Downing Street Years - Margaret Thatcher [29]
We also decided to raise prescription charges, which had remained at the same level for eight years during which time prices had risen two and a half times. (The wide range of exemptions would be maintained.) This had not been our first choice for savings from the DHSS budget. We had originally discussed extending the number of so-called ‘waiting days’ which must lapse before an applicant is entitled to sickness or unemployment benefit from three to six days. We decided not to press ahead with this, but nevertheless the idea found its way into the press in one of the leaks that were continually to bedevil our discussions of public spending.
No sooner had we agreed savings for the current year, 1979–80, than the still more difficult task was upon us of planning public expenditure for 1980–81 and subsequent years. In July 1979, when the crucial decisions were being hammered out, we had a series of particularly testing (and testy) Cabinet discussions on the issue. Our goal was what it had been in Opposition, that is to bring public expenditure back to the 1977–8 level in real terms. We hoped to achieve this by 1982–3. But, in spite of the reductions we had made, public expenditure was already threatening to run out of control. That in turn would have serious consequences for the PSBR, and thus for interest rates, in the longer term for taxation, and ultimately for our entire programme.
Nonetheless — or perhaps for that very reason — there was strong opposition from some ministers to the cuts. These were the so-called ‘wets’ who over the next few years took their opposition to our economic strategy to the very brink of resignation.* Some argued that the strategy had been overtaken by events; and indeed for those who had not heard that Keynes was dead, the prospect of reducing expenditure and curbing borrowing as we and the world sank into recession was undoubtedly alarming. Others put up a hundred and one reasons why any particular cut was out of the question. Defence, for instance, would not be able to achieve its sacrosanct target of 3 per cent growth a year. Or the DES would not be able to make economies in the time available (in spite of declining pupil numbers.) Or the Department of Employment would have to find money in response to the mounting jobless total. In the light of this opposition, I instructed a small group of key ministers to discuss with departments the proposals for reductions and report back to Cabinet.
Geoffrey Howe was superbly stolid in resisting this pressure. Later in July he set out for colleagues the precise implications of a failure to agree the £6.5 billion reductions he was proposing. He also dispelled some of the misunderstandings. Ministers had to recognize that we were not cutting to the bone, but merely reining in the increases planned by Labour and compensating for other increases that the deepening recession had made almost inevitable.
Labour’s previously announced plans would have increased expenditure in 1979–80 by some 2 to 3 per cent over the level of 1978–9, and in 1980–81 by some 5 per cent, on the transparently erroneous assumption that the economy would grow by between 2 per cent and 3 per cent a year. Not that Labour was unique in this. The Treasury used to produce a fascinating chart, the so-called ‘porcupine’, in which the forecasts of economic growth in successive public spending white papers shot ever upwards, looking a little like porcupine quills, while the actual course of economic growth stubbornly remained on an only gently rising gradient. This was a literally graphic illustration of the overoptimistic assumptions on which past public expenditures plans had been based year after year. I was determined not to add another set of spikes.
In this case, Labour’s plans would have involved expenditure of a further