Downing Street Years - Margaret Thatcher [90]
Once we had solved the problem of the British economy, however, we would need to turn to those deeper and more intractable problems. I did so in my second and third terms with the set of policies for housing, education, local authorities and social security that my advisers, over my objections, wanted to call ‘Social Thatcherism’. But we had only begun to make an impact on these by the time I left office.
MORE CABINET DISSENT AND THE
SEPTEMBER 1981 RESHUFFLE
It was the 1981 budget, however, which throughout the summer continued to agitate the Cabinet. Some ministers were long-standing in their dissent. Others on whose support I had counted in the past began to fall away. The irony was that at the very time the opposition to the strategy was greatest, the trough of the recession had already been reached. Whereas in 1980 the dissenters in the Cabinet had refused to face up to the true seriousness of the economic situation and so had insisted on higher government spending than we could afford, in 1981 they made the opposite mistake by exaggerating the bleakness of the economic outlook and calling for even higher spending in a bid to reflate the economy out of recession. Surely there is something logically suspect about a solution which is always correct whatever the problem.
One of the myths perpetuated by the media at this time was that Treasury ministers and I were obsessively secretive about economic policy, seeking always to avoid debate in Cabinet. In view of past leaks that might indeed have been an understandable approach, but it was never one we adopted. Geoffrey Howe was anxious to have three or four full economic discussions in Cabinet every year, in the belief that it would help us to win greater support for the policy; I doubted whether discussions of this sort would achieve a meeting of minds, but I went along with Geoffrey’s suggestion as long as it generated practical results, and in particular greater realism about public expenditure.
At the Cabinet in mid-June there was a general discussion of the economy lasting two hours, based on several Treasury papers dealing with various elements in the debate. The main paper was a full survey of recent economic developments and the economic prospect. It showed that the public finances had been placed on a sounder basis: we had cut borrowing and repaid some international debt. Interest rates at 12 per cent in the UK were now substantially below those in the US and France, and lower than those of the major industrialized countries generally. Industrial production had ceased to fall, though unemployment — a lagging indicator, as always — was still rising. The tax burden was up; but we were at least financing that spending in a sound way — and honest money was essential to sustainable recovery.
Other ministers, however, saw little that was positive in this picture. They believed that unemployment over three million — the figure now predicted — was politically unacceptable and that higher government spending should be used to accelerate and strengthen economic recovery. My own analysis was entirely different: the way to achieve recovery was to ensure that a smaller proportion of the nation’s income went to government, freeing resources for the private sector where the majority of people worked.
All these arguments came to a head at the Cabinet discussion on Thursday 23 July. I had more than an inkling of what was coming. Indeed before I went down to the Cabinet Room that morning, I had said to Denis that we had not come this far to go back now. I would not stay as Prime Minister unless we saw the strategy through. Spending ministers had submitted bids for extra expenditure of more than £6.5 billion, of which some £2.5 billion was demanded for the nationalized industries. But in view of past overspending and of the tax increases which had taken place already, the Treasury urged reduced public spending for