Downing Street Years - Margaret Thatcher [443]
MORE TENSION WITH NIGEL LAWSON
It was from this time that tension between myself and Nigel Lawson arose over the independent economic advice that I was receiving from Alan Walters. Alan had returned to No. 10 in May 1989. I have already described his contribution to the ‘Madrid conditions’ for ERM entry. While the Treasury, thoroughly alarmed by the inflationary effects of Nigel’s policy of shadowing the ERM, kept urging ever higher interest rates, Alan now drew my attention to the danger that excessively high interest rates might drive the economy into recession.* He was, in short, doing precisely what a prime minister’s adviser should. He also had the merit of being right.
However, during his five-year absence from No. 10, he had been asked to give his views in all sorts of different fora; and Alan’s views were always trenchant. Various reports, articles and lectures containing his thoughts about economic policy issues in general and the ERM in particular kept on surfacing. Partly because these were exploited by the press to point up divisions between Nigel and me and partly because Nigel himself, knowing that he was being blamed for the return of inflation, was becoming hypersensitive, they became a major problem.
The important point, however, was that all this press speculation reflected an underlying reality. This was that Nigel and I no longer had that broad identity of views or mutual trust which a Chancellor and prime minister should. Nor was there any way — short of a full and totally uncharacteristic mea culpa on his part — that commentators were not going to hold Nigel to blame for the worsening economic outlook.
All of this was evident at the 1989 Party Conference — for which with greater optimism than caution the new Party Chairman, Ken Baker, had chosen the theme ‘the Right Team’. A German rise in interest rates had led us to follow suit and we took the unpalatable decision to raise them to 15 per cent on the eve of the conference. The Daily Mail duly savaged Nigel as ‘this bankrupt Chancellor’ and demanded that he go. Nigel, who never lacked courage, gave a robust and successful speech. But even now the two of us had to negotiate the wording of his and my references to the exchange rate. There was a clear difference of emphasis — if no open contradiction — between his formulation:
The Conservative Party never has been, and never will be, the party of devaluation.
– a statement which implied that it was in our hands what the ultimate value of the pound in the exchange markets would be, and my own:
As Nigel Lawson made clear yesterday, industry must not expect to find refuge in a perpetually depreciating currency.
– a rather different point, based on a quite different economic analysis.
We survived the conference without mishap. But there was a general feeling in the press that with more unpleasant economic news to come it would be difficult for Nigel to continue. If he sought to do so, he would have my backing and indeed protection, as he always had. However convenient it might have been, I was not going to throw him to the wolves. Perhaps slightly less charitably, I felt that since he had got us into this inflation he should face up to the unpopular requirements for getting us out of it. It would, after all, be a highly unpalatable prospect for a new, incoming Chancellor. In any case — for reasons and in circumstances I shall describe shortly — I had made what I intended to be the last major reshuffle of this Parliament, moving Geoffrey Howe from the Foreign Office to be Leader of the House. I had decided — rightly or wrongly — that Nigel should stay. But what had Nigel himself decided?
NIGEL LAWSON’S RESIGNATION
I have already mentioned