was a peculiar mixture too. His bank-manager spectacles and quiet speaking style gave him the appearance of caution. His long-term Labour opponent Denis Healey nearly ruined Howe’s career, during a Commons spat, by describing himself as having been ‘savaged by a dead sheep’. This belied the reality. In fact, Howe was a serious radical, according to the political columnist Edward Pearce. ‘If you listened to Sir Geoffrey for his oratory, you would hang yourself,’ he wrote. ‘The man is absinthe masquerading as barley water. Like the good lawyer he is, Sir Geoffrey uses tedium like cuttlefish ink to obscure the news.’7 Lawson, the new Chief Secretary to the Treasury, was rotund and frighteningly confident. Together, they made hay of the old guard at the Treasury. The permanent secretary Sir Douglas Wass was sidelined and new advisers were brought in.
The key problem, as the Bank of England governor Gordon Richardson explained within days of the election, was how to bring down the value of the pound. The unspoken assumption was that doing so in the wrong way threatened a disastrous run on the currency, but Richardson’s remarks seemed to the revolutionaries like the green light to lift exchange controls. Howe, Lawson and Ridley met at the Conservative Party conference in October and decided there was no middle way. They would go ahead and stop controlling who could take money out of the country.
All they had to do was persuade Margaret Thatcher. Again, later reputations are not a very good guide for understanding the time. These were the days before ‘Thatcherism’. The trio of revolutionaries were still not quite certain of her support for economic deregulation. They knew that, when Edward Heath was leader, she had opposed the sale of council houses and anything else which risked raising mortgage rates. What they did know for sure was that, whatever happened, she was on the side of the middle class. The Conservative manifesto had promised ‘to support family life, by helping people to become homeowners’. There had certainly been nothing about deregulating the mortgage market. Only weeks after the election, she was writing notes to Howe: ‘I am very worried about the reports in today’s press that mortgage rates may have to go up within days. This must NOT happen. If necessary, there must be a temporary subsidy.’8
The very last thing Howe and Lawson wanted was a subsidy, temporary or otherwise. They had set their faces against any such thing. There was a gap between the Prime Minister’s absolute commitment to middle-class homeowners, and their convictions about economic change, which is directly relevant to house prices today. Political mythology suggests that it was Lawson who persuaded Thatcher that a ‘property-owning democracy’ required people to go into debt – which definitely meant changes to the mortgage market. Maybe that conversation happened at the same party conference. No one is saying.9 What we do know is that she was persuaded.
What the revolutionaries didn’t do was talk to the cabinet. ‘Do you know,’ Howe told a dinner party a few weeks later, ‘there hasn’t been a single economic discussion in the cabinet since this government came in.’10
That wasn’t strictly true, but it was quite right that the cabinet was never consulted about the end of exchange controls. They were informed. The critical moment came about mid-morning on 25 October 1979, when Howe explained to the cabinet what he was about to announce. Mrs Thatcher was apologetic, recognizing that ‘some other members of the cabinet might have liked to have an opportunity of expressing their views before a decision was taken’.
Only one voice was raised against. The then Environment Secretary Michael Heseltine warned that people might respond by taking their money out of the country to buy villas in France. But, again, we only have Lawson’s word for this.11
Howe and Lawson had calculated that, despite the worst fears of their critics, there would be no catastrophic outflow of funds, nor a collapse in the value of the pound – for the same reason that the economy was in crisis. Because of North Sea Oil, the pound was now a petro-currency. So they took a deep breath and hoped for the best. The announcement was made and, to their surprise, the pound kept on rising. It carried on doing so until Britain’s exports were unaffordable abroad and UK manufacturing industry staggered, and – hopelessly outdated, under-invested and beset by insane labour relations – all but gave up the ghost. But that, as Kipling might say, is another story.
The decision to abolish exchange controls was a defining moment for the rest of the planet, which rapidly followed suit. It cleared the way for the modern world, where national spending decisions are kept in check by the vigilance of global money markets which can, and do, bankrupt nations overnight. The huge bureaucracies of exchange control were certainly hard to justify, but then so are some of the results of their disappearance. As much as $4 trillion a day now churns through the world financial system, most of it foreign-exchange speculation. It is a terrifying, uncontrollable and largely unpredicted force in modern affairs.
But Howe had also made a brave and imaginative decision. He and Lawson wanted financial discipline and some encouragement for British companies to invest abroad, and they got it. Those involved in the decision to end exchange controls made a special tie to commemorate it, which said ‘EC 1939/1979’. Lawson wore the tie later to deliver his budget speeches when he was Chancellor himself. ‘It was the only economic decision of my life that caused me to lose a night’s sleep,’ wrote Howe later, ‘but it was right.’12
What makes the exchange-controls decision important here is that it made the controls on bank lending impossible to sustain. Sooner or later, overseas banks or offshore branches of UK banks would start bypassing the Corset. Sooner or later, the Bank of England feared, they would start lending money for mortgages and push up the price of houses.13
So it proved. Fast-forward nearly three decades, and there was Sebastian Cresswell-Turner writing sadly in The Times about the discovery that he could no longer afford the life his parents had. ‘The poor aren’t the only ones who are getting poorer,’ he wrote, describing the effects of twenty-seven years of accelerating house prices. ‘Whole swathes of the professional classes are too’:
An unmarried and badly paid knowledge worker, I live in a rented room in Hammersmith and have no hope of ever buying a home anywhere. Indeed, when I return to the agreeable parts of central London that I know so well from earlier periods of my life, I realise that I am looking at the attractive stucco houses in just the same way that a tramp looks through the restaurant window at a group of people enjoying a carefree meal. I am effectively an exile in the city where I was born.14
When Howe became Chancellor, and despite the two blips during the 1970s, house prices were being kept low by another strange institution that the Corset made possible. This was the building societies’ ‘Cartel’. Because the banks were kept out of lending people mortgages, the building societies were allowed to get together and keep interest rates much lower than they were in the mainstream lending market. They were only allowed to lend out money that people had deposited with them. Because of this, mortgages often had to be rationed. There was a waiting list, sometimes for months. It was inconvenient, and it is hard to imagine mortgages being rationed these days, but to some extent it worked.
The Cartel was presided over by a joint committee of building societies, regulators and ministers, whose task was to set an interest rate low enough to keep the house builders building, but high enough to stop house prices rising. The first step in its demise was when Lawson, as Chief Secretary to the Treasury, refused to provide new guidelines for an interest rate. He said afterwards that he didn’t realize he had to. Without the interest-rate guidelines, there was no point in a Joint Advisory Committee.
‘It was the first step in what was to become a far-reaching programme of financial deregulation, with consequences – some of them wholly unforeseen – which were to have a major impact on the course of the economy and the conduct of policy,’ said Lawson later.15
The joint committee limped on until 1984. Once again,
