The CPS was the least bureaucratic of institutions. Alfred Sherman has caught the feel of it by saying that it was an ‘animator, agent of change, and political enzyme’. The original proposed social market approach did not prove particularly fruitful and was eventually quietly forgotten, though a pamphlet called Why Britain Needs a Social Market Economy was published.
What the Centre then developed was the drive to expose the follies and self-defeating consequences of government intervention. It continued to engage the political argument in open debate at the highest intellectual level. The objective was to effect change – change in the climate of opinion and so in the limits of the ‘possible’. In order to do this, it had to employ another of Alfred’s phrases, to ‘think the unthinkable’. It was not long before more than a few feathers began to be ruffled by that approach.
Keith had decided that he would make a series of speeches over the summer and autumn of 1974 in which he would set out the alternative analysis of what had gone wrong and what should be done. The first of these, which was also intended to attract interest among potential fundraisers, was delivered at Upminster on Saturday 22 June. Alfred was the main draftsman. But as with all Keith’s speeches – except the fateful Edgbaston speech which I shall describe shortly – he circulated endless drafts for comment. All the observations received were carefully considered and the language pared down to remove every surplus word. Keith’s speeches always put rigour of analysis and exactitude of language above style, but taken as a whole they managed to be powerful rhetorical instruments as well.
The Upminster speech infuriated Ted and the Party establishment because Keith lumped in together the mistakes of Conservative and Labour Governments, talking about the ‘thirty years of socialistic fashions’. He said bluntly that the public sector had been ‘draining away the wealth created by the private sector’, and challenged the value of public ‘investment’ in tourism and the expansion of the universities. He condemned the socialist vendetta against profits and noted the damage done by rent controls and council housing to labour mobility. Finally – and, in the eyes of the advocates of consensus, unforgivably – he talked about the ‘inherent contradictions [of the] … mixed economy’. It was a short speech but it had a mighty impact, not least because people knew that there was more to come.
From Keith and Alfred I learned a great deal. I renewed my reading of the seminal works of liberal economics and conservative thought. I also regularly attended lunches at the Institute of Economic Affairs where Ralph Harris, Arthur Seldon, Alan Walters and others – in other words all those who had been right when we in government had gone so badly wrong – were busy marking out a new non-socialist economic and social path for Britain. I lunched from time to time with Professor Douglas Hague, the economist, who would later act as one of my unofficial economic advisers.
At about this time I also made the acquaintance of a polished and amusing former television producer called Gordon Reece, who was advising the Party on television appearances and who had, it seemed to me, an almost uncanny insight into that medium. In fact, by the eve of the October 1974 general election I had made a significant number of contacts with those on whom I would come to rely heavily during my years as Party Leader.
Keith delivered a further speech in Preston on Thursday 5 September. After some early inconclusive discussion in Shadow Cabinet of Keith’s various ideas, Ted had refused the general economic re-evaluation and discussion which Keith wanted. Keith decided that he was not prepared to be either stifled or ignored, and gave notice that he was intending to make a major speech on economic policy. Ted and most of our colleagues were desperate to prevent this. Geoffrey Howe and I were accordingly dispatched to try to persuade Keith not to go ahead, or at least to tone down what he intended to say. In any case, Keith showed me an early draft. It was one of the most powerful and persuasive analyses I have ever read. I made no suggestions for changes. Nor, as far as I know, did Geoffrey. The Preston speech must still be considered as one of the very few which have fundamentally affected a political generation’s way of thinking.
It began with the sombre statement: ‘Inflation is threatening to destroy our society.’ At most times this would have seemed hyperbole, but at this time, with inflation at 17 per cent and rising, people were obsessed with its impact on their lives. That only made more explosive Keith’s admission that successive governments bore the responsibility for allowing it to get such a grip. He rejected the idea embraced by the Shadow Cabinet that inflation had been ‘imported’ and was the result of rocketing world prices. In fact, it was the result of excessive growth of the money supply. Explaining as he did that there was a time lag of ‘many months, or even as much as a year or two’ between loose monetary policy and rising inflation, he also implicitly – and accurately – blamed the Heath Government for the inflation which was now beginning to take off and which would rise to even more ruinous levels the following year. He also rejected the use of incomes policy as a means of containing it. The analysis was subtle, detailed and devastating.
Keith then put his finger on the fundamental reason why we had embarked on our disastrous U-turns – fear of unemployment. It had been when registered unemployment rose to one million that the Heath Government’s nerve broke. But Keith explained that the unemployment statistics concealed as much as they revealed because they included ‘frictional unemployment’ – that is, people who were temporarily out of work moving between jobs – and a large number of people who were more or less unemployable for one reason or another. Similarly, there was a large amount of fraudulent unemployment, people who were drawing benefit while earning. In fact, noted Keith, the real problem had been labour shortages, not surpluses. He said that we should be prepared to admit that control of the money supply to beat inflation would temporarily risk some increase in unemployment. But if we wanted to bring down inflation (which itself destroyed jobs, though this was an argument to which Keith and I would subsequently have to return on many occasions), monetary growth had to be curbed. Keith did not argue that if we got the money supply right, everything else would be right. He specifically said that this was not his view. But if we did not achieve monetary control, we would never be able to achieve any of our other economic objectives.
The Preston speech was, of course, highly embarrassing for Ted and the Party establishment. Some still hoped that a combination of dire warnings about socialism, hints of a National Government and our new policies on mortgages and the rates would see us squeak back into office – an illusion fostered by the fact that on the very day of Keith’s speech an opinion poll showed us two points ahead of Labour. The Preston speech blew this strategy out of the water, for it was clear that the kind of reassessment Keith was advocating was highly unlikely to occur if the Conservatives returned to government with Ted Heath as Prime Minister. Keith himself discreetly decided to spend more time at the CPS in Wilfred Street than at Westminster, where some of his colleagues were furious. For my part, I did not think that there was any serious chance of our winning the election. In the short term I was determined to fight as hard as I could for the policies it was now my responsibility to defend. In the longer term I was convinced that we must turn the Party around towards Keith’s way of thinking, preferably under Keith’s leadership.
The Conservative Party manifesto was published early, on Tuesday 10 September – about a week before the election was announced – because of a leak to the press. I was taken by surprise by a question on it when I was opening the Chelsea Antiques Fair. The release of the manifesto in this way was not a good start to the campaign, particularly because we had so little new to say.
I had never had so much exposure