If Britain is to regain the freedom of a sovereign nation state, Theresa May must get up off her knees and if necessary leave without a deal
I first came across Margaret Thatcher in 1973, when I was invited to draft the Conservative Manifesto for what was increasingly looking like an early general election. It is possible that she was already aware of my existence, when I was Editor of the Spectator during the second half of the 1960s, but our paths had never crossed.
Margaret Thatcher with Nigel Lawson (right): She called him and Geoffrey Howe “the two finest Chancellors of the Exchequer since the war” (© SSPL/Getty Images)
When I set about my manifesto task, I wrote to every member of the Cabinet to ask them what they wished to achieve in their own area if the government were to be re-elected. With one exception, the replies I received were depressingly boring, with no political cutting edge whatever. Indeed, they read as if they had been written by Whitehall officials. Maybe they had been. The one exception, of course, was the education section, which had clearly been written by the Secretary of State, Margaret Thatcher. It was well written and politically sharp.
I thanked her effusively for her contribution.
The election duly came, in early 1974, and was lost, albeit only very narrowly. I became a Member of Parliament, and, much more importantly, the following year a leadership election saw Margaret Thatcher oust Ted Heath to become Leader of the Conservative Party. I then got to know her much better, not least because she decided to have an informal team of four backbenchers, of whom I was one and Norman Tebbit another, to help her prepare for Prime Minister’s Questions. In personality terms, the three of us were each very different. But in political terms we were already very much on the same page. Preparation was certainly needed, for although Harold Wilson was not a great Prime Minister he was a skilled parliamentarian, who prided himself in particular on his mastery of Prime Minister’s Questions, where he had consistently seen off Ted Heath.
The following year Margaret invited me to join her front bench team, in the lowly and improbable role of whip; and a year later, 1977, she made me — rather less implausibly — a front- bench Treasury spokesman under Geoffrey Howe.
Two years later a general election saw Margaret Thatcher become Prime Minister, and I became one of her ministers, which I was to remain for more than a decade, most of that time as her Chancellor, working very closely with her for almost all that time.
Even for those of us old enough to have been there, it is hard now to recall the depths to which Britain had sunk by 1979. Economic growth had virtually ground to a halt: in the despairing words of the Bank of England’s March 1978 Bulletin, “Now condemned to very slow growth, we might later even have to accept, if present trends continue, declines in real living standards.” Inflation was in double digits, and rising. Management had all but ceased to manage. Increasing trade union militancy, culminating in the so-called Winter of Discontent of 1978-79, had raised the question on all sides of the political debate of whether the country had in fact become ungovernable.
Pitied abroad, where Britain had been largely written off by other governments and the financial markets alike as the terminally sick man of Europe, we were mired in an all-pervasive defeatism at home. It was, to say the least, a daunting inheritance.
Yet under Margaret’s inspired leadership we were able to put in place the most radical change in economic policy since the war, and to save the nation both politically and economically, a success recognised throughout the world. It became known as Thatcherism.
Essentially, Thatcherism consisted of three interconnected principles, each of them a reversal of the post-war conventional wisdom. The first principle was that the recipe for economic success is the greatest practicable market freedom within an overall framework of financial discipline. By contrast, the approach that culminated in the disaster of the 1970s had in practice consisted in an ever-increasing erosion of market freedom, accompanied by the progressive abandonment of financial discipline.
The second principle was that, instead of seeking to use macro-economic policy — that is, monetary and fiscal policy — to promote growth and employment, and micro-economic policy (notably at that time prices and incomes policy) to suppress inflation, we should do precisely the reverse. That is to say, the government should direct macro-economic policy, pre-eminently monetary policy, to suppress inflation, and micro-economic (or supply-side) policy, such as tax reform, deregulation, labour market reform, privatisation and the promotion of competition, to provide the conditions most favourable to jobs and to growth.
In passing, some may have noticed the absence here of any reference to the negotiation of trade agreements. As a member of the European Community, as the European Union was then known, we were not free to do this. But that mattered very little indeed. What is essential on the trade front is the absence of global protectionism; and that is ensured by the WTO (formerly GATT) system. This has relevance to the road to Brexit, to which I will turn later.
So to the third principle, which was to set all this explicitly within a medium term context. The most obvious formal expression of this was the Medium Term Financial Strategy.
Note, incidentally, financial and not industrial strategy. Monetary and fiscal policy is the inescapable responsibility of government. By contrast, in a free economy, it is for business and industry to work out their strategic goals. The business of government is not the government of business.
But behind the MTFS lay a more profound reversal of the old post-war consensus, according to which the essence of economic policy was a largely vain quasi-Keynesian attempt to eradicate the vagaries of the business cycle (more vulgarly, boom and bust), about which policymakers can in reality do very little, and to focus instead on the conditions for improved economic performance over the longer term, about which history teaches us that a great deal can be done, even though it can take a while for the results to become apparent.
So how did all this work out in practice? Pretty well — as the British people recognised in three successive general elections. Not perfectly, of course. Perfection is not of this world. Indeed, one of the great strengths of Conservatism is that, in contrast to all the other “isms” that exist, it is the politics of imperfection. So where are we now, and what would Margaret Thatcher make of it?
It is safe to say that she would have been absolutely horrified by last May’s Conservative Party Manifesto (which, it has to be said, did not turn out to be a great success). Let me reproduce an extract from it:
We must reject the ideological templates provided by the socialist left and the libertarian right . . . Under the strong and stable leadership of Theresa May, there will be no ideological crusades. The government’s agenda will not be allowed to drift to the right . . . We do not believe in untrammelled free markets. We reject the cult of selfish individualism.
A more explicit rejection of, and travesty of, Thatcherism it would be hard to imagine.
Leaving aside the unequivocal fact that free markets not only proved themselves superior to other forms of economic organisation during the Thatcher era, which saved this country when it was on the brink of disaster, but have done so around the world throughout history, it is worth spending a little time on precisely why this travesty is so pernicious and so wrong.
It is true that the free market is based on self-interest (including, incidentally, the interests of one’s family). But we should not condemn self-interest. It is rightly and inescapably inherent in human nature. And government in a free society would be impossible without it.
As far back as the 18th century, Adam Smith demonstrated how the market economy channels self-interest into public benefit. As he famously wrote:
It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but their self love.
Every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is . . . led as by an invisible hand to promote an end which was no part of his intention.
Despite the 2017 Conservative manifesto, there is nothing ideological about the market economy — except in the sense that it is a form of freedom, an idea that most of us value. Including Margaret Thatcher, who would rightly always speak of freedom and the rule of law, a combination even more important than democracy itself. And of course the rule of law is vital to the free market.
The success of the free market is, in a sense, Darwinian: a matter of survival of the fittest, as rival systems have been tested to destruction. And the most fundamental reason why this is so is that the most basic fact of economic life, as indeed of all other dimensions of life, is that we are all fallible.
We all make mistakes, and always will. Markets make mistakes, and so do governments. Businessmen and bankers make mistakes, and so do politicians and bureaucrats. Thus any attempt to construct a system which will eliminate mistakes is doomed to failure. All we can sensibly do is put in place a system in which mistakes are soonest recognised and most rapidly corrected. That means, in practice, the liberal market economy.
By contrast, experience shows that, whatever the political system, it is governments that find it hardest to own up to mistakes, still less to correct them. And this is supported by another fact of life. We are all subject to self-interest, businessmen and bureaucrats alike. But whereas, as Adam Smith explained, the market economy is the means by which self-interest produces public benefit, this is less clear in the case of bureaucratic self-interest.
It would be remiss to close this section without referring to the searing experience of the banking meltdown of 2008, which has been held to discredit both the free market economic system in general and the deregulation agenda of the Thatcher government in particular. Both charges are false, and it is instructive to understand why. As I have explained, the great merit of the market economy is that it is the system in which mistakes, which we all make, are soonest corrected. They are corrected either because of the fear of failure, or by the fact of failure. But in banking, we have allowed there to be institutions that are considered to be too big, to complex, and too important to be allowed to fail. That is the root cause of the disaster, and it has not yet been removed.
It is not the market economy that is to blame, but the fact that the banks are not fully part of it. As I have argued elsewhere, a major structural reform is needed, one which has yet to take place.
As for the claim that the deregulation agenda of the Thatcher government was somehow responsible, that is even more absurd. In the first place, this was not a British event, although we were harder hit than many as a result of the unusual importance of the banking sector to the British economy, but a global financial crisis whose trigger was the sub-prime mortgage market in the United States. Britain does indeed enjoy a measure of global influence, but to suggest that we were responsible for that is ludicrous. In the second place the disaster occurred almost two decades after the Thatcher government had come to an end, during which time politics, policies and indeed banking had significantly changed.
And in the third place, as a specific example of that, I had become increasingly concerned during my time as Chancellor at the weakness of the system of prudential bank supervision then prevailing in Britain. As a result, and with the full backing of Margaret Thatcher, and against opposition from the Bank of England, I brought into law the 1987 Banking Act, which introduced a new and superior form of prudential supervision for the banks. Sadly, when, a decade later, Labour got into office, they lost little time in abolishing the system we had put in place.
Had they not done so, it would probably still not have been possible to prevent the UK from being adversely affected by the 2008 disaster, but I have no doubt that we would have been considerably less badly affected than in fact we were.
But while Margaret Thatcher would have been appalled by the explicit rejection of Thatcherite economics to which the present government appears committed, I have no doubt that she would have been delighted by the result of the Brexit referendum, and the present government’s determination to implement that result.
I can testify that, throughout her time as Prime Minister, she became progressively more disenchanted with the European Union; and after her departure she wrote openly of the UK leaving the EU as the most likely best course.
But while she would have been delighted by the prospect of Britain regaining its sovereignty outside the EU, she would have been deeply concerned at the current state of the so-called negotiations.
Almost five years ago now I wrote a long article for The Times explaining why the UK should leave the EU. I was the first senior politician to do so. The issue was essentially political. The EU is a political entity whose objective — European political union — we do not share, it is a bureaucratic monstrosity with an inbuilt contempt for democracy, and, as (rightly) a non-member of the eurozone, we were doomed to becoming increasingly marginalised. But I also pointed to the substantial economic benefit of leaving.
This would come in two ways. First, we would no longer have to pay what, despite the UK rebate heroically negotiated by Margaret Thatcher in 1984, is still a massive annual net contribution to the EU budget, now running at well over £10 billion, year in, year out, and rising. And, second, we would regain our regulatory freedom, which would allow us to complete the programme of judicious deregulation which served us so well during the Thatcher years, but which at that time had to be confined to domestic, i.e. non-EU, regulations.
What never occurred to me is that we would need to negotiate a trade deal with the EU. Because we don’t. The WTO system is perfectly acceptable. It is the basis on which we happily trade with most of the rest of the world, and on which most of the rest of the world trades successfully with the rest of the EU.
Yet we have now allowed ourselves to become bogged down in the fruitless quest for a post-Brexit trade deal with the EU, wasting precious time and making concession after concession to try and achieve one. It is fruitless essentially because the EU is determined that we should not get anything that can be presented as a good deal, as that might, either now or in the future, encourage other member states to follow suit. That includes, in particular, the European Parliament, which, let us not forget, has a veto on the outcome.
The most important point made by Theresa May in her excellent Lancaster House speech about Brexit a year ago was that no deal on trade with the EU was better than a bad deal. Yet she appears to have lost her nerve, and — no doubt encouraged by the bureaucracy, who are horrified by the idea of Brexit — has allowed herself to be maneouvred into imagining that no trade deal would be a disaster.
This is manifest nonsense. It is also the cause of most of her current difficulties. It is only the will o’the wisp of a good trade deal that gives the Irish Republic its bargaining power.
The issue of the border with the UK is straightforward. There is already, of course, a border. Britain’s departure from the EU will necessarily add a complication. But with co-operation and goodwill on both sides, assisted by the full use of the latest technology, it can remain a relatively unobtrusive border. To suggest that this will imperil the peace process and lead to a recurrence of the Troubles is irresponsible scaremongering. Yet it appears that the British government is prepared to compromise its regulatory autonomy over this.
The provisional agreement that Mrs May secured in December is just about acceptable so far as it goes. But let us be quite clear. The UK’s regulatory autonomy, post-Brexit, must be unfettered. It is an essential attribute of national sovereignty, which is what Brexit is all about.
Some have already rightly pointed out that its surrender would prevent the conclusion of future trade deals between the UK and the faster-growing markets of the rest of the world. Even more important, it would negate our ability to reduce the burden of EU red tape on the masses of Britain’s small businesses, most of whom do little or no overseas trade.
So we find ourselves today quite unnecessarily as a supplicant, in a humiliating state of cringe, begging for what is both unnecessary and unattainable — a posture which would have been anathema to Margaret Thatcher.
The time has come to call an end to this demeaning process. We must get up off our knees. Enough is enough.
The government should instead devote its energies, as is long overdue, to making the necessary arrangements for leaving without a bilateral trade agreement and preparing the regulatory changes to take greatest advantage of our new-found freedom.
Let us honour the memory of Margaret Thatcher by recovering our national self-confidence and national pride, and securing a Brexit she would have been proud of.