A lesson from Mrs T in how to tame inflation and fix the cost of living crisis

AROUND 1971, a crude vending machine was installed by the rear doors of Jordanhill College School. You dropped in 2p and, with a mechanical mumble, the beast disgorged a carton of chilled orange squash.

But, by the time I was enrolled, in April 1974, it demanded 4p. That label was soon overlaid with another scrawled replacement – 5p. Then 6p. Finally, after weeks of trying to process all the change that made 7p, the vending machine ceased to function at all.

It was still there, in its mute uselessness, with the fading labels of racked-up prices, when we left Glasgow in 1980 – typical of a decade of drift and decline.

So, as prices rocket once more – at 9 per cent, inflation is now at its highest since March 1982 – the sense, for my generation, is less of bewilderment than of puzzled déjà vu.

And we are, after all, still a long way south of the worst inflation in my lifetime: at one point in 1975 it touched 25 per cent, and for the rest of the decade the cost of living was the most pressing issue in British politics.

There were two main reasons for that economic horror. One was the ‘oil shock’, after President Nixon intervened to save Israel amid the Yom Kippur War in 1973.

Furious at their latest military humiliation, assorted sheikhs let the price of crude oil rip. Its cost tripled and, from the price of petrol at the pumps to heating your home or buying your weekly groceries, so did everything else.

But, thanks to the peak trade unionism of this era, wages also increased – and then, from the miners to the binmen, workers struck again for yet more money to cope with rising prices, which accordingly only rose again.

Many also blame a third factor – decimalisation, in February 1971, when untold grocers took advantage of the general confusion to jack up their prices: 6d became 6p, not the 2½ New Pence it properly was; that sort of low trick. Inflation is broadly when more money is running around after goods than there are goods available. The purchasing power of the pound is accordingly reduced and, even as the IMF had to intervene in 1976, there seemed no way out of this wages-inflation death spiral.

In the real world, we coped as best we could. Our prescribed school uniforms apart, my mother bought most of our clothes second hand.

My parents acquired a freezer and bulk-bought food, and we returned annually from our hebridean holiday with a carload of chopped, bagged dead animal.

But the gloom of the 70s has been much exaggerated. While it was a dire time for British politicians, this was a good era for most working families.

Chasm

People bought more meat. More and more could afford a holiday in the sun.

houses, by today’s standards, were unimaginably affordable and unemployment was historically low.

It was the well-off and the best-paid professionals who felt the whack of punitive taxation – 85 per cent super tax; 98 per cent tax on unearned income. And this had two unforeseen consequences.

There was a significant ‘brain drain’, for instance – the best doctors, engineers and researchers skipping Blighty for new lives in the States or Down Under – and the captains of industry, by 1979, were spending more time with their accountants than actually running their business.

And, after many years of a broadly sustained post-war political consensus, an ideological chasm started to yawn, personified by two very different women: one doing her best under a Prime Minister well past his prime; and the other a determined lady from Grantham who consulted a lot of clever Austrians. Shirley

Williams was the tousled, winsome woman with the sort of distracted, engaging air that suggested a really good school, and in March 1974 was appointed Secretary of State for Prices and Consumer Protection.

And Margaret Thatcher, a year later and to widespread astonishment, became leader of the Conservative Party.

Brian Wilson, then the young radical who had just founded the West highland Free Press, still ruefully recalls his elation at the news. Who was ever going to vote for this shrill grocer’s daughter?

For both Williams and Thatcher, it seemed to be Mission: Impossible. Thatcher struggled in the Commons and had to work hard on her image, her wardrobe and even her voice. Most of her frontbench colleagues had an eye on her job and, had James Callaghan called a General election in October 1978 (as was widely expected) it is unlikely her leadership would have survived.

But Williams had to wrestle with two ridiculous ideas: an ‘incomes policy’ – the notion that the Government can run around every year decreeing how much everyone is paid – and harold Wilson’s ‘Social Contract’, a posh phrase for finding out what the unions wanted and giving it to them without demur.

Anyway, by the time Callaghan succeeded him, the Labour government no longer boasted an overall majority and, ironically, thanks not least to the Lib-Lab Pact, began at last to run the economy on strict, responsible and disciplined lines.

But everyone fatefully underestimated Thatcher – the clarity of her mind, the intensity of her ideas, and a clear understanding of ‘my people’ – decent sorts who worked hard, put some money aside each month for a lazy day, detested spongers and layabouts, yearned to own their own home and were rather worried about immigration.

She hated state ownership and socialist central planning. And she particularly hated inflation. It was ‘the parent of unemployment’, she declared, ‘and the unseen robber of those who have saved.’

A keen new disciple of Milton Friedman, Friedrich von hayek and the rest, she believed in the free market, a small state and a government that stayed out of the way.

Inflation was not to be massaged by cosy beer and sandwiches with the union barons, but by strict control of the money supply – through robust interest rates; steady cuts in income tax; and – though, initially, with great caution – the throttling of irresponsible trade union power.

Power

In winter 1978-79, everyone from the most delirious unions to Nationalist MPs at Westminster played deliriously into her hands and, the following May, power fell into her lap.

The merits of ‘monetarism’ are still fiercely debated. As gushing North Sea oil made sterling a petrocurrency, it clobbered our exports. Unemployment burgeoned and so, alarmingly, in 1980, did inflation. By 1981 British industry seemed in crisis and, by that autumn, Thatcher was hideously unpopular.

And then, very quietly, it all started to work. The myth has taken hold that her political bacon was saved by the Falklands conflict. But polls weeks before already saw the tide turning, as inflation dropped and Labour, by then captive to the deep Left, sounded ever more ridiculous.

her government was twice returned, in 1983 and again in 1987, with enormous majorities. And, by the time the Iron Lady was dragged away from the levers of power in November 1990, she had not only transformed the country, she had permanently shifted its political centre, and the terms of debate.

And central to all this was her grasp of one truth – that nothing terrifies the public more than remorselessly rising prices, devalued savings, and the sense that the coin of the land is an increasingly debased currency.