Our side of the House liked it. I got a good press, the Daily Telegraph observing that ‘it has taken a woman… to slam the faces of the Government’s Treasury ministers in the mud and then stamp on them’. Iain Macleod himself wrote some generous lines about the performance in another paper.
He did the same after my speech that autumn to the Party Conference in Blackpool, my first real Conference success. I put a special effort into it — though the nine hours of work I did would have seemed culpable idleness compared with the time I took for Conference speechwriting as Party Leader. That autumn, however, I spoke from notes, which gives extra spontaneity and the flexibility to insert a joke or jibe on the spur of the moment. Although the debate I was answering was on taxation, the cheers came in response to what I said about the way in which the Government was undermining the rule of law by the arbitrary powers it had taken through incomes policy and tax policy. With more than a touch of hyperbole, it must be admitted, I said: ‘All this is fundamentally wrong for Britain. It is a step not merely towards socialism but towards communism.’ Some of the more squeamish journalists demurred. But not the new and still left-of-centre Sun, which noted: ‘A Fiery Blonde Warns of the Road to Ruin’.
I was right to see a connection between the socialist approach to public expenditure and taxation on the one hand and to incomes policy on the other. They were both aspects of the same collectivist programme which, if taken to its ultimate conclusion, would jeopardize not just economic but political freedom as well. But what I and almost all of my colleagues at this time failed to do was to think through the full implications for our own policies. Although we wanted lower and simpler taxes on people and businesses, we were still inclined to assume — and not just for public presentation, but because we really thought it — that faster economic growth would allow us to cut taxes, as public expenditure measured as a share of GDP fell. We had some proposals to reduce public expenditure on socialist projects and waste. But we thought that we could create an atmosphere favourable to enterprise and so establish what was called a ‘virtuous circle’ in which higher growth allowed larger tax revenues with lower tax rates, which in turn stimulated further growth. Consequently, we were not as serious about making real public expenditure cuts as we should have been. Indeed, over the whole of this period — whether in 1956, 1966 or above all in 1976 — real cuts in public spending were only made by governments of either party under the exigent circumstances of a sterling crisis, a gilt strike or the arrival on the scene of the International Monetary Fund. This approach was only finally changed when in the run-up to the 1979 election the Conservative Opposition actually planned for public expenditure cuts because we believed in them.
Our failure in the 1960s to consider as an alternative government where we really stood on incomes policy was at least as serious. As Iain Macleod and I demonstrated by our vigorous opposition to Labour’s statutory incomes policy, we knew what we were against, but we were much less clear about what we were for. There was good reason for this, because the Shadow Cabinet itself was sharply divided. Ted Heath, true to the pragmatic, problem-solving approach which he prided himself on taking, was never able to give the lead required on this question. Probably the only member of the Shadow Cabinet who was opposed in principle to all kinds of incomes policy — voluntary or involuntary — was Enoch Powell, and he had failed to persuade his colleagues by the time I entered the Shadow Cabinet in 1967.
But Enoch was right. He had made the two intellectual leaps in economic policy which Keith Joseph and I would only make some years later. First, he had grasped that it was not the unions which caused inflation by pushing up wages, but rather the Government which did so by increasing the supply of money in the economy. Consequently, incomes policies — quite apart from their other effects of diminishing incentives, imposing distortions and leading to strikes which pitted the state against organized labour — were a supreme irrelevance to anti-inflation policy. In effect, Government was creating a problem which it then blamed on others. The only aspect of the matter which Enoch then and later failed sufficiently to grasp was the importance of the indirect link between trade union power and inflation. This lay in the fact that over-powerful trade unions could raise real wages well above market levels, but that in turn priced their own members out of jobs, and inflicted unemployment on both union and non-union workers alike. Governments, supremely sensitive to the length of dole queues, would then react by lowering interest rates and expanding the money supply. This would increase demand and jobs for a time, but it also increased inflation. All these effects would prompt the trade unions to ratchet up wages once more. And the whole process would start up again, from a higher level of inflation. But this could only be tackled by tightening monetary policy and by reducing the power of the unions — the first to halt inflation, the second to prevent the unions from creating unemployment. We would therefore at some point have to tackle trade union law. That said, Enoch’s insight into the cause of inflation was of supreme importance.
Secondly, he had seen that the consensus economic policy nurtured another damaging delusion. This concerned the ‘constraint’ allegedly exercised by the current account of the balance of payments. It was in order to increase exports and reduce imports that corporatist, interventionist industrial policies were considered necessary. But the real ‘constraint’, which was assumed and not challenged, was that imposed by a pegged exchange rate. If sterling were allowed to float freely, as Enoch advocated, the alleged constraint of the balance of payments disappeared. And so did some of the pressure for other kinds of interventionism. As he put it in a seminal Institute of Economic Affairs pamphlet in 1967: ‘The control of the international price of currencies, like every other suppression of market prices, leads to other controls, which make a mockery of the individual’s freedom to trade, travel or invest.’[11]
True, in abandoning pegged exchange rates, one loses the anchor of the dollar (or gold). True too, a country which persists in running a large trade deficit may well be one with a weak economy which needs radical restructuring. (Though that may not always be so: a current account deficit may be evidence of large inflows of private capital into an economy which, because of reforms, has a high rate of return on investment.)
None of these qualifications, however, diminishes the fundamental importance of Enoch Powell’s contribution. By showing that it was government monetary policy rather than wages which caused inflation, and that freely floating exchange rates would break free of the ‘constraint’ allegedly exercised by the current account of the balance of payments, Enoch permitted a radical revision of Conservative economic policy. He allowed us to break out of the mind-set which seemed to condemn Britain to an increasingly planned economy and society.
In October 1967 Ted made me front-bench spokesman on Fuel and Power and a member of the Shadow Cabinet. It may be that my House of Commons performances and perhaps Iain Macleod’s recommendation overcame any temperamental reluctance on Ted’s part. My first task was to read through all the evidence given to the inquiry about the causes of the terrible Aberfan disaster the previous year, when 116 children and 28 adults were killed by a slag tip which slipped onto a Welsh mining village. Many of the parents of the victims were in the gallery for the debate, and I felt for them. Very serious criticisms had been made of the National Coal Board and as a result someone, I thought, should have resigned, though I held back from stating this conclusion with complete clarity in my first speech to the House as Shadow spokesman. What was revealed by the report made me realize how very easy it is in any large organization to assume that someone else has taken the requisite action and will assume responsibility. This is a problem which, as later tragedies have demonstrated, industrial civilization has yet to solve.