to treat the episode as a purely law-and-order matter, though she did allow Whitelaw, as Home Secretary, to appoint a liberal judge to inquire into strained relations between the local black population and the police.second wave of disturbances, which started in Liverpool on 3 July and spread over the next three weeks to Manchester, Birmingham, Blackburn, Bradford, Leeds, Derby, Leicester and Wolverhampton, involving young whites as well as blacks, was much more serious, since it could be interpreted not simply as an outbreak of local tension but as a political challenge to the Government. Now she was alarmed at a different level. One colleague observed that ‘the Prime Minister’s nerve seemed momentarily to falter’.65 On television she appeared unusually nervous and succeeded only in displaying the limitations of her law-and-order response. Two days later she visited Brixton police station and spent the night in the operations room at Scotland Yard to demonstrate her support for the police. She returned to Downing Street to impress on Willie Whitelaw the urgency of arming them with the latest American anti-riot equipment.in the Commons she blamed the permissive society – and its godfather, Roy Jenkins. ‘A large part of the problem we are having now has come from a weakening of authority in many aspects of life over many, many years. This has to be corrected.’66 Prompted by a friendly backbencher, she condemned Jenkins’ dictum that ‘a permissive society is a civilised society’ as ‘something that most of us would totally reject. Society must have rules if it is to continue to be civilised.’67truth, Mrs Thatcher was very lucky. The riots that summer died down as suddenly as they had erupted, dissolved in a warm glow of patriotic sentiment surrounding the ‘fairytale’ wedding of the Prince of Wales to Lady Diana Spencer on 29 July. There was a further outbreak in September 1985. But there was no political violence directed against the Government until the anti-poll-tax demonstrations of 1990, which did help to destroy her. In 1981 she contrived to transform a potentially devastating crisis for her Government into a vindication of her own analysis of society. At the same time police forces were supplied with the most modern anti-riot technology: shields, truncheons, vehicles, rubber bullets and water cannon. This armoury was to prove as critical as the building up of coal stocks in the Government’s confrontation with the miners in 1984 – 5.Thatcher was worried that summer. One of her staff was concerned at her ‘physical and mental exhaustion’;68 and David Wood in The Times suggested that the Iron Lady was ‘showing signs of metal fatigue’. Nicholas Henderson, visiting London from Washington at the beginning of July, found the Prime Minister ‘characteristically resilient, though worried by events in Ireland and the falling pound’. Even American Republicans, Henderson reflected, who once looked to Mrs Thatcher as ‘a beacon of the true faith’ now saw her as an awful warning, ‘a spectre that haunts them’.Yet he was still ‘impressed by her vitality and will’. Things might yet come right, he concluded. It was bound to take time. ‘It is not, therefore, the moment to lose faith in her.’69who had hitherto supported her, however, were losing faith, or patience. Several senior Conservatives, including the party chairman Peter Thorneycroft, were beginning to call for a change of direction; and in July the revolt reached the Cabinet. The one concession the wets had managed to wring from their defeat in March was a promise that the Cabinet should never again have the budget sprung on them without advance warning, but should be allowed to discuss broad economic strategy in advance. Mrs Thatcher agreed reluctantly as a sop to Geoffrey Howe, who felt that Prior and Gilmour had ‘some justification’ for feeling excluded from ‘a secretive monetarist clique’; he believed that, given a more collegiate style, he could persuade them that there was no alternative to his policy.70 Howe’s faith in his power of advocacy did him credit; but Mrs Thatcher’s political sense was more acute. The first test of the new openness demonstrated exactly why she had been right to fear it.and Leon Brittan produced a paper proposing a further package of spending cuts for 1982 – 3.They were supported by Keith Joseph but by virtually no one else. Practically the whole of the rest of the Cabinet rebelled. Most seriously, from Mrs Thatcher’s point of view, two of her original handful of ‘true believers’, John Biffen and John Nott, defected. But Biffen, though a monetarist by long conviction, was always sceptical by temperament and had been making damp noises for some time. It was Nott’s desertion which most upset the Prime Minister. Hitherto she had seen him as her next Chancellor. Now she felt that he had been infected by ‘the big-spending culture’ of the Ministry of Defence.71 The defection of Nott and Biffen left the Prime Minister and Chancellor dangerously isolated.this potential crisis of her premiership Willie Whitelaw’s position was crucial. As Home Secretary he had borne the full impact of the summer riots; he did not believe they had nothing to do with Government policies. Now, if ever, was the moment when he might have exerted his influence, without disloyalty, on the side of an easing of policy. In fact he stayed true, vainly urging loyalty on the rest of the Cabinet. With his protection, Mrs Thatcher was able to close the meeting without conceding any ground, promising that the discussion would be resumed in the autumn.that Cabinet never met again. The July revolt convinced her that she must assert herself or lose control of the Government. After two years she could legitimately drop some of those she had felt obliged to include in 1979. So in September – after the summer holidays but before the party conference – she struck. Yet once again she showed caution in her choice of victims, picking off only those of the wets – Gilmour, Soames and Education Minister Mark Carlisle – who had least following in the party. Gilmour went with the most style, marching out of Downing Street to announce that throwing a few men overboard would not help when the ship was steering ‘full steam ahead for the rocks’.72 Soames’ outrage could be heard across Horse Guards’ Parade. Carlisle was probably less surprised to be sacked than he had been to be appointed in the first place. But Mrs Thatcher wanted his job for Keith Joseph, who specifically requested Education when he earned his release from the Department of Industry., the biggest casualty of the reshuffle was Jim Prior, who remained in the Cabinet. He was clearly earmarked for a move, since Mrs Thatcher was determined on another measure of trade-union reform. Over the summer Downing Street let it be known that he was going to be offered Northern Ireland. Prior in turn told the press he would refuse. But Mrs Thatcher called his bluff. When it came to the point he could not refuse the poisoned chalice of Northern Ireland without appearing cowardly. In his memoirs he confessed ruefully that he had been outmanoeuvred. ‘That is probably why she was Prime Minister and I was certainly never likely to be.’73 More than the sacking of Gilmour and Soames, it was her trumping of Prior that showed the surviving wets who was boss., she used the vacancies she had created to shift the balance of the Cabinet to the right. In a wide-ranging reshuffle, three new entries were particularly significant. Nigel Lawson went to the Department of Energy, to give new impetus to the privatisation of gas and ensure that the Government was ready the next time the miners threatened to strike; Norman Tebbit took over at Employment; and Cecil Parkinson, to general amazement, was plucked from a junior post in the Department of Trade to replace Thorneycroft as party chairman, with the additional job of Paymaster-General. In addition Patrick Jenkin moved to Industry and Norman Fowler began what turned out to be a six-year stint at the DHSS. David Howell moved from Energy to replace Fowler at Transport, while Mrs Thatcher picked Janet Young, the only other woman she ever appointed to the Cabinet, to take Soames’ place as Leader of the Lords.the first time she had a Cabinet of whom perhaps nine or ten – out of twenty-two – were ‘true believers’. Yet the autumn brought very little respite. The party conference gathered in Blackpool in an atmosphere of crisis, fuelled by the worst opinion-poll ratings of any Government since the war, a stock market crash, another rise in interest rates (back to 16 per cent) and a powerful intervention by Ted Heath, lending his voice to the chorus calling for a national recovery package to tackle unemployment. Heath was coolly received and was effectively answered by Howe, who quoted back Heath’s own 1970 pledge to put the conquest of inflation first, ‘for only then can our broader strategy succeed’. ‘If it was true then,’ Howe argued, ‘when inflation was half as high, it is twice as true today.’74 Howe won a standing ovation.days later Mrs Thatcher’s own speech was unusually conciliatory. Yet she gave no ground where it mattered. She repeated that she would not print money to buy illusory jobs at the cost of further inflation. ‘That is not obstinacy,’ she insisted. ‘It is sheer common sense. The tough measures that this Government have had to introduce are the very minimum needed for us to win through. I will not change just to court popularity.’75 If her delivery was gentler than the previous year, she made it plain that the Lady was still not for turning. She too got her usual rapturous reception. Not for the first or last time, the party faithful at conference backed her against the parliamentary doubters.same slight softening of tone was detectable when the Commons returned at the end of October. Labour immediately tabled a confidence motion. Mrs Thatcher had no difficulty demolishing Foot’s emotional demands for a full-scale Keynesian reflation. ‘His recipe is to spend more, borrow more, tax less and turn a blind eye to the consequences. He wants all that,’ she mocked, ‘and he wants a reduction in interest rates!’ But she also met her Tory critics by taking credit, for the first time, for the fact that public spending had not fallen, but was actually some £3 billion higher than the Government’s initial plans. ‘To accuse us of being inflexible is absolute poppycock,’ she declared. ‘We have increased public spending, but not to profligate levels.’ As a result, she concluded, ‘I believe that underneath the surface and beginning to break through is a spirit of enterprise which has lain dormant in this country for too long.’76the Government’s position in the country remained precarious, as the Alliance bandwagon gathered a heady momentum. First the Liberals won North-West Croydon, the Government’s first by-election loss. Then, a month later, Shirley Williams swept aside a Tory majority of 18,000 to win the well-heeled Lancashire seat of Crosby for the SDP. This was a landslide of a wholly different order, suggesting that no Tory seat was safe. December’s Gallup poll gave the Alliance 50 per cent, with Labour and the Conservatives equal on 23 per cent. The Government’s approval rating was down to 18 per cent and Mrs Thatcher’s to 25 per cent: she was now the most unpopular Prime Minister since polling began. Admittedly Michael Foot was even more unpopular; but with a credible third force for the first time offering a serious alternative to the Labour/ Conservative duopoly, it would take more than just a normal swing back to the Government to secure Mrs Thatcher’s re-election.fact the end of 1981 was the nadir of her popularity. Despite unemployment hitting three million in January, there were some shoots of economic recovery – output was rising, inflation continued to fall and interest rates fell back again – and the polls responded. ‘We are through the worst,’ she claimed in an end-of-year message.77 By the spring the Alliance had slipped back and the three parties were roughly level-pegging at 30 – 33 per cent each. This is the basis for the claim that the Government was already on the way back before the Falklands war changed everything. Clearly it is true up to a point. Alliance support had hit a peak in December which it could never have sustained; but it gained a fresh boost with Roy Jenkins’ stunning victory at Glasgow, Hillhead, in March 1982 – just a week before the Argentine invasion of the Falklands. There is no reason to think that the Alliance was about to fade away. Three-party politics introduced an unpredictability into election forecasting which makes it impossible to say that the Tories, without the Falklands, could not have won a second term. But it is most likely that no party would have won a majority in 1983 or 1984. Mrs Thatcher’s popularity may indeed have touched bottom at the end of 1981. The economy may have been beginning to recover. But her Government was still desperately beleaguered when events in the South Atlantic turned the whole landscape of British politics upside down.
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