Downing Street Years - Margaret Thatcher [31]
Though, it is true, there is always talk of cutting public expenditure, it has remained almost entirely talk. Cutting public expenditure has come to mean juggling with figures … But whereas cuts in public expenditure rarely eventuate, squeezes on the private sector are ‘for real’. The interest rate is increased, bank lending is contracted, taxes are raised, other old-fashioned deflationary measures are used. The private sector is punished for the state sector’s profligacy.
I knew that we had to break this vicious spiral. We had to make further attempts to curb public spending and borrowing — no matter how difficult — because otherwise private enterprise would have to bear a crushing burden of public sector profligacy. Geoffrey and I accordingly decided that we had no alternative but to seek further spending reductions in 1980–81 and in subsequent years. He brought forward a paper, first to me and a small group of ministers and then to the full Cabinet, proposing an extra £i billion reduction in 1980 — 81, and £2 billion in each of the following years. From what I had seen of departmental ministers’ fierce defence of their own budgets, I knew that this would provoke trouble. But I also knew that the great majority in the Party were determined to see the strategy succeed. So I sought to take my case to them.
I had already told the Party Conference in Blackpool on 12 October:
It is your tax which pays for public spending. The government have no money of their own. There is only taxpayers’ money.
Just before the November rise in interest rates, I had used the platform of the Lord Mayor’s Banquet to reaffirm that we would hold to our monetary policy in the fight against inflation:
We shall take whatever action is necessary to contain the growth of the money supply. This government, unlike so many of its predecessors, will face up to economic realities.
I now made it clear that we would return to the attack on excessive public spending. The Party Leader’s speeches to the 1922 Committee are an opportunity to appeal directly for support for the Government’s policies. On Thursday 13 December, I told the ‘22 that we needed to ‘have another go at getting expenditure down’ and was well received. A little less than a month later, I agreed to be interviewed by Brian Waiden on Weekend World and said of public spending that ‘if we got a billion off, I would be quite pleased’. The atmosphere quickly became more propitious for a renewed drive against overspending.
In Cabinet on 24 January 1980 we returned to a discussion of public expenditure for 1980–81 and the years to 1983–4. Higher oil prices, almost no growth projected in industrialized countries in the coming year, and the steel strike* adding to the PSBR, formed a sombre background to our deliberations. I knew that these next two years would be crucial. We had to take the required action on inflation and public spending in that time: then as growth resumed, we would again be in a position to move towards lower taxes and lower interest rates. But the ‘wets’ launched a fierce attack on our policy and the theory underlying it. It was argued, for instance, that the PSBR should be allowed to rise during a recession. Our response was that it was a very different matter when the PSBR started out by being far too high — the legacy of a Labour Government which had doubled the national debt during its period in office. Individual ministers defended their bailiwicks. Jim Prior argued persuasively for a continuation of the special employment measures.* We agreed but decided that we would have to take another look at the the burgeoning social security budget.
A week later, Cabinet resumed its discussion — and focused closely on social security.* Both for public