The Downing Street Years, 1979-1990

THE POLITICAL SCENE, 1982–1983

It is no exaggeration to say that the outcome of the Falklands War transformed the British political scene. In fact, the Conservative Party had begun to recover its position in the opinion polls before the conflict, as people began to realize that economic recovery was underway. But the so-called ‘Falklands factor’, beloved of political commentators and psephologists, was real enough. I could feel the impact of the victory wherever I went. It is often said that elections are won and lost on the issue of the economy, and though there is some truth in this, it is plainly an oversimplification. In this case, without any prompting from us, people saw the connection between the resolution we had shown in economic policy and that demonstrated in the handling of the Falklands crisis. Reversing our economic decline was one part of the task of restoring Britain’s reputation; demonstrating that we were not the sort of people to bow before dictators was another. As I emerged from the strain of the period in which the Falklands dominated almost every moment, I found that people were starting to appreciate what had been achieved during the last three years. I drew attention in my speeches to the record and to the fact that none of it would have happened if we had followed the policies pressed upon us by the Opposition.

The Opposition itself was divided between Labour and the new ‘Alliance’ of the Liberal and Social Democratic parties. Though we were not to know it at the time, Alliance support had peaked and it would never be able to recapture the heady atmosphere of late 1981 when it had led in the opinion polls and its supporters had claimed they had truly ‘broken the mould’ of British two-party politics. In fact, of course, the one thing you never get from parties which deliberately seek the middle way between left and right is new ideas and radical initiatives. We were the mould-breakers, they the mould. The SDP and Liberals hankered after all the failed policies of the past — incomes policies, reflation by fiscal boosts to demand, shifting more power to a European bureaucracy and away from genuinely democratic national governments. The SDP’s instincts on defence were sound — as opposed to the Liberals, perpetually tempted by unilateralism — and they were contemptuous of Marxist dogma. But I always felt — and still do — that the leaders of the SDP would have done better to stay in the Labour Party and drive out the far Left. The risk was that by abandoning the Labour Party to its militant wing, while attracting support away from us, they might actually let into power the very people they were seeking to keep out.

As for Labour, the Party continued an apparently inexorable leftward shift. Michael Foot is a highly principled and cultivated man, invariably courteous in our dealings. If I did not think it would offend him, I would say he was a gentleman. In debate and on the platform he has a kind of genius. But the policies he espoused, including unilateral disarmament, withdrawal from the European Community, sweeping nationalization of industry and much greater powers for trade unions, were not only catastrophically unsuitable for Britain: they also constituted an umbrella beneath which sinister revolutionaries, intent on destroying the institutions of the state and the values of society, were able to shelter. The more the general public learned of Labour’s policies and personnel the less they liked them. I was not among those many Conservatives at the time who thought that Labour would be displaced by the Alliance. Socialism represents an enduring temptation: no one should underestimate Labour’s potential appeal. But there was no doubt that in the extreme form adopted under Michael Foot’s leadership it was easier to beat.

The opinion polls and by-election results confirmed what my own instincts told me — that the Falklands had strengthened our standing in the country. On the eve of the war we had already moved just ahead of the Alliance parties in the polls. Between April and May our support rose ten percentage points to 41.5 per cent, well ahead of all the other parties. It rose again in the wake of the recapture of the islands and then fell back a little during the second half of the year. However, on only one occasion between then and the election did it dip below 40 per cent. I never took much notice of what the polls said about me personally. Too much concentration on this sort of thing can be a distraction. But it was also true that my own standing in the polls had gone up substantially.

The ‘Falklands factor’ certainly punctured the Alliance: together with mounting optimism about the economic prospect, it helped us win back those Conservative supporters who had defected to what seemed a more comfortable, moderate option. Nor was there any joy in the polls for poor Michael Foot, whether one looked at Labour support as a whole, or his personal standing as leader.

However, by-election results in the last part of the Parliament confirmed that in some constituencies there was a real danger of the Alliance splitting the centre-right vote and letting Labour in. A good Alliance result always risked setting off the bandwaggon which its friends in the media longed to see rolling. In March 1982 Roy Jenkins had won a stunning victory over us in Glasgow Hillhead. Only two months later we held our vote — and the seat — in Beaconsfield and in June we actually gained Mitcham and Morden from a defector to the SDP. Yet on 28 October there were by-elections in Peckham and Birmingham (Northfield) in both of which the Conservative vote was badly squeezed by the Alliance. As a result, we lost the Birmingham seat to Labour. The risks were evident, though looking at the figures in detail, the news was not all good for Labour: we knew that they would have to do a great deal better to stand any chance of winning a general election.

The last two by-elections of the Parliament were at Bermondsey in February 1983, where a far-left Labour candidate was routed by the Liberals, and Darlington in March which was held by Labour. We did not do well, but neither of these by-elections really harmed us. Labour was the main competitor in London, so Bermondsey was not likely to do us much damage. And although Labour won at Darlington, they did not do well enough to threaten our position nationally. The commentators loved to speculate, but no one knew how much tactical voting there would be against us in a general election — that is, how many people would vote for the candidates who seemed best placed to beat those standing for the Government, rather than for their preferred party. In fact, this sort of behaviour occurs much more rarely than predicted.

I always took a close interest in by-elections. I was regularly briefed by the Party Chairman about the issues and tactics, and I also received a detailed statistical breakdown from Keith Britto, our resident psephological genius at Central Office, on swings and their implications. I myself never took part in by-election campaigns in case I caused the Government to run unacceptable political risks in the event of a bad result: and results usually are bad when you are in power, especially in mid-term when many people wish to register a protest, safe in the knowledge that the result will not bring about a change of government. But I always sent public messages of support to our candidates and spoke privately to them afterwards to congratulate or — more usually — to console.

DEFENCE AND UNILATERALISM

Inevitably, defence was the political issue on which the Falklands War had the greatest bearing. During the Falklands campaign itself the nuclear issue was almost entirely edged out of public debate, though my speech at the UN Special Session on disarmament in June 1982 was an attempt to show how the same fundamental principles underlay the whole of defence policy.[40] However, in the autumn of that year, I began to be more concerned about the presentation of our nuclear strategy. I was anxious that the unilateral disarmers were still making the running on nuclear issues. Although public opinion was with us on the principle of the nuclear deterrent and opposed to unilateralism, there was a good deal of opposition to Trident II, mainly on grounds of cost, and to the stationing of Cruise missiles. Underlying both was a disagreeable streak of anti-Americanism. Accordingly, on 20 October and 24 November I chaired meetings of the Liaison Committee of Ministers and Central Office officials to explore the facts and refine the arguments.

Unilateralism became the official policy of the Labour Party at the 1982 Party Conference, when the necessary two-thirds majority was secured. Michael Foot personally had long been committed to the unilateralist position. It had an appeal in the universities and among some intellectuals and received a good deal of covert support from those in the media, especially the BBC. Labour councils had adopted the gimmick of declaring their areas ‘nuclear free zones’. Although the Campaign for Nuclear Disarmament (CND) had begun to lose support from the high point it had reached in 1981, it remained dangerously strong.

Of the two specific aspects of nuclear policy at the centre of debate — the independent deterrent and the stationing of medium-range nuclear missiles — it was the second which was the more controversial. Cruise missiles would have to be deployed sometime in 1983 and we could expect a major campaign to prevent this.

Ultimate control of Cruise missiles was the most tricky issue. The decision to modernize medium-range nuclear missiles in Europe, it will be recalled, had been made under pressure from the Europeans, particularly the Germans, anxious to prevent any ‘decoupling’ of the American and European wings of NATO. The Americans had developed and paid for the missiles, and therefore owned them, massively reducing the cost to European governments. There was a strong feeling in the US Congress that any US-owned missiles should be subject to US control. However, American ownership obviously carried implications if it ever came to decisions about use.

In Britain, distrust of the United States surfaced on the question of whether there should be a ‘dual key’ — that is whether there should be a technical arrangement to ensure that the US could not fire these weapons without the consent of the British Government. That would go beyond the existing agreement that the US would not use nuclear weapons based in Britain without an Anglo-American ‘joint decision’.

The United States had offered us the possibility of dual key right at the start, but to exercise that option we would have had to buy the weapons ourselves, which would have been hugely expensive. John Nott, before he left his post as Defence Secretary, had been attracted by the dual key option. But neither Michael Heseltine, his successor, nor I shared his view. The UK had never exercised physical control over systems owned and manned by the US. It was in my view neither fair nor necessary to ask the US to break with that precedent now. Also the more the Soviets were told about how and in what conditions Cruise missiles would be fired, the less credible they would be as a deterrent. The Soviets might be persuaded — and for the purposes of deterrence it did not matter whether they were right or wrong — that at the last moment a British Government might not agree to their use. Finally, the use of a dual key in the United Kingdom would have raised the whole question of arrangements elsewhere in Europe. In West Germany both government and public opinion would, as I have noted, only agree to deploying Cruise and Pershing II missiles if there was no German finger on the trigger.

So for all these reasons I satisfied myself through discussions with Washington that the position in reality was satisfactory from the point of view of British security and defence, and on 1 May 1983 I cleared personally with President Reagan the precise formula we should use to describe it. But I knew that it would be difficult to defend our line: not only anti-nuclear protesters but a sizeable number of our own supporters in and out of Parliament had their doubts. Moreover, most of the newspapers were opposed to us on the question of dual key.

The timing of deployment was bound to be a sensitive matter, especially with an election campaign ahead. We were anxious to avoid very visible signs of deployment in the run-up to or during the 1983 general election campaign, with demonstrations stretching police resources. Until almost the last moment we had been planning an autumn election. But as events happened we had an election in June, so this was not the problem which it might have been. (The launchers and warheads duly arrived in November.)

Elsewhere in Europe the situation was still more difficult. There was already a good deal of public criticism in Germany and Italy of NATO’s offer of the zero-option, which was widely felt to be unrealistic. And the Soviets were mounting a major public relations campaign.

It was crucial that NATO’s policy on arms control be well presented and that the alliance should stick together. On Wednesday 9 February I had a meeting at Downing Street with George Bush to discuss these matters. The Vice-President had a special remit from President Reagan to keep in touch with European governments and he did this with great skill. He was always very well briefed and had a friendly, straightforward manner, the proof that this reflected personality rather than artifice being that his staff were well known to be devoted to him. I now urged the Vice-President that the American Administration should take a new initiative in the INF negotiations. The aim should be to seek an interim agreement whereby limited reductions on the Soviet side would be balanced by reduced deployments on the part of the United States, without abandoning the zero-option as our ultimate goal — that is the complete elimination of intermediate-range nuclear weapons.

Mr Bush reported my views back to President Reagan who replied in a message to me on Wednesday 16 February. The President was at this stage somewhat noncommittal about a new initiative but said that he would be willing to consider seriously any reasonable alternative idea for producing the same result as the zero-option. This did not seem to me to be sufficient. I replied two days later on the hot-line. I stressed the success of Vice-President Bush’s visit to Europe, but pointed out that one of its effects had been to raise expectations. I hoped that the speech which President Reagan was due to make shortly on these matters would go beyond a restatement of the US position and begin to indicate how it might be developed. As things turned out, the President’s statement contained nothing new. So I continued the private pressure for further movement, while remaining in public totally supportive of the American position.

Then on Monday 14 March President Reagan sent me another message. He said that he had directed that a prompt review of the US position on INF negotiations should be made as a basis for new instructions to the US arms negotiating team. In the meantime, he asked that there should be no European calls for US flexibility and specifically asked me to express confidence in the very close coordination of our policies. I replied warmly welcoming his decision. On Wednesday 23 March the President told me the results of his review. While sticking to the ultimate objective of the zero-option, the chief US negotiator, Paul Nitze, would tell the Soviets at Geneva before the end of the current round of negotiations that the US was indeed prepared to negotiate an interim agreement. The Americans would stop deployment of a (still to be specified) number of warheads, on condition that the USSR reduced the number of warheads on its mobile long-range INF missiles to one equal with the US on a global basis. The President said that it was his tentative judgement that they should not offer specific numbers at this time. Again, I welcomed his decision, but argued that he should consider giving specific figures. In fact the President’s proposal announced on 30 March did not do so. But his modest flexibility did have a beneficial effect on public opinion and incidentally helped us in Britain fighting the general election campaign soon be upon us.

ECONOMIC RECOVERY

In that election campaign, defence would be of great political importance. Yet I had no doubt that the result would ultimately depend on the economy. Our economic course had already been set in the 1981 budget. We now had to see the strategy through. It was a remarkable testament to the soundness of public finances by this stage that we managed to pay for the Falklands War out of the Contingency Reserve without a penny of extra taxation and with barely a tremor in the financial markets. The economy was already beginning to recover and would have done so more rapidly but for sluggish world conditions. Geoffrey Howe’s 1982 budget was designed to encourage that recovery by helping business, while keeping inflation and interest rates coming down by reducing government borrowing. The principal measure of direct assistance to industry in the 1982 budget was a reduction in the National Insurance Surcharge. We were able to make further reductions at the time of the 1982 Autumn Statement and again in the 1983 budget. These made a direct contribution to cutting industry’s wage-related costs and helped to increase employment.

Another means of strengthening industry without becoming involved in the futile task of ‘picking winners’ was to promote the application of the new ‘information technology’ (IT). This was something in which I took a particularly close interest. As a scientist, I was fascinated by the technology itself; as a passionate advocate of free enterprise capitalism I was convinced that, given the right framework of laws and an appropriately educated workforce, it could widen choice, generate wealth and jobs and improve the quality of people’s lives. Both Keith Joseph at Education and Ken Baker at Industry felt as I did. We designated 1982 Information Technology Year and we all made special efforts to widen understanding of what IT could do for business. Of course, it was the young people who found it easiest to learn the new skills and one of our most valuable and appreciated initiatives was to put a desk-top computer in every secondary school.

By now the question we were being asked was not whether economic recovery would come but rather how fast and how sustainable it would be, and also when unemployment would begin to fall. Since the whole basis of our approach to economic policy was that politicians and civil servants do not know all the answers, I never felt tempted to pick figures out of the air. But I did my best to encourage confidence because as long as the fundamentals — the public finances, monetary policy, tax levels and so on — are sound, confidence itself leads to higher investment and higher consumer spending and so helps recovery. For example, on Tuesday 19 April 1983 I addressed the CBI annual dinner at the London Hilton. We were only weeks away from the election, though neither the audience — nor even the guest speaker — knew it. I reminded them that when I had last been their guest two years earlier there was plenty to worry about in the state of the economy:

Since then, however, cuts in the NIS had put £2 billion a year back into the hands of private companies. Personal tax had also been cut by raising thresholds faster than inflation. Interest rates were seven percentage points below their peak, saving industry about another £2 billion. The exchange rate had fallen from a high point of $2.45 in October 1980 to $1.54 now. This was providing a boost for exporters. Industrial output, housing starts, and car sales were all up. There was plenty of evidence of recovery — above all, one that was soundly based.

The money supply and government borrowing had been brought under control. Public spending was at last expected to begin falling as a share of GDP, if only slightly, now that the economy was growing again. Our overseas debts had been virtually halved. Productivity in industry was greatly improved. Most dramatically, inflation had fallen from 20 to 4 per cent — its lowest level for 13 years. Success against inflation was the single achievement to which we drew most attention as we approached the election, not least because Labour looked set to promise huge increases in spending and borrowing which could never be honestly financed and which would have sent prices soaring again. The black spot in the record was, of course, unemployment, which was still well over three million. It would be vital in the campaign to explain why this was so and what we were doing about it. Our ability to deal with this issue successfully would be a test not only of our eloquence and credibility but also of the maturity and understanding of the British electorate.

TRADE UNIONS

Unlike some of my colleagues, I never ceased to believe that, other things being equal, the level of unemployment was related to the extent of trade union power. The unions had priced many of their members out of jobs by demanding excessive wages for insufficient output, so making British goods uncompetitive. So both Norman Tebbit, my new Secretary of State for Employment, and I were impatient to press ahead with further reforms in trade union law, which we knew to be necessary and popular, not least among trade unionists.

Norman wasted no time. Towards the end of October 1981 he sought Cabinet agreement for what was to become the Employment Act, 1982. There were to be six main areas covered.

We would raise substantially the levels of compensation for those unfairly dismissed in a closed shop.

In existing closed shops there would be periodic ballots to test support among employees for their continuation.

We would make unlawful what were called ‘union labour only’ requirements in contracts, which discriminated against companies not operating a closed shop.

Henceforth, employers would be able to dismiss those taking part in a strike or other industrial action without having to run the risk of claims for unfair dismissal, provided that all of those taking part in the strike were dismissed.

The definition of a lawful trade dispute was to be further restricted in a number of ways, closing loopholes in Jim Prior’s legislation to limit immunities in case of secondary action.

By far the most important of Norman’s proposals related to the immunity currently extended to trade union funds. By virtue of Section 14 of Labour’s Trade Union and Labour Relations Act, 1974, trade unions enjoyed virtually unlimited immunity from actions for damages, even if industrial action was not taken in contemplation or furtherance of a trade dispute. They could not be sued for their unlawful acts or for unlawful acts done on their behalf by their officials. This breadth of immunity was quite indefensible. As long as unions were able to shelter behind it they had no incentive to ensure that industrial action was restricted to legitimate trade disputes and that it was lawful in other ways. Norman therefore proposed that this immunity should be reduced to that enjoyed by individuals under our 1980 legislation.[41] Both of these immunities would be restricted further by our proposals on ‘union labour only’ requirements and changes to tighten the definition of a trade dispute, which removed the immunity for disputes not mainly about pay and conditions and for disputes between trade unions.

The unions were bound to put up fierce opposition to moves which would expose them to contempt proceedings and payment of damages. Undoubtedly, they would claim that we were seeking to prevent their defending their members’ interests. So it was vital for us to explain the fairness of our proposals, and to emphasize that trade unions would only be at risk if they acted in ways which were unlawful for everybody else. We believed that the general public would see this as reasonable. We proposed also to set limits on the damages which could be awarded against a trade union, though of course there would be no limit on the fines which a court could impose for contempt — a most important qualification.

There was at first some opposition in Cabinet to Norman’s proposals, not all of which came from predictable quarters. But most of us were full of admiration for his boldness. He went away to consider some of the points made in discussion, but the package agreed by Cabinet in November was more or less on the lines he wanted. Norman announced our intentions to the House of Commons later that month. The bill was introduced the following February and the act’s main provisions finally came into force on 1 December 1982.

Far from being unpopular, these proposals were soon being criticized in some quarters on the grounds that they did not go far enough. The SDP were trying to out-flank us by urging greater use of mandatory secret ballots. Many of our own supporters wanted to see action to stop the abuses connected with the ‘political levy’, a substantial sum extracted from trade unionists largely for the benefit of the Labour Party. There was continuing pressure to do something to prevent strikes in essential services — pressure which always increased when there was a threat of public sector strikes, as happened frequently during 1982. But it would not have been practical to deal with all of these issues at once in a single bill: each raised complicated questions and we could not afford to make mistakes in this vital area. I was convinced that the giant step being taken by Norman on the immunity of trade union funds was sufficient for the moment. I was glad, however, that the atmosphere had changed and that the dangers of trade union power were now so much more widely understood. We were winning that battle too.

Norman and I had further discussions in the summer of 1982. In September he came forward with a paper containing his thoughts for new industrial relations legislation which would be formally submitted to ‘E’ Committee, with a view to inclusion in the manifesto. Norman had already announced that we would undertake consultations with interested parties on legislation that would require trade unions to use secret ballots for the election of their leaders. There was strong support in both Houses for mandatory secret ballots before industrial action. But we were divided on this.

Ministers now discussed what should be the priorities for the forthcoming consultative green paper. We agreed to concentrate on ballots for the election of trade union leaders, mandatory strike ballots, and the political levy. Norman had reservations about the use of compulsory ballots before strikes. We had previously concluded that these should be voluntary. Moreover, there were doubts whether or not the use of ballots would actually reduce the frequency and length of strikes. But I was very aware of the great advantages of linking trade union reform to the unassailable principle of democracy, and I was keen to see that the proposals on strike ballots were expressed in a positive way in the green paper.

We published the green paper under the title Democracy in Trade Unions, in January 1983. Ministers discussed in April where we should go from there. We had no difficulty deciding in favour of proposals relating to trade union elections and strike ballots. Two other issues proved much more difficult: the prevention of strikes in essential services and the political levy.

Public sector strikes and consequent disruption to the lives of the general public had been a feature of life in post-war Britain. Nineteen eighty-two was a particularly difficult year. There were two rail disputes. There was also a long and distressing strike in the National Health Service over pay, which began when ancillary workers took action in May and ended in mid-December. And industrial action in the water industry intensified interest in the whole question of how to deal with the disruption of essential services. But the practical difficulties of tackling the problem were immense. How should one define an ‘essential service’? How much would it cost the taxpayer in extra pay to secure ‘no strike’ agreements? What should be the penalty for failure to observe a ‘no strike’ agreement?

The political levy was a second difficult subject. It was paid by trade unionists into political funds held by their unions, the principal use of which was, as I have noted, in fact to support the Labour Party. Payment was on the basis of ‘contracting out’: that is, trade unionists contributed automatically unless they specified otherwise. On the face of it, it would have been fairer to base the system on a principle of ‘contracting in’ and some argued for the change. But ‘contracting in’ would have wreaked havoc with the Labour Party’s finances because of its heavy dependence on the unions. Had we introduced such a measure, there would undoubtedly have been pressure to change the system by which some companies donated to political parties, from which, of course, the Conservative Party heavily benefited. I never believed that the cases were parallel: after all, trade unionists in a closed shop could find it very difficult to avoid paying the political levy, especially when the employer had an agreement with the union to just ‘check off’ the levy from the employee. By contrast, shareholders who did not approve of company donations to a political party could either hold the Board to account for their decisions or simply sell their shares. But the funding of political parties was a sensitive topic. If we brought forward radical proposals on the eve of a general election, we would be accused both of attempting to crush the Labour Party financially and of unfairness on the matter of corporate donations.

On Tuesday 10 May I held a meeting of ministers at which we decided our manifesto commitment. On essential services, the introduction of strike ballots would clearly help reduce the risk of strikes in these areas. But we would also consult further about the need for industrial relations in specified essential services to be governed by adequate procedure agreements, breach of which would deprive industrial action of immunity. On the question of the political levy, we had evidence from the consultations on the green paper that there was widespread disquiet about the operation of the system and we proposed to consult with the TUC to see what action they were prepared to take, failing which we would act ourselves. These were matters to which we would have to return after the election. But we had made substantial progress in reducing the overbearing power of trade unions — much more than the fainthearted had ever believed possible. And far from proving a political incubus it was one of our strongest appeals to the voters.

POLICY WORK

For all sorts of reasons it is much easier to prepare for an election when you are in government than in Opposition. You have more information available about forthcoming events and more power to shape them. But parties in government have disadvantages as well, and you face two risks in particular. First, ministers can get out of the habit of thinking politically and become cocooned in their departments. Having to face, as I did, rigorous cross-questioning from an often hostile House of Commons twice a week, there was little danger that I, personally, would succumb to this: but others might. The second risk is that having implemented its manifesto, a government may run out of ideas. It is part of the job of ministers to see that this does not happen in their own areas of responsibility, and the job of the prime minister to prevent it happening to the government as a whole.

One of the main obstacles to the kind of forward thinking which all governments should do is the unauthorized disclosure of information by disaffected ministers or civil servants. A particularly serious problem arose in the last half of the 1979–83 Parliament. In March 1982 Geoffrey Howe asked officials to undertake an examination of long-term public expenditure up to and including 1990 and its implications for levels of taxation: their report was presented to me on 28 July. Spending ministers were inclined to think that this was just another exercise to soften them up for cuts in public expenditure. But in fact it was intended to get us all to examine how the long-term momentum for the expansion of the state and public spending might be curbed and reversed. As it turned out the paper was excessively gloomy and its most likely scenario underestimated very substantially the economic growth rate for the 1980s. To make matters worse, the CPRS prepared its own paper to accompany the Treasury paper, which contained a number of very radical options that had never been seriously considered by ministers or by me. These included, for example, sweeping changes in the financing of the National Health Service and extensions of the use of charging. I was horrified by this paper. As soon as I saw it, I pointed out that it would almost certainly be leaked and give a totally false impression. That is exactly what happened.

When the papers were discussed at Cabinet in early September, they made no great impact on our thinking. Our main conclusions could have been reached without any such exercise: that there should be no major new expenditure commitments pending further consideration, and that we should generally examine the scope for changing policies in ways which would bring public spending under proper control. My separate meetings with Keith Joseph on education and Norman Fowler on Health and Social Security confirmed that neither of them felt in any way attracted to the particular proposals which had been put forward, many of which were neither desirable nor practicable. But that failed to stop the media frenzy. A fairly full account of the CPRS paper duly appeared in the Economist. The Observer developed the story. The Economist later gave a blow-by-blow account of discussions at Cabinet. The Observer and then The Times revealed still more information. Of course, the Opposition had a field day. We were to be plagued by talk of secret proposals and hidden manifestos up to polling day and beyond. It was all the greatest nonsense.

There were two lessons from this incident which I never forgot. The first was that we had political opponents about us who would stop at nothing to distort and thereby prevent our forward thinking on policy. The second lesson was of equal importance: it was unacceptable for highly controversial proposals to come before Cabinet without the prior knowledge and approval of the ministers responsible. This raised acutely what role there could be for the CPRS.

In earlier days, the CPRS had been a valuable source of sound long-range analysis and practical advice. But it had become a freelance ‘Ministry of Bright Ideas’, some of which were sound, some not, many remote from the Government’s philosophy. Moreover, as I have noted earlier, a government with a clear sense of direction does not need advice from first principles. Now, as this incident had shown, the CPRS could become a positive embarrassment. That was why, shortly after the election, I was to dissolve the ‘Think-Tank’, and ask two of its members to join the in-house Policy Unit which worked more closely with me.

Ferdy Mount was now head of my Policy Unit. I had long been a great admirer of Ferdy’s witty and thoughtful articles even when, as over the Falklands, I did not agree with his views; and I was delighted when in April 1982 he agreed to succeed John Hoskyns. Ferdy was particularly interested in all that goes under the heading of social policy — education, criminal justice, housing, the family and so on, to which, in the wake of the 1981 urban riots, I was increasingly turning my attention. In late May he prepared for me a paper which contained the outline of an approach to ‘renewing the values of society’:

At this stage it was the themes rather than the particular measures which needed to be worked out, and Ferdy and I discussed what these should be. In education, for example, we wanted to increase parent power, widen the variety within the state sector and see whether we could come up with workable proposals for education vouchers. We were concerned about the lack of knowledge displayed by many children about our country and society, and our history and culture. Of course, these and other topics — like all the really great issues — were never going to be amenable to instant action. But both Ferdy and I were convinced that at the heart of the Conservative mission is something more than economics — however important economics might be: there is a commitment to strengthen, or at least not undermine, the traditional virtues which enable people to live fulfilling lives without being a threat or a burden to others. This was the beginning of many of the themes and ideas which would dominate my third term of office.

Indeed, as early as June 1982 I set up an ad hoc group of ministers to see how this ambitious programme could be developed, comprising Keith Joseph, Willie Whitelaw, Geoffrey Howe, Norman Tebbit, Michael Heseltine, Norman Fowler and Neil Macfarlane (as Sports minister). I invited Janet Young to join us in October. The group was officially — though rather misleadingly — known as the Family Policy Group’; the first meeting was held in July 1982 and detailed work was now commissioned. All sorts of questions came within its remit, including the reform of the taxation of husband and wife, education vouchers, reducing crime and the widening of home ownership through increased discounts for the sale of council houses.

It is never easy to make the transition from policy-making in government to writing a party manifesto. In 1982 I used a special exercise to ease the problem. In September I wrote to Cabinet ministers requesting them to prepare a ‘Five-Year Forward Look’ for their departments. These papers were to summarize what had been achieved, what was under way and what still needed to be done. I received most of these papers just before Christmas and looked through them over the holiday. As someone once said of British Rail food, there was a considerable variation in quality. Relatively little new could be said on Treasury matters because the strategy was clear and the real test was to follow through the policies we already had. Similarly, as regards the Health Service the main priority at that stage was to defend our record and explain what had been achieved, rather than embark on politically difficult new initiatives.

By contrast, in both housing and local government there was more room for new thinking. The ‘Right to Buy’ had proved a huge success, but the wider we could extend home ownership in this way the more difficult it would be for Labour to oppose it. In employment, we were preparing for the introduction of the Youth Training Scheme and discussing the next step in trade union reform which would eventually result in the 1984 Employment Act.

In education, Keith Joseph had begun what would be a long process of reform. Falling school rolls had allowed us to increase to record levels public spending per pupil and to achieve the best ever pupil-teacher ratios. But extra resources only permit improved standards: they do not ensure them. So Keith was pressing for changes in teacher training. He was issuing new guidelines for the school curriculum. Keith and I were also anxious to do something more to increase parents’ power to choose by seriously investigating the possibilities of vouchers or at least a combination of ‘open enrolment’ and ‘per capita funding’, that is a kind of voucher applying just to the state sector.

There was a new momentum for fresh thinking at No. 10 and ministers had taken stock of their policies. By the end of 1982, although I was still not expecting an early general election, I felt that the Government was moving, as it should, into the run-up for the next campaign. There were plenty of possibilities for mishap, but our general political position was strong and the economic prospect was improving. Indeed, well before the end of the year I had authorized the setting-up of party policy groups to consider these and other proposals for the manifesto. Speculation about the date of the election soon began.