statistics were wrong, and badly misled the forecasters into seriously underestimating the growth in the economy. These dangers became apparent within months of the budget when a boom began, and inflation started to climb. To curb it Nigel raised interest rates to 12 per cent, then 13 per cent, 14 per cent, and eventually 15 per cent, the level I was to inherit as Chancellor. As the boom grew – and with it spending power boosted by wage increases, overtime and tax cuts – the housing market went crazy. Prices rocketed as people scrambled to become home-owners. It seemed a one-way bet, and purchasers concerned themselves only with whether they could meet their mortgage repayments; it was taken for granted that the value of their houses would go on rising. When the economy fell off the cliff and boom turned to recession, made worse by an adverse world economy, the housing market stagnated, prices tumbled, and millions found themselves burdened with negative equity, owing more on their homes than they were worth. This problem was to paralyse the economy in the early nineties, when the public would yearn for a return to the boom years, with no recognition that it was the boom itself which had led to many of their problems.
Despite the role of the 1988 budget in feeding the boom-soon-to-be-recession, the tax changes Nigel introduced were right. They ended the unjustifiably high taxation of income that had hampered investment. Nigel saw that long-term advantage very clearly, but he did not foresee the short-term problems. I had no premonition of what lay ahead either, and I defended the budget with conviction. By the time the malign combination of inflation, high interest rates, rising unemployment and a collapse in growth was fully apparent, Nigel and Margaret were no longer in government.
As chief secretary I was conscripted onto a new committee chaired by the Prime Minister to consider the future of the National Health Service and how to finance it. Nigel Lawson, John Moore and Tony Newton were also members (Ken Clarke and David Mellor would replace the latter two after reshuffles). The case for reform of the NHS was strong. Despite increased funding year upon year, there were perennial dramas with health authorities running out of funds in the last few weeks of the financial year, and 1988 was no exception. Nigel and John Moore were both keen to be brave and do something to solve the problem, and after initial reluctance Margaret agreed. In his memoirs Nigel would reveal that he persuaded the Prime Minister of the need to review hospital services immediately after having briefed her on the large tax cuts he was planning in his 1988 budget. This was a typical Lawson tactic: offer the PM something she would be pleased about, and then seek approval for an action he favoured.
The review was long and detailed and recommended fundamental changes that I continue to believe were worthwhile, though they were widely attacked. To ensure that NHS facilities were used effectively and patients treated more speedily, we devised a system to enable money to follow the patient – often outside the immediate health area. We also proposed two areas of devolution: hospitals were permitted to become self-governing, and large GP practices were enabled to control their own budgets.
Although these schemes were permissive – no one would be forced to be part of them – the debate that followed, as so often with the NHS, was based more on emotion than logic. Some of the criticisms were ludicrous. Labour, on political auto-pilot, said we were trying to ‘privatise’ the health service – although this had never been discussed for a moment throughout all our detailed deliberations. They also attacked the ‘internal market’ we created, claiming that we were putting money before patients. Here they were wrong too: we were in fact putting patients first, by ensuring that money was allocated more efficiently to increase the sum total of health care. In due course we legislated to bring our reforms into operation, and they were effective until they were partly reversed by the Labour government after the 1997 election.
When the 1988 public expenditure survey began, bids were once again far too high, although a number of ministers had strong claims to extra funding. Douglas Hurd had a compelling case for increased police expenditure and capital for an enhanced prison-building programme. Kenneth Clarke, now at Health, had an irresistible case for preparing for the NHS reforms – which, since I had helped to negotiate them, diminished my arguments against his bids. Paul Channon, now at Transport, submitted a strong case for more investment in roads and nationalised industries. Others, too, argued their case forcefully – notably Nick Ridley, George Younger and, of course, Peter Walker.
By this time Jill Rutter, my Private Secretary, had been promoted. Her replacement, Carys Evans, had a different style but was just as effective. When Peter Walker played the ‘Welsh’ card yet again, I dictated him a note, and Carys translated it into Welsh before we dispatched it. We hoped there was a Welsh-speaker in Peter’s office.
As usual, the public spending negotiations were protracted. In many cases they continued throughout the Party Conference at Brighton in October. I sat in my hotel bedroom as ministers trooped in and out, but decamped to a different hotel for especially long discussions with George Younger, who as ever fought politely but determinedly for every penny. Slowly I persuaded him that I could not meet his bids, but he ceded ground only after heavy bombardment.
Negotiations with Nick Ridley, the Environment Secretary, were strained. I thought Nick a clever but erratic man of much ability and an admirable contempt for presentational niceties. In some quarters he was widely liked and admired. His junior ministers and officials – even those who loathed his often uncompromising views – nearly always spoke warmly of him. Like many in the Commons I had been astonished when Nick was appointed to the Cabinet, but he had an original mind and was wonderfully politically incorrect. Face to face, I respected him, but I did not like what he said behind my back. I found this apparent animosity from someone who did not know me well puzzling.
Whenever we met for negotiations Nick took off his jacket, and even his red braces looked pugnacious. We tried to get on, but even where we agreed our reasons differed, and neither of us felt at ease with the other. Only rarely in my life have I utterly failed to form a relationship with someone, but Nick and I were doomed. I don’t apportion blame for this, I simply note it. Later, when I was appointed chancellor, I understood Nick’s frustration: he clearly wanted the job himself, and must have thought himself better qualified. He was certainly closer to the Prime Minister than I was. He suffered, and his private frustrations were reported to me.
Nick and I only rarely clashed in Cabinet or in committees. But one exchange in Cabinet committee did not endear us to each other. It also gave an interesting insight into the Prime Minister’s occasionally rather engaging innocence. David Mellor, then the Minister of Health, had rather conversationally raised the issue of single mothers. Nick suggested gruffly that they should be housed together in hostels so that they could be ‘cared for’ (and, the subliminal agenda went, watched). I thought this patrician approach to be so careless of people’s individual circumstances that I said ironically, ‘Why don’t we put red lights outside the hostels too?’ Nick grasped what I was on about and flushed with anger, but the Prime Minister, not understanding at all, warmly supported my ‘proposal’. ‘They’ll know where to go, Nick,’ she enthused. Irony was not Margaret’s strong suit.
Not that Nick’s hostility was directed solely at me. It extended to Cecil Parkinson (at that time the Energy Secretary) as well. In 1988 Nick and I reached a stand-off in pre-budget discussions, and I told him that I intended to refer his settlement to the Star Chamber. Since this was chaired by Cecil the prospect was not at all to Nick’s taste, and he quickly settled his budget at Environment in a brief meeting with Nigel Lawson – as I had suspected he would. His dislike of Cecil probably cost his department quite a lot of money.
Cecil was not called into action, as for the second year running all the spending agreements were reached without resort to the Star Chamber. The plans I agreed included an extra £2.25 billion for capital spending in the first year and large increases for health, law and order, defence, roads and local authority spending. These increases were possible because of the falling burden of interest payments on government debt and savings on social security payments as unemployment fell. The books balanced without any increase in overall spending for the first year of the survey, and only modest increases for the following two years.
