It set out in much greater detail than ever before the monetarist approach. It began with the sombre statement: ‘Inflation is threatening to destroy our society.’ At most times this would have seemed hyperbole, but at this time, with inflation at 17 per cent and rising, people were obsessed with its impact on their lives. That only made more explosive Keith’s admission that successive governments bore the responsibility for allowing it to get such a grip. He rejected the idea embraced by the Shadow Cabinet that inflation had been ‘imported’ and was the result of rocketing world prices. In fact, it was the result of excessive growth of the money supply. Explaining as he did that there was a time lag of ‘many months, or even as much as a year or two’ between loose monetary policy and rising inflation, he also implicitly — and of course accurately — blamed the Heath Government for the inflation which was now beginning to take off and which would rise to even more ruinous levels the following year. He also rejected the use of incomes policy as a means of containing it. The analysis was subtle, detailed and devastating.
Incomes policy alone [the word ‘alone’ being a minor concession I suppose to the official Shadow Cabinet line] as a way to abate inflation caused by excessive money supply is like trying to stop water coming out of a leaky hose without turning off the tap; if you stop one hole it will find two others… But long before this year, we knew all the arguments. We had used them in Opposition in 1966–70. Why then did we try incomes policy again? I suppose that we desperately wanted to believe in it because we were so apprehensive about the alternative: sound money policies.
(Of course I too in my 1968 CPC lecture had accepted the monetarist analysis: so I felt that this applied equally to me.)
Keith then put his finger on the fundamental reason why we had embarked on our disastrous U-turns — fear of unemployment. It had been when registered unemployment rose to one million that the Heath Government’s nerve broke. But Keith explained that the unemployment statistics concealed as much as they revealed because they included ‘frictional unemployment’ — that is, people who were temporarily out of work moving between jobs — and a large number of people who were more or less unemployable for one reason or another. Similarly, there was a large amount of fraudulent unemployment, people who were drawing benefit while earning. In fact, noted Keith, the real problem had been labour shortages, not surpluses. He said that we should be prepared to admit that control of the money supply to beat inflation would temporarily risk some increase in unemployment. But if we wanted to bring down inflation (which itself destroyed jobs, though this was an argument to which Keith and I would subsequently have to return on many occasions), monetary growth had to be curbed. Keith did not argue that if we got the money supply right, everything else would be right. He specifically said that this was not his view. But if we did not achieve monetary control we would never be able to achieve any of our other economic objectives.
The Preston speech had a huge impact. It was, of course, highly embarrassing for Ted and the Party establishment. Some still hoped that a combination of dire warnings about socialism, hints of a National Government and our new policies on mortgages and the rates would see us squeak back into office — an illusion fostered by the fact that on the very day of Keith’s speech an opinion poll showed us two points ahead of Labour. The Preston speech blew this strategy out of the water, for it was clear that the kind of reassessment Keith was advocating was highly unlikely to occur if the Conservatives returned to government with Ted Heath as Prime Minister. Keith himself discreetly decided to spend more time at the CPS in Wilfred Street than at Westminster, where some of his colleagues were furious. For my part, I did not think that there was any serious chance of our winning the election. In the short term I was determined to fight as hard as I could for the policies which it was now my responsibility to defend. In the longer term I was convinced that we must turn the Party around towards Keith’s way of thinking, preferably under Keith’s leadership.
TED’S LAST THROW
The Conservative Party manifesto was published early, on Tuesday 10 September — about a week before the election was announced — because of a leak to the press. I was taken by surprise by a question on it when I was opening the Chelsea Antiques Fair. The release of the manifesto in this way was not a good start to the campaign, particularly because we had so little new to say. It was clear, however, from the course of the Shadow Cabinet two days later, that what was really worrying Ted and his circle was what Keith — and to a lesser extent I — was likely to say. Ted laid down the law: we must speak to the manifesto and nothing else, and any amplification of policies must be made only after discussions between the relevant spokesmen, the Party Chairman and himself. Shadow Cabinet members must concentrate particularly on their own subjects. No one had the slightest doubt about the target for these remarks.
I was effectively on the campaign trail even before the formal announcement the following Wednesday of a general election to take place on Thursday 10 October. On Monday I spoke in the north-west for Fergus Montgomery, my splendid PPS (a frontbencher’s eyes and ears in the Commons). On Tuesday I was answering questions about our policies at a meeting of the House-builders’ Federation. On Wednesday itself I gave an interview to a magazine called Pre-Retirement Choice: this was, as I shall explain, to come back to haunt me. On Thursday there was a further general discussion of the campaign in Shadow Cabinet. The following day Parliament was dissolved and the campaign got properly under way with MPs leaving for their constituencies.
I had never had so much exposure to the media as in this campaign. The Labour Party recognized that our housing and rates proposals were just about the only attractive ones in our manifesto, and consequently they set out to rubbish them as soon as possible. On Tuesday 24 September Tony Crosland described them as ‘a pack of lies’. (This was the same press conference at which Denis Healey made his notorious claim that inflation was running at 8.4 per cent, calculating the figure on a three-month basis when the annual rate was in fact 17 per cent.) I immediately issued a statement rebutting the accusation, and in order to keep the argument going, for it would highlight our policies, I said at Finchley that evening that the cut in mortgage rates would be among the first actions of a new Conservative Government. Then, in pursuit of the same goal, and having consulted Ted and Robert Carr, the Shadow Chancellor, I announced at the morning press conference at Central Office on Friday that the mortgage rate reduction would occur ‘by Christmas’ if we won. The main morning papers led with the story the following day — ‘Santa Thatcher’ — and it was generally said that we had taken the initiative for the first time during the campaign. On the following Monday I described this on a Party Election Broadcast as a ‘firm, unshakeable promise’. And the brute political fact was that, despite my reservations about the wisdom of the pledge, we would have had to honour it at almost any cost.