The Downing Street Years (8 page)

But not every capitalist had my confidence in capitalism. I remember a meeting in Opposition with City experts who were clearly taken aback at my desire to free their market. ‘Steady on!’, I was told. Clearly, a world without exchange controls in which markets rather than governments determined the movement of capital left them distinctly uneasy. They might have to take risks.

We had also been distracted throughout our budget discussions by the worrying level of public sector pay rises. Here we had limited freedom of manoeuvre. Hard, if distasteful, political calculations had led us to commit ourselves during the election campaign to honour the decisions of the Clegg Commission on those claims which had already been formally referred to it. The issue was now whether to refer the unsettled claims of other groups to Clegg, or to seek some new method of dealing with the problem.

It was quite clear to me that in the longer run there were only two criteria which could apply to pay in the public as in the private sector. The first was affordability: ultimately, it was the taxpayer and ratepayer
who had to pay public sector wage bills, and if that burden passed beyond a certain limit, the country’s economy would suffer. The second was recruitment: pay had to be sufficient to attract and retain people of the right ability and professional qualifications. However, the whole bureaucratic apparatus designed to achieve ‘comparability’ between public and private sector pay — not just the Clegg Commission but the Civil Service Pay Research Unit and other bodies — obscured these simple criteria.

We decided to submit evidence to the Commission about the necessity of keeping departmental budgets within reasonable limits and what that meant for public sector pay. But we also decided to keep the Commission in existence for the time being, and indeed refer new claims to it on an
ad hoc
basis. We thought at the time that the Commission might actually make lower pay awards than ministers themselves might have had to concede. But that turned out to be a highly optimistic assessment and, as a result, we underestimated the public expenditure cost of Clegg.

In retrospect, we made a mistake. Even at the time, the warning signs were evident. Geoffrey Howe told me that, allowing for some success in buying out restrictive practices, average pay could well be at least two to three percentage points higher than the recent June Forecast had assumed. In the end, it was not until August 1980 that we announced that Clegg would be abolished after its existing work had been completed. Its last report was in March 1981. The fact remains, however, that the momentum of public sector pay claims created by inflation, powerful trade unions and an over-large public sector was not going to be halted, let alone reversed, all at once.

Whatever the short-term difficulties, I was determined at least to begin work on long-term reforms of government itself. If we were to channel more of the nation’s talent into wealth-creating private business, this would inevitably mean reducing employment in the public sector. Since the early 1960s, the public sector had grown steadily, accounting for an increased proportion of the total workforce.
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Unlike the
private sector, it actually tended to grow during recessions while maintaining its size during periods of economic growth. In short, it was shielded from the normal economic disciplines which affect the outside world.

The size of the civil service reflected this. In 1961 the numbers in the civil service had reached a post-war low of 640,000; by 1979 they had grown to 732,000. This trend had to be reversed. Within days of taking office, as I have noted, we imposed a freeze in recruitment to help reduce the Government’s pay bill by some 3 per cent. Departments came up with a range of ingenious reasons why this principle should not apply to them. But one by one they were overruled. By 13 May 1980 I was able to lay before the House our long-term targets for reducing civil service numbers. The total had already fallen to 705,000. We would seek to reduce it to around 630,000 over the next four years. Since some 80,000 left the civil service by retirement or resignation every year, it seemed likely that our target could be achieved without compulsory redundancies. We were, in fact, able to do it.

But the corollary of this was that we should reward outstanding ability within the civil service appropriately. The difficulties of introducing pay rates related to merit proved immense; we made progress, but it took several years and a great deal of pushing and shoving.

Similarly, I took a close interest in senior appointments in the civil service from the first, because they could affect the morale and efficiency of whole departments. I was determined to change the mentality exemplified in the early 1970s by a remark attributed to the then head of the civil service, that the best that the British could hope for was the ‘orderly management of decline’. The country and the civil service itself were sold short by such attitudes. They also threatened a waste of scarce talent.

I was enormously impressed by the ability and energy of the members of my private office at No. 10. I usually held personal interviews with the candidates for private secretary for my own office. Those who came were some of the very brightest young men and women in the civil service, ambitious and excited to be at the heart of decision-making in government. I wanted to see people of the same calibre, with lively minds and a commitment to good administration, promoted to hold the senior posts in the departments. Indeed, during my time in government, many of my former private secretaries went on to head departments. In all these decisions, however, ability, drive and enthusiasm were what mattered; political allegiance was not something I took into account.

Over the years, finally, certain attitudes and work habits had crept in that were an obstacle to good administration. I had to overcome, for instance, the greater power of the civil service unions (which in addition were increasingly politicized). The pursuit of new and more efficient working practices — such as the application of information technology — was being held up by union obstruction. In a department like Health and Social Security where we needed to get the figures quickly to pay out benefits, these practices were disgraceful. But eventually we overcame them. There was even a problem at the very top. Some Permanent Secretaries had come to think of themselves mainly as policy advisers, forgetting that they were also responsible for the efficient management of their departments.

To see for myself, I decided to visit the main government departments to meet as many people as possible and discuss how they were tackling their priorities. I devoted most of a day to each department. In September 1979, for instance, I had a useful discussion with civil servants at the Department of Health and Social Security. I brought up the urgent need to dispose of surplus land held by the public sector. I was keen that where hospitals had land which they did not need they should be able to sell it and retain the proceeds to spend on improving patient care. There were arguments for and against this, but one argument advanced on this occasion, which was all too symptomatic of what had gone seriously wrong, was that this was somehow unfair on those hospitals which did not have the good fortune to have surplus land. We clearly had a long way to go before all the resources of the Health Service would be used efficiently for the benefit of patients. But this visit planted seeds that later grew into the Griffiths
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reforms of NHS management and, later still, the internal market reforms of the Health Service in 1990.

Similarly, on 11 January the following year, I visited the Civil Service Department (CSD). This was an enlightening, if not an encouraging, experience. The CSD was set up in 1968, following publication of the Fulton Committee Report, with responsibility for the management and pay of the civil service. To the nucleus of the Pay and Management Divisions of the Treasury were added the Civil Service Commission and the newly established Civil Service College. The CSD employed 5000 people, headed by Sir Ian Bancroft, the senior Permanent Secretary. Although as Prime Minister I was in
overall charge of the civil service, the duties were exercised by a Minister of State and the CSD had always lacked credibility and power in Whitehall.

Not without cause. When I arrived at the CSD, many of my worst fears about the civil service were confirmed. I met able and conscientious people attempting to manage and monitor the activities of civil servants in departments of which they knew little, in policy areas of which they knew even less. Because the staff of other departments were aware of the disadvantages under which the CSD worked, they took scant notice of the recommendations they received from it. After this visit, the only real question in my mind was whether responsibility for the CSD’s work should be redistributed to the Treasury or the Cabinet Office.

Inevitably, my visits to government departments were not as long as I would have liked. There were other limits too on what I could learn on these occasions — particularly that senior civil servants might feel inhibited from speaking freely when their ministers were present. Consequently, after discussing the matter with Sir Ian Bancroft and having a word with Cabinet colleagues, I invited the Permanent Secretaries to dinner at No. 10 on the evening of Tuesday 6 May 1980. There were twenty-three Permanent Secretaries, Robin Ibbs (Head of the CPRS), Clive Whitmore, my principal private secretary, David Wolfson and myself around the dining-table.

This was one of the most dismal occasions of my entire time in government. I enjoy frank and open discussion, even a clash of temperaments and ideas, but such a menu of complaints and negative attitudes as was served up that evening was enough to dull any appetite I may have had for this kind of occasion in the future. The dinner took place a few days before I announced the progamme of civil service cuts to the Commons, and that was presumably the basis for complaints that ministers had damaged civil service ‘morale’.

What lay still further behind this, I felt, was a desire for no change. But the idea that the civil service could be insulated from a reforming zeal that would transform Britain’s public and private institutions over the next decade was a pipe-dream. I preferred disorderly resistance to decline rather than comfortable accommodation to it. And I knew that the more able of the younger generation of civil servants agreed with me. So, to be fair, did a few of the Permanent Secretaries present that night. They were as appalled as I was, and retreated into their shells. It became clear to me that it was only by encouraging or appointing individuals, rather than trying to change attitudes
en bloc
,
that progress would be made. And that was to be the method I employed.
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Such an approach, however, would take years. We were dealing with crises on a weekly basis during the second half of 1979 as we scanned the figures on public spending and borrowing, against the background of an international economy slipping faster and faster into recession. Our first task was to make whatever reductions we could for the current financial year, 1979–80. Ordinarily, public spending decisions were made by government during the summer and autumn of the previous year and announced in November. Even though we were several months into the current financial year, we had to begin by reopening the public expenditure plans we had inherited from the Labour Government. We would announce our new public expenditure plans with the Budget. The scope for cuts was limited, partly because of this, partly because of our own election pledges, and partly because some changes we wanted to make required legislation.

We had promised to increase resources for defence and law and order, and not to cut spending on the National Health Service. We were also pledged to raise retirement pensions and other long-term social security benefits in line with prices — and to honour Labour’s promised pension increases that year. We might have taken cash from the contingency reserve, but if there was to be any cash to take we would have to resist extra claims by government departments — no easy matter. Another possible device would be to squeeze the volume of public expenditure by holding to the existing cash limits, even though inflation had risen since they were set by the previous government. But that in turn would mean holding the line on public sector pay — again, no easy matter. Receipts from privatization might help us to balance the books. But although government-owned shares in
British Petroleum could be sold at once, the sale of state-owned assets on a really large scale would need legislation. Much of the work on public expenditure cuts which we had done in Opposition had been overtaken by events, the most damaging of which was the generosity of Professor Clegg. In short, we seemed to be boxed in.

But I was determined that we should make as vigorous a start as possible. I felt that the Treasury’s first proposals for cuts in the current financial year, 1979–80, did not go far enough. Indeed, I had a meeting less than a fortnight after entering No. 10 with Treasury officials at which I told them so very firmly. Accordingly, John Biffen brought forward revised proposals that cut a further £500 million off the total, and I made it clear to colleagues that that was the least we could do.

In the end we were able to announce £3.5 billion of economies along with Geoffrey’s Budget. In addition to the measures we were originally considering, we sought savings on industrial support, particularly regional development grants, on energy and on holding back projected spending on development land and public investment.

We also decided to raise prescription charges, which had remained at the same level for eight years during which time prices had risen two and a half times. (The wide range of exemptions would be maintained.) This had not been our first choice for savings from the DHSS budget. We had originally discussed extending the number of so-called ‘waiting days’ which must lapse before an applicant is entitled to sickness or unemployment benefit from three to six days. We decided not to press ahead with this, but nevertheless the idea found its way into the press in one of the leaks that were continually to bedevil our discussions of public spending.