Whatever the rest of the world may have expected, the British people did not spend much energy grieving over their lost empire or hankering after past glories. Apart from crises in which Britain was directly involved, such as Berlin in 1948, Suez in 1956 and the Falklands in 1982, little of what was occurring in the outside world distracted them from domestic concerns. Their attention was overwhelmingly fixed on the economy at home, on wage bargaining and wage restraint, on the trade unions and their growing power, on whether Britain could keep pace with, and later whether it could catch up with, the spectacular progress of its West European neighbours, above all on whether people felt confident about better times ahead. These issues decided elections. Chancellors of the exchequer had to develop policies that would create the right economic conditions and the right mood on election day. Labour and the Conservatives attacked each other’s economic policies, though in practice a consensus prevailed on many aspects of domestic policy at least until 1979: to sustain full employment, to aid declining industry and to promote economic growth. There was, of course, a price to pay; over-manning meant low productivity, sheltered industries became less competitive, and steeply progressive taxation to meet the costs of these policies had to be exacted. Britain slipped further behind, its standard of living advancing more slowly than that of its West European neighbours. Yet economic statistics alone do not accurately reflect the quality of life. Home ownership, for example, had spread to relatively low-income groups, much further than on the European continent. Government policies sought a surge in productivity, growth in manufacturing exports and a reduction in imports of consumer goods from cars to refrigerators, from washing machines to television sets, which were coming to be regarded as basic requirements. If these needs could be met from production at home and if Britain could export enough to pay for its necessary imports, the economy could develop healthily. Progress was made but it ran into periodic crises, and what became known as stop–go economic management began to typify treasury policy. Up to the early 1950s the British economy was still holding its own in manufacturing, and the city of London was contributing valuable ‘invisible’ earnings by providing banking and insurance services. Western Europe was still recovering from the war, but the overall trend is made very apparent by the statistics set out in the table below. The British economy suffered from another problem. The average rate of 2 to 3 per cent annual growth hides large variations between the fast-growth ‘go’ years and the slow-growth ‘stop’ periods. The average annual growth rates of industrial production in the ‘go’ years of 1953 to 1955, 1959 to 1960 and 1962 to 1964 were a respectable 5.8 per cent annually, but the ‘stop’ periods in between, 1955 to 1958, 1960 to 1962 and 1964 to 1966, raised production by an annual percentage of only 0.9 per cent. During the 1970s and early 1980s the gap between the performance of Britain and its neighbours in manufacturing grew rather than decreased, and its manufacturing output fell steeply, creating large-scale unemployment. In relative terms, Britain was not doing well; but people compared their living standards with earlier years, not with those of their continental neighbours. During the Conservative years from 1957 to 1964 these standards were rising significantly, with improved housing, more effective social services, a National Health Service that removed financial worries from illness, higher real wages, better education and better provision for the old-age pensioner. The blessings of full employment came to be regarded as the norm. There were more vacancies for the skilled and new openings in the professions and the civil service. More university places and increased provision of grants made it easier to cross class barriers, especially for the ex-servicemen. Complete equality of opportunity did not exist any more then than it does now, but there were no insuperable barriers for the talented, the hardworking and the highly motivated. Compared with before the war, Britain had become a much better country to live in. Harold Wilson’s years as prime minister from 1964 to 1970 were remarkable for new thinking and experimentation to improve Britain’s performance in a mixed economy, combining state and private enterprise. Wilson believed that government had to become more interventionist and to copy the indicative planning that had proved so successful in Germany and France. Central to this aim was the attempt to establish a link between higher wages and productivity. Prices and incomes were compulsorily regulated by a governmentappointed board set up in 1965. In March 1966 Wilson went to the country and succeeded in massively increasing Labour’s majority. But the following year the economy ran into severe trouble, and sterling was belatedly devalued. The attempt to coordinate national economic planning with a Department of Economic Affairs (headed by the deputy Labour leader George Brown) was in ruins. Britain’s foreign and military commitments ‘east of Suez’ were cut in 1968. Wilson extended state control and renationalised steel, a move which in the long term cost the taxpayer dear in subsidies. Low wages and workers’ discontent led to many strikes. With the Labour Party financially dependent on the trade unions, the government could not put in place effective legislation to curb their power, which was unbalancing industrial relations. That was the biggest hole in Labour’s planning for a more efficient Britain. Direct state investment was not always successful, though private industry did not always choose the right path either. The merger of British car manufacturers into Leyland only accelerated the downward path of this once highly competitive and successful industry. Wilson also tried to obtain Britain’s entry into the European Economic Community, but was blocked a second time when de Gaulle vetoed the application in November 1967. Labour paid particular attention to policies designed to equalise opportunities for all Britain’s young people. Schools were reorganised into mixed-ability ‘comprehensives’; more successful was Labour’s continuing commitment to the expansion of university and higher education first launched by the Conservatives. But the continuing flaw was the lack of attention given to technical education: it was not accorded an academic esteem equal to that of other subjects – which it has long received in Germany, for instance. The privileged private ‘public schools’ were not abolished and so continued to underpin a class-based society, though mobility between the classes did increase significantly. The middle classes widened and so did middle-class culture. More young people aspired to own a house rather than rent; by 1970 half of all houses were owner-occupied. In 1961 only 4 million Britons travelled abroad for their holidays; in 1984 15 million did so. Washing machines, televisions and cars were no longer the preserve of the few. Women began to insist on equal rights: the contraceptive pill gave them full control over their sexuality. Despite continuing hardships, especially in the north of England and Northern Ireland, the 1960s and 1970s were years of expanding horizons and growing freedom. Among the dark areas were inner-city neglect, unemployment, drugs and racial tension aggravated by youth unemployment. Second- and third-generation immigrants, nurtured on civil rights and protest movements, were not as willing to accept discrimination as their parents and grandparents had been. The race riot in London’s Notting Hill in 1958 was a foretaste of what was to come: Bristol, Brixton, Liverpool (Toxteth) in the summer of 1981 and Handsworth in 1985, drew attention to the problems of densely populated, deprived city areas. In the 1970s and 1980s a new phenomenon arose to threaten the strong social cohesion of Britain, that of whole groups becoming alienated from society, such as the unskilled black and white youths, whose prospects of employment had become remote and who now sought expression in an alternative society while relying on welfare handouts. To them the politicians in Westminster were distant and unreal. But youth unemployment in the 1970s and 1980s was not just a British problem – it plagued Western European countries. Although the existence of a black economy should be taken into account, the official statistics tell a shocking story of waste and frustration. Another black spot was Northern Ireland. The partition of Ireland in 1920–1 after the bloody civil war was never fully accepted by the south, while the Protestant majority in the six counties of Ulster in the North insisted on the maintenance of union with Britain. The Catholic minority in Ulster was discriminated against and deprived of political influence. A separate government and parliament at Stormont, under Westminster’s ultimate authority, allowed discriminatory practices to continue which would not have been tolerated in the rest of Britain. The Irish Republican Army, or IRA, which aims to coerce the north into a unified Ireland, has successfully resisted the Protestant-dominated Royal Ulster Constabulary, or RUC. Economic decline aggravated the conflict. IRA militancy was revived by the Provisional IRA offshoot, and Protestant militancy by the formation of the Ulster Defence Association. In 1969 British troops were sent to Ireland to reinforce the police, but the number of bombings and sectarian killings rapidly increased. With firearms on the street, calamitous mistakes were bound to occur. The worst was Bloody Sunday, 30 January 1972, when British troops opened fire on a banned Catholic civil-rights march in Londonderry, killing sixteen. IRA terrorists meanwhile carried out a series of vicious murders: on 21 July 1973 twenty bombs indiscriminately killed eleven people in Belfast; in 1979 Lord Mountbatten and eighteen soldiers were the victims of attacks. By 1992 some 3,000 civilians and soldiers had lost their lives since the ‘Troubles’ began. Catholic and Protestant Church leaders have condemned the killing of innocent people, but in vain. For a whole generation of youngsters violence became the norm. The efforts of British governments to find a solution failed, even though the province was directly subordinated to Westminster in March 1972, under the day-to-day control of a secretary of state for Northern Ireland. Attempts to achieve cooperation between London and Dublin made some progress, but they did not end the cycle of violence. The first attempt was the December 1973 Sunningdale agreement, which proposed Catholic–Protestant powersharing in the province and the handing back of control to a Northern Irish executive. But there was a backlash from Protestant workers and the agreement was buried. The middle ground of Catholic–Protestant relations – represented, for example, by the non-sectarian Alliance Party – has remained too weak. Hopes of cooperation between London and Dublin were revived by the signing of the Anglo-Irish Agreement in November 1985, by Margaret Thatcher and Garret Fitzgerald. But Protestant opponents in Northern Ireland denounced the idea of giving Dublin any role in Northern Irish politics as ‘treachery’, although the government of the Republic of Ireland had recognised that Irish unity could be brought about only by the consent of the majority in Northern Ireland. The agreement has also been condemned by the IRA and its political wing Sinn Féin. Nevertheless, the cooperative institution created by the agreement, the Intergovernmental Conference, continues to function, even though its practical achievements have been sparse. Despite the difficulties the Wilson government had experienced economically from 1967 to 1969, Labour was expected to beat the Conservatives when the prime minister called the election for June 1970. To most people’s surprise, the Conservatives won, and their leader Edward Heath was in 10 Downing Street. Heath, a grammar school boy, represented a break with the tradition of grand Tory leaders of the Macmillan and Home school. He had a good record as a minister, and although he had failed to overcome de Gaulle’s veto of British entry into the EEC, his handling of the negotiations from 1961 to 1963 had earned him respect. Now it was Heath’s and the Conservatives’ turn to try to cure the ‘British disease’ of economic inertia. The remedy adopted was a marketoriented approach: a vigorous Britain would diminish government subsidies and welfare and reward hard work and enterprise; taxation was to be reduced, the frontiers of the state rolled back; wage control was abandoned. Social programmes were cut, including free school milk. But the doctrine of non-state intervention and bale-outs of industry was quickly reversed, the U-turn beginning in February 1971 when Rolls-Royce was rescued and taken into public ownership. The undoing of the Heath government was its bitter clash with the trade unions. The restriction of their rights by the Industrial Relations Act in 1971 coincided with an economic downturn. In 1973, the rise in oil prices made the situation still worse. The Heath government now resorted to draconian price and wage controls. Government intervention even came to exceed that of Labour. In February 1974 the miners went on strike against the government wages policy. That winter of gloom the lights literally went out and industry was forced to work a three-day week. The government’s confrontation with the miners was thoroughly mishandled and when Heath called an election in February 1974 on the issue of ‘Who governs Britain?’ he narrowly lost. The major achievement of Heath’s administration had been Britain’s entry at last into the Common Market in 1973. In this critical area of policy Heath and Wilson were agreed, though both were faced with considerable opposition within their own parties on the issue. Wilson’s difficulties were the more serious. In October 1971 the Labour Party Conference had voted against joining the EEC. It was, therefore, fortunate that it was under a Conservative government that the terms Heath had secured were submitted to the Commons for approval. The terms of accession allowed Britain a transitional period of adjustment for a maximum of six years. By then, with few exceptions, its food prices would rise above world prices as duties would be imposed on food imported from the Commonwealth and the US. The formula for calculating Britain’s contribution to the common budget created such a disproportionate burden that Margaret Thatcher had to negotiate its reduction, amid much acrimony, during her first administration (1979–83). Support for and opposition to ‘joining Europe’ aroused great passions, though more so in Parliament than in the country as a whole, where a majority were simply in favour of efforts to find solutions to Britain’s problems. The opposition in Parliament could marshal powerful arguments: the loss of sovereignty and submission to the bureaucracy of Brussels; the disadvantage to Britain, with its small and efficient agricultural sector, of the regressive Common Agricultural Policy; and the high cost of membership because of Britain’s large budget contributions. The proponents’ claim that the advantages of the larger market counterbalanced the cost underestimated the difficulty of making Britain competitive. The House of Commons majorities were never large, but enough Labour pro-Europeans voted for the bill to cancel out the Conservative antimarketeers and the majority of Labour members who voted against. Wilson held his party skilfully together by promising to negotiate better terms and then to submit the decision to the nation in a referendum. The bill passed through the Commons on 13 July 1972 and Britain entered the EEC on 1 January 1973. In February 1974 it fell to a minority Labour government to try to solve Britain’s problems and to halt its economic decline. During the election campaign, Labour had offered the country something new: the so-called Social Contract between the government and the trade unions. In return for repealing Heath’s 1971 Industrial Relations Act and so freeing the unions from the threat of legal action, the unions promised voluntary wage restraint. By the time Wilson called another election in October 1974 the worst industrial troubles were over. The need to secure a Labour victory acted as a restraint on the unions. The miners’ strike had been settled and the country was back to a full working week. This time, in October, Labour gained a small working majority. But by 1975 inflation had rocketed to 24 per cent, and wage settlements were even higher. The Social Contract was not working. Once more Wilson had to resort to what amounted to a virtually compulsory pay policy. Wilson was also confronted with the divisive European issue. He had promised to renegotiate the terms of entry to the EEC and to submit them to a referendum as the best means to reconcile his divided party. He secured significant concessions in the negotiations and by a twothirds majority the electorate endorsed Britain’s membership of the Community. In March 1976, Wilson unexpectedly resigned. After a total of eight years at 10 Downing Street trying to manoeuvre between the left and right of his party and the trade unions, he apparently lost his zest for politics. The economic crisis facing the country was the most severe since 1947. His hopes of regenerating British industry from the left had been dashed. But he had provided a steadying influence and in his way he had as unflappable an air as Macmillan. His administration bequeathed the National Enterprise Board, whose purpose was to stimulate growth in profitable new industry through government investment, in return for a share of the profits. The government had also established the British National Oil Corporation, taking a majority stake in it to ensure that the state would profit from the forthcoming bonanza of North Sea oil. But the extension of state intervention in industry was bitterly attacked by the Conservative opposition. When James Callaghan took over the reins of government in April 1976 he found the Labour majority precarious and the country in deep economic trouble. He secured his parliamentary position by entering into a pact with the Liberal Party, allowing its leader David Steel to exercise a major influence on government legislation without entering the government itself. In this way Callaghan was able to soldier on until 1979. Once more in the forefront of policy objectives was wage restraint, and fresh negotiations were held with the Trades Union Congress (TUC) in 1976. But in trying to maintain for too long sterling’s dollar exchange rate, Britain faced a serious financial crisis in its balance of payments in 1976 and had to take a large loan from the International Monetary Fund on condition that cuts were made in public spending. The economy began to fare better, inflation came down to just below 16 per cent in 1977 and to 8 per cent in 1978, but unemployment stubbornly remained around 1.5 million (about 8 per cent). Working people had taken cuts in their living standards under successive phases of pay restraint; in the winter of 1978–9 pressure mounted to retrieve lost ground in past wage settlements. When Callaghan tried to bring down inflation further by announcing a wage-rise norm of 5 per cent, which would have entailed further cuts in living standards, there was widespread revolt. If Callaghan had gone to the country in the autumn of 1978 when the country appeared to be at last out of crisis and on a steady course, he might have won the election. The pervasive industrial unrest of what became known as the ‘winter of discontent’ destroyed his chance of victory. Even the gravediggers struck. It seemed to working people that they were being called upon to ‘solve’ Britain’s problems by depressing their living standards time and time again; a family man could not live on his wages but was forced to collect a whole range of state social benefits. The country was in a mess. Many blamed the unions, others the government. Having lost the support of the Liberals and of the Scottish nationalists after the failure to push through devolution proposals for Scotland and Wales, the government was forced to hold a general election in May 1979 and was soundly defeated. A new Conservative prime minister, Margaret Thatcher, who had ousted Heath as party leader in 1975, promised radical change. Like Heath she did not come from a privileged background, but was the proud daughter of a grocer; she was an example of what could be achieved in post-war Britain by hard work, courage and dedication. Describing herself as a ‘conviction politician’ whose policies and outlook were based on simple values, she gained the support not only of the middle classes but also of the working classes, especially among the skilled workers whose differentials had suffered. With the austere Sir Keith Joseph as her intellectual mentor, she promised to move away from the past compromises of Labour and Conservative, which had shifted the centre of politics constantly to the left. The new policies were designed to allow market forces to improve Britain’s competitiveness. State industries would be made so efficient that they could hold their own without subsidies from the taxpayers; once profitable, some of them would be sold back to private enterprise. The power of the trade unions would be curbed, and they would be made accountable both to their members and to the public. According to Conservative thinking, a better balance between employer and employee would in this way be restored. Individual responsibility and independence had to be encouraged; hard work and enterprise would once again reap their rewards. Direct taxation was reduced. A popular electoral move was to promise that councilhouse tenants would be able to buy their homes at a reduced price. Social benefits would be restricted to those who, through old age or sickness, were not able to help themselves; they would not be extended to the able-bodied striker for instance. The government would not finance its expenditure by printing money and so fuel inflation; sound money would be its watchword. During Mrs Thatcher’s first year in office, the election promise to honour pay awards led to widespread and substantial wage increases. This, together with the second oil-price rise of 1979– 80, knocked the economy sideways, as inflation climbed to over 20 per cent. The government nevertheless carried out part of its programme by shifting the fiscal burden from direct to indirect taxation. The lowering of income tax, and the promise to reduce direct taxation further, proved an election winner over the next decade. The harsh deflation of 1980 and 1981, with a tightly controlled money supply and high interest rates, decimated British manufacturing industry and sent unemployment soaring to over 3 million. Full employment had ceased to be a priority of government policy. By the autumn of 1981, according to opinion polls Margaret Thatcher had become the most unpopular prime minister since Neville Chamberlain in 1940. But she now displayed what was to become her greatest electoral asset: she stuck to her policies. Within the government too she asserted her control, gradually ridding herself of ‘wet’ ministers – former prominent Heath supporters – and replacing them with loyal followers of her own views. To the country at large she declared that there was no other way to restore the patient to health. The Labour opposition meanwhile was enfeebled by internal divisions between its militant left, the soft left and the right. Its drift to the left led in 1981 to the formation on the right of an entirely new party, the Social Democratic Party, which later concluded an electoral pact with the Liberal Party, and the Alliance was born. For a time it appeared uncertain whether the Labour Party would survive as the main opposition. The split in the opposition electoral vote rendered Thatcher’s Conservative government unbeatable for almost a decade, although the Conservative share of the vote never exceeded 44 per cent at the general elections of 1979, 1983 or 1987. In April 1982 Britain was plunged into a most improbable conflict with Argentina. When the Argentinian junta invaded the Falkland Islands, Margaret Thatcher did not hesitate. Regardless of the cost of defending a barren island with more sheep on it than people, a principle was at stake: Britain had to respond when its territory was attacked. The Falkland islanders were British and had rejected any form of Argentine sovereignty. If Britain allowed itself to be expelled by the Argentinians its credibility as a significant power would be gravely damaged. Unlike the Suez adventure, this was an enterprise that attracted overwhelming public support. Just a year later, in June 1983, Margaret Thatcher fought her second election. Helped by the Falklands victory, and by the tough leadership she had displayed, the Conservatives won a landslide victory with a parliamentary majority of 188 over the Labour Party, whose share of the vote had sunk to 27.6 per cent. The Labour Party was severely handicapped by two issues: its promise to take Britain out of the European Community if elected, and its adherence to unilateral nuclear disarmament. The Conservatives had a commanding majority of 144 over all other parties combined. The new Alliance, at this, its first test, was closely behind Labour, with 25.4 per cent of the vote, but the electoral system gave them only twenty-three MPs. The question remained open: would a three-party contest now become the norm, or would the Alliance or Labour emerge as the winners in a resumption of two-party politics? Thatcher’s second administration, from 1983 to 1987, saw no let-up in the attempt radically to reshape Britain’s economy. Public expenditure and the budget deficit would be reduced. Privatisation of state-run industries would be accelerated: British Telecom, British Airways and British Gas provided a lucrative sales programme. The administration was cautious on defence, increasing expenditure and supporting the American cruise missile installation on bases in Britain. Law and order and strengthening the police were also high on the list, while further restrictions were imposed on the unions in the Trade Union Reform Act. Even so, it was from the National Union of Miners, led by Arthur Scargill, that the government faced its most serious threat. The miners had brought down Heath; could they now bring down Thatcher, who was not only determined to curb the unions in general but ready to take on the miners? The new National Coal Board’s head was Ian MacGregor, who had gained a reputation for ruthless efficiency by slimming down and rationalising the steel industry, in the process defeating the steel workers; his appointment to the NCB by the government persuaded the coal miners to strike for fear of pit closures and job losses. The strike began in March 1984 and ended in defeat for the miners a year later. In the course of it, there were many ugly confrontations between miners and police. But the government was fully prepared, with large coal stocks, and in any case the Nottingham and Derby miners refused to strike, so dooming the National Union of Miners to defeat. Despite a great deal of sympathy for the hardship suffered by the miners and their families, there was little nationwide support for the leadership of the NUM or the trade union bosses. The government’s economic policies, however, continued to be heavily criticised. Unemployment rose to over 3 million, and spending cuts put the government at loggerheads with local authorities. Admiration for Thatcher’s composure was again aroused in October 1984, this time after the IRA’s bombing of the Grand Hotel in Brighton, where the Cabinet was staying during the Conservative Party Conference. But her personal style of leadership was also now meeting mounting criticism, culminating in January 1986 in the walkout from her Cabinet of the popular defence secretary Michael Heseltine. The rights and wrongs of their quarrel were less important than Heseltine’s accusation that Margaret Thatcher no longer accepted the normal practices of Cabinet government, that her behaviour represented a breakdown of the constitutional process. These were the first warning signals that approval for strong leadership could turn into general resentment of ‘bossiness’ and ‘nannying’. It was also noted that Thatcher had the irritating habit of referring to herself with a royal ‘we’. With an election approaching, public spending restrictions were eased, a policy made more feasible by the rise in oil-tax revenues and by industrial growth since the low of 1981. Inflation had fallen from 11 per cent in 1981 to an average of 4.4 per cent in 1985–7, and wages for those in work rose much faster than inflation, while mortgage-holders benefited from low interest rates. Council-house sales proved very popular too. But unemployment, at over 3 million, remained stubbornly high, though government training measures had slightly reduced the total. Manufacturing industry had shrunk, and what remained was leaner and more productive; but the 2 million jobs lost added greatly to the numbers of the long-term unemployed. In foreign affairs Thatcher was equally determined to make her views clearly known. She strongly supported NATO and the American alliance and established an especially close rapport with President Reagan, though that did not inhibit her from making strong protests when she thought he was wrong, as when the US invaded Grenada in 1983. But she permitted the use of US bases in Britain for the American attack on Libya in April 1986, because she regarded it as justified by Gaddafi’s support for terrorism. She continued to show that she deserved the sobriquet ‘Iron Lady’, maintaining her robust opposition to all communist tyrannies. Yet she was the first world leader to recognise that Mikhail Gorbachev was a new phenomenon in Soviet leadership, a man with whom ‘one could do business’. At the end of March 1987, she visited Moscow and had long talks with the Soviet president which helped to pave the way for the ending of the Cold War. The future of the Crown colony of Hong Kong, much of whose territory would return to China in 1997, was another problem her administration tackled. To her it was a practical question of making the best deal possible. At the time of the negotiations in December 1984, China was in a reforming phase, and Britain appeared to have secured at least some safeguards, preserving for Hong Kong a high degree of autonomy. Less happy were Thatcher’s relations with the rest of the Commonwealth. She opposed any but innocuous sanctions against the apartheid policies of South Africa, arguing that they would harm the black Africans more than the whites. This placed her in a minority of one. In Western Europe, too, she frequently found herself isolated. She was no friend of the Brussels bureaucracy and was inclined to resist the claims of the Commission to regulate in detail. As she saw it, she was not about to free Britons from Whitehall only to subordinate them to Brussels. She was a free-trader at heart, believing in the unhindered flow of world trade as the best guarantee of prosperity. Opposed to the interventionism of Brussels and in particular to the featherbedding of French and German farmers, she made unremitting efforts to reduce the cost of the Common Agricultural Policy, which kept food prices artificially high for the people in the Community, partly by accumulating butter mountains and wine lakes. But her tone was often strident and abrasive. It secured results over such issues as the reduction of Britain’s excessive contribution to the common Community budget but was counter-productive in other ways. Mrs Thatcher was not regarded by her fellow EC leaders as a ‘good European’, yet she believed that the policies she pursued were right not only for Britain but for the Community as a whole. When Margaret Thatcher decided to call her third general election in 1987, the majority in work were better off than ever before. The economy appeared to be progressing steadily and the opposition was split between the Alliance and the Labour Party. Since October 1983, the Labour Party had had a youthful new leader in Neil Kinnock, the son of a Welsh miner. Kinnock, who belonged to the moderate left, had succeeded in uniting the party once again but was handicapped by an electoral pledge to remove all nuclear weapons from Britain. On the nuclear defence issue, the Alliance was also in complete disarray. All three parties made use during the election campaign of slick advertising-agency promotion. Television and media consultants were pressed into the campaign as never before. For Labour, the red rose replaced the red flag. For the Conservatives, Thatcher was bathed in blue with golden hairdos of singular height. The Alliance sported a ‘battle bus’ vividly decorated with balloons. On polling day in June 1987, the Conservatives achieved almost the same level of support (42.3 per cent of the vote) as in 1983. For Labour and the Alliance the result was decisive: Labour had clearly seen off the Alliance’s attempt to replace it (Labour gained 30.8 per cent of the vote and the Alliance dropped to 22.6 per cent). Thatcher’s programme to change Britain would continue for a further term. Indeed, there seemed not the remotest possibility that she was even contemplating retirement. She declared that she was ready to go on to a fourth election victory and beyond. Thatcher was determined to show that though this was her third administration there would be no loss of vigour, no retreat from the Thatcher revolution. The great state-run services – social security, the National Health Service and education – would be shaken up by the introduction of competition, to produce efficiency and responsiveness to the customer, and better value for the taxpayer. This was radical conservatism. Just as a radical Labour administration after 1945 had been ready to take on the establishment, so Mrs Thatcher relished doing the same: the British Medical Association, the National Union of Teachers, university vice-chancellors, lawyers and judges. Reforms were indeed highly desirable. Providing ever more funds was not the answer to dirty hospitals and cross-infection, to poor standards in many state schools, to a highereducation sector unwilling to increase student numbers without additional cash. But the public mood was changing; there was a feeling that it was time to consolidate. Thatcher’s philosophy was hurting not only the idle, but also the poor. Benefits from reform were not seen to be coming through. Privatisation of a whole host of state enterprises from British Airways to the water authorities had lost its excitement and seemed only to be making profits for investors. The country was split between the rich south and the deprived manufacturing towns of the north. Entering the third industrial revolution, Britain was experiencing much painful readjustment; unemployment remained above the 2 million mark. Britain’s industrial base had shrunk but was in a much more competitive position: that was the positive side. The Thatcher government’s great achievement was the conquest of inflation – or was it? The economy began to go wrong in 1988 after six years of unprecedented growth. After the stock-market fall (it was thought at the time to be a crash), the chancellor of the exchequer Nigel Lawson had eased money control too much; then in trying to keep sterling from rising too high and hurting exports, he over-compensated and pushed interest rates too low. Difficulties multiplied: the trade balance slipped, a tax-cutting budget in April 1988 proved not to be the right remedy. Income tax cuts had been the most popular strategy of the Thatcher governments, in large measure paid for by raising indirect taxes, reducing central government contributions to local authority spending and increasing National Insurance payments. The total tax burden had not in fact been reduced; and the wealthy benefited far more than the poor. Inflation began to rise again and interest rates also climbed to heights which hurt all homeowners with mortgages. An excessive house-price boom shuddered to a halt. Pressured by Lawson and Howe, the prime minister agreed that Britain should soon join the European Exchange Rate Mechanism (ERM) when a number of conditions had been met. But in October 1989 Lawson resigned, complaining that Mrs Thatcher was undermining his stewardship of the economy by turning to an outside adviser. By then the Thatcher economic miracle was looking tarnished. But what spelt political doom for her was the ill-advised introduction of a new method of financing local government spending, the community charge, or ‘poll tax’ as it became universally known. If the total revenue the local authorities had to raise because of the declining central government contribution had not been generally so high, the measure might have attracted less odium. But it was seen as patently unfair that the lord in his manor was now paying less than a working-class family crowded into a council house. During 1990 unease grew among the Conservative faithful. The party was deeply divided between Thatcher loyalists in an increasingly smaller majority and the sceptics who thought that, under Margaret Thatcher, the Conservatives would lose the next election, which could not be held later than 1992. When, in November 1990, Sir Geoffrey Howe became the third senior Conservative minister to resign from the Cabinet, in his case incensed by Thatcher’s handling of relations with the European Community, she knew she had a real fight on her hands if she was to remain leader of the party. Although she gained a majority and almost made it on the first ballot, her majority under the party’s rules was not quite large enough to assure her of outright victory. Her Cabinet colleagues now warned her that she would lose the second round to Michael Heseltine. On 22 November 1990 she resigned and threw her support behind John Major, the chancellor of the exchequer, in a determined bid to stop Heseltine. Major was elected and healed party divisions by immediately asking Heseltine to join the Cabinet. The trend in Britain in the early 1990s, as in the US, was to present a more caring social image. The Conservative Party had dropped the longest-serving prime minister in the twentieth century, winner of three elections. Despite obvious flaws as a politician, Margaret Thatcher succeeded in changing the course of British politics. When in 1979 she entered Downing Street it was by no means widely accepted that state socialism was a dismal failure – she altered the political agenda. An impoverished country, after all, cannot care for those in need. The right balance has to be struck between wealth-creation and the provision of health and social services for all those who have a right to expect it. Fundamentally Thatcherism was about the rejection of socialism in all its manifestations, from the public ownership of industry to curing the problems of poverty through welfare. Margaret Thatcher destroyed trade union power and the cartel restrictions of labour, and poured scorn on the ideal that the care of the individual from ‘cradle to grave’ was the responsibility of society. She set out to stop the centre of politics swinging every few years a bit more to the left. In socialism’s place she held out a different vision, of the able-bodied individuals being masters of their own fate, making their own provision instead of relying on a welfare state. Welfare was to be restricted to those who could not help themselves. The British people were to recapture the spirit of enterprise, the urge to advance their own fortunes. Inequalities of wealth were to be welcomed, as a necessary consequence of motivation. Conservative governments would therefore lower direct taxation and seek to reduce government expenditure as a proportion of the country’s wealth. They proclaimed that people should be able to spend their money themselves and not have the government spend it for them. The freemarket economy was the way forward for the country, not state planning and intervention. In practice many of Mrs Thatcher’s policies were modified during the course of her own three administrations. The British people collectively were opposed to any significant tampering with free state education, social security and universal health provision. Spending for these sectors from 1978 to 1990 increased substantially to cope with high unemployment and an ageing population with growing expectations of care. The British on the whole are not given to ideological extremes. In the face of the electorate’s suspicions of their aims, Conservative governments, including John Major’s since 1990, have attempted through reorganisation and by creating an element of competition, to achieve better value or money in the state sector. Health treatment remains universally free for every patient, while the cost of medicines and ancillary services have been raised for wage-earners. Beveridge’s vision of a welfare state is intact. British society has turned against Marxist economic organisation, but socialist ideals of equal opportunity, of a classless society, of progressive taxation, of help for the disadvantaged and the poor continue to permeate all political parties. The enterprise culture had some successes for a time, especially in the establishment of a record number of small businesses. House ownership rose from just over half to 66 per cent of the population, the highest in Western Europe. The deep recession which began in 1990 dented these achievements, but the trend of increased home ownership over the decade continued. The same is true of small businesses, although a record number failed during the recession of the early 1990s. Margaret Thatcher also succeeded in increasing inequality. The higher-rate tax of 40 per cent benefited most the very rich, who now paid the same marginal rate as the middle class. Living standards rose for all sections of the community, but unequally – the wealthiest 20 per cent gained by nearly a third, while the bottom 20 per cent secured only 1 per cent more income. The most negative impact of the Thatcher years was the absolute growth of long-term unemployment with real poverty more than trebling from 6 per cent to 19 per cent between 1979 and 1987. And as unemployment and poverty rose, so did crime. With unemployment over 2 million in 1990 and rising, and easy money having fuelled inflation, Thatcher left an unenviable legacy to her successor, John Major. As chancellor of the exchequer, he had tried to remedy the inflationary policies of 1987 and 1988, when Nigel Lawson had held that post. Margaret Thatcher’s success has to be measured in terms of economic growth. After the recession of 1980–2 there was comparatively rapid growth until the recession that started in 1990, but manufacturing industry overall saw little expansion, in contrast to the experience of other developed nations. It was the service sector that took up some of the slack, helping to account for an increase in Gross Domestic Product of 27 per cent during the years from 1979 to 1990. In 1991 to 1992 output declined, and so lowered the average annual gain. Privatisation was one of the most striking features of the Thatcher years; no less remarkable were the increases in productivity and competitiveness of many industries, which thus came to match the best of Britain’s Western neighbours. But the jury is out on privatised monopolies or near-monopolies such as telephones, gas and water and how far their new status benefits the consumer. Detailed economic and social statistics reveal the uneven successes of the Thatcher years. Trade union power had been reined back, but mobility of labour was still hindered by lack of technical training and by the differentials in housing costs between regions of high and low unemployment. London became unaffordable for the working man from Liverpool, and the quantity of rented accommodation and council houses drastically diminished. Thatcher succeeded in changing the debate within British politics. It was the Conservatives who now forced Labour to move away from certain socialist tenets, such as nationalisation. But John Major, in espousing the classless society stole some of the socialist clothing. Under Neil Kinnock’s leadership the Labour Party entered the April 1992 election with a firmly pro-European Community policy. With the abandonment of both unilateral nuclear disarmament and nationalisation, the main socialist plank was the proposal to redistribute taxes so that they fell more heavily on the upper-income groups. This proved to be one reason why Labour lost the election, the voters fearing that in the end the rich would not be the only losers. They were, above all, concerned with financial prudence, to safeguard their employment and reduce the cost of their mortgages. Redistribution to the poor was not their first priority. There is some parallel here with the US. The post-Thatcher years of British politics were different in style. John Major projected an image of someone who understood the needs of ordinary men and women. Much was made of the fact that he had climbed the social ladder the hard way, and that in his younger years he had experienced unemployment. He immediately began by rectifying the poll-tax disaster, which he and Nigel Lawson (then chancellor of the exchequer) had opposed when its introduction was debated in the Cabinet in 1987 and 1988. It was replaced in 1993 with a modified property tax. Poll-tax burdens meanwhile were softened by additional government grants to local authorities paid for by a rise in VAT (value added tax). The Major government, with Norman Lamont continuing as chancellor of the exchequer, braved the unpopularity after 1990 of having to squeeze inflation once more out of the system by raising interest rates and keeping them high. Britain had entered the European Community Exchange Rate Mechanism (ERM) at a relatively high exchange rate in October 1990, in the hope that this also would bear down on inflation. The fierce squeeze led to rising unemployment again and to an unprecedented drop in house prices after the boom of the late 1980s. This was intended to allow an early end to the recession so that the next election in the early 1990s could be fought with lower interest rates, sound money, a strong economy and a return of confidence. Norman Lamont began to talk about green shoots of recovery in the summer of 1991, but by the spring of 1992 no recovery had appeared. Thus the Conservatives were left fighting the election in April 1992 in the midst of a recession. The pundits said that the Conservatives would do well just to remain the largest party, with the Liberal Democrats holding the balance and Labour not far behind the Conservatives. It was even possible that Labour would win outright. When all was gloom around him John Major fought an upbeat election campaign, projecting once again a reasonable and likeable personality, the sort of man you can trust. Neil Kinnock, the Labour leader, who had done so much to reunite his party, to expel the militant extremists and to convey a moderate, caring outlook, also campaigned with warmth and verve. But to overturn the huge Conservative majority was a mountain no party had successfully climbed before. When the results of the 9 April election were in, Labour had made large gains but not enough to become the party of government. Surprisingly, the total Conservative vote had not fallen from the number cast for Margaret Thatcher in 1987. The Liberal Democrats’ hopes of forcing through a system of proportional representation were dashed. Neil Kinnock’s leadership was over. The new Conservative government expected a long period of political stability. John Major’s Cabinet made it a priority to cure the economy once and for all by reducing inflation to the same low levels as prevailed in France and Germany. The discipline of the ERM with its fixed exchange rates and resulting low pay awards was among the weapons. At the Maastricht summit in December 1991 Major scored a personal triumph in securing for Britain the special terms it wanted. At home after a short period of pain Britain was expected to move out of its longest recession since the war. Inflation came down sharply in 1992, but unemployment continued to rise. The green shoots of recovery had long ago withered and the landscape remained as desolate as before. The Labour Party in July 1992 under the leadership of the newly elected John Smith gained greater credence by calling for a change of policy. Everyone blamed the Germans, who were financing East German recovery by spending money the government did not have instead of substantially raising taxes. The result was high interest rates in Germany and misery all around. But Britain’s ills ran deeper. Major with his winning personality and nice smile was elected as a less formidable and more flexible replacement for the Iron Lady. But in economic policy Major attempted to act as the Iron Man. Britain, he declared, would play a role at the ‘heart’ of Europe. At the centre of the government’s policy for defeating inflation and making Britain fully competitive was the decision to link the pound with the least inflationary currency in Europe, the German mark, through the ERM at a fixed rate of exchange. In September 1992 John Major faced a humiliating retreat. The exchange rate could be held no longer and Britain left the ERM. In practice this led to the devaluation of the pound. It was a political disaster of a magnitude few governments since the war had suffered. The credibility of the prime minister, of the chancellor of the exchequer and indeed of the whole government was damaged. The issue of closer ties with Europe, of moving towards political and financial union by the end of the century, had already split the Conservative and Labour Parties. But a majority in both had favoured the moves towards this goal embodied in the Maastricht Treaty. Now the anti-Maastricht groups in both parties took heart from the debacle. It had become clear, and the narrow victory for ratification in France confirmed it, that there were many people throughout Europe who felt deep misgivings about European union and the loss of national sover- eignty. Attitudes were hardening against the Conservative government and its whole European strategy. At home, October 1992 proved another disastrous month for the prime minister and his Cabinet. The announcement that thirty-one pits were to be closed and thousands of miners left without work, albeit with some compensation, caused widespread anger well beyond the mining communities. Facing defeat in the House of Commons the government had to draw back. The loss of contact with public feeling, the continuing recession and unemployment rising towards 3 million, more than one in ten of the workforce, brought the public approval rating of the government to a new low. Most damagingly, John Major’s leadership and good judgement were being widely questioned. Rarely had a government’s fortunes been so quickly reversed after an election victory. There were close parallels between Reaganomics and the conduct of the economic policies followed by the conservatives. These parallels included a rising budget deficit as the costs of unemployment increased while tax revenue fell during the years of recession, the longest since the war. House prices dropped steeply, the overhang of the personal credit binge of the 1980s which had showered plastic cards on virtually everyone, and the continuing threat of unemployment undermined the confidence of the man in the street to spend money on anything other than necessities. In 1993 a shift in economic policy had become unavoidable. The number one problem was now unemployment which once again was three million. Special statistical measures and government training schemes disguised the true total which was much higher. This time it affected not just the Midland and northern industrial regions but also the conservative heartlands of London, eastern and southern England. The pendulum of economic and social policies was swinging back from ‘less government’ to the need for more intervention and assistance. Thatcherite conservatism proved to be no more the last word in British politics than Reaganomics was in the US. Governments in power during long periods of recession are unpopular everywhere, blamed for high unemployment and disappointing expectations of better standards of living. This was true for John Major’s Conservative administration too, but there were added difficulties. The party was rent by differences over Europe – whether to accept or reject closer union. The government’s small majority after the 1992 elections made the management of policy exceptionally difficult in the face of the determined anti-European minority of the party. The rift extended to the Cabinet itself; Major was left with no alternative but to try to continue to work with those who opposed him. Furthermore, the recession led to ballooning public expenditure. The 1994 budget which, for the first time, raised taxes on such essentials as fuel for heating, was deeply unpopular. The recession was slow to end and the feel-good factor remained conspicuously absent; job insecurity and years of falling house prices undermined public confidence. Although John Major faced down a leadership challenge in 1995 his majority in the House of Commons narrowed to one the following year. His government came close to having to depend for its survival on the Ulster Unionist MPs, which reduced his flexibility in handling the problems of Northern Ireland. The Major administration’s important achievement was to bring about the virtual cessation of violence in Northern Ireland in 1995. Secret contacts and concessions on the one hand, and the firmness of Britain’s handling of terrorism on the other, brought rewards. Major succeeded in establishing close partnerships with successive prime ministers of the Republic of Ireland. But in 1996 when the IRA was unable to win by democratic process, it returned to bombing the mainland. The problem that continued to split the Conservative Party was Britain’s future role in Europe. In straddling the views of the pro- and anti- Europeans, the government’s policy aims remained ambiguous and Britain’s influence in the councils of the European Union weak. The standing of the government fell precipitously. Mad-cow disease, and the fear that it could infect humans, added to John Major’s woes and heightened tension with Europe. Labour fortunes meantime revived. Tony Blair, newly chosen leader of the Labour Party after John Smith’s sudden death, moved the party towards the centre, rejecting outworn socialist dogma. The modernisation of the party, begun a decade earlier by Neil Kinnock, was bearing fruit. Blair’s leadership revitalised Labour, his promises not to be spendthrift making it electable for the first time in years. The ‘enterprise’ economy was to be developed into the ‘stakeholder’ economy, though the general public did not know quite what that meant. Eighteen years of Conservative rule had significantly changed the economic scene, curbed trade union powers, privatised subsidised state industries and made Britain safe for a two- (or more) party system by forcing Labour to drop old-style socialism and to modernise. Britain had been plunged into recession earlier than the countries of continental Europe, but was also the first to emerge after painful readjustments and high unemployment. Eighteen years of Conservative government came to an end on 1 May 1997, when Labour won a landslide victory, with 419 members of parliament elected to the House of Commons of 659 seats. John Major’s Conservatives suffered their worst ever defeat, winning only 165 seats, and although the Liberal Democrats, the third party, strengthened their position, Tony Blair, the new 44-yearold prime minister, with a majority of 179, was not dependent on them. After repeated Labour electoral defeats, Blair, who had become leader of the Labour Party in 1994, set about shedding the last elements of the traditional socialist Labour ideology: nationalisation and renationalisation were dead; the redistribution of wealth by taxing the rich and the middle-income groups who had gained most under the Conservatives was rejected; the Thatcherite market economy was accepted; the earlier rights of the trade unions would not be restored. This was ‘New Labour’. It was difficult to define what was ‘Labour’ about it: the old ‘left’ and ‘right’ labels no longer fitted a party whose key claim was to ‘modernise’. ‘New Labour’ came to look like a pragmatic radical conservative alternative, a one-nation party bent on equality of opportunity, determined like Thatcher to promote the work ethic and change welfare. Benefits would no longer be provided indiscriminately; a readiness to work would be rewarded; what was saved on welfare would be spent on subsidies to employers who took on the young unemployed. Blair’s agenda for ‘New Labour’ had much in common with Clinton’s ‘New Democrats’ and, given their close links, this was no coincidence. With such a small majority John Major had done well to keep going at all until 1997; his party was split on the issue of monetary union and closer European integration and further damaged by some high-profile cases of sleaze. However, the radical Conservatives approach to the economy, promoting privatisation and flexible labour, had led to a dramatic turnaround: Britain’s comparatively low direct and indirect wage costs attracted inward investment from Germany, the US, Japan and Korea; unemployment had fallen from a peak of over 3 million to well under a million, inflation was low and the new expansion was under control with a strong pound. Britain, once the ‘sick man of Europe’, was now the model for recovery. Major’s one success was in Northern Ireland where he sought peace through negotiation. His initiative appeared to have failed when the IRA resumed their bombing campaign in London and Manchester. But the Conservatives started a process which, after the elections, a Labour government was able to revive. That was the state of Britain inherited by ‘New Labour’. With tight reins on government spending there were also large problem areas: education had been neglected under the Conservatives until very recently. Schools were underfunded, teachers poorly paid and undervalued; the National Health Service demanded ever increasing resources and struggled to meet basic needs – waiting lists for operations extended to a year or more as Britain spent less on health than comparable developed nations. New Labour had promised fiscal prudence – a promise it fulfilled. In 1999 Blair’s support remained high; old-style socialism had been ditched. Blair urged modernisation while building on previous Conservative changes. On 22 May 1998 a momentous change occurred when the Northern Ireland peace deal, brokered in April, ‘the Good Friday Agreement’, was approved by 71 per cent of the Northern Irish voters and 90 per cent of voters in the Republic. It marks not the end of all violence, but the beginning of the end. While the devolution of government with Gerry Adams’ Sinn Féin ministers sharing power with Ulster Unionists had a rocky beginning and the IRA did not complete its decommissioning, the military paramilitias on both sides did not wish to renew ‘the war’ opposed by the overwhelming number of people Catholic and Protestant in Northern Ireland. Even the breakaway ‘Real IRA’ suspended bombing after the horrific explosion they caused in Omagh on 15 August 1998 which killed twenty-nine and injured many more. An uneasy peace descended on the province. Blair scored highly for his firm moral leadership in urging intervention in the Kosovo humanitarian crisis in 1997 and 1998 and seeing that conflict to a successful conclusion. At home he was equally sure-footed when responding to the unprecedented outpouring of public grief at the funeral of Princess Diana in September 1997. Over Europe the country was still divided but Blair hoped to lead his reluctant countrymen to the heart of the European Union. A formula was found that would leave the economic decision to join the Monetary Union when conditions were right to Gordon Brown, the chancellor of the exchequer; the political decision had already been made in favour. Blair was attempting to ride two horses at once. Though the promise of a better National Health Service and improved public services did not materialise, the economy remained in sound shape. The Bank of England, not politicians, was now setting interest rates to meet a low inflation target; unemployment was low and the country was doing much better than Britain’s neighbours. Blair’s strong leadership in the crisis in Kosovo in 1999 won him much support (Chapter 78). Blair asked for a second mandate to complete New Labour’s promises. The general election was called in June 2001. New Labour won by a landslide almost as great as four years earlier. In his second administration the country expected New Labour to show the results of its reforming policies. Trust in the prime minister was at its peak. At home, the public services, especially the National Health Service, failed to improve fast enough; it attracted increasing criticism during the second administration. Chancellor Brown until 2002 kept a prudent financial policy going and opposed the entry of Britain into the European Monetary Union as the ‘five tests’ had not been passed. In 2003 Brown massively increased public spending and accepted that a large deficit would result. Blair, more keen than Brown to place Britain fully into the European Union, was unable to make much progress against a sceptical British public. A defining moment for the prime minister was the decision to back the US in the war against Iraq in March 2003 (Chapter 79). There was strong parliamentary and public opposition though the majority approved driving Saddam Hussein from power. Blair’s reputation for trustworthiness, however, received a check when investigations caused by the suicide of a civil service scientist Dr Kelly, in the summer of 2003 broadened into questioning whether the case put by Blair before parliament for going to war had been sound. That may be a just criticism as it related to the 45-minute claim, that this is all Saddam needed to ready weapons of mass destruction, but not that Blair had deliberately misled parliament and the British people. Trust in him was again brought into question when it became clear in 2004 that there were no weapons of mass destruction in Iraq. But the Conservative opposition had to make up much ground to place Labour into serious doubt of winning a third term on 5 May, 2005. ‘New Labour’ espoused ‘one nation’ politics and moved to the middle ground, Michael Howard and his colleagues had to find a fresh Conservative electoral appeal. The Liberal Democrats offered an alternative as the electorate was not enthusiastic about either major party in the election year.