The big domestic issues of 1985 threw long shadows, extending all the way to 1990 and MT's fall from power.
This was the year the ERM became a major issue between PM and Chancellor, the poll tax first drew breath, and a final break with Michael Heseltine became all but inevitable
THE ECONOMY: STERLING, UNEMPLOYMENT
The time will never be right: firm advice from John Redwood not to join the EMS
The year opened with a run on sterling that brought the currency close to parity with the US dollar, a heartstopping moment for MT. Fairly or not, Ingham took a good measure of blame for it all, briefing at a crucial moment that the government would not intervene to save the pound. We are releasing his lobby briefings for 1985 from the Ingham MSS.
On Lawson’s advice, MT sought help from Reagan, writing on 15 Jan and again on the 22nd. She found the President helpful – on 16 Jan he replied that he had directed the US Treasury Secretary to join with finance ministers in the G5 (US, UK, France, Germany and Japan) in “coordinated intervention” to face down “disorderly markets” to protect sterling – and to announce the same, more to the point. This proved to be the starting point for several G5 initiatives – the Plaza Accord of September 1985 to bring down the dollar, and the Louvre Agreement the following year, to check its fall, a sustained exercise in bucking the markets somewhat at odds with MT’s declared viewpoint and which she later regarded with some regret. UK interest rates still had to rise sharply, with mortgage rates following. Indeed, mortgage rates continued to rise even when Bank Rate fell, reaching 14 per cent on 21 March, the highest in four years.
By late March the dollar had turned “at last”, as Redwood explained (29 Mar). By 17 Jul sterling was back at $1.41, though interest rates took longer to fall as the Treasury remained cautious.
The Jan 1985 crisis had a long-term impact on British policy. Lawson immediately began preparing to persuade MT to agree to UK entry to the ERM. He had been convinced of the case for it since summer 1981, but could not see his way to persuade her. Now an opportunity was presented – and there is fragmentary evidence in the files that MT was indeed more open to the idea of joining at this point than in later years. It was certainly a topic of open conversation: City luminary Chips Keswick wrote to her on 21 May as if seeking to influence her against the ERM rather than to a committed opponent of it:
As I mentioned at lunch I do not believe that joining the EMS would be a palliative to the volatility of the $/£ rate. /EMS does provide some stability to parochial trading partners. However only 40 per cent of our trade is with the EC and therefore our problems have wider considerations”. [1/3/16 f13]
Her former economic adviser, Alan Walters, had returned to the US but was still receiving government papers via the Washington Embassy. We are releasing his files for 1985, which show him making a last ditch attempt by telegram to delay the entry till 1986, via a telegram sent en clair to No.10, itself an indication of how distant he now was from the making of British policy.
In the end, of course, it did not happen. Influenced perhaps in part by the head of her Policy Unit, John Redwood, who was opposed to the government’s own policy of joining when the time was right (see 26 Jun Redwood minute 6/2/2/116), MT pulled back. A shattering argument took place in a Downing Street meeting on 13 Nov when she bluntly refused to join, although most of her senior colleagues were against her, Tebbit, Brittan and Whitelaw included. [Unfortunately we do not have a copy of this meeting.] While Lawson retreated to No.10 to contemplate resignation, she went into a long-arranged interview with the Financial Times in which she repeated the government’s announced policy:
I think we are still sufficiently different from the European currencies to be buffetted about by some things that would not affect them and therefore I think the time is not yet ripe. We will go in one day
Pointedly, the interview transcript was sent on to the Treasury. It is no exaggeration to say that her relations with Lawson never recovered from the November episode.
Equally, it was not all bad. There were very significant economic achievements from Lawson's tenure to show by 1985 and she greatly valued him in the job. MT and Lawson attended a party to celebrate the flotation of British Telecom: notes for her unpublished speech recorded some staggering statistics about the sale and a measure of understandable pride. The share offer was the largest ever in the UK, by a factor of six. It was the largest ever in the US by a factor of four. It took the palm in Tokyo and Toronto as well. But photos of her at the event with Lawson show a less than happy couple, one must say. [6/2/2/100]
There was no good news in one of the most sensitive areas of all: unemployment. Although the economy had been growing continually since 1981, unemployment had continued to rise as well. In large part this reflected the growth of the workforce as the baby boomer effect worked through, so that employment and unemployment were both rising at the same time. But the papers show that statistical support for ministerial claims about rising employment suddenly collapsed. On 6 Jan 1985 Employment Secretary Tom King called on MT with bad news about a revision of the numbers:
it was possible that the increase in employment of 250,000 which many Ministers had referred to could be revised downwards to between 50-100,000.
Painful experience seems to have made MT sceptical of claims that unemployment would begin to fall any time soon. When Redwood sent her a memo on “Winning the next election” on 2 Jun, he put forward the view that with suitable reforms to employment, tax and benefit regimes “we could have it falling for 6 months before the election” - the “best reply ... and this should be possible”. MT marked the passage with a dissenting wiggly line and a question mark. She was sensitive as well to weariness of the constantly increasing unemployment total, which registered with crushing force in opinion polls. Private polling for the Conservatives in summer 1985 (17 Aug) showed no less than 81 per cent of Conservatives rated it the most important issue facing the country, with other parties’ supporters putting it higher still and no other issue making it even into the 20s. Approval of the government’s record was at minus 42 per cent, MT personal ratings minus 35 and the party itself well adrift in third place, 16 points behind Labour and ten behind the Alliance (40:24:24).
RATES: A BIG LOCAL DIFFICULTY
The files we are releasing for 1985 largely confirm the picture in papers already available at Kew – that intense pressure from Scottish Tories played an important part on promoting rating reform to the top of the political agenda. A Scottish property revaluation triggered the issue and the annual Scottish party conference at Perth in May provided a mechanism by which to pressurise MT, Younger demanding (2 Apr) that a formula had to be in place by the time of the conference and proposing a precise form of words committing the government to “immediate action”. MT gave a lot of ground, but would not do that. She does not seem to have resented Younger’s pushiness, or that of his parliamentary colleagues, despite being warned by Sherbourne that they were “fanning the flames” (30 Apr). They were fighting their corner, something she perfectly understood and respected.
Part of the MT’s regard for George Younger derived from his strong commitment to winning the miners’ strike. A meeting between them on 10 July showed her sense of debt also to the steel plant at Ravenscraig:
The Prime Minister said the way the workforce at Ravenscraig had fought to save their jobs during the coal strike should be acknowledged. As with Cammell Laird, the Government should stand behind those who had fought extremists.
After the Brighton Bomb, conference security became an understandable preoccupation for the police. The usual conference hotel in Perth was deemed unsuitable in the new conditions – possibly because an enterprising journalist managed to sneak in a suitcase without questions being asked then wrote the story up. It was decided that MT couldn't safely eat at the place, let alone stay, but the conference dinner would nonetheless be held there, as a sop to the hotel. This produced a bizarre discussion (Sherbourne minute 23 Apr) as to who should be the guest of honour in her absence - perhaps the Duke of Atholl would do? To this MT made an obvious and crushing reply, suggesting perhaps she was already a little tired of the new security regime: “I think it is difficult to put him in the firing line because it is too ‘dangerous’ for me to go!” An alternative thought had been that DT might do it, which surely would have been worse from her point of view, husbands being even less dispensable than dukes.
Instead the Thatchers stayed at a small hotel outside Perth where as luck would have it a Conservative MP of a Heathite outlook had already booked the best room. Of course, security dictated that he couldn't be told she was coming, so he had no opportunity to make alternative plans or even offer to swap rooms. It will not have been quite the weekend the poor man had expected.
The poll tax emerged from a review of local government finance undertaken by Victor Rothschild (Lord Rothschild), first head of the Central Policy Review Staff or ‘Think Tank’. MT abolished the CPRS in 1983, so in a way you might say the poll tax was the Think Tank’s revenge. MT had known Rothschild a little when she was a cabinet minister in the Heath Government, and had a wary regard. She began to see a fair amount of him in 1985 and perhaps there was a degree of gentle wooing going on from his side as he sought to build relations. He was present at a Weizmann Institute dinner at the Savoy in March where she spoke and a chair of chemistry was named in her honour, and he took the chance to ask her for her photo, suitably inscribed. When it was sent he replied recalling happy memories of her tiny home in Chelsea:
Thank you ever so much for your photograph and the very kind inscription which reminded me, somewhat nostalgically, of our meetings at Flood Street./ What a terribly long Grace you were subjected to yesterday evening. I felt very sorry and doubt if it was necessary.
At the end of May she went to visit the great Rothschild house at Waddesdon and went on to have lunch with the family at Eythrope, the home of Mrs James de Rothschild. Victor made the arrangements and particularly commended the family button collection, as well as casually mentioning a desk “which I suppose might fetch £1m at auction”. MT wrote the warmest of thanks to Mrs de Rothschild, evidently a little awed by it all (29 May).
WESTLAND: A TRAGEDY IN FIVE ACTS
MT’s private files contain no great revelations on Westland in 1985: it was an issue dealt with primarily by the official machine and papers stored accordingly. There are interesting fragments though.
In January 1985 Michael Heseltine wrote the core of her speech in a Labour censure debate. She seems to have invited and accepted his draft on the economy – the reasons why sterling had suffered so much from speculation that month. [5/1/5/297]
Thoughts of moving Heseltine in the September 1985 reshuffle have already been considered. Her press digests in December suggest that it was being commonly said that the reshuffle had led Heseltine, at 52, to feel overtaken by some of the new younger appointments to the cabinet. It would be fair to say as well that part of the background to the crisis was the arrival of Leon Brittan, not in the best of moods, at the DTI, a direct result of the reshuffle. DTI was the sponsoring department for Westland.
There is one significant private document – a note from Michael Alison to MT on 17 December of a quiet conversation with Heseltine before a meeting of the backbench Conservative Trade & Industry Committee. It depicts a very confident Heseltine, not talking of resigning because certain he would win. There is mention here of the possibility that Lord Weinstock's GEC, now chaired by Jim Prior, might provide valuable cash support to the 'European' side, which indeed materialised. MT had developed a friendly relationship with Weinstock and took it badly.
Her press digests in December (16-23rd) reveal the scale of the crisis, because it was direct lobbying of the press by the contending parties which made Westland so destructive for the government, and triggered the leak of the Solicitor-General’s letter that came so close to bringing down MT in January 1986. Striking too is the strength of support for Heseltine from Conservative leaning papers like the Daily Mail.