Geoffrey Howe told cabinet colleagues government would be accused of 'attacking the poor and breaking its election pledges'
A plan by Margaret Thatcher's first chancellor, Geoffrey Howe, to cut the value of the state pension in autumn 1980 triggered a secret cabinet revolt with warnings that it would involve breaking an election pledge for which the Conservatives would pay dearly for many years to come, official papers show.
A highly unusual "most confidential record" of the 1980 papers show that, on 14 November, Howe told his cabinet colleagues the government would be accused of "attacking the poor and breaking its election pledges", but he couldn't exempt the social security budget from his third round of cuts because it made up 25% of public spending. He argued the elderly had to take their fair share of the general reduction in living standards.
But the cabinet minutes show that not only did the social security secretary, Patrick Jenkin, point out that Thatcher had earlier that year personally pledged on television to maintain the value of the state pension, but other senior ministers feared it could provoke riots.
"It was the general view that the government could not go back on its firm pledge ? to do so would mean that this government, and the Conservative party, would be charged now and for many years in the future with breaking faith with old people. It would moreover risk provoking social unrest at a time of deep disquiet, particularly outside the south-east region, over rising unemployment."
Faced with such internal opposition, Thatcher abandoned Howe's plan to cut the state pension by 3%. But the previously undisclosed episode, as the Tory government tried to find ever-deeper public spending cuts, echoes down the years as David Cameron and Nick Clegg battle a similarly spiralling rise in government borrowing.
The official papers show that, as Howe had to draw up yet another ineffective package to control public spending, he considered ever more "dramatic solutions", including imposing a �2 charge to see a doctor, a 15p basic rate of tax financed by the abolition of personal allowances, and even replacing income tax with a modified form of poll tax.
The papers, released by the National Archives today, also reveal that six weeks before Thatcher made her "the lady's not for turning" conference speech she was warned by the former Tory prime minister, Harold Macmillan, that her brand of "divisive politics" was not only undesirable but would prove ineffective.
When Thatcher spoke in Brighton, unemployment had hit 2 million and was rising, interest rates were to peak at 17%, inflation had peaked at 22%, and the British economy was heading for the bottom of its worst slump since the war.
The Confederation of British Industry had promised Downing Street a "bare knuckle fight" over the future of industry.
Macmillan was the embodiment of "one nation Toryism". In a private memo he reminded her that consensus politics "although sneered at by some" was "the essence of Tory democracy".
"Divisive politics in a democratic system are not likely to be applied for sufficient length of time to become effective, even if such methods were desirable," he wrote.
His memo, dated 20 August 1980, followed a weekend he spent at Chequers earlier that month with Thatcher, and went on to warn her that the deflationary monetarist policies she was following were "threatening not merely an alarming increase in unemployment ? but in due course it threatens a serious blow to the balance of payments through the collapse of parts of certain important industries". Four years later "Supermac" would publicly attack Thatcher for "selling off the family silver".
When Macmillan's memo arrived at No 10, Thatcher was on a rare holiday at Lake Zug in Switzerland where she met a Swiss monetarist, Karl Brunner, who convinced her the Bank of England was sabotaging her economic policy and recommended she contact the English monetarist Alan Walters for help. He was installed in Downing Street as her chief economic adviser, with fatal consequences for Nigel Lawson's career as chancellor.
As soon she returned from Switzerland the governor of the Bank of England, Gordon Richardson, and his deputy, Eddie George, were summoned for a showdown: "The prime minster is much preoccupied with what she sees as a failure of monetary policy ? relations with the chancellor are not good at present, and with the governor are appalling ? at least in the PM's eye," says one Downing Street note written on 3 September 1980.
"Banking figures to be announced tomorrow are pretty horrible," reads another note a week later. "The prime minister is angry about this, which confirms in her view what the Swiss bankers told her when she was on holiday ? that her strategy is right, that ? the Bank of England is not interested in running her policy. We had a stormy meeting last Wednesday. There is another episode at 3.30 this afternoon." The minutes of that meeting record her telling Richardson "she felt the centrepiece of government strategy was being undermined by her own supporters".
Minutes show that even Thatcher's most loyal cheerleader, her press secretary, Bernard Ingham, couldn't spin his way out of the fact Britain was heading for the rocks: "You will recall that at our meeting last week you were attracted by the idea of a campaign built on the good news concept ? good sense, good use, good business, good times, etc," he told her in April 1980. "The more I have thought about it, the less I am attracted in 1980 to a campaign unified by the word 'good'. The truth is that 1980 is not going to be a good year."
Source: http://www.guardian.co.uk/politics/2010/dec/30/state-pension-geoffrey-howe-margaret-thatcher
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