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Pay? she asked.

Its rising too fast, I admitted.

We cannot afford to pay ourselves more than we earn. The world does not owe us a living.

True, but not awfully inspiring. Just a bit of Jimmy Carter moralizing really. Nobody likes being preached at, especially not by politicians. I wondered if we could turn this section into an attack on greedy unions and spineless managers, thus directing the heat from me and putting the blame fairly and squarely where it belongs.

Dorothy suggested a more diplomatic formulation. Both sides of industry must strive to work together in peace and harmony for the sake of Britain.

One final reference was necessary: to interest rates, which are undoubtedly too high. If only theyd come down before Conference it might save my bacon. But I just dont seem to get that kind of luck. We thought about it for hours, but we just couldnt find anything good or positive to say about interest rates.

So we discussed how to finish up. As the whole picture is really a total disaster, the only viable option is to wave the Union Jack. So Ill finish with some rubbish about Britains unique role on the world stage, and the nations great destiny.

Dorothy wanted me to say that Id devote every effort to building a peaceful and prosperous world for our children and our childrens children. At least that bit would be honest. Its probably about how long it would take.

SIR BERNARD WOOLLEY RECALLS [in conversation with the Editors]:

The Prime Minister was indeed exercised about his speech to Party Conference. And he had a considerable problem on his hands. You do need some good news if you want to rally the morale of the party faithful.

He made it known to me that he was planning to appoint Alexander Jameson as Governor of the Bank of England. Naturally I reported this to Sir Humphrey Appleby. I must admit to a certain naivit, for I saw this as good news.

Sir Humphrey quickly disabused me. Its appalling news! He was so agitated that he rose from his desk and strode angrily about his office, pausing occasionally at the bullet-proof net curtains to stare out over Horse Guards Parade.

At first I couldnt quite see the danger of appointing Jameson, but I readily accepted that Sir Humphrey had greater wisdom or fuller information than I. So I asked him if he were going to try to change the Prime Ministers mind.

He turned and smiled at me, then replied with characteristic precision. No, Bernard, I am going to change the Prime Ministers mind.

I couldnt help smiling back, though. I couldnt see how this goal was to be achieved. Jameson was a genuinely good choice, so far as I was aware, and the PM was extremely keen on him -- it appeared to be the only hopeful piece of news that he could present to the massed groundlings at Blackpool.

Sir Humphrey found it no deterrent that the PM was keen on Jameson. In fact, he seemed to regard it as a positive bonus. That will be my starting point. If you want to suggest that someone is perhaps not the ideal choice [i.e. rubbish them Ed.], the first stage is to express absolute support.

The reason, as I now understood, is that you must never be on the record saying that somebody is no good. You must be seen as their friend. After all, as Humphrey explained so cogently that morning, it is necessary to get behind someone before you can stab them in the back.

The interesting thing about expressing support for Jameson is that it was indeed the right thing to do. Jameson was good. He was extremely honest and efficient. And Sir Humphrey planned to say so. And this is why Sir Humphreys tactics were so confusing to me at first.

But I should have been patient. He spelled it out.

Stage One: Express absolute support.

Stage Two: List all his praiseworthy qualities, especially those that would make him unsuitable for the job.

Stage Three: Continue to praise those qualities to the point where they become positive vices.

Stage Four: Mention his bad points by defending and excusing them.

Stage Three is simply done, I learned that day, by oversimplification. You label someone. If, for instance, someone is a good man he can seriously be damaged by calling him Mr. Clean. Strange, but true.

Humphrey had heard that Jameson was a churchgoer, information which I was able to confirm. Indeed, I added, he had once been a lay preacher.

Humphreys face lit up. His joy was beautiful to behold. Splendid news! We can certainly use that against him.

I asked for an illustration. Sir Humphrey turned to me and spoke as if speaking to the Prime Minister. What a charming man. Hasnt an enemy in the world. But is he really up to dealing with some of the rogues in the City?

Ingenious. But I wasnt sure it would wash. For, as I explained to Sir Humphrey, Jameson was in reality a pretty tough customer.

Humphrey remained blissfully unconcerned. In that case, well go on to Stage Four and say hes too tough. For instance, it probably doesnt matter that he was a conscientious objector, no one has really questioned his patriotism. Or I thought the criticisms of him for bankrupting his last company were not entirely fair. That sort of thing.

It was clear to me that Humphrey would be coming to praise Jameson, not to bury him. Never before had I grasped the lethal possibilities of praise. Humphrey explained that the same principle can be applied to the personal lives of those who cannot be smeared by praise in their professional lives. All you need to do is hint at something that cannot be easily disproved. And if it is disproved, you never said it anyway, you merely hinted.

The best approach is to hint at a hidden scandal. For instance:

1. If not married -- Homosexuality.

2. If married -- Adultery, preferably with a lady who is beyond reproach, such as one of the royals or a television newsreader.

3. If happily married -- Puritanism or Alcoholism. Or undisclosed Psychiatric Treatment.

The possibilities are most infinite. Careers can be brought to a juddering halt by generously referring to a chap as a great stimulator, a wonderful catalyst, a superb cook, an innovative chess player. As for oversimplification the stages are frightfully easy:

1. Take someones idea -- say, a chap who believes that education subsidies should be funnelled through the parents rather than through the Local Education Authority.

2. Simplify it to the point of absurdity -- 'He believes in a complete free for all.

3. Admit there was some truth in it once. But weve all realised that there is a less extreme way of solving the problem.

4. Label him with the idea every time his name is mentioned. Ah yes, the educational vouchers man.

I learned a lot that day that I was able to apply fruitfully as I rose high in the Civil Service. Indeed, I would go so far as to admit that my eventual rise to Head of the Home Civil Service was not wholly unconnected with the techniques that I acquired that morning in Sir Humphrey Applebys office.

[Hackers diary continues Ed.]

October 8th

Dorothy brought me in a new draft of my Party Conference speech. Its marginally better but still pretty uninspiring. And I remain deeply concerned about this Phillips Berenson scandal and its implications for us all.

However, at my morning meeting with Humphrey (and Bernard) my Cabinet Secretary seemed to disagree with me. Im sure its not that serious is how he casually dismissed it.

This was like a red rag to a bull to Dorothy. In fact, thats how she always responds to him. I can never make up my mind whether their endless disagreements are highly creative or just a bloody nuisance. But certainly her intention was to defend my position. It certainly is serious, Humphrey, she retorted sharply.

He was patronising. no, no, dear lady, I think that the bank over-lent to one big borrower, thats all.

Theres more to it than that. Some of the Phillips Berenson directors have a slightly shady past, you know.