11 October 2015

Neither Healey nor Howe saved the British economy: it was the Iron Lady


 In paying tribute to Lord Howe yesterday Ken Clarke couldn’t resist a sly kick in Margaret Thatcher’s direction. Speaking to BBC Radio 4 Mr Clarke, the three times defeated candidate for the Tory leadership, claimed that it was Howe who was the most important figure in the engine room of Britain’s economic revolution. His Budgets had transformed Britain – Mrs Thatcher had merely provided “flamboyant leadership” for the government (listen to this broadcast, five minutes in). Flamboyant – as in ostentatious, extravagant, theatrical, showy? I think Mr Clarke will find that history remembers Lady Thatcher as the “Iron” Lady rather than the “Flamboyant” Lady and for good reason. And history doesn’t remember her as “Two Degrees Thatcher” either. Britain did not lack charismatic or clever leadership in the 1970s – it lacked steely, determined leadership. To reverse its decline the country needed iron – iron to conquer inflation; iron to tame the unions; and iron to defeat the unilateral nuclear disarmers. And iron did conquer, tame and defeat.

Yes, Howe was critical to the Thatcher years. As her own memoirs record the two worked very closely together in opposition and in the early years of her premiership – taking the toughest of economic decisions against opposition from “wet” Tories as much as from Michael Foot’s Labour opposition. They produced “The Right Approach” together – a comprehensive statement of Tory aims covering “spending before earning”; “priorities for cuts”; “liberating profits”; “escaping from the tax trap”; and “responsible wage bargaining”. The 1981 Budget – the Budget that ruined the reputation of 364 economists – took much tougher decisions than David Cameron or George Osborne have ever needed to take. Before Howe and Thatcher became deadly opponents – in significant part because of her unforgivable mistreatment of him – they were the strongest of intellectual and political allies. Yesterday Britain lost a great man – “a quiet hero” as the prime minister rightly called him. “The tortoise who beat the most formidable of hares” – to quote Bruce Anderson. But let’s be clear: identifying the technical solution to the ills overwhelming the British economy at the end of the 1970s was not the key challenge. The problem with Britain was ungovernability. It was the “U-turn”. And it was Margaret Thatcher’s personality rather than any economics minister or economics policy that provided the solution.

Ten years before Howe and Thatcher came to office the Heath government had agreed a range of free market policies at the famous Selsdon Park Hotel gathering: policies that bear a great resemblance to those published in The Right Approach. At the first 1974 election Ted Heath had asked the country to back him in his fight with the unions by putting the question “Who governs?” on the ballot paper. Heath was defeated. Britain answered: “Not you, Ted, you’re too weak”. The Labour government that followed Heath was forced into monetary and fiscal policies that Thatcher and Howe would also pursue. Because Denis Healey and James Callaghan pursued those policies first many of you may have read an extraordinary editorial in last week’s Spectator: “In memory of Denis Healey, saviour of the British economy”. Andrew Roberts has already produced an essential corrective to that temporary lapse in The Spectator’s usually impeccable judgment but it is nonsense to say that the Labour government of the second half of the Seventies saved the country. It tried to pull some of the right levers but it was ultimately defeated by union militancy and by punitive tax policies that produced a brain drain of talent from British shores. Like the Heath government it was neither strong nor savvy enough to deliver a change in economic policy prescribed to it by the IMF.

What made Margaret Thatcher Britain’s true economic saviour were three key factors. Factor one was the right policies – to which Howe was central – but which the likes of Alan Walters, Patrick Minford and Nigel Lawson helped to fashion. Second was a targeted pragmatism. Those unbending Thatcherites who bear the lady’s name today should remember that she possessed a good political radar for only picking winnable fights. She didn’t take on Arthur Scargill and the National Union of Mineworkers until her second term, for example. She left much of the welfare state, the NHS, the BBC and other “third rails” of British politics largely untouched.  Factor three, most importantly, was her X factor – her steely determination to focus all of her political capital on the two or three fights she had to win.

Speaking to the Conservative Party Conference in October 1980 she clearly understood that the world was looking at Britain and expecting another U-turn. Choosing the right path was the easy thing – sticking to that path was the gutsy thing:

“Some people talk as if control of the money supply was a revolutionary policy. Yet it was an essential condition for the recovery of much of continental Europe. Those countries knew what was required for economic stability. Previously they had lived through rampant inflation; they knew that it led to suitcase money, massive unemployment and the breakdown of society itself. They determined to never go that way again. Today, after many years of monetary self-discipline, they have stable, prosperous economies better able than ours to withstand the buffeting of world recession. So at international conferences to discuss economic affairs many of my fellow Heads of Government find our policies not strange, unusual or revolutionary, but normal, sound and honest. And that is what they are. Their only question is: ‘Has Britain the courage and resolve to sustain the discipline for long enough to break through to success?’”

“Courage” is the virtue that breathes life into all other virtues and without which all other virtues are meaningless. We know, of course, that the qualities that Mrs Thatcher showed in the early 1980s had passed their sell-by date by the late 1980s. Her self-confidence in the rightness of her judgment at the start of her period in office had become arrogance in her third term and precipitated her downfall.  But as we read obituaries of Denis Healey and Geoffrey Howe and therefore revisit the economic history of the late 1970s and early 1980s let’s not get lost in thinking technical policies of brilliant chancellors were key to rescuing Britain. The thing that changed from the 1970s to the 1980s was the election of one lady. An Iron Lady. Iron that transformed a nation.

Tim Montgomerie is a columnist for the The Times, a Senior Fellow at Legatum Institute and co-founder of the new website The Good Right. His “reform of capitalism” report for the Legatum Institute is published on 4th November.