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The Heath Government 1970–1974

SHORTLY BEFORE 11 O’CLOCK on Tuesday 23 June 1970 my new ministerial car dropped me in Downing Street, where with other colleagues I ran the gauntlet of press and television outside No. 10. The hubbub in the ante-room was of enthusiasm and laughter. There was a spring in our step as we filed into the Cabinet Room where Ted Heath, with the Cabinet Secretary Sir Burke Trend beside him, awaited us. I found my place at the Cabinet table, but my mind was at least as much on the department as on the large strategic issues before the Government. It remained there – perhaps excessively so. But I felt an exhilaration which was prompted by more than the fact that this was my first ever Cabinet meeting: I felt, as I suspect we all did, that this was a decisive moment in the life of the country.

It was an impression which Ted himself did everything to justify. Speaking with the same intensity which had suffused his introduction to the manifesto on which we had just fought the election, he announced his intention of establishing a new style of administration. The emphasis was to be upon deliberation and the avoidance of hasty or precipitate reactions. There was to be a clean break and a fresh start and new brooms galore.

The tone was just what we would all have expected from Ted. He had a great belief in the capacity of open-minded politicians to resolve fundamental problems if the processes and structures of government were right and advice of the right technical quality was available and properly used. This was the approach which would lie behind the decision that autumn to set up the Central Policy Review Staff under Victor Rothschild, to reconstruct the machinery of government on more ‘rational’ lines (including the setting up of the mammoth Department of the Environment) and the establishment of the PAR system. More generally, it inspired what turned out to be an excessive confidence in the Government’s ability to shape and control events.

Inevitably, this account contains a large measure of hindsight. I was not a member of the key Economic Policy Committee (EPC) of the Cabinet, though I would sometimes attend if teachers’ pay or spending on schools was an issue. More frequently, I attended Terence Higgins’s sub-committee on pay when the full rigours of a detailed statutory prices and incomes policy – the policy our manifesto pledged us to avoid – were applied, and made some contributions there. And, naturally, I was not a member of Ted’s inner circle where most of the big decisions originated. The role of the Cabinet itself was generally of reduced importance after the first year of the Heath Government until its very end.

This, however, is said in explanation not exculpation. As a member of the Cabinet I must take my full share of responsibility for what was done under the Government’s authority. Reviewing the events of this period with the benefit of two decades’ hindsight I can see more clearly how Ted Heath, whether right or wrong, took the course he did. And as time went on, he was wrong, not just once but repeatedly. His errors – our errors, for we went along with them – did huge harm to the Conservative Party and to the country. But it is easy to comprehend the pressures upon him.

It is also important to remember that the policies Ted pursued between the spring of 1972 and February 1974 were urged on him by most influential commentators and for much of the time enjoyed a wide measure of public support. There were brave and far-sighted critics who were proved right. But they were an embattled, isolated group. Although my reservations steadily grew, I was not at this stage among them.

But some of us (though never Ted, I fear) learned from these mistakes. I can well understand how after I became Leader of the Conservative Party Enoch Powell, who with a small number of other courageous Tory backbenchers had protested at successive U-turns, claimed that: ‘If you are looking for somebody to pick up principles trampled in the mud, the place to look is not among the tramplers.’

But Enoch was wrong. In Rudyard Kipling’s words, Keith Joseph and I had ‘had no end of a lesson’:

Let us admit it fairly, as a business people should;

We have had no end of a lesson; it will do us no end of good. *

In this sense, we owed our later successes to our inside knowledge and to our understanding of the earlier failures. The Heath Government showed, in particular, that socialist policies pursued by Tory politicians are if anything even more disastrous than socialist policies pursued by Labour politicians. Collectivism, without even the tincture of egalitarian idealism to redeem it, is a deeply unattractive creed.

How did it happen? In spite of the acclaim for the Selsdon Park manifesto, we had thought through our policies a good deal less thoroughly than appeared. In particular that was true of our economic policy. We had no clear theory of inflation or the role of wage settlements within it. And without such a theory we drifted into the superstition that inflation was the direct result of wage increases and the power of trade unions. So we were pushed inexorably along the path of regulating incomes and prices.

Ted was also impatient. I share this characteristic. I am often impatient with people. But I knew that, in a broader sense, patience is required if a policy for long-term change is to work. This is especially true if, like Ted’s Government in 1970 and mine in 1979, you are committed to a non-interventionist economic policy that relies on setting a framework rather than designing a plan. Sudden shifts of direction, taken because the results are too long in appearing, can have devastating effects in undermining the credibility of the strategy. And so a government which came to power proud of its principle and consistency left behind it, among other embarrassing legacies, a host of quips about ‘the U-turn’. Ted’s own words in his introduction to the 1970 manifesto came back to haunt him:

Once a decision is made, once a policy is established, the Prime Minister and his colleagues should have the courage to stick to it. Nothing has done Britain more harm in the world than the endless backing and filling which we have seen in recent years.

At another level, however – the level of day-to-day human experience in government – the explanation of what happened is to be found in the forces which buffeted us and in our reactions to them. We thought we were well enough prepared to face these. But we were not. Little by little we were blown off course until eventually, in a fit of desperation, we tore up the map, threw the compass overboard and, sailing under new colours but with the same helmsman, still supremely confident of his navigational sense, set off towards unknown and rock-strewn waters.

The squalls began early. Within weeks of taking office the Government had been forced to declare a State of Emergency* as a national docks strike began to bite. At the same time a Court of Inquiry was set up to find an expensive solution. Although the strike evaporated within a fortnight, it was an ambiguous triumph.

The following month the crisis was international. On Sunday 6 September terrorists from the Popular Front for the Liberation of Palestine (PFLP) hijacked four aircraft (none of them British) and demanded that they be flown to Jordan. Three of the hijacks were successful, but on the fourth – an Israeli plane en route to London – the hijackers were overpowered by security men. The surviving terrorist, Leila Khalid, was arrested at Heathrow.

The PFLP demanded her release, and just before Cabinet met on Wednesday 9 September they hijacked a British aircraft in order to bring more pressure to bear. The plane was flying to Beirut as we met. It was explained to Cabinet that we had already acquiesced in an American suggestion to offer the release of Leila Khalid in return for the freedom of the hostages. Over the next few weeks Cabinet discussed the question many times as negotiations ran on. Meanwhile, Jordan fell into a state of civil war as King Hussein fought the Palestinians for control of his country and the Syrians invaded and occupied much of the north. Ted resisted any British involvement on the King’s side and was certain that we were right to negotiate with the PFLP. Though it went against the grain to release Khalid, in the end the deal was made. In due course all the hostages were released, though the hijacked aircraft were blown up by the terrorists, and King Hussein survived the events of ‘Black September’ – barely but triumphantly.

But by then the Government had already suffered a blow from which, perhaps, we never fully recovered. In mid-July Iain Macleod had gone into hospital for a small abdominal operation. It had been a success and he had returned to No. 11 for a few days’ rest. At about midnight on Monday 20 July my telephone rang. It was Francis Pym, the Chief Whip. Iain had suffered a heart attack that evening and had just died. He was only fifty-six.

I felt the blow personally, for Iain had always been a generous and kind man for whom to work. But I also immediately recognized that we had lost our shrewdest political intellect and best communicator. How Iain would have performed as Chancellor I do not know. But if one accepts that the worst mistakes of economic policy derived from Ted’s overruling the Treasury, it is reasonable to suppose that matters might have turned out better if Iain had lived. He was succeeded by Tony Barber, a man of considerable intellectual ability, who by and large had an unhappy time at the Treasury. The economic problems of the next few years were founded in this transition.

The Cabinet which met after Iain Macleod’s death was a sombre one. Around the Cabinet table already sat nearly all of those who would be my colleagues over the next four and a half years. Their personal qualities would be severely tested. Tony Barber was an old if not particularly close friend from the Bar, an able tax lawyer, but not someone to stand up against Ted. Reggie Maudling, Home Secretary until his resignation over the Poulson affair in 1972,* was still interested in and had strong views about economic policy. By contrast, he was less than fascinated by his new brief. He was unlikely to oppose any shift back towards a more interventionist economic policy, which indeed he had always favoured.

Alec Douglas-Home had returned effortlessly to his old Foreign Office brief where, however, plenty of effort was soon required in giving effect to our promises made in Opposition to lift the arms embargo on South Africa and in trying to devise an affordable way of retaining a British military presence east of Suez. He was unlikely to take much part in domestic political affairs now. Quintin Hailsham had found his ideal role as Lord Chancellor, beginning a long spell in that office under Ted and then me, where he managed to combine his old sense of mischief and theatre with the sedate traditions of the Upper House. Peter Carrington was Defence Secretary, a post for which he was well suited and which he filled with aplomb. I knew that he was close to Ted. He doubtless became still closer when later as Party Chairman and Energy Secretary he had a crucial role in dealing with the final miners’ strike which precipitated the general election of February 1974. He was one of Ted’s ‘inner circle’.

Keith Joseph, by contrast, though a senior Cabinet figure and someone whose views had always to be taken seriously, was certainly not part of that circle and was never, so far as I know, invited to join it. Having been appointed to be Secretary of State for Social Services, Keith’s compassionate, social reforming side had become uppermost at the expense of his more conservative economic convictions, though he retained a profound distrust of corporatism in all its forms. His passion became the need to tackle the problem of the ‘cycle of deprivation’ which condemned successive generations to poverty. Like me, Keith had been given a high-spending ‘social’ department, and there was a natural opposition between what he (also like me) wanted for his own preferred programmes and the requirements of tight public expenditure control. Whether by chance or calculation, Ted had ensured that the two most economically conservative members of his Cabinet were kept well out of economic decision-making, which was left to those over whom he could wield maximum influence.

John Davies, the former Director-General of the Confederation of British Industry (CBI) (who knew nothing of politics when he was summoned after Iain Macleod’s death to become Minister of Technology), certainly fell into that category. John was someone I liked, but his warmest admirer would have been hard put to make a case for his handling of the turbulent industrial politics which would now become his responsibility. John also represented ‘business’, a concept which Ted, with his latent corporatism, considered had some kind of ‘role’ in government.

With Tony Barber and John Davies, Robert Carr was, as Employment Secretary, the third key figure responsible for economic strategy under Ted. He was a good deal senior to me and we had different views and temperaments. He was a decent, hard-working though not a colourful personality. But he had a difficult, arguably impossible, brief in trying to make the flawed Industrial Relations Act work. His reputation as a left winger in Conservative terms was less useful than some might have expected; trade unionists used to regard left-wing Conservatives not as more compassionate but merely as less candid. As Employment Secretary at the time of the first (1972) miners’ strike and Home Secretary at the time of the second (1974), few people faced greater difficulties during these years.

One who did was Willie Whitelaw as, successively, Leader of the House, Northern Ireland Secretary and finally Employment Secretary at the time of the three-day week. We seemed to have little in common and neither of us, I am sure, suspected how closely our political destinies would come to be linked. Since Education was not a department requiring at this time a heavy legislative programme, our paths rarely crossed. But I was already aware of Willie as a wise, reassuring figure whose manner, voice and stature made him an excellent Leader of the House. Willie’s bluff public persona, however, concealed a shrewd political intelligence and instinct for managing men.

After Iain Macleod’s untimely death, Geoffrey Rippon was given responsibility for negotiating the terms of our entry into the European Economic Community. Although we had superficially similar backgrounds, Geoffrey and I were never close. It always seemed to me that he tried to overwhelm opponents with the force of his personality rather than with the force of his argument. This may have been because Ted had given him the task of getting the best deal he could in negotiations with the EEC – and that deal was not always in our best long-term interests.

My impression was that the two members of Cabinet Ted trusted most were Jim Prior and Peter Walker. Both had proved their loyalty, Jim as Ted’s PPS in Opposition, and Peter as organizer of his 1965 leadership campaign. Jim was Agriculture minister, a post which his farming background and rubicund features helped him make his own, before becoming Deputy Chairman of the Party under Peter Carrington in April 1972. Peter Walker’s thirst for the ‘modernization’ of British institutions must have helped draw him closer to Ted. He soon became Secretary of State for the huge new Department of the Environment, where he embarked with vigour upon the most unpopular local government reforms until my own Community Charge – and at the cost of far greater bureaucracy. Later he would go to the other conglomerate, the Department of Trade and Industry (DTI). Jim and, still more so, Peter were younger than me, but both had far more influence over the general direction of government. Although their political views were very different from mine, I respected their loyalty to Ted and their political effectiveness.

The other members of Cabinet – Gordon Campbell at Scotland, George Jellicoe as Lord Privy Seal and Leader of the Lords, Peter Thomas, a close parliamentary neighbour and friend, as Secretary of State for Wales and Party Chairman, and Michael Noble briefly at Trade – did not figure large in discussions. I therefore found myself with just one political friend in Cabinet – Keith.

But for all the difficulties which were quickly upon us that summer and autumn of 1970, such melancholy reflections were still far from our thoughts. Indeed, Ted Heath, Tony Barber, Robert Carr and John Davies set out on the course of radical reform with impressive zeal; and the rest of us in the Cabinet were enthusiastic cheerleaders.

First, the Government embarked with a will on cutting public spending. Discussions began at the end of July. A target was agreed of £1,700 million net reduction in planned spending by 1974/75, and Ted circulated a paper on the economy to show his commitment to the strategy. The cuts were to fall most heavily on industrial spending, though as already noted I had my own departmental spending battles at Education. Investment grants were ended. The Industrial Re-organization Corporation (IRC) would be closed down. Aircraft and space projects would be subject to the closest scrutiny. Even with the reprieve of the hugely expensive Concorde project, largely on European policy grounds, it was an impressive freemarket economic programme. And it made possible a tax-cutting budget in October, which reduced the standard rate of income tax by 6d, down from 8s.3d in the pound (just over 41p), and made reductions in corporation tax to take effect at the beginning of the next financial year.

Nor was there any delay in bringing forward the other key feature of our economic programme – the Industrial Relations Bill. The framework of the Bill was already familiar: this was one of the areas of policy most thoroughly worked out in Opposition and we had published our proposals in 1968. The main principles were that collective bargaining agreements should be legally enforceable unless the parties to them agreed otherwise, and that the unions’ historic immunities from civil action should be significantly narrowed and confined to those whose rule books met certain minimum standards (‘registered unions’).

Cases brought under this legislation would be dealt with by a new system of industrial courts and tribunals, headed by a branch of the High Court – the National Industrial Relations Court (NIRC). The Bill also gave new powers to the Secretary of State for Employment, when negotiation had failed, to apply to the NIRC either for an order deferring industrial action for up to sixty days – a ‘cooling off’ period – or for one requiring a secret ballot of the workers involved before a strike.

There was a good deal in the Bill that actively favoured trade unionism, for all the hostility it encountered on the Left. For the first time in English law there would be a legally enforceable right to belong (or not to belong) to a trade union. There would be statutory protection against unfair dismissal. Finally, the Bill would repeal provisions that made it a criminal offence for gas, water and electricity workers to strike during the lifetime of their contracts.

At the time I was a strong supporter of the Bill, although I had doubts about particular parts, such as the measure on essential services. We were all conscious that the previous Labour Government had backed off from its In Place of Strife proposals for trade union reform under a mixture of union and Party pressure. We were, therefore, doubly determined to make the changes required.

In retrospect, the philosophy of the Bill was muddled. It assumed that if the unions were in general confirmed in their powers they would discipline their members industrially, reducing wildcat strikes for instance, and use their industrial strength in a regulated and orderly fashion. But it also contained provisions to strengthen the powers of individuals against the unions. So the Bill was in part corporatist and in part libertarian.

Finally, we naively assumed that our opponents would play by the same rules as we did. In particular, we imagined that there would not be either mass opposition to laws passed by a democratically elected government or mass infringement of the criminal law, as in the miners’ strike of 1972. We did not recognize that we were involved in a struggle with unscrupulous people whose principal objectives lay not in industrial relations but in politics. It was later, as Leader of the Opposition, that I realized how far the extreme Left had penetrated into trade union leaderships and why that ‘giant’s strength’, of which the Tory pamphlet had spoken in the late 1950s, was now being used in such a ruthless manner. The communists knew that they could not be returned to Parliament, so they chose to advance their cause by getting into office in the trade union movement. And the fact that both the Wilson and Heath Governments had stood up to the unions and then lost, increased their influence more than if we had not challenged their power in the first place.

But at this early stage we pressed ahead. The TUC was told by Robert Carr in October 1970 that the central aspects of the Industrial Relations Bill were not negotiable. The Bill had its Second Reading in December. February and March 1971 saw mass protests and strikes against it. Labour used every device to fight the Bill, but in August 1971 it duly reached the Statute Book. The TUC Congress passed a resolution instructing unions to de-register. It therefore remained to be seen, when the Act came into force at the end of February 1972, what its practical effects would be – revolution, reform or business as usual. We were soon to find out.

Meanwhile other problems preoccupied us. It is sometimes suggested – and was at the time by Enoch Powell – that the Government’s decision in February 1971 to take control of the aerospace division of Rolls-Royce marked the first U-turn. This is not so. Shortly before the company told the Government of the impossible financial problems it faced (as a result of the escalating cost of the contract with Lockheed to build the RB-211 engine for its Tri-star aircraft), a constituent of mine had told me that he was worried about the company. So I asked Denis to look at the figures. I arrived home late one evening to find him surrounded by six years’ accounts. He told me that Rolls-Royce had been treating research and development costs as capital, rather than charging it to the profit and loss account. This spelt real trouble.

A few days later I was suddenly called to a Cabinet meeting and found Fred Corfield, the Aviation Minister, waiting in the Cabinet ante-room. ‘What are you here for, Fred?’ I asked. He replied gloomily: ‘Rolls-Royce.’ His expression said it all. At the meeting itself we heard the full story. To the amazement of my colleagues I confirmed the analysis, based on what Denis had told me. We decided without much debate to let the company itself go into liquidation but to nationalize the aerospace division. Over the next few months we renegotiated the original contract with Lockheed, which was then itself in financial difficulties. One could argue – and people did – about the terms and the sum which needed to be provided. But I do not think any of us doubted that on defence grounds it was important to keep an indigenous aircraft engine capability. And in the long term, of course, this was one ‘lame duck’ which eventually found the strength to fly away again into the private sector, when I was Prime Minister.

It was to be a year before the serious economic U-turns – reflation, subsidies to industry, prices and incomes policy – occurred, and began the alienation of the Conservative right in Parliament and of many Tory supporters outside it. The failure of these U-turns to deliver success divided the Party still further and had other consequences. It created an inflationary boom which caused property prices to soar and encouraged a great deal of dubious financial speculation, tarnishing capitalism, and, in spite of all the disclaimers, the Conservative Party with it. I shall return to the economic developments which led to all this shortly. But it is important not to underrate the impact on the Party of two non-economic issues – Europe and immigration.

I was wholeheartedly in favour of British entry into the EEC, and General de Gaulle’s departure from the Elysée Palace in April 1969 had transformed the prospects. His successor, Georges Pompidou, was keen to have Britain in; and no one on our side of the Channel was keener than the new Prime Minister, Ted Heath. Many people across the political spectrum opposed it. These included some of the most effective parliamentarians such as Michael Foot, Peter Shore and Enoch Powell. But the worlds of business, the media and fashionable opinion generally were strongly in favour.

Talks formally opened in Brussels at the end of October 1970, with Geoffrey Rippon reporting back to Ted and a Cabinet Committee and, on occasion, to the rest of us in full Cabinet. There was no doubt that the financial cost of entry would be high. It was estimated that the best we could hope for would be a gross British contribution of 17 per cent of total EEC expenditure, with a five-year transition, and three years of so-called ‘correctives’ after that (to hold it at 17 per cent). To defuse the inevitable criticism, Geoffrey Rippon also hoped to negotiate a special review provision which we could invoke at any time if the burden of our net contributions to the budget threatened to become intolerable; but he seemed to attach little significance to it, and assumed that we could reopen the question whether there was a formal review mechanism or not.

At the time Ted resolved discussion about the costs of entry by saying that no one was arguing that the burden would be so intolerable that we should break off negotiations. But this whole question of finance should have been considered more carefully. It came to dominate Britain’s relations with the EEC for more than a decade, and it did not prove so easy to reopen. Though the Community made a declaration during the entry negotiations that ‘should an unacceptable situation arise within the present Community or an enlarged Community, the very survival of the Community would demand that the Institutions find equitable solutions’, the net British contribution quickly grew. The Labour Government of 1974–79 made no progress in reducing it. It was left to me to do so later.

Cabinet discussed the matter again in early May 1971, by which time the talks were reported to be ‘deadlocked’. There were difficulties outstanding on preferential arrangements for New Zealand products (butter and lamb) and Commonwealth sugar, and shadow-boxing by the French about the role of sterling as an international currency. But the budget was still the real problem. We had an idea what deal might be on offer: promises to cut the cost of the Common Agricultural Policy and the creation of a Regional Development Fund from which Britain would benefit disproportionately. It was still not the settlement we would have wanted – promises are not bankable – but at the time none of us foresaw how large the burden would turn out to be. Ted ended the discussion by telling us that he was planning a summit with President Pompidou in Paris to cut through the argument.

Ted spent two days talking to the French President. In view of all the past difficulties with the French, the summit was seen as a veritable triumph for him. Negotiations were completed rapidly afterwards – other than for the Common Fisheries Policy, which took years to resolve – and the terms approved by Cabinet the following month. Parliamentary approval could not be assumed, for both parties were deeply split and Labour had reversed its former support for British entry. In the end, the Government decided that there would be a free vote on the Conservative side on the principle of entry. This embarrassed Labour, especially when sixty-nine Labour MPs ignored their own party whip and voted in favour, giving a majority of 112 for entry. But when it came to the terms rather than the principle of entry, the argument was far from won. The Second Reading of the European Communities Bill in February 1972 was only passed by 309 to 301.

The dog that barely barked at the time was the issue of sovereignty – both national and parliamentary – which, as the years have gone by, has assumed ever greater importance. There was some discussion of the question in Cabinet in July 1971, but only in the context of the general presentation of the case for entry in the White Paper. The resulting passages of the document – paragraphs 29–32 – can now be read in the light of events, and stand out as an extraordinary example of artful confusion to conceal fundamental issues. In particular, two sentences are masterpieces:

There is no question of any erosion of essential national sovereignty; what is proposed is a sharing and an enlargement of individual national sovereignties in the general interest.

And:

The common law will remain the basis of our legal system, and our Courts will continue to operate as they do at present.

I can claim to have had no special insight into these matters at the time. It then seemed to me, as it did to my colleagues, that the arguments about sovereignty advanced by Enoch Powell and others were theoretical points used as rhetorical devices.

In the debate on Clause 2 of the Bill, Geoffrey Howe, as Solicitor-General, gave what appeared to be satisfactory assurances on the matter in answer to criticisms from Derek Walker-Smith, saying that ‘at the end of the day if repeal [of the European Communities Act], lock, stock and barrel, was proposed, the ultimate sovereignty of Parliament must remain intact’. Asking himself the question: ‘What will happen if there is a future Act of Parliament which inadvertently, to a greater or lesser extent, may be in conflict with Community law?’ Geoffrey said: ‘The courts would … try in accordance with the traditional approach to interpret Statute in accordance with our international obligations.’ But what if they could not be reconciled? He went on, elliptically:

One cannot do more than that to reconcile the inescapable and enduring sovereignty of Parliament at the end of the road with the proposition that we should give effect to our treaty obligations to provide for the precedence of Community law … If through inadvertence any such conflict arose, that would be a matter for consideration by the Government and Parliament of the day …*

It was not, however, this question which was to make the Common Market such a difficult issue for the Government. The main political error was to overplay the advantages due to come from membership. As regards the Government itself, this tendency led ministers to adopt and excuse unsound policies. In order to ‘equip’ British industry to meet the challenges of Europe, subsidies and intervention were said to be necessary – reasoning endorsed in the 1972 budget speech. Still worse, loose monetary and fiscal policies were justified on the grounds that high levels of economic growth – of the order of 5 per cent or so – were now sustainable within the new European market of some 300 million people. It was also suggested that competition from Europe would compel the trade unions to act more responsibly. As regards the general public, expectations of the benefits of membership rose – and then were sharply dashed as economic conditions deteriorated and industrial disruption worsened.

The success of the negotiations for British entry and their ratification by Parliament seemed to have a psychological effect on Ted Heath. His enthusiasm for Europe had already developed into a passion. As the years went by it was to become an obsession – one increasingly shared by the great and the good. The argument became less and less about what was best for Britain and more and more about the importance of being good Europeans.

January and February 1972 saw three events which tried the Government’s resolve and found it wanting – the miners’ strike, the financial problems of Upper Clyde Shipbuilders (UCS) and the unemployment total reaching one million. It is always a shock when unemployment reaches a new high figure, especially one as dramatic as a million. But the rise of unemployment in 1971 was in fact the consequence of Roy Jenkins’s tight fiscal and monetary policies of 1969–70. Since monetary policy had already been significantly eased in 1971, largely as a result of financial decontrol, we could have sat tight and waited for it to work through in lower unemployment from 1972 onwards. In fact, Ted never bought this analysis, and he greatly underestimated the stimulating effects of removing credit controls. He felt that emergency fiscal measures were necessary to boost demand and reduce unemployment. And this conviction influenced his decisions across the board. Ironically, because it led to higher inflation whose main effects were suffered under the following Labour Government, and because inflation destroys jobs rather than preserves them, it ultimately led to higher unemployment as well.

In particular, the approach of the Government to Upper Clyde Shipbuilders flowed from fear of the consequences of higher unemployment. But it was also seen as caving in to the threats of left-wing militants. When we first discussed the company’s problems in December 1970 the Cabinet agreed that existing government support for the UCS Group would not be continued, though there was a lifeline: we would continue with credit guarantees so long as the management agreed to close the Clydebank yard and separate Yarrow Shipbuilders from the rest of the group. Yarrow – an important Royal Navy supplier – seemed salvageable. But by June 1971 the UCS Group was insolvent and its liquidation was announced. There followed a protest strike on Clydeside. In July trade unionists occupied the four UCS shipyards.

There was further discussion in Cabinet in the autumn of 1971, and the Government allowed itself to be sucked into talks with the trade unions, who it was believed might be able to influence the militant shop stewards behind the occupation. The Economic Committee of the Cabinet had agreed that money should be provided to keep open the yards while the liquidator sought a solution, but only on condition that the unions gave credible undertakings of serious negotiations on new working practices. There was strong criticism of this from some of my colleagues, rightly alert to the danger of seeming to give in on the basis of worthless undertakings. But the money was provided and negotiations went ahead.

It was the unemployment prospect rather than the prospects for shipbuilding which by now were undisguisedly foremost. In November Ted Heath affirmed in a Party Political Broadcast that the ‘Government is committed completely and absolutely to expanding the economy and bringing unemployment down’. The fateful one-million mark was passed on 20 January 1972. On 24 February at Cabinet we heard that the Economic Committee had agreed to provide £35 million to keep three of the four yards open. John Davies openly admitted that the new group had little chance of making its way commercially and that if the general level of unemployment had been lower and the economy reviving faster, he would not have recommended this course. There was tangible unease, but Cabinet endorsed it and at the end of February John announced the decision. It was a small but memorably inglorious episode. I discussed it privately with Jock Bruce-Gardyne, who was scathing about the decision. He regarded it as a critical, unforgivable U-turn. I was deeply troubled.

But by now we all had other things to worry about. In framing the Industrial Relations Act we had given too much emphasis to achieving the best possible legal framework and not enough to how the attacks on our proposals were to be repelled. The same mentality prevailed as regards the threat which the National Union of Mineworkers (NUM) posed to the Government and the country. We knew, of course, that the miners and the power workers held an almost unbeatable card in pay negotiations, because they could turn off the electricity supply to industry and people. Industrial action by the power workers in December 1970 had been settled after the setting up of a Court of Inquiry under Lord Wilberforce which recommended a large increase in February the following year. Within the NUM, however, there was a large militant faction at least as interested in bringing down the Conservative Government as in flexing industrial muscle to increase miners’ earnings. The NUM held a strike ballot in October 1970 and narrowly turned down an offer from the National Coal Board (NCB). Fearing unofficial action, Cabinet authorized the NCB to offer a productivity bonus to be paid in mid-1971. The NUM again turned the offer down, following which Derek Ezra, the NCB Chairman, without consulting ministers, offered to pay the bonus at once and without strings attached to productivity. Cabinet accepted this fait accompli. Perhaps John Davies and other ministers continued to monitor events. If they did I heard nothing about it.

Only in early December 1971 did the issue of miners’ pay surface at Cabinet, and then in what seemed a fairly casual way. The NUM’s annual conference that year had significantly revised the rules which provided for an official strike, so that now only a 55 per cent, as opposed to a two-thirds, majority was required. The NUM ballot, which was still going on, had, it was thought, resulted in a 59 per cent majority vote for strike action. Yet nobody seemed too worried. We were all reassured that coal stocks were high.

Such complacency proved unwarranted. At the last Cabinet before Christmas Robert Carr confirmed to us that the NUM was indeed calling a national strike to begin on 9 January 1972. There was more trouble over pay in the gas and electricity industries. And we only needed to glance outside to know that winter was closing in, with all that meant for power consumption. But there was no real discussion and we all left for the Christmas break.

There was still some suggestion over Christmas that the strike might not be solid, but two days after it began it was all too clear that the action was total. There was then discussion in Cabinet about whether we should use the ‘cooling off’ provisions of the Industrial Relations Act. But it was said to be difficult to satisfy the legal tests involved – ‘cooling off’ orders would only be granted by the courts if there was a serious prospect that they would facilitate a settlement, which in this case was doubtful. The possibility of using the ballot provisions of the Act remained. But there was no particular reason to think that a ballot forced on the NUM would lead to anything other than a continuation of the strike. It was an acutely uncomfortable demonstration of the fragility of the principal weapons with which the Act had equipped us. Moreover, important parts of the Act had yet to come into force, and we were also aware that there was a good deal of public sympathy with the miners.

The pressure on the Government to intervene directly now increased. Looking back, and comparing 1972 with the threatened miners’ strike of 1981 and the year-long strike of 1984–85, it is extraordinary how little attention we gave to ‘endurance’ – the period of time we could keep the power stations and the economy running with limited or no coal supplies – and how easily Cabinet was fobbed off by assurances that coal stocks were high, without considering whether those stocks were in the right locations to be usable, i.e. actually at the power stations. The possibility of effective mass picketing, which would prevent coal getting to power stations, was simply not on the agenda. Instead, our response was to discuss the prospects for conciliation by Robert Carr and the use of ‘emergency powers’ which would allow us to conserve power station stocks a few weeks longer by imposing power cuts. There was a great deal of useless talk about ‘keeping public opinion on our side’. But what could public opinion do to end the strike? This was one more thing I learned from the Heath years – and anyway, on the whole public opinion wasn’t on our side. A further lesson from this period – when no fewer than five States of Emergency were called – was that for all the sense of urgency and decision that the phrase ‘emergency powers’ conveys they could not be relied upon to change the basic realities of an industrial dispute.

The crunch came on the morning of Thursday 10 February when we were all in Cabinet. A State of Emergency had been declared the previous day. It was John Davies who dropped the bombshell. He told us that picketing had now immobilized a large part of the remaining coal stocks, and that the supplies still available might not even suffice beyond the end of the following week. Electricity output would fall to as little as 25 per cent of normal supply, drastic power cuts were inevitable, and large parts of industry would be laid off. The Attorney-General reported that the provisions of the Industrial Relations Act against secondary boycotts, blacking of supplies and the inducement of other workers to take action resulting in the frustration of a commercial contract, would not come into force until 28 February. He thought that most of the picketing which had taken place was lawful. As regards the criminal law, some arrests had been made but, as he put it, ‘the activities of pickets confronted the police with very difficult and sensitive decisions’.

This was something of an understatement. The left-wing leader of the Yorkshire miners, Arthur Scargill, who was to organize the politically motivated miners’ strike I faced in 1984–85, was already busy winning his militant’s spurs. In the course of Cabinet a message came through to the Home Secretary, Reggie Maudling. The Chief Constable of Birmingham had asked that the West Midlands Gas Board’s Saltley Coke Depot be closed because lorries were being prevented from entering by 7,000 ‘pickets’ who were facing just 500 police.

There was no disguising that this was a victory for violence.

Ted now sounded the retreat. He appointed a Court of Inquiry under the ubiquitous Lord Wilberforce. By now the power crisis had reached such proportions that we sat in Cabinet debating whether we had time to wait for the NUM to ballot its members on ending a strike; a ballot might take over a week to organize. There was therefore no inclination to quibble when Wilberforce recommended a massive pay increase, way beyond the level allowed for in the ‘n-1’ voluntary pay policy already in force.

But we were stunned when the militant majority on the NUM Executive rejected the court’s recommendation, demanding still more money and a ragbag of other concessions.

Ted summoned us all on the evening of Friday 18 February to decide what to do. The dispute simply had to be ended quickly. If we had to go an additional mile, so be it. Later that night Ted called the NUM and the NCB to No. 10 and persuaded the union to drop the demand for more money, while conceding the rest. The NUM Executive accepted, and just over a week later so did the miners in a ballot. The dispute was over. But the devastation it had inflicted on the Government and indeed on British politics as a whole lived on.

The combination of the rise in unemployment, the events at Upper Clyde Shipbuilders and the Government’s humiliation by the miners resulted in a fundamental reassessment of policy. I suspect that this took place in Ted’s own mind first, with other ministers and the Cabinet very much second. It was not so much that he jettisoned the whole Selsdon approach, but rather that he abandoned some aspects of it, emphasized others and added a heavy dose of statism which probably appealed to his temperament and his continental European sympathies.

None of this pleased me. But our inability to resist trade union power was now manifest. The Industrial Relations Act itself already seemed hollow: it was soon to be discredited entirely. Like most Conservatives, I was prepared to give at least a chance to a policy which retained some of the objectives we had set out in 1969/70. I was even prepared to go along with a statutory prices and incomes policy, for a time, to try to limit the damage inflicted by the arrogant misuse of trade union power. But I was wrong. State intervention in the economy is not ultimately an answer to over-mighty vested interests: for it soon comes to collude with them.

It is unusual to hold Cabinets on a Monday, and I had a long-standing scientific engagement for Monday 20 March 1972, so I was not present at the Cabinet which discussed the budget and the new Industry White Paper. Both of them signalled a change in strategy, each complementing the other. The budget was highly reflationary, comprising large cuts in income tax and purchase tax, increased pensions and social security benefits, and extra investment incentives for industry. It was strongly rumoured that Tony Barber and the Treasury were very unhappy with the budget and that it had been imposed on them by Ted. The fact that the budget speech presented these measures as designed to help Britain meet the challenge opened up by membership of the EEC in a small way confirms this. It was openly designed to provide a large boost to demand, which it was argued would not involve a rise in inflation, in conditions of high unemployment and idle resources. Monetary policy was mentioned, but only to stress its ‘flexibility’; no numerical targets for monetary growth were set.

On Wednesday 22 March John Davies published his White Paper on Industry and Regional Development, which was the basis for the 1972 Industry Act. This was seen by our supporters and opponents alike as an obvious U-turn. Keith and I and probably others in the Cabinet were extremely unhappy, and some of this found its way into the press. Should I have resigned? Perhaps so. But those of us who disliked what was happening had not yet worked out an alternative approach. Nor, realistically speaking, would my resignation have made a great deal of difference. I was not senior enough for it to be other than the littlest ‘local difficulty’. All the more reason for me to pay tribute to people like Jock Bruce-Gardyne, John Biffen, Nick Ridley and, of course, Enoch Powell who did expose the folly of what was happening in Commons speeches and newspaper articles.

There is also a direct connection between the policies pursued from March 1972 and the very different approach of my own administration later. A brilliant, but little-known, monetary economist called Alan Walters resigned from the Central Policy Review Staff (CPRS) and delivered not only scathing criticism of the Government’s approach but also accurate predictions of where it would lead.*

One more blow to the approach we adopted in 1970 had still to fall. This was the effective destruction of the Industrial Relations Act. It had never been envisaged that the Act would result in individual trade unionists going to jail. Of course, no legal provisions can be proof against some remote possibility of that happening if troublemakers are intent on martyrdom. It was a long-running dispute between employers and dockers about ‘containerization’ which provided the occasion for this to happen. In March 1972 the National Industrial Relations Court (NIRC) fined the Transport and General Workers’ Union (TGWU) £5,000 for defying an order to grant access to Liverpool Docks. The following month the union was fined £50,000 for contempt on the matter of secondary action at the docks. The TGWU maintained that it was not responsible for the action of its shop stewards, but the NIRC ruled against this in May. Then, out of the blue, the Court of Appeal reversed these judgments and ruled that the TGWU was not responsible, and so the shop stewards themselves were personally liable. This was extremely disturbing, for it opened up the possibility of trade unionists going to jail. The following month three dockers involved in blacking were threatened with arrest for refusing to appear before the NIRC; 35,000 trade unionists were now on strike. At the last moment the Official Solicitor applied to the Court of Appeal to prevent the dockers’ arrest. But then in July another five dockers were jailed for contempt.

The Left were merciless. Ted was shouted down in the House. Sympathetic strikes spread, involving the closure of national newspapers for five days. The TUC called a one-day general strike. On 26 July, however, the House of Lords reversed the Court of Appeal decision and confirmed that unions were accountable for the conduct of their members. The NIRC then released the five dockers.

This was more or less the end of the Industrial Relations Act, though it was not the end of trouble in the docks. A national dock strike ensued and another State of Emergency was declared. This only ended – very much on the dockers’ terms – in August. In September the TUC General Congress rubbed salt into the wound by expelling thirty-two small unions which had refused, against TUC instructions, to de-register under the Act. Having shared to the full the Party’s enthusiasm for the Act, I was appalled.

In the summer of 1972 the third aspect – after reflation and industrial intervention – of the new economic approach was revealed to us. This was the pursuit of an agreement on prices and incomes through ‘tripartite’ talks with the CBI and the TUC. Although there had been no explicit pay policy, we had been living in a world of ‘norms’ since the autumn of 1970 when the ‘n-1’ was formulated in the hope that there would be deceleration from the ‘going rate’ figure in successive pay rounds. The miners’ settlement had breached that policy spectacularly, but Ted drew the conclusion that we should go further rather than go back. From the summer of 1972 a far more elaborate prices and incomes policy was the aim, and more and more the centre of decision-making moved away from Cabinet and Parliament. I can only, therefore, give a partial account of the way in which matters developed. Cabinet simply received reports from Ted on what policies had effectively been decided elsewhere, though individual ministers became increasingly bogged down in the details of shifting and complicated pay negotiations. This almost obsessive interest in the minutiae of pay awards was matched by a large degree of impotence over the deals finally struck. In fact, the most important result was to distract ministers from the big economic issues and blind us with irrelevant data when we should have been looking ahead to the threats which loomed.

The period of the tripartite talks with the TUC and the CBI from early July to the end of October did not get us much further as regards the Government’s aim of controlling inflation by keeping down wage demands. It did, however, move us down other slippery slopes. In exchange for the CBI’s offer to secure ‘voluntary’ price restraint by 200 of Britain’s largest firms, limiting their price increases to 5 per cent during the following year, we embarked on the costly and self-defeating policy of holding nationalized industry price increases to the same level, even though this meant that they continued to make losses. The TUC, for its part, used the role it had been accorded by the tripartite discussions to set out its own alternative economic policy. In flat contradiction to the policies we had been elected to implement, they wanted action to keep down council rents (which would sabotage our Housing Finance Act – intended to bring them closer to market levels). They urged the control of profits, dividends and prices, aimed at securing the redistribution of income and wealth (in other words, the implementation of socialism), and the repeal of the Industrial Relations Act. These demands were taken sufficiently seriously by Ted for him to agree studies of methods by which the pay of low-paid workers could be improved without entailing proportionate increases to other workers. We had, in other words, moved four-square onto the socialist ground that ‘low pay’ – however that might be defined – was a ‘problem’ which it was for government rather than the workings of the market to resolve. In fact, the Government proposed a £2 a week limit on pay increases over the following year, with the CBI agreeing maximum 4 per cent price increases over the same period and the extension of the Government’s ‘target’ of 5 per cent economic growth.

It was not enough. The TUC was not willing – and probably not able – to deliver wage restraint. At the end of October we had a lengthy discussion of the arguments for proceeding to a statutory policy, beginning with a pay freeze. It is an extraordinary comment on the state of mind that we had reached that, as far as I can recall, neither now nor later did anyone at Cabinet raise the objection that this was precisely the policy we had ruled out in our 1970 general election manifesto. Only with the greatest reluctance did Ted accept that the TUC were unpersuadable. And so on Friday 3 November 1972 Cabinet made the fateful decision to introduce a statutory policy beginning with a ninety-day freeze of prices and incomes. No one ever spoke a truer word than Ted when he concluded by warning that we faced a troubled prospect.

The change in economic policy was accompanied by a Cabinet reshuffle. Maurice Macmillan – Harold’s son – had already taken over at Employment from Robert Carr in July 1972, when the latter replaced Reggie Maudling at the Home Office. Ted now promoted his younger disciples. He sent Peter Walker to replace John Davies at the DTI and promoted Jim Prior to be Leader of the House. Geoffrey Howe, an instinctive economic liberal, was brought into the Cabinet but given the poisoned chalice of overseeing prices and incomes policy.

For a growing number of backbenchers the new policy was a U-turn too far. When Enoch Powell asked in the House whether the Prime Minister had ‘taken leave of his senses’, he was publicly cold-shouldered, but many privately agreed with him. Still more significant was the fact that staunch opponents of our policy like Nick Ridley, Jock Bruce-Gardyne and John Biffen were elected to chairmanships or vice-chairmanships of important backbench committees, and Edward du Cann, on the right of the Party and a sworn opponent of Ted, became Chairman of the 1922 Committee.

As the freeze – Stage 1 – came to an end we devised Stage 2. This extended the pay and price freeze until the end of April 1973; for the remainder of 1973 workers could expect £1 a week and 4 per cent, with a maximum pay rise of £250 a year – a formula designed to favour the low-paid. A Pay Board and a Prices Commission were set up to administer the policy. Our backbench critics were more perceptive than most commentators, who considered that all this was a sensible and pragmatic response to trade union irresponsibility. In the early days it seemed that the commentators were right. A challenge to the policy by the gas workers was defeated at the end of March. The miners – as we hoped and expected after their huge increase the previous year – rejected a strike (against the advice of their Executive) in a ballot on 5 April. The number of working days lost because of strikes fell sharply. Unemployment was at its lowest since 1970. Generally, the mood in government grew more relaxed. Ted clearly felt happier wearing his new collectivist hat than he ever had in the disguise of Selsdon.

Our sentiments should have been very different. The effects of the reflationary budget of March 1972 and the loose financial policy it typified were now becoming apparent. The Treasury, at least, had started to worry about the economy, which was growing at a clearly unsustainable rate of well over 5 per cent. The money supply, as measured by M3 (broad money), was growing too fast – though the (narrower) M1, which the Government preferred, less so.* The March 1973 budget did nothing to cool the overheating and was heavily distorted by the need to keep down prices and charges so as to support the ‘counter-inflation policy’, as the prices and incomes policy was hopefully called. In May modest public expenditure reductions were agreed. But it was too little, and far too late. Although inflation rose during the first six months of 1973, Minimum Lending Rate (MLR) was steadily cut and a temporary mortgage subsidy was introduced. The Prime Minister also ordered that preparations be made to take statutory control of the mortgage rate if the building societies failed to hold it down when the subsidy ended. These fantastic proposals only served to distract us from the need to tackle the growing problem of monetary laxity. Only in July was MLR raised from 7.5 per cent, first to 9 per cent and then to 11.5 per cent. We were actually ahead of Labour in the opinion polls in June 1973, for the first time since 1970. But in July the Liberals took Ely and Ripon from us at by-elections. Economically and politically we had already begun to reap the whirlwind.

Over the summer of 1973 Ted held more talks with the TUC, seeking their agreement to Stage 3. The detailed work was done by a group of ministers chaired by Ted, and the rest of us knew little about it. Nor did I know that close attention was already being given to the problem which might arise with the miners. Like most of my colleagues, I imagine, I believed that they had had their pound of flesh already and would not come back for more.

I hope, though, that I would have given a great deal more attention than anyone seems to have done to building up coal stocks against the eventuality, however remote, of another miners’ strike. The miners either had to be appeased or beaten. Yet, for all its technocratic jargon, this was a government which signally lacked a sense of strategy. Ted apparently felt no need of one since, as we now know, he had held a secret meeting with the miners’ President, Joe Gormley, in the garden of No. 10 and thought he had found a formula to square the miners – extra payment for ‘unsocial hours’. But this proved to be a miscalculation. The miners’ demands could not be accommodated within Stage 3.

In October Cabinet duly endorsed the Stage 3 White Paper. It was immensely complicated and represented the high point – if that is the correct expression – of the Heath Government’s collectivism. All possible eventualities, you might have thought, were catered for. But as experience of past pay policies ought to have demonstrated, you would have been wrong.

My only direct involvement in the working of this new, detailed pay policy was when I attended the relevant Cabinet Economic Sub-Committee, usually chaired by Terence Higgins, a Treasury Minister of State. Even those attracted by the concept of incomes policy on grounds of ‘fairness’ begin to have their doubts when they see its provisions applied to individual cases. My visits to the Higgins Committee were usually necessitated by questions of teachers’ pay.

On one sublime occasion we found ourselves debating the proper rate of pay for MPs’ secretaries. This was the last straw. I said that I hadn’t come into politics to make decisions like this, and that I would pay my secretary what was necessary to keep her. Other ministers agreed. But then, they knew their secretaries; they did not know the other people whose pay they were deciding.

In any case, reality soon started to break in. Two days after the announcement of Stage 3 the NUM rejected an NCB offer worth 16.5 per cent in return for a productivity agreement. The Government immediately took charge of the negotiations. (The days of our ‘not intervening’ had long gone.) Ted met the NUM at No. 10. But no progress was made.

In early November the NUM began an overtime ban. Maurice Macmillan told us that though an early strike ballot seemed unlikely and, if held, would not give the necessary majority for a strike, an overtime ban would cut production sharply. The general feeling in Cabinet was still that the Government could not afford to acquiesce in a breach of the recently introduced pay code. Instead, we should make a special effort to demonstrate what was possible within it. The miners were not the only ones threatening trouble. The firemen, electricians and engineers were all in differing stages of dispute.

Admittedly, the threatened oil embargo and oil price rises resulting from the Arab-Israeli war that autumn made things far worse. As the effects of the miners’ industrial action bit deeper, the sense that we were no longer in control of events deepened. Somehow we had to break out. This made a quick general election increasingly attractive. Quite what we would have done if we had been re-elected is, of course, problematic. Perhaps Ted would have liked to go further towards a managed economy. Others would probably have liked to find a way to pay the miners their Danegeld. Keith and I and a large part of the Parliamentary Conservative Party would have wanted to discard the corporatist and statist trappings with which the Government was now surrounded and try to get back to the free market approach from which we had allowed ourselves to be diverted in early 1972.

At Cabinet on Tuesday 13 November it was all gloom as the crisis accelerated on every front. Tony Barber told us that the October trade figures that day would show another large deficit.

One shrewd move on Ted’s part at the beginning of December was to bring Willie Whitelaw back from Northern Ireland to become Employment Secretary in place of Maurice Macmillan. Willie was both conciliatory and cunning, a combination of qualities particularly necessary if some way were to be found out of the struggle with the miners. The Government’s hand was also strengthened by the fact that, perhaps surprisingly, the opinion polls were now showing us with a clear lead over Labour as the public reacted indignantly to the miners’ actions. In these circumstances, all but the most militant trade unionists would be fearful of a confrontation precipitating a general election.

On Thursday 13 December Ted announced the introduction of a three-day working week to conserve energy. He also gave a broadcast that evening. This gave an impression of crisis which polarized opinion in the country. At first industrial output remained more or less the same, itself an indication of the inefficiency and overmanning of so much of British industry. But we did not know this at the time. Nor could we know how long even a three-day week would be sustainable. I found strong support among Conservatives for the measures taken. There was also understanding of the need for the £1.2 billion public spending cuts, which were announced a few days later.

At this stage we believed that we could rely on business leaders. Shortly before Christmas, Denis and I went to a party at a friend’s house in Lamberhurst. There was a power cut and so night lights had been put in jam jars to guide people up the steps. There was a touch of wartime spirit about it all. The businessmen there were of one mind: ‘Stand up to them. Fight it out. See them off. We can’t go on like this.’ It was all very heartening. For the moment.

There still seemed no honourable or satisfactory way out of the dispute itself. The Government offer of an immediate inquiry into the future of the mining industry and miners’ pay if the NUM went back to work on the basis of the present offer was turned down flat.

It was clear that, if and when we managed to come through the present crisis, fundamental questions would need to be asked about the Government’s direction. The miners, backed in varying degrees by other trade unions and the Labour Party, were flouting the law made by Parliament. The militants were clearly out to bring down the Government and to demonstrate once and for all that Britain could only be governed with the consent of the trade union movement. This was intolerable not just to me as a Conservative Cabinet minister but to millions of others who saw the fundamental liberties of the country under threat. Denis and I, our friends and most of my Party workers, felt that we now had to pick up the gauntlet and that the only way to do that was by calling and winning a general election. From now on, this was what I urged whenever I had the opportunity.

I was, though, surprised and frustrated by Ted Heath’s attitude. He seemed out of touch with reality, still more interested in the future of Stage 3 and in the oil crisis than he was in the pressing question of the survival of the Government. Cabinet discussions concentrated on tactics and details, never the fundamental strategy. Such discussions were perhaps taking place in some other forum; but I rather doubt it. Certainly, there was a strange lack of urgency. I suspect it was because Ted was secretly desperate to avoid an election and did not seriously wish to think about the possibility of one. In the end, perhaps – as some of us speculated – because his inner circle was split on the issue, Ted finally did ask some of us in to see him, in several small groups, on Monday 14 January in his study at No. 10.

By this stage we were only days away from the deadline for calling a 7 February election – the best and most likely ‘early’ date. At No. 10 in our group John Davies and I did most of the talking. We both strongly urged Ted to face up to the fact that we could not have the unions flouting the law and the policies of a democratically elected government in this way. We should have an early election and fight unashamedly on the issue of ‘Who governs Britain?’ Ted said very little. He seemed to have asked us in for form’s sake. I gathered that he did not agree, though he did not say as much. I went away feeling depressed. I still believe that if he had gone to the country earlier we would have scraped in.

The following Wednesday, 30 January, with the strike ballot still pending, an emergency Cabinet was called. Ted told us that the Pay Board’s report on relativities had now been received. The question was whether we should accept the report and set up new machinery to investigate ‘relativities’ claims. The miners had always claimed to be demanding an improvement in their relative pay – hence their rejection of Ted’s ‘unsocial hours’ provision, which applied to all shift workers. The Pay Board report might provide a basis for them to settle within the incomes policy – all the more so because it specifically endorsed the idea that changes in the relative importance of an industry due to ‘external events’ could also be taken into account when deciding pay. The rapidly rising price of oil was just such an ‘external event’.

We felt that the Government had no choice but to set up the relativities machinery. Not to do so – having commissioned the relativities report in the first place – would make it seem as if we were actively trying to prevent a settlement with the miners. And with an election now likely we had to consider public opinion at every step.

An election became all but certain when, on Tuesday 5 February, we learned that 81 per cent of those voting in the NUM ballot had supported a strike. Election speculation reached fever pitch from which there was no going back. Ted told us at Cabinet two days later that he had decided to go to the country. The general election would take place on Thursday 28 February.

Willie proposed formally to refer the miners’ claim to the Pay Board for a relativities study. He couched his argument for this course entirely in terms of it giving us something to say during the election in reply to the inevitable question: How will you solve the miners’ dispute if you win? Cabinet then made the fateful decision to agree to Willie’s proposal.

Because of the emergency nature of the election, I had not been involved in the early drafts of even the education section of the manifesto, which was now published within days. There was little new to say, and the dominant theme of the document – the need for firm and fair government at a time of crisis – was clear and stark. The main new pledge was to change the system whereby Social Security benefits were paid to strikers’ families.

During most of the campaign I was reasonably confident that we would win. Conservative supporters who had been alienated by the U-turns started drifting back to us. Indeed, their very frustrations at what they saw as our past weaknesses made them all the more determined to back us now that we had decided, as they saw it, to stand up to trade union militancy. Harold Wilson set out Labour’s approach in the context of a ‘social contract’ with the unions. Those who longed for a quiet life could be expected to be seduced by that. But I felt that if we could stick to the central issue summed up by the phrase ‘Who governs?’ we would win the argument, and with it the election.

I felt victory – almost tangibly – slip away from us in the last week. I just could not believe it when I heard on the radio of the leak of evidence taken by the Pay Board which purported to show that the miners could have been paid more within Stage 3, with the implication that the whole general election was unnecessary. The Government’s attempts to deny this – and there did indeed turn out to have been a miscalculation – were stumbling and failed to carry conviction. From now on it was relentlessly downhill.

Two days later, Enoch Powell urged people to vote Labour in order to secure a referendum on the Common Market. I could understand the logic of his position, which was that membership of the Common Market had abrogated British sovereignty and that the supreme issue in politics was therefore how to restore it. But what shocked me was his manner of doing it – announcing only on the day the election was called that he would not be contesting his Wolverhampton seat and then dropping this bombshell at the end of the campaign. It seemed to me that to betray one’s local supporters and constituency workers in this way was heartless. I suspect that Enoch’s decision had a crucial effect.

Then three days later there was another blow. Campbell Adamson, the Director-General of the CBI, publicly called for the repeal of the Industrial Relations Act. It was all too typical of the way in which Britain’s industrial leaders were full of bravado before battle was joined, but lacked the stomach for a fight.

By polling day my optimism had been replaced by unease.

That sentiment grew as I heard from Finchley and elsewhere around the country of a surprisingly heavy turn-out of voters to the polls that morning. I would have liked to think that these were all angry Conservatives, coming out to demonstrate their refusal to be blackmailed by trade union power. But it seemed more likely that they were voters from the Labour-dominated council estates who had come out to teach the Tories a lesson.

The results quickly showed that we had nothing to be cheerful about. We lost thirty-three seats. It would be a hung Parliament. Labour had become the largest party with 301 seats – seventeen short of a majority; we were down to 296, though with a slightly higher percentage of the vote than Labour; the Liberals had gained almost 20 per cent of the vote with fourteen seats, and smaller parties, including the Ulster Unionists, held twenty-three. My own majority in Finchley was down from 11,000 to 6,000, though some of that decline was the result of boundary changes in the constituency.

On Friday afternoon we met, a tired and downcast fag-end of a Cabinet, to be asked by Ted Heath for our reactions as to what should now be done. There were a number of options. Ted could advise the Queen to send for Harold Wilson as the leader of the largest single party. Or the Government could face Parliament and see whether it could command support for its programme. Or he could try to do a deal with the smaller parties for a programme designed to cope with the nation’s immediate difficulties. Having alienated the Ulster Unionists through our Northern Ireland policy, this in effect meant a deal with the Liberals – though even that would not have given us a majority. There was little doubt from the way Ted spoke that this was the course he favoured.

My own instinctive feeling was that the party with the largest number of seats in the House of Commons was justified in expecting that they would be called to try to form a government. But Ted argued that with the Conservatives having won the largest number of votes, he was duty bound to explore the possibility of coalition. So he offered the Liberal Leader Jeremy Thorpe a place in a coalition government and promised a Speaker’s conference on electoral reform. Thorpe went away to consult his party. Although I wanted to remain Secretary of State for Education, I did not want to do so at the expense of the Conservative Party’s never forming a majority government again. Yet that is what the introduction of proportional representation, which the Liberals would be demanding, might amount to. I was also conscious that this horse-trading was making us look ridiculous. The British dislike nothing more than a bad loser. It was time to go.

When we met again on Monday morning Ted gave us a full account of his discussions with the Liberals. They had not been willing to go along with what Jeremy Thorpe wanted. A formal reply from him was still awaited. But it now seemed almost certain that Ted would have to tender his resignation. The final Cabinet was held at 4.45 that afternoon. By now Jeremy Thorpe’s reply had been received. From what Ted said, there were clues that his mind was already turning to the idea of a National Government of all parties, something which would increasingly attract him. It did not, of course, attract me at all. In any case, the Liberals were not going to join a coalition government with us. There was nothing more to say.

I left Downing Street, sad but with some sense of relief. I had given little thought to the future. But I knew in my heart that it was time not just for a change in government but for a change in the Conservative Party.

* ‘The Lesson’ (1902). The lesson in question was the Boer War, in which Britain had suffered many military reverses.

* A State of Emergency may be proclaimed by the Crown – effectively by ministers – whenever a situation arises which threatens to deprive the community of the essentials of life by disrupting the supply and distribution of food, water, fuel or light, or communications. It gives Government extensive powers to make regulations to restore these necessities. Troops may be used. If Parliament is not sitting when the proclamation is made, it must be recalled within five days. A State of Emergency expires at the end of one month, but may be extended.

* John Poulson was an architect convicted in 1974 of making corrupt payments to win contracts. A number of local government figures also went to jail. Reggie Maudling had served on the board of one of Poulson’s companies.

* Hansard, 13 June 1972; Volume 838, columns 1319–20.

* Alan Walters became my economic adviser as Prime Minister 1981–84 and again in 1989.

* M1 comprised the total stock of money held in cash and in current and deposit accounts at a particular point in time; M3 included the whole of M1, with the addition of certain other types of bank accounts, including those held in currencies other than sterling.