For the Record. David Cameron
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Hague’s phrase describing the euro as a ‘burning building with no exits’ would prove doubly prescient.
By the time of the 1997 election I broke with the official policy that we would ‘wait and see’ on the euro, and joined the many who took a stronger position. My time in the Treasury had made me a Eurorealist, or a Eurosceptic. That did not, however, mean being anti-European. Norman Lamont and I drafted a pamphlet, ‘Europe: A Community not a Superstate’, to explain the consequences of what had happened, and the broader lessons for Britain’s European policy. Membership of the EU was necessary for trade and cooperation, but Britain had never welcomed, and would never welcome, the political aspects of the Union. We wrote: ‘No one would die for the European Union.’ No. 10 asked us to take it out. We kept it in.
By this time Norman was in deep trouble. And politicians in trouble need everything to go right for them. They cannot afford any slip-ups, whether self-imposed or externally generated. Unfortunately, the campaign to save Norman’s ministerial career got off to a bad start at the party conference in October.
We had spent too long crafting our pamphlet, and not enough time on his crucial conference speech. Getting the balance right, between a degree of contrition about the past and excitement about a future in which we could cut interest rates and generate growth, was a big challenge, which we failed. While the speech’s reception in the hall seemed all right, the reaction of even quite friendly colleagues was that it was ‘workmanlike’.
Whenever I’ve heard that word since to describe a performance, I know that what’s really meant is ‘bad’. And there’s a rule with these things: if something is seen as quite bad on day one, it’s a disaster on day two, and a career-shortening catastrophe by the end of the week.
The next task for Norman was to formulate an economic framework that would deliver the recovery the British economy so badly needed. Here he was in his element. Because he had seen that our ERM membership might well fail, he was ready to put a new policy in place. A credible domestic monetary policy to support the economy and deliver stable inflation. A tough, long-term fiscal policy to get the budget deficit under control. And supply-side reform to make our economy competitive.
This was pretty much the same medicine my government prescribed twenty years later. It worked well both times. But the right strategy needs the right implementation plan. And that is where we went wrong in 1992.
When you have to take lots of difficult and potentially unpopular decisions – including raising taxes – the trick is to separate those that are painful but deliverable from those that are potentially explosive. Step forward the proposal to put VAT on domestic heating bills. This was a mistake; and in many ways it was my mistake. We took the view then, just as we would in 2010, that we could not fairly and credibly reduce the budget deficit by cutting spending alone. Some tax increases would be needed. I looked carefully at all of the options, and came to the view that some of the zero rates on VAT were ripe for change. Energy prices were low, environmental concerns were growing, and we could protect the vulnerable from price increases through the benefits system.
Not for the last time in my political career, I had failed to spot the essential political equation: rational case versus emotional argument equals political disaster. And it was a disaster. We were defeated in the Commons, and had to revert to the much simpler (and less politically toxic) move of a small across-the-board increase in VAT. That taught me a lesson for the future – but it was another nail in Norman’s coffin.
Meanwhile, the economic medicine was working. Cheap money, fiscal discipline and competitiveness ushered in a period of growth that would continue throughout the decade.
And so yet another lesson was learned: while, all things being equal, reductions in public spending can have an effect on the overall level of demand in an economy, in practice other things are not equal. Controlling public spending, in an open economy like the UK, helps to lower the exchange rate and support exports, and even more importantly it frees up monetary policy to support the economy.
The most powerful memory of my time in the Treasury is of course watching – and failing to prevent – the end of the chancellor’s career.
I liked Norman Lamont immensely, and I still do. He was a thoughtful, intelligent, decent man. But he was also deeply sensitive, with a skin too thin for this sort of politics. We subsequently fell out over Brexit, of course. When I heard that he was coming out for the Leave campaign, I pleaded with him that while I had stayed true to the pamphlet we had written together all those years ago, knowing it was in the national interest to stay and fight, he – outside the responsibilities of office – was now arguing a more populist and easy case.
After the disasters of what became known as Black Wednesday and our departure from the ERM, Norman had travelled to America. When he returned he asked William Hague and me what we thought he should do. One of the reasons he was so against resigning was that he felt – rightly in some regards – that he had seen what was coming, and was warning others about it. And, more than anyone else, once we had left the ERM, he knew what needed to be done.
Could he have recovered his position without the other slips that took place: the reports of singing in the bath, the ‘Je ne regrette rien’ remark at the Newbury by-election and the other controversies? Frankly, I doubt it. The truth, as we were all to learn, was that ERM membership may not have been a policy Norman invented, but he was responsible for it – and it failed. And above all, when the ‘narrative’ in the press changes so fundamentally, it is hard to fight against it.
I tended to be the bearer of the bad news. Indeed, I had to call Norman late one night to tell him about a call I had received from a deputy editor at the Sun: ‘The good news is that your boss’s picture is on the front page of tomorrow’s newspaper. The bad news is that his head is in the middle of a cut-out-and-keep dartboard.’
Without going into all the horrors of the months that followed our ERM exit, one story stands out in my memory which demonstrates just how bad things had got. The suffix ‘-gate’ is now appended to almost every so-called ‘political crisis’, no matter how minor or short-lived. My first serious ‘gate’ was the so-called ‘Threshergate’ affair, when the chancellor of the exchequer was basically accused of consorting with prostitutes and lying.
In November 1992 the Sun managed to get the details of Norman’s credit card. It had – big deal – an outstanding balance. Along with whatever negative coverage could be squeezed out of such an unremarkable fact, one other thing caught the interest of the press: he had spent a small amount of money at a Threshers off-licence in Paddington. The hacks descended on what they assumed was the right shop in Praed Street, where an assistant, a Mr Onanugu, happily told them that the chancellor had popped in to buy some cheap champagne and Raffles cigarettes before heading out into the night in what was then, in part, a red-light district. The newspapers had a field day, with innuendos galore and cartoons featuring champagne bottles and ladies of the night.
After a day of stonewalling we decided we had to get to the truth. Norman told us he had been shopping in Paddington, but had only bought two bottles of wine for his family to drink at home. All Treasury business came to a complete halt as Norman hunted through his wallet in search of the receipt, while his wife Rosemary tried to find the bottles of wine in the No. 11 flat. All this time the shop was sticking rigidly to its story. And then came the moment of truth: Norman told us that the Threshers he went to wasn’t in Praed Street. The only trouble was that he couldn’t remember where it was.
By this stage he was at a European Council meeting in Edinburgh. I recall the absurdity of telephoning to pull him out of important discussions so he could describe the route he had taken that night, and where he had gone into the shop. I followed his directions with my finger on an A–Z, and we both concluded that it must have been in Connaught Street. I despatched an official in a taxi, and hallelujah – there was a Threshers in Connaught Street.
After the full pressure of the government was applied – I think it even took a call from the permanent secretary to the Treasury, Sir Terence Burns, to the head of