The Downing Street Years (24 page)

Unsurprisingly, however, it was not the adoption of cash planning which grabbed the budget headlines, but rather the severity of the tax increases. The budget was very unpopular. But some of the leader columns were more favourable than the headlines and no one could doubt that this was a coherent budget which had required a good deal of courage to introduce. In the eyes of our critics, of course, the strategy was fundamentally wrong. If you believed, as they did, that increased government borrowing was the way to get out of recession, then our approach was inexplicable. If, on the other hand, you thought, as we did, that the way to get industry moving again was above all to get down interest rates, then you had to reduce government borrowing. Far from being deflationary, our budget would have the reverse effect:
by cutting government borrowing and over time easing the monetary squeeze, it would allow interest rates and the exchange rate to fall, both of which had created severe difficulties for industry. I doubt that there has ever been a clearer test of two fundamentally different approaches to economic management.

The economists themselves realized that this was so. At the end of March 1981 no fewer than 364 leading members of the profession published a statement taking issue with our policy. Samuel Brittan of the
Financial Times
defended us, and so did Professor Patrick Minford from Liverpool University, who wrote to
The Times
answering the 364; I in turn wrote to congratulate him on his brilliant defence of the Government’s approach. We had made our decision: the task now was to hold the political line and, where possible, to win the political argument while waiting for the strategy to work. I was confident that it would.

The dissenters in the Cabinet, meanwhile, had been stunned by the budget when they learnt its contents at the traditional morning Cabinet on budget day. The press was soon full of leaks expressing their fury and frustration. They knew that the budget gave them a political opportunity. Because it departed so radically from post-war economic orthodoxy, even some of our supporters would not wholly believe in the strategy until it started to yield results. That might not be for some time. So it was clear that the Party in the country must be mobilized in support of what we were doing. The forthcoming Central Council of the Conservative Party in Bournemouth provided an opportunity for me to do this. I had decided some time before that I would try not to go to every Central Council because the number of party political occasions I was under pressure to address each year was enormous: there were separate conferences of the English, Scottish and Welsh parties, the Women’s Conference, Local Government Conference and Conferences of Young Conservatives, Conservative Students and Conservative Trade Unionists. However, I soon learnt that Central Council provided an opportunity which I could never afford to miss. Certainly that was true on this occasion. John Hoskyns and I worked late on Friday night and early into Saturday morning on my speech, which I delivered later that day. In it I threw down the challenge:

I got a good reception. For the moment at least, the Party faithful were prepared to take the heat and to back the Government. But that determination might erode over the summer unless the Government stuck together.

Thankfully, strikes occupied far less of our time during 1981 than they had in 1980, and the number of working days lost due to strike action was only a third of that in the previous year. But two disputes — one in the coal industry, which did not in the end result in a strike, and another in the civil service, which did
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— were of great importance, both to budget decisions and to the overall political climate.

A foreigner unaware of the extraordinary legacy of state socialism in Britain would probably have found the threatened miners’ strike in January 1981 quite incomprehensible: £2.5 billion of taxpayers’ money had been invested in the coal industry since 1974; productivity at some of the new pits was high, and a slimmed-down and competitive coal industry could have provided employees with good, well-paid jobs. But this was possible only if uneconomic pits were closed, which the National Coal Board (NCB) wished to do. Moreover, the pits which the NCB was intent on closing in a programme it put forward in early 1981 were not just uneconomic but more or less exhausted.
On 27 January the Energy Secretary, David Howell, told me about the closure plans. The following afternoon Sir Derek Ezra, NCB Chairman, visited Downing Street and briefed me in person. I agreed with him that with coal stocks piling up and the recession continuing there was no alternative to speeding up the closure of uneconomic pits. I had long regretted that past governments had made such an enormous commitment to coal: if we had spent more on nuclear power, as the French had done, our electricity would have been cheaper — and, indeed, our supplies more secure.

As in the cases of BSC and BL, it was the management which had to implement the agreed approach and, inevitably, the Government found itself dragged into a crisis we had neither sought nor predicted. The press was soon full of NCB plans to close 50 pits and a bitter conflict was predicted. The National Union of Mineworkers (NUM) was pledged to fight closures and although Joe Gormley, its President, was a moderate, the powerful left-wing faction of the union was bound to exploit the situation and it was well known that Arthur Scargill, the hard-left leader, was likely to succeed Mr Gormley as President in the near future.

At a meeting with the NUM on 11 February the NCB Board resisted pressure to publish a list of pits which it was proposing to close and denied the figure of 50. However, the Board failed to mention the idea of improved redundancy terms, which was already being discussed by the Government, and instead undertook to join the NUM in an approach to us seeking a lower level of coal imports, the maintenance of a high level of public investment and subsidies comparable to those allegedly being paid by other governments to coal industries abroad. Far from acting as management might be expected to do, the NCB Board was behaving as if it entirely shared the interests of the union representing its employees. The situation quickly deteriorated further. I was lucky to have a private, independent and knowledgeable source of advice in my press secretary, Bernard Ingham who, before working for me in Downing Street, had spent some years in the Department of Energy and was convinced from the start that the department was far too complacent about the threat posed by a strike.

On Monday 16 February I had a meeting with David Howell and others. Their tone had entirely changed. The department had suddenly been forced to look over the abyss and had recoiled. The objective had now become to avoid an all-out national strike at the minimum cost in concessions. David Howell would have to agree to a tripartite meeting with the NUM and the NCB to achieve this. The tone of the NCB Chairman had also changed in short order. I was appalled to
find that we had inadvertently entered into a battle which we could not win. There had been no forward thinking in the Department of Energy about what would happen in the case of a strike. The coal stocks piled at the pit heads were largely irrelevant to the question of whether the country could endure a strike: it was the stocks at the power stations which were important, and these were simply not sufficient. I had by now even less confidence in the NCB management. It became very clear that all we could do was to cut our losses and live to fight another day, when — with adequate preparation — we might be in a position to win. When my attitude became clear one official could not prevent himself expressing disappointment and surprise. My reply was simple: there is no point in embarking on a battle unless you are reasonably confident you can win. Defeat in a coal strike would have been disastrous.

The tripartite meeting was due to take place on 23 February. In the interim, we were hoping that the NCB would be able to make a more effective presentation of their case and to prevent the NUM continuing to make all the running. Indeed, we were advised that unless we held the tripartite meeting earlier than planned the NUM Executive might vote for a strike ballot. On the morning of 18 February I met hurriedly with David Howell to agree on the concessions which would have to be offered to stave off a strike. There was still considerable confusion as to what the facts really were. Whereas the NCB had been reported to be seeking 50 or 60 pit closures, it now appeared that they were talking about 23. But the tripartite meeting achieved its immediate objective: the strike was averted. The Government undertook to reduce imports of coal to the irreducible minimum, with David Howell indicating that we were prepared to discuss the financial implications with an open mind. Sir Derek Ezra said that in the light of this undertaking to review the financial constraints under which the NCB was operating, the Board would withdraw its closure proposals and re-examine the position in consultation with the unions.

The following day David Howell made a statement to the Commons to explain the outcome of the meeting. The press reaction was that the miners had won a major victory at the expense of the Government, but that we had probably been right to surrender. This was not, however, the end of our difficulties. We agreed to improve the redundancy terms for coal miners, to finance a scheme for conversion from oil to coal in industry and to look again at NCB finances. As is always the case once corporatism takes a grip, it became extremely difficult to bring the tripartite discussions to an end without provoking a crisis and equally difficult to ensure that the whole question of government
finance for the NCB did not come onto the agenda. It had already emerged at the tripartite meeting on 25 February that the NCB was in far deeper financial trouble than we had known. They were likely to overrun their external financing limit (EFL), which had already been set at some £800 million, by between £450 and £500 million and were expecting to make a loss of £350 million. We would need to challenge these figures and examine them in detail, but we could not do this — as the NCB Board undoubtedly realized — when the NUM knew almost as much about the NCB’s financial position as we did. Therefore, our aim must be to draw a ring fence around the coal industry by arguing that coal was a special case rather than a precedent. We must seek to avoid any commitment for the years beyond 1981–2. Above all, we must prepare contingency plans in case the NUM sought a confrontation in the next pay round.

We confirmed these decisions at a meeting of ministers on 5 March. David Howell skilfully handled the next tripartite meeting on 11 March, at which it was understood that we would not need another tripartite meeting until the NCB’s financial position had been resolved. Meanwhile, he had been instructed to prepare a memorandum on contingency plans and circulate it by Easter.

Having managed to ease the Government out of an impossible position — at what I knew to be a high political cost — I concentrated attention on limiting the financial consequences of our retreat and preparing the ground so that we would never be put in such an awful situation again. David Howell had been shaken by what had happened. He feared a repetition of the events of January. There was much argument between him and the Treasury about the new EFL for the NCB and the level of investment we ought to finance. We had to agree to an EFL of well over £1 billion. Similarly, the threat of strike action constrained what we could do immediately to increase our capacity to endure a future strike. It was clear that coal stocks at the power stations must be increased, but it was impossible to take this action without its becoming known, and the faster stocks were transferred the more visible it would be. Jim Prior advised that we should not even discuss the matter with the industries involved, on the ground that it would be provocative to do so. The Department of Energy was very slow in giving effect to the decision that 4–5 million tons should be moved by the time that the NUM pay negotiations took place in the autumn. We were told that the Central Electricity Generating Board (CEGB) would probably have to acquire extra land if higher stocks than this were to be built up. I held a meeting on 19 June to review the position. It seemed to me that the risks of moving
coal stocks had been exaggerated. After all, stocks at the pits had increased from 13 million to 22 million tons over the past 12 months and it was natural that there should be some extra movement.

The real question in my mind was whether — even if we could substantially increase the rate of movement of coal to the power stations — we would in practice be able to resist a strike that winter. It was evident from the NUM Conference which took place in Jersey in July that the left wing of the union had become obsessed with the idea of taking on the Government and that Arthur Scargill, by this stage certain of the presidency, would make this his policy. Willie Whitelaw, as Home Secretary the minister in overall charge of civil contingency planning, had overseen a study of how to withstand a coal strike that winter. He sent me a report on 22 July, which concluded that a strike this year probably could not be withstood for more than 13–14 weeks. The calculations took account of the transfer of coal stocks which we had put in hand. In theory, endurance could be increased by power cuts or the use of troops to move coal to the power stations. But either option was fraught with difficulty. There would be huge political pressure to give in to a strike. The union might see what was up if we set about increasing oil stocks for power stations. In August I reluctantly concluded that no such action should be taken in advance of that year’s NUM pay settlement. We would have to rely on a judicious mixture of flexibility and bluff until the Government was in a position to face down the challenge posed to the economy, and indeed potentially to the rule of law, by the combined force of monopoly and union power in the coal industry.