The party Thatcher now led was associated in the public mind with industrial unrest and the three-day week. The Wilson government seemed to be in a strong position despite its small parliamentary majority. However, between 1975 and 1979, Labour experienced a long, slow decline in the unity of the party and the authority of the government.
The first major problem was a surge in inflation due to the rush of large wage increases that were deemed necessary to get out of the industrial crisis that had brought down Heath. Some pay settlements were as high as 30 per cent; the government was in a weak position in standing up to pressure from the unions. Overall, inflation was running at 20 per cent. In April 1975, Healey’s budget imposed steep rises in taxation. Healey’s next budget, in 1976, aimed to limit wage increases to a maximum of 3 per cent.
This approach intensified party division. Left-wingers like Michael Foot and Tony Benn did not want to put so much pressure on the unions. They also believed in more state intervention. The government decision to nationalise the failing car manufacturer, British Leyland, caused controversy about the role of government in rescuing ‘lame-duck’ industries. ‘Stagflation’ was back again.
In March 1976, the Labour government had to cope with the shock of Wilson’s sudden resignation. Wilson had previously promised his wife that he would step down at this point in time. He was also worried about his health, nowadays thought to be early stages of Alzheimer’s disease.
Wilson’s successor as prime minister was James Callaghan, a ‘safe pair of hands’ with long experience and good links to the unions. Callaghan was seen as an ideal leader to maintain party unity. By-election defeats in 1976 reduced Labour’s tiny parliamentary majority. The government faced difficult problems over the deadlock in Northern Ireland and especially over the economy. In December 1976, Denis Healey had to go to the International Monetary Fund (IMF) for an emergency loan of £3 billion. In return, the government had to make big spending cuts. Political opponents denounced this as a humiliation.
Callaghan handled the IMF crisis well and the economy recovered, but it reinforced the image of Britain in economic decline. The Conservatives claimed this was giving away Britain’s economic independence; the Labour left said it was caving in to capitalism and privatisation. Although Callaghan maintained unity among Labour MPs, there was a growth of leftist militancy in some public-sector trade unions and in local councils.
In 1977, Callaghan moved to strengthen the government by making the ‘Lib-Lab pact’. By this deal, the 12 Liberal MPs voted for the government in parliament and in return Callaghan promised to move ahead with devolution for Wales and Scotland. The economic situation began to improve as North Sea oil came on stream. By 1978, there were nine oilfields in production. Inflation rates fell. Economic experts were divided about what this recovery showed. Some saw it as proof that Britain’s recent economic problems had been exaggerated; others saw only a blip in irreversible economic decline.
In 1978, the recovery took the heat out of the agonising about Britain’s role as the ‘economic sick man of Europe’. Other issues came to the fore, especially devolution, the issue that Liberals demanded to be dealt with as the price for the Lib-Lab pact. After lengthy debates in parliament, devolution acts for Scotland and Wales were passed, opening the way for referendums, but there was no decisive outcome. The vote in Wales was 4.1 against. In Scotland, more people voted for independence than against but nowhere near the required 40 per cent of those eligible to vote. When the devolution referendums took place, in the winter of 1978-89, people were distracted by the crisis of the ‘winter of discontent’ and the imminent collapse of the Labour government.
Margaret Thatcher led the Conservatives into outright opposition against devolution for Scotland and Wales, reversing the policy of Heath, who had supported devolution since 1968. In the longer term, Thatcher’s anti-devolution policy rebounded disastrously against the Conservatives. In 1970, the Conservative Party had held 36 seats in Scotland, half the total. By the time of the 1997 election, the party was obliterated outside England, failing to return a single MP in either Scotland or Wales.
Thatcher’s success as leader of the opposition was underpinned by:
Her force of personality: The drive and confidence she showed at a time when the country, and her own party, wallowed in pessimism. She also worked hard at the skills of political presentation, using the public relations firm Saatchi & Saatchi to polish her image, a process that continued well after the 1979 election.
Her deputy leader, Willie Whitelaw, was very different from Thatcher in background, style and policy ideas but his main concern was party unity. His loyal support was vital in winning over the party’s Heath supporters.
Economic policy: Thatcher’s natural instincts were against ‘big government’ and consensus politics. She was influenced by the ideas of Enoch Powell and Sir Keith Joseph and began to adopt policies influenced by the economic theory known as monetarism. These ideas, however, were not fully developed by 1979; and they were not given prominence in the 1979 election campaign.
Thatcher’s preference for keeping her options open: As the 1979 election approached, the Conservatives offered broad-brush themes, avoiding very detailed and specific policies such as those Heath prepared before the 1970 election.
Thatcher’s standing in the opinion polls was lower than Callaghan’s. Thatcher had told a colleague in early 1979, ‘I shall be remembered as the woman who was allowed one go - to lead the party to defeat.’ This highlights how she was not confident of winning.
One key question about the general election of May 1979 is why it did not occur in 1978. Prime ministers have the ability to choose the precise time to call an election, when the political situation is most favourable. If Callaghan had gone for it in the autumn of October 1978, before the winter of discontent, the ‘turning point’ election of 1979 might never have happened.
By the spring of 1979, the political landscape had been reshaped by the winter of discontent. The economic situation deteriorated and the image of the trade unions sank to its lowest ebb since the war. Then, in March 1979, the government lost a vote of confidence in parliament, on the issue of Scottish devolution. The government was forced to resign. It meant that the 1979 general election took place at a time when Callaghan really did not want one.
The industrial unrest that gripped Britain in the winter of 1978-79 was not on a massive scale. Yet the psychological effect of the winter of discontent had a devastating impact on the public mood and thus on the fate of Callaghan’s government.
The wave of industrial action included disruption to transport, through strikes by lorry drivers and the train drivers’ union ASLEF. There was also shock and outrage in reaction to strikes by public sector workers, such as hospital porters and clerical staff in local councils and, above all, by dustmen and grave-diggers. People responded furiously to the sight of mountains of uncollected rubbish, of funerals being postponed, of doctors pleading with hospital staff to move sick patients from ambulances into the hospital.
These images dominated the media and the press for weeks on end. In the election campaign they were exploited to the full by the Opposition. One poster, ‘Labour isn’t working’, became a symbol of Labour’s vulnerability on the issues of unemployment, law and order, and the excessive power of the unions. In fact, many of the strikes in 1979 showed the weakness of the old union leaderships and their failure to control the new militancy of their workers. It was not only the Conservatives and the middle classes who reacted strongly against the winter of discontent. Many skilled and unskilled workers began to switch away from their traditional loyalty to Labour and to consider voting Conservative.
The Conservatives were able to fight the campaign mostly by hammering away at the unpopularity of the government. Despite this, the Labour vote actually held up quite well, dipping by 3 per cent overall. However, the Conservatives benefited from a sharp drop in support for the Liberals and for the Scottish Nationalist Party. This produced a comfortable working majority of 43 for the Conservatives.
It took time for her to establish complete domination over the party, if in fact she ever did achieve this. Her first cabinet contained several ‘wets’ (supporters of Heath who still believed in ‘One Nation’ politics) as well as ‘dries’ who were in tune with her right-wing instincts. Willie Whitelaw was appointed home secretary, with Lord Carrington as foreign secretary and Michael Heseltine minister of the environment. Thatcher did, however, ensure that the key posts, especially on the economy, were held by people she regarded as ‘one of us’. Geoffrey Howe became chancellor. The expansionary budgets of 1987 and 1988 under Nigel Lawson, a later Chancellor, are often called the ‘Lawson boom’.
At first, Thatcher was in no rush to have a confrontation with the unions. Later, in 1984, Thatcher chose to take on the miners in a trial of strength but she was not yet ready for this. Jim Prior was allowed to keep good relations with union leaders. Pay settlements in 1980 and 1981 were allowed to be generous. In 1981, the government intervened in a dispute between the National Coal Board (NCB) and the miners - on the side of the miners. The government pressured the NCB into withdrawing its planned pit closures, in order to ward off the danger of a strike by the NUM. Apart from the miners, workers in several industries gained index-linked pay settlements.
Despite her cautious approach to industrial relations, however, Thatcher was determined to push ahead with radical reforms in taxation and government spending. The new direction of economic policy was set according to the principles of monetarism. The impact of these policies resulted, by 1981, in steeply rising unemployment, social upheavals and massive unpopularity for Margaret Thatcher and her government.
From his first budget in 1979, Margaret Thatcher’s chancellor, Geoffrey Howe, set out to reduce government spending and to cut the high levels of taxation inherited from the outgoing Labour government. The basic rate of income tax was reduced from 33 % to 30. The top rate was reduced from 83 % to 60. Value added tax (VAT) was increased considerably, reflecting the Thatcherite vision that people should not be taxed on their incomes or property but on what they choose to spend on goods and services. These policies led to increased unemployment and a sharp contraction of industrial production. It was in the budget of March 1981, however, that monetarism was stringently applied, with very painful economic consequences, at least in the short term.
In 1980, the economy was already gripped by a serious recession, hit both by inflation, above 15 per cent, and also by sharply rising unemployment, going above 2 million. ‘Stagflation’ was back. The economy would have been in an even more disastrous state but for the flow of North Sea oil and gas that saved Britain from what would otherwise have been a serious balance of payments crisis and a run on the pound. The 1981 budget applied monetarist principles, aiming to eliminate inflation by controlling the money supply. Taxes on petrol, cigarettes and alcohol went up. Government borrowing went down. Grants to local councils were cut.
In the short run, these deflationary policies made the recession worse. Ever since 1951, the key goals of the post-war consensus had been full employment and subsidised welfare. Now, unemployment was seen as ‘a price worth paying’ to tackle the greater evil of inflation and to force British industry to become more competitive. The impact on industry was drastic. Steel production was cut by 30 per cent, to less than 14 million tons. Many industrial plants closed down permanently. The worst hit areas were the Midlands, the North, central Scotland and South Wales. Some commentators described what was happening as the ‘deindustrialisation of Britain’.
At the same time, major rioting rocked many of Britain’s inner cities. The first big outbreak was in the St Paul’s district of Bristol in 1980. In 1981, there were riots in Toxteth in Liverpool, Moss Side in Manchester and in Brixton and Southall in London. There was deep public anxiety about the breakdown of social cohesion.
Party divisions opened wider and several ‘wets’ were sacked or driven to resign. Sir Ian Gilmour marked his departure from the government by accusing Margaret Thatcher of ‘steering the ship of state straight on to the rocks.’ The government became hugely unpopular. In April 1981, the approval rate in the opinion polls went down to 27 per cent. Some polls showed the Conservatives in third place, behind both Labour and the Alliance. These levels of unpopularity carried through into 1982 - yet in 1983 the Conservatives were able to win a massive election victory. One reason for this is that the government slackened its monetarist policies in 1982 and 1983, softening the degree of economic hardship although unemployment remained over 3 million. The key reason, however, was the ‘Falklands factor’.
In the early 1950s there were about a million members of the Labour Party. By the early 1980s this had declined to 250,000. In 1997, it was about 400,000.
Between the general elections of 1979 and 1983, the Labour Party came close to political oblivion. The internal divisions that simmered through the 1970s, which had been mostly kept in check by Wilson and Callaghan, now boiled over. Press coverage of Labour was almost universally hostile. The revival of the Liberals meant that Labour no longer represented the only anti-Conservative opposition. Whole sections of Labour’s traditional political support leaked away.
Some Labour voters became ‘Thatcher Conservatives’; some voted Liberal. Some supported the far left in attacking the Labour leadership from within. Some became apathetic: stay-at-home voters cost Labour dearly in 1983. Worst of all, key personalities broke away to found a completely new party, the Social Democratic Party (SDP) in 1981. This splintering process les to a catastrophic defeat in 1983, far worse than 1979. Labour’s share of the vote plunged to 27 per cent (in 1966 it had been 48 per cent and even in 1979 Labour won 37 per cent). Only the first-past-the-post system saved Labour from a massive loss of seats.
The basic foundations of the Labour Party had crumbled as demographic change loosened the traditional loyalties of the working class. The unions were no longer such a source of strength. Many traditional Labour strongholds in local government were seen as having lost touch with the people they were supposed to serve. Pundits speculated about the ‘fundamental realignment of British politics’. The clearest sign of such a realignment was the emergence of the SDP in 1981.
The Social Democratic Party (SDP) was born in January 1981, when a group of leading Labour politicians, the so-called ‘Gang of Four’, issued their ‘Limehouse declaration’, announcing the formation of the Council for Social Democracy. In doing so, they triggered a storm of controversy within the Labour movement. In the eyes of Labour loyalists, the four ‘deserters’, David Owen, Roy Jenkins, Shirley Williams and Bill Rodgers, were guilty of betrayal.
In the view of the SDP leaders, they had been driven out of the party they loved by the hostility of the extremists who were now taking over. The best way to save the Labour Party was not to fight a losing battle against the Bennite left but to build a new centrist alternative capable of appealing to the middle ground. Later, after the 1997 Labour landslide, many of the SDP rebels of 1981 claimed that they had been the real architects of this victory, by ‘bringing Labour to its senses’ and forcing the party to reinvent itself.
The intentions of the Gang of Four were a closely guarded secret right up to the last minute. Left-wing influence in the party increased in the 1979s with growing support for Tony Benn and the emergence of ‘hard left’ pressure groups such as the Militant Tendency. Several constituencies were taken over by activists who organised the ‘deselection’ of their MP. One early victim of this was Dick Taverne, a Labour moderate deselected from his Lincoln seat in 1973. In response to left-wing activism, moderates formed the Manifesto Group, campaigning for more centrist policies. The real cause of the SDP breakaway was the bitter party infighting after Labour’s defeat in 1979.
The infighting did not start immediately. Callaghan did not resign until November 1980, 18 months after losing power. The ‘obvious’ candidate to succeed Callaghan was Denis Healey, the candidate of the centre-right. The party voted for the left-wing candidate, Michael Foot, a Bevanite and a supporter of unilateral nuclear disarmament. This reflected a tendency to turn inwards, to focus obsessively on internal rivalries and to ignore the issue of who was most likely to win the next election. The Wembley conference was notorious for the splitting hostility shown towards speakers by hard-left hecklers. This helped to convince moderates like Shirley Williams that it was time to give up on Labour and form a new, breakaway party.
The SDP soon make an impact on national politics. In the summer of 1981, Roy Jenkins almost won the safe Labour seat of Warrington in a by-election. Shirley Williams did win an even more sensational by-election in the safe Conservative seat of Crosby in November. Jenkins won Glasgow Hillhead in March 1982. Many Labour activists claimed the party ‘did not need’ people like Owen, Jenkins and Williams. What the by-elections said was that Labour could never hope to win back power without the voters who were now switching to the SDP. In another by-election, in the safe working-class seat of Bermondsey in east London, a ‘new left’ candidate, the openly homosexual Australian Peter Tatchell was resoundingly defeated by the Liberals, who claimed they had ‘broken the mould’ of the old two-party system.
The increased voting support for the Liberals in 1970 and 1974 did not result in more seats at Westminster but the monopoly of the two main parties was significantly loosened. The Liberals, along with the nationalist parties, did well in the Scottish Highlands and parts of Wales. They also gained ground in south-west England. The Liberals developed extremely successful strategies for fighting by-elections and local council elections. They were especially good at ‘pavement politics’, tailoring their campaigning to specific local issues. The standing of the Liberals in the opinion polls shot up, matching the steep decline in support for Labour. In several areas, the Liberals replaced Labour as the main challengers to the Conservatives.
The Liberals hoped to achieve the realignment of British politics through reform of the voting system. The first-past-the-post system worked against the Liberals, whose increased share of the total votes was not matched by any increase in seats in parliament. Some form of proportional representation, what Liberals called ‘fair votes’, would lead to major political change. There was little chance of the two main parties going along with this. The Liberals saw an alliance with the SDP as their best way forward.
At first, there was an informal alliance. Roy Jenkins fought the Warrington by-election for the SDP ‘with Liberal support’. Later, the alliance became a formal agreement. Relationships between the two parties were often tense. There were differences between the leaders, the ‘Two Davids’, Steel and Own. Some elements of both parties had never wanted a merger at all. Even so, the Alliance seemed able to have overtaken Labour as the credible opposition to Margaret Thatcher’s government.
At the beginning of 1982, Thatcher was one of the most unpopular prime ministers in living memory. Unemployment was approaching 3 million. The violent disturbances in inner cities also caused concern, as did Thatcher’s attacks on local councils. Although the Labour Party was in crisis, support for the SDP-Liberal Alliance was going up rapidly. There was a genuine fear among Conservative MPs that the next election might be very difficult to win.
The military regime in Argentina invaded the Falklands Islands in April 1982. Thatcher’s immediate response was a full-scale military effort to recover the islands. The British forces achieved complete success. This decisive and relatively painless victory was seen as a vindication of Thatcher’s bold leadership. There had been opposition to the war but, from the very beginning, the war had unleashed a wave of patriotism around the country. There was lavish approval from most of the national press, led by The Sun. Even most of the Labour Party supported the recovery of the Falklands.
The ‘Falklands factor’ galvanised the grass-roots Conservative activists. Thatcher gained in self-confidence and began to dominate the party in a way she had never been able to before. The Falklands War was a springboard for her election victory in 1983. On its own, the Falklands factor might not have been enough to bring about a landslide victory for Thatcher; she also benefited from the catastrophic weakness of the opposition.
In 1983, the Labour vote was down to 8.4 million, only 27 per cent of the total vote. The Liberal-SDP Alliance was barely 2 per cent behind. The Conservatives had a huge majority of 144 seats. Conservative success was not due to mass approval for Thatcher, popular though she undoubtedly was. The crucial factor was the splintering of political opposition and the fact that the Labour leadership lacked credibility. Even Michael Foot’s admirers thought of him as a man best suited to principled opposition to the government rather than leading a government. Another weakness in 1983 was the Labour election manifesto, a mishmash of mostly left-wing promises, including unilateral disarmament and the abolition of foxhunting. One Labour MP, Gerald Kaufman, labelled the manifesto as ‘the longest suicide note in history’.
The 1983 election saw a rise in support for the SDP-Liberal Alliance but this was much less than might have been expected in 1982. Potential support for the Alliance was taken away by the Falklands factor. The 1983 result was also yet one more example of the distorting effect of the first-past-the-post system. The Alliance won only half a million fewer votes than Labour but 186 fewer seats in parliament. Even discounting the nationalist parties, the anti-Conservative vote totalled 16 million, three million more than the pro-Conservative vote, yet Thatcher’s majority was 144. This leads historians to question whether the Conservative dominance in the 1980s was more to do with a weak and divided opposition that with a wave of enthusiasm for Thatcherism.