The ending of the Cold war was a fitting falling curtain on Margaret Thatcher’s decade in office. It accounts for why she was so much more widely respected and loved abroad than at home. To many in Eastern Europe she was the clear voice, the unswerving authority in the west alongside President Reagan, who had forced the communist leadership of the USSR to confront their problems and change their system.

 

        Her actions to do this had sometimes been contentious at home and disliked by some of the European partners. She had backed the US in deploying  modern missile systems on European soil, to show the USSR that  the west would not be bullied. She had backed and encouraged the US Star Wars development, which offered the opportunity for the west to lift the fear and spectre of possible  nuclear assault by offering us all protection. It worked. President Gorbachev concluded that the Soviet system had fallen too far behind the west’s wealth, technology and defensive capability. He decided to change the Soviet system.

 

           I was surprised to hear Malcolm Rifkind in his articulate and generous tribute to Margaret give the Foreign Office  the credit for identifying the Gorbachev change . I recall reading a passing reference to  a Gorbachev speech that surprised me during my time as Chief Policy Adviser at Number 10. I asked the Foreign Office  about it. They thought it of no significance. I asked to see the speech. They sent me over a copy in Russian. Ever persistent, I explained to them that my education had not run to fluency in Russian and I needed a translation. One was eventually sent over.

 

          It was electrifying. There in this speech you could see a Soviet communist leader wrestling with the sad truth for him that the western system was delivering better defence and higher living standards. Some phrases, sentences and arguments echoed the belief in free enterprise that Margaret herself enjoyed. The USSR President was preparing the ground for an embrace of a more capitalist system.  I took the speech to her, read out the crucial passages and surprised her as well as myself by the change they represented. It seemed possible, for the first time in the long Cold war, that change could come from the USSR which we could encourage and reinforce.  She immediately  saw the importance and  the implications. She made the first move, which the Foreign Office of course  assisted. She wanted to meet and talk to Gorbachev, and was in due course prepared to go to Moscow to do business with him.

 

             Her much later visit to Moscow was a triumph. The welcome of  people on the streets was very warm. She stood up well to a tv grilling, which won her more sympathy  from many Russians. The world was treading a path to the collapse of the Berlin Wall. Margaret Thatcher’s relationship with Reagan was important, giving him much needed European support for his determined stance against the USSR threat.  Her  relationship with Gorbachev was pivotal, allowing new exchanges with a changing regime.

 

          Her voice was heard in Eastern Europe.  As the subject peoples of communism stumbled out into the warmth of democratic freedom, it was her image they often had in their minds. WhenI travelled to Eastern Europe as a Minister to assist them in the immediate aftermath of the collapse of communism I was touched by their warmth towards the UK in general and Margaret in partricular. In Romania, travelling in the Ambassador’s car, a lady came up to the vehicle when stopped at traffic lights, and kissed the small Union flag we were flying.

 

   

 

      When senior  figures of other parties  have died I have not thought it right to use their funerals  as an opportunity to go over  the disagreements I had with them in life.

        I would just remind Margaret Thatcher’s critics that she won three General Elections with large majorities. Everything she did was approved by Parliament, and  subject to challenge in Parliament by the opposition of the day. The main opposition to her later  had thirteen years with large majorities of their own when they could overturn or correct anything they did not like from her past actions.

        She did not cause the banking crash of 2007-8, the deep recession of 2008-9, nor the decline of industry of the last decade. The whole financial regulatory framework was changed by the new government in 1997. The Labour government  chose not to renationalise privatised industries, not to restore free milk in schools (which they had taken  away from secondary pupils), not to change most  of the new Union laws, and not to put the Income Tax rates back up.

Years ago I visited Tokyo near the top of boom at the end of the 1980s. One of my Japanese hosts proudly showed me the sweep of the grounds of the Imperial Palace. He stressed the royal and enduring importance of the site, but then let slip the famous jibe at the time, that the land of the Palace and its grounds was worth more than the state of California.

When I got back to the UK Embassy I told them of the remark, and quipped that if that was true it was time to sell the Emperor’s Palace site and to buy California. It would have been the investment switch of the century had it been possible. California was poised to embark on the digital and internet revolution. Tokyo property values were about to plunge from their crazy heights, as the extreme Japanese bubble burst.

In the 23 years since the Japanese economy has struggled to grow. The Tokyo Stock Exchange is still 70% below its peak. Property prices are still well down on bubble levels. Japanese banks still struggle to finance a strong recovery. Property which in the dearest areas reached $20,000 a square foot, fell by as much as 90%.

It’s not all bad news. The Japanese population is ageing and declining. Adjust the National Income and output for this, and the per head performance is of a little progress over the last two decades. Japan started rich at the end of the 1980s, and is still a wealthy society by world standards, ranked now at 25th by the IMF for per capita income. Japan still has a range of successful manufacturing companies making cars, electrical products and other consumer items. For most of the past 23 years Japan has run a balance of payments surplus based on good exports. The Japanese save a lot, so they have been largely able to finance their own government’s large deficits. There has been no inflation.

Japan is very unlike the USA or the UK in three important respects. There is no large inward migration, adding to the workforce. There is little propensity for people to borrow to spend beyond their means. The society is much more self sufficient and inward looking culturally and financially.
Next week  we will  look at some of the similarities with the west- the money printing and high levels of state borrowing.

Listening to the shriller critics of Margaret Thatcher, they claim that she uniquely divided the country. They attribute to her job losses and pit closures, implying either that she wanted this or that it was the result of her uncaring policies.

They should read a little more of the history of post war Britain. In the early 1950s the National Coal Board, the new nationalised coal industry, employed 700,000 people. By the time Margaret Thatcher took office in 1979 465,000 or two thirds of the entire workforce had lost their jobs. These losses occured under Conservative and Labour governments. They pursued a consensus policy of nationalised subsidised monopoly closing pit after pit on the grounds that the losses on individual pits were too great or the coal was exhausted. No-one seems to attack those governments for doing so much damage to pits and mining communities.

In the mid 1970s the nationalised steel industry under Labour was in deep trouble. Around 40,000 jobs were shed. Between 1950 and 1967 the nationalised rail industry removed 300,000 jobs, a collosal figure. Not all these related to the Beeching cuts, continuing under the Labour government.

The best way to lose your job was to work for a nationalised industry. That is one of the reasons a few of us thought we needed a new model for industrial organisation in the 1980s.

During the Thatcher years manufacturing output expanded by 7.5%. That was not a huge increase, but it belies the image of a government allowing or deliberately encouraging the decline of industry. Much of our time was spent trying to find new ways to encourage investment and innovation in the industrial opportunities of the future. The UK motor industry commenced its important resurrection with big inward investment of money and talent from abroad.

By way of contrast manufacturing output at the end of Labour’s period in office in 2010 was a little lower than it was in the last year of Margaret Thatcher. Mr Brown did not discover how to stop industrial decline on his watch.

I will resume my Japanese analysis later this week.

Most people including the Japanese think the absence of any growth in GDP for 20 years is a poor performance. They have just elected a new government pledged to kick start faster growth and inflation through an enormous monetary stiumulus. It follows two decades of monetary and fiscal stiumli on a large scale. Neither of these so far has induced inflation or much growth in GDP.

Running a permament very large budget deficit has not provoked growth. It has resulted in a large state debt, now more than 230% of Japan’s GDP (on official IMF figures which place the UK and Germany around 80% of GDP). Japan has by far the largest state debt as a proportion of GDP of any country, and the second largest after the USA in absolute terms.

Nor has the monetary laxity so far brought on good growth. Japan has been held back by broken banks, by the long after effects of large loan losses, by a reluctance to add to property and shares given the poor price performance, and by an ageing population more prone to save for fear of the poor economic outlook.

So this time the state is adding not only to the state deficit, but more importantly is going to set out to double the money supply. The Bank of Japan has announced it will buy in 50 tillion yen of government debt each year, 1 trillion yen of ETFs and 30 billion yen of Real Estate Investment trusts. The money base will be increased by 60-70 trillion yen a year.

So far the policy has pushed the yen down sharply, allowing more exports and some imported inflation. It has also pushed up Japanese share prices, and kept bond yields and interest rates on the floor where they have been for a long time.

The third arrow of the government’s three arrows aproach to growth will take longer. It will be a series of supply side reforms to improve competition and competitiveness in the Japanese market. Much will probably depend on these reforms, if Japan is to avoid another disaappointing result in terms of output and incomes from yet another blockbuster of amonetary stimulus. A country of savers with no recent history of inflationary wage rises or imprudent spending is not going to be easy to tip into inflationary growth.

When Margaret Thatcher said that she did not expect a woman Prime Minister in her lifetime, she was being both characteristically modest, and realistic. In the early 1970s politics was largely a man’s world. There were no female role models of great Prime Ministers or Presidents to turn to.

She was not meant to win the leadership election in 1975. Bold enough to challenge, the Tory grandees expected that in the second round the “true” candidates woulld emerge and produce an establishment male victor. After all, Ted Heath’s modest background had led to disaster with him as leader and Prime Minister. It was time to go back to the magic circle, the charmed Tory training grounds of male political supremacy.

Her bravery and confidence shone through. Tory MPs did the unthinkable, and chose her as their Leader. They knew her better than the party in the country, who were not immediately enthusiastic but did not in those days get a vote. Margaret at the beginning relied heavily on Keith Joseph as an intellectual adviser as he sought to change his own thoughts and the thoughts of the whole party and nation away from the failed state interventions, the price controls, the enforced nationalisaitons, the money printing of the Heath era. She also, on advice, adopted strong words on the international stage, fearing that a woman would be seen as a soft touch or someone likely to change her mind under pressure. The Iron lady image was carefully constructed to tackle what some men thought of as the “woman problem”. Maybe they overdid it a bit.

When she got into office she needed to create a new language, wardrobe and behaviour for a Prime Minister who was a mother of two and very feminine in many of her ways. There is no female uniform for being Prime Minister, in the way there is a male uniform of suits, ties,DJs and morning coats for special occasions. There was no previous experience of how to combine being a mother with the top office in the land, or how to involve your husband without people saying he had too much influence.

Margaret handled all that so well that it rarely became an issue. As a mere male adviser I was not privy to the short but important sessions she spent with female helpers on what to wear or how to do the hair. She always came to the office looking good, and if you remembered to tell her so it boosted her confidence. There were difficult issues like how to dress when visiting a Muslim country, where she settled for a headscarf to show respect for their traditions where appropriate.

After the first reshuffle and the decisive 1981 budget she overcame the early wobbles and the plots of many in the party for change at the top. She developed a new style of being Prime Minsiter. She was very feminine in many ways, but she was respected and feared by many of her male colleagues who realised the lady was not only not for turning, but expected good performance and progress from Cabinet.She did everything by hard work, and sought to understand and influence all the main things going on in the government she led. Some previous Prime Ministers had read less and done less, leaving more to individual departments.

Contrary to common belief she was neither dogmatic nor very ideological. A person who was a keen advocate of the EEC in the 1975 referendum became a Eurosceptic by the time of the Bruges speech. A person who calculated that you could not privatise the nationalised industries in the 70s or early 80s bravely pushed through a huge programme after 1983. A person who claimed to want a smaller state nonetheless battled for money for state education and the NHS and was reluctant to reform them.

I think the fact that she was very much a woman enabled her to cut loose from the clubbable world of the male Conservative MPs, and to speak more directly to electors. Being a woman meant she looked different from most people’s idea of a leading politician, and was different. Just as England’s great Virgin Queeen, Gloriana, Elizaeth 1 presided over an incredible English renaissance , so Margaret Thatcher put the Great back into Great Beritain after a decade of disaster and defeatism. Just as Elizabeth constructed great Protestant alliances to keep England safe from the predatory threats of the Catholic powers, so Margaret built a stronger alliance with the USA to blow the cruel walls of communism down from the west just as the USSR began to realise the game was up from the east.

It could take her months to make up her mind about a new policy or preferred course of action. She would cross examine and challenge every detail of a proposal. Her very long days were punctuated by many small acts of kindness and consideration, both for those in her immediate circle, and for those she had been told about who were suffering and where government might help.

To be the first woman Prime Minister would be achievement enough for many women, but not for Margaret. She didn’t just want to hold the office, but to use it to improve and change the country she loved.

She won three elections, a rare achievement in modern UK democratic politics. Even rarer that she won a larger majority on the second and third occasions than on the first, showing that she could win and hold support in office for what she did as well as from opposition for what she promised.

These are good reasons to remember her, but not the main reason why the nation has never stopped talking about her from the day she first won office at Number 10. The country senses that she was a different kind of politician to many that have followed since. She did not ask how something would play in the polls, or how something should be spun. She wanted to know what was the problem and did your idea offer a solution. Would it make things better for people, even if it might make it tougher for the government in short term. Only once the policy had been settled did she invite in press and media specialists to deal with the second order question of how could you best persuade people that the decision was right.

I first took the idea of equity for everyone to her in opposition. I told how how she could offer shares and property for the many, from a large privatisaiton programme. It could include employee ownership and employee buy outs, as well as the big show privatisations. After a lively argument at one of her issue lunches she told me “They won’t let me do that”. It was a very revealing answer. She was all too conscious of the power of the state establishment, and of the dangers of sounding too radical, but she did not rule it out for later.

Some of us built the case through think tanks and the press during her first Parliament as Prime Minister. After the 1983 election victory she was ready to take on one of the big battles of her Premiership, the battle to return the family silver to the family, the battle to let many more people participate in the wealth of the nation through share and property owning. I was invited in to Downing Street and recommended setting up the first large privatisation programme. The memo came back with no objections to the strategic sweep of the policy, nor to its aims. It had instead the question “how do we do that?

She threw herself into understanding the challenges and techniques needed to transform loss making job shedding state monopolies into modern competitive industries. It became one of the dominant themes of her period in office.

Her energy and determination was such that she still had plenty of time to help an American President win the Cold war, to offer freedom and enterprise to the long suffering victims of communism in Eastern Europe, to begin the opposition to the Euro and a centralised EU, and to negotiate a free enterprise future for Hong Kong at the end of its lease.

She inherited a strike ridden and poor country with high inflation and too much debt. She passed on a country of good repute, She showed courage, dignity and honesty in equal measure as she sought to slay the dragons that she felt had damaged Britain.

Margaret Thatcher was the best boss I ever worked for. As her Chief Policy Adviser in the mid 1980s I was impressed by the honesty of her aproach, her willingness to wrestle with difficult issues and problems. Her prime wish was always to find the right answer that would make things better for the UK.

As a young man in a senior position I was to her as good as the arguments and evidence I produced for her. It was refreshing to be able to argue your case strongly without fear that any of it would be taken personally or politically.

Always very caring about people working with her, and anyone in the wider world who was suffering, she helped an American President win the Cold war, made it possible for members of unions and non members to work in greater harmony with management in many industries after the very bruising miners strike, greatly extended home and share ownership, and took up with alacrity the whole agenda of equity for everyone.

She rebuilt Britain at home and abroad, after a decade of financial collapse, a trip to the IMF and strike ridden industrial chaos.

Most of us agree that parents should look after their own children and do the best for them. Most parents do just this, and there is no problem for the state or the neighbours.

There is a problem where loving parents lack the financial means to provide properly for their children, which is usually taken care of by state income top up, free service provision and benefit payments.

There is a worse problem where parents are unwilling or unable to provide a loving and safe home for their children. There the state has to make endless difficult judgements. Should it intervene, requiring the parents to work with a Social Worker in supervision? Should the state take the children away and put them into foster care for a period? Should the children be sent for adoption? Can the wider family including grandparents become involved to safeguard and provide for the children?

Whilst it is sadly the case that a small minority of parents are a threat or a source of harm or neglect for their children, it is also the case that there have been some bad examples of children in state care in childrens’ homes also not being well looked after.

The issue currently back on the agenda is the issue of how many children should a mother or father be allowed to have where they cannot make financial provision? Should it continue to be unlimited as at present? The case that argues for allowing any number of children is based on our understandable wish of not wanting the children to suffer.

Or should there be a future limit on how many children someone can have to attract more state financial support? Should the state ever reach the point where it says to a parent that they cannot increase their drawings from the state for extra children? If they despite the warning go ahead and have an extra child, what then should the state do?

Yesterday morning interviews with the IFS, Mr Balls and Mr Alexander on the Today programme failed to do justice to the argument over the 50p tax rate. The IFS and the BBC sat on the fence, and ignored the substantial evidence that the UK has experienced a serious shortfall of Income Tax receipts from high earners since the introduction of the 50p rate.

The IFS and the BBC were strangely silent on the fact that in 2009-10 there were 16,000 people declaring incomes in excess of £1million in the UK for tax, and that this fell to just 6000 people with such incomes after the introduction of the 50p rate. Many left the country, or worked less hard, or found legal ways of declaring less income.

Evan Davies did succeed in reminding the audience that a 50p tax rate brought in to “share the burden” of the Crunch was not brought in by Labour in 2008 or 2009, during or immediately after the Crunch it was meant to help pay for. Instead they brought it in a few days before the election. This should lead people to ask whether it was a political trap rather than sound policy designed to help pay for the problems. If you really thought it was going to bring in say £3bn why not introduce it immediately in 2008 as you saw the surge in the deficit and the banks collapsing? Why not bring it in in 2009 as things started to settle down again? He also extracted from Mr Balls the wise statement that he favours lower tax rates at all income levels, rather than a pledge to restore the 50p tax rate.

Let me be unpopular. I think Mr Brown as Chancellor was right to keep the top rate of Income Tax at 40% throughout his period in office. I assume he did so not out of love of the rich, but because he realised that a higher rate would drive some high earners out of the country and lead some companies with large numbers of high paid people to locate elsewhere. Mr Brown was both a good socialist and a pragmatist. He knew that to run a successful enterprise economy he needed to do deals with the rich and with powerful international companies, even if he did not like them.

I have consistently recommended returning the top rate to 40%, both in the closing days in opposition and now to the Coalition government. I think that lower rate would bring in more tax from the rich.

The government has estimated that they have lost £7bn of top end income tax as a result of the 50p rate. They have identified a large number of people on very large incomes who have left the country. The loss of these people also means less revenue from the higher rates of CGT, Stamp Duty and luxury taxes they have imposed. It is a great pity the UK establishment will not allow an honest examination of the causes of the large reduction in top end income tax. It is too much of a coincidence to deny that the 50p rate has done damage to revenues, though of course there are other factors as well depressing some higher incomes post Crunch. The fact that there were still so many people declaring £1m incomes post Crunch prior to the 50p rate shows it is not a simple matter of the damage done by the recession. A medium sized open economy cannot get away with substantially higher rates of tax than competitor countries.

I expect neither Labour nor the Lib Dems will pledge to raise the top rate of Income Tax in their next Manifesto.