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Theresa, Ted and Maggie

Theresa, Ted and Maggie

Conservative radicals, EU controversialists, global hostages

by Brian Reading in London

Fri 9 Dec 2016

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Edward Heath became British prime minister in 1970, Margaret Thatcher in 1979. Heath lasted only four years, Thatcher 11. How long will Theresa May, Downing Street’s Conservative incumbent, last?

For five years from 1965, Heath, the leader of the then opposition Conservative party, meticulously prepared for government. Working groups led by shadow ministers with party and outside experts examined almost all aspects of departmental policy. No idea was too extreme to be considered. None were judged in the light of opinion polls. The aim was to make government more efficient. Heath believed in intervention. Tax reform and financial liberalisation were high on the agenda, but labour market reform was highest.

Thatcher inherited this planning. Oddly, she originally opposed privatisation. She filled a lacuna by challenging Treasury Keynesian orthodoxy, embracing monetarism and Friedrich Hayek’s Austrian school. This was a brave choice. It recognised that cost-push inflation caused unemployment, hence her austerity budget in 1981 despite record post-war unemployment. More than 360 academic economists opposed the budget. Like Heath, however, her main attack was on perceived abuses of power by trade union leaders.

May’s attack is on inequality of income and wealth, exacerbated by the impact of unconventional monetary policy, quantitative easing and zero interest rates. Her approach to fiscal policy as revealed in Philip Hammond’s autumn statement marks a departure from George Osborne’s austerity. Cheap borrowing for excessive saving or cost/benefit-effective infrastructure is a blessing, not a burden, for future generations. But immigration is now an explosive issue.

On Europe, Heath’s overriding priority was to secure UK membership of the European common market. He succeeded without a popular mandate, but the move was confirmed in Prime Minister Harold Wilson’s 1975 referendum. Thatcher wanted to get the best out of the European Union while remaining inside it. Handbag diplomacy worked with Britain’s rebate from EU budget contributions, to be remembered in Brexit negotiations. But she was thwarted on the EU and forced to take the pound into the disastrous European exchange rate mechanism. May wants to get the best out of Britain’s EU exit. Neither hard nor soft Brexit is likely. The British exit is likely to be a fudge, pleasing nobody.

Heath was unlucky, blown off course by the collapse of Bretton Woods fixed exchange rates and the commodity and oil price explosions. Thatcher was politically fortunate to fight and win the 1982 Falklands war. The global environment was generally benign. By contrast, May faces anaemic world growth prospects, terrorism, and immigration problems. There is the threat of a second financial crisis.

Heath faced a formidable Labour challenger in Wilson, a pre-Tony Blair Blairite. Thatcher faced hard left Labour, notably when led by Michael Foot in 1973. May faces Jeremy Corbyn, not to be underestimated but struggling to land blows in an otherwise favourable opposition environment. Inequality has changed politics and the aggrieved want government intervention. Bankers, business bosses earning billions, and multinational tax cheats and immigrants are in the firing line, rather than mining and print unions. Heath lost office as a result of his failed attack on the former. Thatcher beat both, but party schisms over Europe, followed by the poll tax, cost her job. The targets today are much the same for the Tories as they are for Labour.

A party leader’s tenure is determined by opinion polls. MPs’ first priority is to keep their jobs and hopefully advance them. The June EU referendum was the greatest opinion poll apart from general elections.

May could begin to echo either Heath or Thatcher. Constituency boundary changes and Scottish nationalism complicate the electoral arithmetic and suggest the latter. She will need to be a consummate politician to survive.

Brian Reading was an Economic Adviser to Prime Minister Edward Heath and is a Member of the OMFIF Advisory Board.

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