'It Was Just Like Arming to Face the Threat of Hitler in the Late 1930s.': The Ridley Report and the...

doi: 10.3828/hsir.2013.34.7

‘It Was Just Like Arming to Face theThreat of Hitler in the Late 1930s.’1

The Ridley Report and the Conservative Party’s Preparations for the 1984–85 Miners’ Strike

Peter Dorey

The question of ‘what is to be done about the trade unions?’ was especiallypertinent for the Conservative Party during the latter half of the 1970s, andpermeated the thinking of various groupings and prominent individuals inthe party. Although Conservatives had always been apprehensive aboutaspects of trade-unionism, the party leadership’s had made assiduous effortsduring the 1950s and early 1960s to avoid new legislation regulating unions.Indeed, senior Conservatives even sought to avoid speeches that might havebeen viewed as provocative by trade-union leaders, so eager were they toachieve peaceful co-existence with the unions.2 Yet, beneath the surface, onthe Conservative backbenches and among the party’s grass roots, there wasalways frustration and resentment of the leadership’s conciliatory approachtowards the unions, symbolized by the Inns of Court Conservative andUnionist Society’s 1958 pamphlet A Giant’s Strength.3 This impatience with

HSIR 34 (2013) 173–214

1 N. Lawson, quoted in Yorkshire Post, 10 March 1994.2 See P. Dorey, British Conservatism and Trade Unionism, 1945–1964 (Ashgate, Farnham:

2009); idem, ‘Industrial Relations as “Human Relations”: Conservatism and TradeUnionism, 1945–1964’, in S. Ball and I. Holliday (eds), Mass Conservatism: The Conser-vatives and the Public since the 1880s (Frank Cass: 2002), pp. 139–62; R. Taylor, TheTrade Union Question in British Politics: Governments and Unions since 1945 (Black-well, Oxford: 1993), chs 3 and 4.

3 Inns of Court Conservative and Unionist Society, A Giant’s Strength: Some Thoughts onthe Constitutional and the Legal Position of Trade Unions in England (Inns of CourtConservative and Unionist Society and Christopher Johnson Publishers: 1958).

the leadership’s policy was encapsulated in Enoch Powell’s wry retrospec-tive observation that ‘The party came into office [in 1951] … without anyspecific commitment on trade-union law and practice, and it faithfullycarried out that non-commitment for thirteen years.’4

Those Conservatives who yearned for a tougher approach towards trade-unionism would initially have been heartened by the Industrial Relations Act1971 enacted by the Conservative government under Edward Heath. The Actconstituted a clear departure from the ‘voluntarism’ of British industrial rela-tions and trade-unionism,5 or what Otto Kahn-Freund termed ‘collectivelaissez-faire’,6 placing unions and their activities within a new and explicitlegal framework. Heath also committed the Conservatives to a restoration offree collective bargaining, rejecting the erstwhile drift towards incomes poli-cies and the concomitant politicization of pay.

This new approach, however, was soon abandoned when a combination ofunion opposition (stronger and better organized than ministers had envisaged)and unfavourable judicial decisions fatally undermined the Industrial Rela-tions Act. By early 1972, Heath was hastily seeking a rapprochement with theTrades Union Congress, although failure to secure pay restraint in order toreduce inflation meant that his government also resorted to a statutory incomespolicy. The latter not only exacerbated tensions between the Heath governmentand the unions, but also occasioned disagreements within the parliamentaryConservative Party, where a growing number of MPs were contemptuous ofthe leadership’s assumption that inflation could be curbed by ministerialcontrol of pay increases, rather than curbing the money supply, and leavingall else – pay, prices, and levels of employment – to be determined by ‘themarket’. Meanwhile, the Heath government faced two major confrontationswith the National Union of Mineworkers (NUM) in 1972 and 1974 over theissue of pay, the latter contributing significantly to the party’s defeat in the1974 election, and prompting one senior Conservative to ask ‘whateverhappened to the quiet revolution?’ that Heath had previously promised.7

Back in opposition, the Conservatives observed the Labour governmentlegislate to strengthen the closed shop (an aspect of trade-unionism thatConservatives had always found especially objectionable8) and struggle to

174 HISTORICAL STUDIES IN INDUSTRIAL RELATIONS 34

4 E. Powell, Conference on Economic Policy for the 1970s (The Monday Club: 1968), p. 5.5 On ‘voluntarism’ in British industrial relations, see A. Flanders, Management and Unions

(Faber and Faber: 1970); idem, ‘The Tradition of Voluntarism’, British Journal of Indus-trial Relations 12 (1974), pp. 352–70; W. E. J. McCarthy, ‘The Rise and Fall of CollectiveLaissez-Faire,’ in idem (ed.) Legal Intervention in Industrial Relations (Blackwell,Oxford: 1992), pp. 1–78; M. Rogin, ‘Voluntarism: The Political Functions of an Anti-Polit-ical Doctrine’, Industrial and Labor Relations Review 15 (1962), pp. 521–35.

6 O. Kahn-Freund, ‘Labour Law’, in M. Ginsberg (ed.), Law and Opinion in England(Stevens: 1959), p. 224.

7 J. Bruce-Gardyne, Whatever Happened to the Quiet Revolution? (Charles Knight: 1974). 8 See P. Dorey, ‘Individual Liberty versus Industrial Order: Conservatives and the Trade

Union Closed Shop, 1946–1990’, Contemporary British History 23 (2009), pp. 219–42.

secure union compliance with a series of incomes policies as a centralcomponent of a counter-inflation strategy. To add to the Conservatives’concern over the apparent power of the unions and the extent to which theywere rendering Britain ungovernable, there was also the notorious 1977Grunwick dispute, in which Conservatives instinctively and ideologicallysiding with the employer, George Ward, in his opposition to demands forunion recognition.9 For many Conservatives, Ward was viewed as the valiant‘little man’ courageously standing up to and confronting union ‘bully boys’(and their supporters on the hard Left), and, in so doing, defending the rightto manage against union ‘tyranny’.

In this context, many Conservatives naturally pondered about what theycould, should, or would do about the unions when the party was next ingovernment. For virtually all Conservatives, the traumatic experiences ofHeath’s government provided a key point of reference, and strongly shapedperspectives about how they should handle the unions in future. Yet twomarkedly different conclusions were drawn from the failure of Heath’s 1971Industrial Relations Act, and his subsequent bruising encounters with theNUM (and other unions which supported the miners) in 1972 and early 1974.

One strand of Conservative opinion was now reluctantly convinced thatthe complexity and inter-linked character of contemporary British industry,and the strength of organized labour, was such that no future Conservativegovernment could realistically expect to emerge victorious from a majorconfrontation with the unions. Consequently, the only sensible and feasibleapproach would be to do everything practicably possible to avoid conflictwith the unions, and instead tirelessly pursue dialogue and partnership in thehope that ministerial explanations and exhortations would persuade unionleaders, and inter alia their members, of the need for moderation andmodernization.10

Not surprisingly, many other Conservatives interpreted this professedpragmatic realism as thinly veiled cowardice and appeasement of union mili-tancy and power. According to Norman Tebbit, for example, there werepeople in the Conservative Party with the morality of Laval and Pétain (twonotorious French politicians who had collaborated with the Nazis in Franceduring the Second World War), and who were thus not merely willing totolerate evil, but to excuse, and even profit, from it.11 Rather than merely

DOREY: CONSERVATIVE PARTY’S PREPARATIONS FOR MINERS’ STRIKE 175

19 On the Grunwick Dispute, see G. Ward, Fort Grunwick (Maurice Temple: 1977); J.Rogaly, Grunwick, (Penguin, Harmondsworth: 1977); Court of Inquiry (Scarman), Report,Cmnd 6922 (1977).

10 See P. Dorey, ‘Conciliation or Confrontation with the Trade Unions?: The ConservativeParty’s “Authority of Government Group”, 1975–1978’, Historical Studies in IndustrialRelations (HSIR) 27/28 (2009), pp. 135–51.

11 The Times, 10 and 13 September 1977.

accept union strength as an unavoidable and immutable fact of political life,a growing number of senior Conservatives insisted that it could, and should,be tackled, even if great care and patience would be needed to secure successby restoring managerial and governmental authority. This was certainly theperspective of the ‘Stepping Stones’ group,12 whose authors, John Hoskynsand Norman Strauss, insisted that avoiding confrontation ‘is not an availableoption to a government which is seriously thinking to solve our problems’.13

However, the most ambitious plan for ‘taking on’ the unions emanatedfrom the ‘Ridley Report’, which was a ‘confidential annex’ attached to theFinal Report of the Nationalised Industries Policy Group, chaired byNicholas Ridley. To comprehend the reasoning and rationale underpinningthe Ridley Report, it is essential to consider the problems identified by theNationalised Industries Policy Group, and the proposed solutions, for it wasthese which persuaded Ridley that additional, secret, preparatory measureswere necessary to tackle the union resistance that was almost certain toensue.

Others have analysed the Ridley Report and its application vis-à-vis the1984–85 miners’ strike, most notably Bill Schwarz,14 John Saville, andJonathan and Ruth Winterton, but this article adds to the literature byutilizing previously unavailable primary sources. These comprise the confi-dential minutes of the meetings that led to the Ridley Report and thediscussion and decisions of the Shadow Cabinet, both contained in thearchives of the Thatcher Foundation. Cabinet papers up to 1982, coveringmost of the first Thatcher government, are now available in the NationalArchives. These provide valuable insights into the ministerial preparationsfor a clash with the miners in accordance with the recommendationsenshrined in Ridley’s report, even though ministers did not directly refer toit. Finally, a tranche of memoirs and autobiographies have been publishedby many of the ministers involved, and by other ‘insiders’ such as JohnHoskyns and Alfred Sherman. It is therefore now possible to review the linksbetween the Ridley Report and the 1984–85 miners’ strike, and offer a much


12 See A. Taylor, ‘The “Stepping Stones” Programme: Conservative Party Thinking on TradeUnions, 1975–9’, HSIR 11 (2001), pp. 109–33; P. Smith and G. Morton, ‘The ConservativeGovernments’ Reform of Employment Law, 1979–97: “Stepping Stones” and the NewRight Agenda’, HSIR 12 (2001), pp. 131–47.

13 J. Hoskyns and N. Strauss, Stepping Stones, 14 November 1977, p. 32, (2/6/1/248),Thatcher MSS, Churchill College (CC), Cambridge.

14 B. Schwarz, ‘Let Them Eat Coal: The Conservative Party and the Strike’, in H. Beynon(ed.), Digging Deeper: Issues in the Miners’ Strike (Verso: 1985), pp. 53–5; J. Saville, ‘AnOpen Conspiracy: Conservative Politics and the Miners’ Strike 1984–5’, Socialist Register1985/6 (Merlin Press: 1986); J. Winterton and R. Winterton, Coal, Crisis and Conflict:The 1984–85 Miners’ Strike in Yorkshire (Manchester University Press: 1989), pp. 146–51.

more detailed account of the relevant Conservative Party discussions anddevelopments leading up to that event.

Problems identified by Nationalised Industries Policy Group

Inaugurated in the spring of 1976 under the auspices of the Economic Recon-struction Group, the remit of the Nationalised Industries Policy Group was‘to consider what the relationship should be between a Conservative govern-ment and the nationalised industries, and to make recommendations’. At itsvery first meeting, it was emphasized that the group’s ‘prime considerations’must be to seek ways both of increasing the efficiency of the nationalizedindustries, and of cutting public expenditure. However, it was suggested that rather than identifying problems common to all nationalized industries,it would be more fruitful to consider each industry separately.15 Of course, this would inevitably reveal general themes and issues from whicha more general critique of the nationalized industries could subsequently bedevised.

The plethora of problems identified by the group neatly accorded with themore general ‘new right’ critique of state-owned industries and the publicsector which, during the late 1970s, had been gaining intellectual credenceand support in parts of the Conservative Party, as well as in many pro-Conservative newspapers, and among sympathetic academics and ‘thinktanks’.16 First, there was the near or complete absence of competitionderiving from their monopoly status, which meant that nationalized industries and their employees lacked incentives to increase productivity and efficiency, or to improve the quality of the service they provided. Theperception in such industries that they could not become bankrupt, due to governmental subsidies, was deemed to induce a strong sense of arrogance and complacency and a cavalier disregard for the wishes of their


15 Nationalised Industries Policy Group, Minutes of meeting, 28 April 1976, (2/6/1/52),Thatcher MSS, CC.

16 See, for example: N. Barry, The New Right (Croom Helm: 1987); N. Bosanquet, After theNew Right (Heinemann: 1983); S. Brittan, The Role and Limits of Government: Essays inPolitical Economy (Temple Smith: 1983); R. Cockett, Thinking the Unthinkable: ThinkTanks and the Economic Counter-Revolution, 1931–1983 (HarperCollins: 1994); M.Friedman, Capitalism and Freedom (University of Chicago Press: 1962); D. Green, TheNew Right (Wheatsheaf, Brighton: 1987); F. Hahn, ‘On Market Economics’, in R.Skidelsky (ed.), Thatcherism (Blackwell, Oxford: 1988), pp. 107–24; F. Hayek, The Roadto Serfdom (Routledge and Kegan Paul: 1944); idem, The Constitution of Liberty (Rout-ledge and Kegan Paul: 1960); K. Joseph, Reversing the Trend (Centre for Policy Studies:1975); idem, Stranded on the Middle Ground (Centre for Policy Studies: 1976); D. King,The New Right (Macmillan: 1987); A. Seldon, Capitalism (Blackwell, Oxford: 1990); D.Willetts, Modern Capitalism (Penguin Books, Harmondsworth: 1992).

customers.17 The latter were, in effect, a captive audience. Second, it was alleged that the nationalized industries were increasingly

‘run for the benefit of those who work in them. The pressures are for morejobs for the boys and more money for each boy. The need to satisfy thecustomer is less and less apparent’.18 As such, it was argued that theemployees in nationalized industries (and the public sector generally) consti-tuted a selfish, self-serving ‘producer interest’ whose members too oftenprioritized their own preferences and convenience over the needs and wishesof their customers. In more contemporary parlance, they were often ‘knaves’rather than ‘knights’.19

Third, there was the perennial problem of wages in the public sector.Several difficulties were identified here. The fact that the government itselfwas ultimately the employer of those working in the nationalized industriesmeant that pay was often a political, rather than solely economic, issue.Given the aforementioned assumption that such industries could not gobankrupt (or would not be permitted to do so), ministers were often exasper-ated that the unions seemingly took it for granted that governments wouldalways be able to fund pay increases more readily than employers in theprivate sector. In this respect, workers in the nationalized industries appearedto have higher expectations – or a higher sense of entitlement – than theirprivate-sector counterparts.

Any pay offer contested by workers or unions in nationalized industriesdeemed to be of strategic or national importance ran the risk of embroilingministers in a damaging dispute in sectors vulnerable to industrial action. Yetif ministers acceded to ‘excessive’ wage claims in the nationalized industriesin order to prevent damaging strikes, this would undermine their credibilityin urging wage restraint in the private sector.

Another problem concerned the principle of pay parity or comparability,whereby a particular wage increase in one industry or sector established the‘going rate’, expected to be replicated across all industries and sectors. Thisfailed to take into account such criteria as levels of productivity, the financialstrength (or weakness) of each industry, or labour shortages which mightwarrant a higher pay settlement or new wage structure to improve recruit-ment and retention in specific sectors.


17 Nationalised Industries Policy Group, Discussion Paper by N. Ridley, 14 June 1976,(2/6/1/52), Thatcher MSS, CC.

18 Final Report of the Nationalised Industry Policy Group, 8 July 1977, (2/6/1/37), ThatcherMSS, CC.

19 See J. Le Grand, Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawnsand Queens (Oxford University Press: 2006).

Proposed solutions

A mere four months after the group’s first meeting, it published an ‘InterimReport’ which opened with the assertion that ‘there are inherent defects inNationalised Industries which exist because they are Nationalised, andwhich cannot be overcome.’ However, this immediately presented a politicalconundrum, for while ‘The only solution which would have a dramatic effectwould be to return the industries to the private sector’, there were a plethoraof practical problems which militated against such a response, at least in theforseseeable future. Among these problems were the potential difficulty offinding viable buyers, the probable threat of renationalization by the LabourParty (which would itself serve to deter some potential purchasers), and ‘thepossiblity of bitter industrial action to frustrate us’. For these reasons, theInterim Report refrained from recommending ‘a policy of wholesale dena-tionalisation’.20

Instead, it proposed that the Conservatives should ‘make clear our dislikeof the size of the public sector’, this perhaps being exemplified by the saleof at least one state-owned industry, such as the National Bus Company.More generally, though, a strategy of stealth was recommended, whereby thenationalized industries were sumultaneously deprived of their statutorymonopoly status and thereby exposed to private competition, while indi-vidual industries would be fragmented into distinct adminstrative units, eachof which would be designated as a ‘cost centre’ maintaining a separate finan-cial balance sheet.

If this type of industrial restructuring and financial discipline could beachieved, then it might be possible to sell off, or even hand over, individualunits to private-sector companies or employees in the nationalized industries.Certainly, it was explicitly recognized that offering or giving shares to theworkers would make it more difficult for the Labour Party and the unions toattack the policy in a convincing manner. Indeed, it was suggested that ‘if itsucceeded, it would be irreversible by a future Labour government. There mightbe demands for its extension by workers in other nationalised industries.’21

This mode of partial, pragmatic, privatization was not deemed feasible forthe largest industries, namely gas, electricity, and the railways ‘in the firstinstance’. Clearly, there was a tacit expectation that if the initial contractionand fragmentation of smaller or less politically sensitive nationalized indus-tries proved successful, then a Conservative government might beemboldened enough to extend the policy – which is precisely what subse-quently occurred.


20 Interim Report of the Nationalised Industries Policy Group, 13 July 1976, (2/6/1/159),Thatcher MSS, CC.

21 Ibid.

One other notable recommendation in the Interim Report was that muchmore importance should be given to the recruitment of suitable managers.Specifically, it was proposed that, in order to attract good managers, salarieswould need to be offered which were comparable to those paid in the privatesector.

The Final Report of the Nationalised Industries Policy Group waspublished (as an internal Conservative Party document) in June 1977, andreiterated many of the points and proposals agreed both in the precedingmeetings and the Interim Report. Specifically, the Final Report made sixteenrecommendations, twelve of these under the heading ‘Running NationalisedIndustries’ and the other four under the heading ‘Denationalisation’,although some of the ‘individual’ recommendations actually enshrined morethan one proposal, albeit inextricably linked and mutually reinforcing.22

The main proposals under the heading ‘Running Nationalised indus-tries’23 were:

• More rewards for success, and penalties for failure, in state-owned indus-tries.

• Stipulate a ‘rate of return’ to be achieved on capital investment and expen-diture in nationalized industries.

• Strict cash limits imposed on each nationalized industry, and more robustmethods of accounting to be imposed.

• Stronger control over wages, in the context of the previous three objectives;higher pay should be financed through reductions in manpower or higherproductivity.

• ‘Uneconomic activities’ to be identified and costed by the relevant minister.• Prohibit nationalized industries from extending their activities into new

areas.• Rather than impose legislative curbs on strikes in the public sector per se,

other measures should be enacted, such as restricting (further) social secu-rity payments to strikers.

• Higher salaries, and clearer objectives, should be given to managers: ‘Weshould start now to recruit chairmen who are sympathetic to our objec-tives.’

Under the heading ‘Denationalisation’24, the four proposals were:


22 Final Report of the Nationalised Industry Policy Group, 8 July 1977, (2/6/1/37), ThatcherMSS, CC.

23 Ibid., pp. 1–14.24 Ibid., pp. 15–20.

• ‘Denationalisation should not be attempted by frontal attack, but by a policyof preparation for return to the private sector by stealth.’

• ‘We should first pass legislation to destroy the public sector monopolies.’• ‘We should fragment the industries as far as possible,’ and establish units

which will constitute ‘separate profit centres’.• Some nationalized industries could be divided into separate companies,

which could then, individually, be sold to the private sector. ‘There are someindustries – coal, ports and airports – where we should seek to sell, or formworkers’ co-operatives of each pit, port or airport.’

In sum, these proposals constituted a judicious blend of ambitious radicalismand cautious pragmatism. Moreover, with the benefit of hindsight, it is clearthat the vast majority of these proposals were pursued by the governmentsof Margaret Thatcher from 1979 onwards. However, at the time, Ridley espe-cially was acutely aware that some of the proposed measures would eitherarouse strong hostility from some of the workers in affected industries, orwould be seized upon by militant unions (or their leaders) seeking a pretextfor ‘taking on’ a Conservative government. It was in recognition of this like-lihood that Ridley attached the Confidential Annex to the Final Report, inwhich he outlined the most likely sources of active opposition, and both theoverall strategy and the specific tactics which senior Conservatives shouldpursue in order to defeat the party’s industrial opponents. He was absolutelydetermined that the next Conservative government must not suffer the samefate as befell the 1970–74 Heath government.25

The Confidential Annex

The three-page Confidential Annex to the final Report of the NationalisedIndustries Policy Group subsequently attracted most attention. Written byRidley himself, the annex was titled ‘Countering the Political Threat’, forRidley was convinced that ‘There is no doubt that at some time, the enemiesof the next Tory government will try and destroy this policy.’ He predictedthat such an attack was likely to be launched between six and eighteenmonths after the election; the first six months would provide something of a


25 On Heath’s conflicts with the trade unions, see: J. Campbell, Edward Heath: A Biography(Jonathan Cape: 1993), chs 21, 24, 30, 31 and 32; R. Darlington and D. Lyddon, GloriousSummer: Class Struggle in Britain 1972 (Bookmarks: 2001); P. Dorey, The ConservativeParty and the Trade Unions (Routledge: 1995), ch. 5; E. Heath, The Course of My Life:My Autobiography (Hodder and Stoughton: 1998), chs 14 and 18; R. Taylor, ‘The HeathGovernment and Industrial Relations: Myth and Reality’, in S. Ball and A. Seldon (eds),The Heath Government 1970–74 (Longman: 1996), pp. 161–90; Taylor, The Trade UnionQuestion in British Politics, ch. 6.

‘honeymoon period’ for the new government, but once its proposals for thenationalized industries began to be enacted, the Left would launch a counteroffensive: ‘our enemies will not be able to let the policy get too well estab-lished or it will be harder for them to break it.’26 Ridley subsequentlyrevealed that at this time (1977), Margaret Thatcher herself fully envisagedthat if and when she became Prime Minister, ‘she would face a pitch battlemounted by Arthur Scargill’, one which ‘would be ostensibly an industrialdispute, but in reality would be a political assault designed to overthrow hergovernment … she knew this challenge would come’,27 even though Scargillhad not yet been elected NUM president.

Four issues were identified as the possible casus belli for an attack on thegovernment’s policy in this sphere, namely the Conservatives’ policytowards the nationalized industries, ‘some other political issue’, an ‘unrea-sonable’ wage claim, resistance to redundancies, or plant closures. It was thelatter two which Ridley identified as the most likely sources of militant oppo-sition, his reasoning being that these would provide clearer focus for‘communist disruptors’ to exploit workers’ discontent and foment industrialdisruption; unlike more general political strikes, pay claims and redundan-cies ‘are issues which affect their pockets’. Moreover, the annex predictedthat such an attack on the next Conservative government’s policy vis-à-visthe nationalized industries would emanate from a ‘vulnerable’ industry, mostlikely coal, docks, or electricity. To ensure that such an attack was resolutelyrepelled, a five-point strategy was delineated.

First, the next Conservative government should find the means to fund apay increase in a ‘vulnerable industry’ which was higher than ‘the going rate’in order to forestall a major strike, at least until the government was fullyprepared and equipped to resist it. To this end, Ridley suggested that ‘weshould design our return on capital figures to allow some scope’ for fundinga more generous pay claim in a vulnerable industry. The phrasing here seemsto suggest that a degree of creative accounting was contemplated in order toshow that a high pay award was affordable if the government was not yetready to challenge a particular group of workers.

Second, ministers might provoke ‘a battle’ in an industry which was not‘vulnerable’, such as the civil service or steel, and where victory was muchmore likely. This was primarily intended to ‘discourage an attack on morevulnerable ground’, although a tough stance could inter alia provide valu-able encouragement to employers in the private sector to ‘stand firm’ againsttheir employees and unions in the face of excessive pay claims and concomi-tant industrial militancy.


26 ‘Confidential Annex’ to the Final Report of the Nationalised Industry Policy Group, 8 July1977, (2/6/1/37), Thatcher MSS, CC.

27 N. Ridley, My Style of Government: The Thatcher Years (Hutchinson: 1991), pp. 67, 70.

Third, should the above two approaches prove unsuccessful, the nextConservative government must fully prepare for ‘an all-out attack’ in ahighly vulnerable industry. If such an attack emanated from the electricityor gas industries, ministers would find it very difficult to deal with, and sothey should ‘be especially careful to avoid provoking the workforce in theseindustries’, which should not prove difficult given that significant redundan-cies were not necessary. Other industries that might provide the source of anattack on the government by militants were the docks and road transport. Theformer threat should be obviated by maintaining a high level of stocks, andensuring that a few ports were always kept open for essential supplies andmaterials. Meanwhile, although road transport was deemed a ‘vulnerable’industry, it was also adjudged a less likely source for a direct challenge tothe government, due to ‘the diversity of firms and the weak nature of theunions’.

This left the coal industry as the ‘most likely area’ from which a directchallenge could emerge. In preparation for such a challenge, Ridley’s confi-dential annex proposed four specific measures:

• Maximize coal stocks, especially at power stations. • Make provisional plans to import coal at short notice.• Encourage road haulage companies to recruit non-union lorry drivers who

would have no qualms about transporting coal supplies during a strike. • Ensure that as many power stations as possible could be fuelled by oil as

well as coal.

Fourth, the social security system should be reformed so that workers onstrike were not eligible to receive welfare benefits; they should be supportedwholly by the union calling the strike.

Fifth, in the expectation that a major industrial dispute would be accom-panied by violent picketing, it would be essential ‘to have a large, mobilesquad of police’ who were equipped to apply the law rigorously when facedwith a ‘mob’. This would be especially important in ensuring that non-unionlorry drivers were able to transport coal, and where feelings ran high amongthose on the picket lines.

The fourth and fifth proposals were, it was acknowledged, beyond theremit of the Nationalised Industries Policy Group. The issue of welfarepayments to strikers would need to be addressed by the Department of SocialSecurity; the policing of picketing necessitated preparatory action by theHome Office; and any reform of the law on picketing was the responsibilityof the (then) Department of Employment. In effect, preparation for a majorstrike over pay or redundancies in a ‘vulnerable’ nationalized industryrequired what is now termed ‘joined-up government’. Yet the ultimateresponsibility for the management of nationalized industries, and inter alia


any transfer to the private sector, would fall within the remit of the (then)Department of Trade and Industry. The proposals enshrined in the RidleyReport and its annex required care to ensure that each of the relevant depart-ments implemented the reforms or pursued the necessary preparations, forthe success of Ridley’s plans for defeating a major challenge by union mili-tancy depended on carefully co-ordinated, yet covert, preparatory work bythe next Conservative government.

However, the confidentiality of Ridley’s annex to the Report was ruinedwhen his proposals were published in the Economist, on 27 May 1978. Aninternal inquiry into the source of the leak was unable to ascertain who wasresponsible,28 although one of Thatcher’s [Downing Street Policy Unit]special advisers, Sherman, subsequently alleged that Chris Patten was thesource.29 What is perhaps most surprising about the leaking, though, was justhow little controversy it attracted at the time, mainly because ‘the Ridleyplan was regarded, even by Tories, as the ideas of a remote and unworldlyextremist. No one in the political establishment gave it more than a moment’sattention.’30

Both the Report of the Nationalised Industries Policy Group and Ridley’sannex were discussed at two successive meetings of the Economic Recon-struction Group in July 1977. One interesting aspect of these meetings wasthe ideological stance of those in attendance, for in both instances most ofthe senior Conservatives would soon become closely associated with‘Thatcherism’. For example, at the first of the two meetings, on 8 July 1977,the membership comprised Sir Geoffrey Howe, David Howell, Sir KeithJoseph, and Ridley himself. Among those absent from this meeting were Sir Ian Gilmour and James Prior, both of whom were definitely not‘Thatcherites’.31

At the next meeting on 14 July,32 Howe, Howell, Joseph, and Ridley werejoined by John Biffen, Barney Hayhoe, and Sir Leonard Neal (who hadformerly been an industrial relations consultant for much of the 1960s and1970s, during which time he became convinced that unions had become toopowerful and irresponsible; he now welcomed the increasingly robustapproach contemplated by the Conservative Party under Thatcher’s leader-ship). Again Gilmour and Prior were absent from this second meeting,although it is a matter of conjecture whether they woud have openlyexpressed concern or even opposition had they attended.


28 Letter from George Cardona to Margaret Thatcher, 26 May 1978, (2/11/9/6), ThatcherMSS, CC.

29 A. Sherman, Paradoxes of Power: Reflections on the Thatcher Interlude (ImprintAcademic, Exeter: 2005), p. 132.

30 G. Goodman, The Miners’ Strike (Pluto Press: 1985), p. 67. 31 Economic Reconstruction Group, Minutes, 8 July 1977, (2/6/1/37), Thatcher MSS, CC.32 Ibid., Minutes, 14 July 1977.

In view of the ideological inclinations of most of those attending thesetwo meetings, coupled with the absence of Gilmour and Prior, it was notsurprising that the proposals for the future of the nationalized industries wereaccepted with little demurral. It was acknowledged that in the short term,‘denationalisation … was impractical’ in most instances, but that: ‘The long-term aim was to make the industries attractive to private capital.’ However,because of the caution that characterized the Conservative leadership’sapproach at this time, many feared that a second, more extensive and ambi-tious, phase of privatization would never materialize. The staunchThatcherite Tebbit recalls that, initially, ‘few Conservatives believed it[privatization] could be achieved on such a scale and to such an extent.’33

Ridley himself confessed that ‘Most people believed, like me, that the newgovernment wouldn’t actually do it, just as Ted Heath had not done it earlier,’although, crucially, Ridley added that ‘having another go didn’t cause anyqualms in the party’.34 Meanwhile, one option which was mooted at thesecond meeting of the Economic Reconstruction Group was to arrange forannual pay negotiations in key or vulnerable industries to be moved to the summer, ‘when a strike, for example in the mines, would be lessdamaging’.35

Subsequent developments

Although senior Conservatives rarely alluded to the Ridley Report there-after, it is evident that many policies enacted by the first (1979–83) Thatchergovernment followed the proposals made in the annex; it hovered in thebackground like Banquo’s ghost throughout. It is also clear that the Thatchergovernments adopted many of the recommendations of the NationalisedIndustries Policy Group in lieu of large-scale privatization. The firstThatcher government’s implementation of the principles and proposalsrecommended by the Nationalised Industries Policy Group were pursued intandem with the key recommendations of Ridley’s annex. Indeed, theproposals that emanated from these two sources were inextricably linked,mutually reinforcing and directed towards the same long-term, economic,ideological, and political objectives. They were two sides of the same coin.


33 N. Tebbit, Unfinished Business (Weidenfeld and Nicolson: 1991), pp. 27–8.34 Ridley, My Style of Government, p. 16.35 Economic Reconstruction Group, Minutes, 14 July 1977, (2/6/1/37), Thatcher MSS, CC.

Small-scale privatization

The 1979–83 Thatcher government implemented several relatively small-scale privatizations, most notably of Amersham International, AssociatedBritish Ports, British Aerospace, British Petroleum, British Rail hotels,Britoil, Cable and Wireless, and National Freight. Unlike the later sales of major industries and utilities, such as British Telecom and British Gas,these early privatizations did not entail shares being sold to members of thepublic.

The 1983–87 and 1987–90 Thatcher governments became more ambi-tious, contemplating the privatization of larger industries, some of whoseshares were sold to the public. The residual state-owned industries were frag-mented through the creation of individual cost centres, either through aseparation of functions within an industry, or by regionalizing it. Both ofthese methods offered the added advantage of potentially weakening soli-darity among employees and unions, because workers were likely to identifyfirst and foremost with their particular cost centre, functional unit, or region.This would make national-level industrial action less likely. Moreover, in thelonger term, the development of individual units or cost centres within anationalized industry or public utility, in tandem with the inculcation of astronger commercial and competitive ethos, would render them more attrac-tive to private investors.

Appointing the ‘right’ managers

The early 1980s witnessed the high-profile appointment of several managerswith a reputation for being ‘tough’, and thus likely to challenge the unionsin their respective organizations. Not only did Thatcherite ministers admiresuch businessmen for their no-nonsense approach to management per se,they also anticipated that they would reform their industries in a manner thatwould render them ready for privatization. For example, Margaret Thatcherwas delighted when Lord (John) King was appointed as chairman of BritishAirways in 1981, because ‘he was the sort of man she admired, a tough anddetermined bully, but very successful.’36 Or, as Hugo Young characterizedhim, ‘the perfect model of a Thatcherite’.37

Ian MacGregor was appointed a chairman for similar reasons, initially atBritish Steel in 1980, and then, crucially, at the National Coal Board in 1983.The latter appointment, given that Scargill had replaced the moderate JoeGormley as NUM president in 1982, made a major confrontation with theminers virtually inevitable, although ministers subsequently insisted that


36 Ridley, My Style of Government, p. 45.37 H. Young, One of Us (Pan Books: 1990), p. 363.

they were not actively seeking a confrontation; the question was not whethera conflict would occur, but when, and over what specific issue or event. Inother words, the Conservative version has always been that it was Scargillwho wanted to pick a fight with the Thatcher government, not vice versa;ministers were merely being responsible in ensuring that they were fullyprepared for any conflict started by an adversary. As for the proposalsemanating from Nicholas Ridley’s annex, all were implemented from 1979onwards, culminating, of course, in the 1984–85 miners’ strike.

Conceding above-average pay increases in the short term

In 1979, Britain’s coal miners were awarded a 20% pay increase (at a timewhen inflation was 13%), which meant that the weekly wage for those whoworked at the coal face was £102 per week (about £437 today), while thefollowing year the NUM secured a 9.8% pay increase, plus improved bonuspayments.38 These increases were ‘the highest in the public sector … [but]ministers believed this would damp down discontent’.39 In other words,rather than resisting these pay awards – or, rather, urging the National CoalBoard to resist them (ministers repeatedly argued that pay deals were foremployers and unions to determine, albeit in the context of the Cabinet’scurbs on public expenditure and concomitant cash limits in the public sector)– the Thatcher government was content to permit them, because it was notyet in a position to defeat the miners in the event of a major industrial dispute.Hence the miners were, for the moment, treated more generously than otherpublic-sector workers.

Provoking or ‘facing down’ a strike in a non-essential service

In marked contrast, workers in other nationalized industries or parts of thepublic sector fared less well, because they were not deemed as strategicallyimportant or industrially powerful as the miners. Consequently, during theearly 1980s (and beyond), several groups of workers encountered powerfulministerial resistance to pay claims and the associated industrial action. Insuch instances, it was not always clear whether a particular pay offer wasdeliberately intended to provoke a strike (by being ‘too low’), but when suchindustrial action occurred, ministers resolved to ‘stand firm’. This wasevident when civil servants struck in early 1981 in support of their pay claim,for although the government was advised that increasing its 7% pay offer to7.5% would probably be sufficient to end the dispute, the Cabinet insisted


38 J. Gormley, Battered Cherub (Hamish Hamilton: 1982), pp. 169, 170.39 A. Taylor, The NUM and British Politics, Vol. 2: 1969–1995 (Ashgate, Aldershot: 2005),

p. 154.

that it had already made its offer and would not go beyond it: ministers wouldstand firm.40

By this time, the Cabinet had already withstood the 1980 strike by steelworkers, which arose when British Steel’s management initially offered a2% pay increase in response to a claim of 20% by the Iron and Steel TradesConfederation – comparable to that recently secured by the miners. Someministers, and a few of Thatcher’s own advisers (such as Hoskyns41), urgedconcessions, seemingly acknowledging that the 2% pay offer was provoca-tive and unreasonably low compared to pay settlements elsewhere. However,the Trade and Industry Secretary, Joseph, and Thatcher herself, were deter-mined to avoid such intervention, and insisted that the matter was solely theresponsibility of the employer and union in the steel industry.42

This, though, was an unconvincing stance given that the government hadimposed cash limits that restricted the scope for pay increases, unless thesewere closely linked to higher productivity or job losses to fund them.Nonetheless, in the context of Thatcher and Joseph’s stance, steel workerswere eventually obliged to accept a pay deal which, although higher thanwhat they had initially been offered, still fell far short of their claim. Further-more, productivity conditions – reduction of restrictive practices and joblosses – led to 90,000 redundancies during the next five years.43

Nonetheless, the Cabinet’s refusal to concede to either civil servants orthe steel workers accorded with the second of Ridley’s recommendations,provoking (or refusing to avoid) ‘a battle’ in an industry which was not‘vulnerable’ and where ministerial intransigence was more likely to ensurevictory for the government. Lord (David) Young – who became Employ-ment Secretary and then Trade and Industry Secretary in the second andthird Thatcher governments respectively – subsequently adjudged thedefeat of the steel workers to be a decisive event for the Thatcher govern-ment: ‘for the first time, we had proved that the country was governable.’44

The Cabinet’s stance also impressed Hoskyns, who had been apprehensiveabout whether the Thatcher government could defeat the steel workers, butwho subsequently conceded that ‘If we faltered on steel, we wouldn’t beable to stand firm anywhere else … the Thatcher revolution might well startto fall apart almost before it had begun.’ But defeating the steel workers‘qualified [us] to go forward to the next round: British Leyland, the NHS,


40 Minutes of Cabinet, 4 June 1981, Minute 5, CAB 128, CC (81) 21st Conclusions, TheNational Archives, Kew London (TNA).

41 John Hoskyns to Margaret Thatcher, 21 December 1979, PREM 19/307, TNA; J. Hoskyns,Just in Time: Inside the Thatcher Revolution (Aurum: 2000), pp. 148–9.

42 A. Denham and M. Garnett, Keith Joseph (Acumen: 2002), p. 347; M. Halcrow, KeithJoseph: A Single Mind (Macmillan: 1989), pp. 138–9.

43 A. Denham and M. Garnett, Keith Joseph, p. 348. 44 Lord Young, The Enterprise Years: A Businessman in the Cabinet (Headline: 1990), p. 43.

the Civil Service unions, British Rail, and, finally, the NUM’.45

Another of Thatcher’s Policy Unit advisers, Alfred Sherman, deemed the1980 steel strike to be an attempted ‘insurrection’ rather than a genuineindustrial dispute, with Communists in the unions attempting to overthrowa democratically-elected government. It therefore posed ‘a major threat todemocracy and the chances of a Conservative government restoring thecountry to economic viability’, because ‘defeat over steel would mean repeatperformances over any other issue that the militants chose.’46 Two years later,in 1982, the Cabinet similarly refused to yield when train drivers commenceda strike over new ‘flexible’ working practices.

Reform the social security system to deny benefits to strikers

The Conservative Party’s 1979 manifesto included a pledge to ‘ensure thatunions bear their fair share of the cost of supporting those of their memberswho are on strike’.47 This was given legislative effect by the 1980 SocialSecurity (No. 2) Act, which placed new restrictions on a striker’s eligibilityfor social security payments. Although workers participating in an industrialdispute were already unable to claim benefits for themselves, they werepermitted to claim for their immediate dependents – spouse and children.The new Act imposed a £12 per week (equivalent to about £48 in 2013)reduction in the Supplementary Benefit (now Income Support) which wouldbe paid to the family of a worker on strike. The government justified thisdeduction partly on the grounds that the union pursuing industrial actionought to issue strike pay to its members out of its own funds, and partly onthe more populist ground that taxpayers who were in work – and werepossibly being inconvenienced by the industrial action – should not beexpected to support, albeit indirectly, those who were withdrawing theirlabour.

This particular reform had occasioned debate among senior ministers, notbecause of any disagreement with the principle of cutting social security payto those on strike, but over whether such curbs should be applicable only tounion members or to all workers engaged in industrial action.48 Some minis-ters thought it unfair that those not in receipt of strike pay would be moreseriously affected by this measure. It also meant that, paradoxically, a


45 Hoskyns, Just in Time, p. 149. 46 Sherman to Thatcher, 14 January 1980, (2/6/2/152 Part 2 f116), Thatcher MSS, CC.47 Conservative Party, The Conservative Manifesto 1979 (Conservative Central Office:

1979), p. 11.48 See, for example, Jenkin to Howe, 13 November 1979; Joseph to Thatcher, 26 October

1979 and 28 November 1979; Heseltine to Thatcher, 4 December 1979; Nott to Joseph, 4December 1979; (Lord) Hailsham to Thatcher, 6 December 1979; PREM 19/121 Part 1,TNA.

Conservative government would be enacting a reform that would effectivelyadvantage union members over non-unionists. Indeed, it might provide aperverse incentive for workers to join a union.

On the other hand, if the curbs on eligibility for social security were onlyapplicable to union members engaged in industrial action, this could beportrayed as an especially provocative and discriminatory measure, forunion members would explicitly be treated differently and less favourablythan non-members.49 Of course, many Conservatives might have relishedsuch differential treatment, but more prescient ministers recognized that,politically, it might be unwise to be so blatantly discriminatory; publicopinion might judge the government to be going too far. Furthermore, therewere potential practical and administrative problems in determining unionmembership. For example, some members might resign from their union atthe start of a strike in order to become eligible for social security, only torejoin as soon as the strike ended.

After several months of debate over this issue, the Cabinet eventuallydecided that the £12 deduction would apply to all workers engaged in strikeaction, regardless of whether or not they were members of a union. In addi-tion to the arguments canvassed above, it was suggested that as anon-unionist ‘did not pay union subscriptions … it was reasonable to expectthat he would make his own financial provision against the contingency ofa strike’.50

Ensure that the police are sufficiently organized and resourced

By the time the 1984–85 miners’ strike began, England already had, in effect,a national police force, although this had not been established explicitly inpreparation for a major industrial conflict. Instead, the necessary institu-tional machinery of co-ordination had been largely established as aconsequence of the urban riots that affected many of Britain’s largest citiesin the summer of 1981. At this time, many local police forces were caughtunawares and were seriously over-stretched. Consequently, the governmentresolved that the police would henceforth be sufficiently resourced andorganized to deal decisively with any future instances of serious civildisorder, which would evidently include mass picketing during an industrialdispute.

In this context, the police’s National Reporting Centre, originally estab-lished in 1972, but then significantly strengthened and relocated to ScotlandYard during the 1981 riots, became primed for any future serious civil


49 Memorandum by the secretary of the Cabinet, ‘The Financial Treatment of Strikers andtheir Families’, 11 March 1980, CAB 129, C (80) 18, TNA.

50 10th conclusions, minutes of Cabinet meeting, 13 March 1980, minute 4, CAB 128, CC(80), TNA.

disorder. Indeed, the National Reporting Centre has been described as ‘Themost distinctive feature in the policing of the miners’ strike’,51 a viewendorsed by Peter Walker, Secretary of State for Energy in 1984: ‘Policeaction was critical to breaking the strike.’52 Similarly, Saville argued that‘Without the National Reporting Centre’s co-ordinating activity, the policingof the 1984–5 miners’ strike would have broken down.’53 From the strike’s firstweek, the NRC operated as ‘a clearing house for the transfer of [police] forcesfrom different parts of the country to the coal fields and for information’.54

Indeed, William Whitelaw, Home Secretary from 1979 until 1983, report-edly claimed that: ‘If we hadn’t had the [1981] riots, I doubt if we could havedealt with Arthur Scargill,’55 for by the time the miners’ strike began, thepolice were ‘well trained and organised for civil disturbances’.56 Anotherconsequence of the 1981 riots that was greatly to assist the police (and thusthe Thatcher government) was improved equipment – ‘police vehicles,weaponry, communications devices and protective body armour were allexpensively refurbished.’57

Preparing specifically for a miners’ strike

With regard to the annex’s proposals regarding an anticipated miners’ strike,the three Secretaries of State for Energy from 1979 to 1984 – Howell, NigelLawson, and Walker – all endeavoured to increase stocks of coal at Britain’spower stations. As Lawson himself recognized immediately when appointedin September 1981, the ‘over-riding need in preparing for a coal strike wasto increase substantially power station endurance.’58 This entailed bothmaximizing coal stocks in order that power stations could continue togenerate electricity for a lengthy period of time in the event of a strike, andmaking plans to ensure that coal could be transported to wherever it was mostneeded at any juncture.

Coal stocks at Britain’s power stations were increased from 29.9 milliontonnes in 1979 to 58 million tonnes in 1983; ironically, much of the increasewas achieved as a consequence of a productivity-linked pay deal agreed with


51 Goodman, The Miners’ Strike, p. 31. 52 P. Walker, Staying Power: An Autobiography (Bloomsbury: 1991), p. 180.53 Saville, ‘An Open Conspiracy’, p. 310.54 M. Adeney and J. Lloyd, The Miners’ Strike 1984–5: Loss Without Limit (Routledge and

Kegan Paul: 1986), p. 102. See also T. Brain, A History of Policing in England and Walesfrom 1974 (Oxford University Press: 2010), p. 93; M. Thatcher, The Downing Street Years(Harper Collins: 1993), p. 347.

55 Quoted in Young, One of Us, p. 368.56 W. Whitelaw, The Whitelaw Memoirs (Aurum: 1989), p. 254.57 Young, One of Us, p. 368. See also J. Campbell, Margaret Thatcher, Vol. 2: The Iron Lady

(Vintage: 2008), pp. 360–1.58 N. Lawson, The View from No. 11: Memoirs of a Tory Radical (Bantam Press: 1992),

p. 149.

the NUM in 1982. Crucially, the Cabinet had abandoned plans the previousyear for an early tranche of closures of ‘uneconomic pits’ in order to forestallindustrial action by coal miners, which the government was not yet ready totackle.59 This, however, proved to be a limited victory for the NUM, becauseministers were merely making a tactical retreat as part of their broader andlong-term strategy in the event of a strike over pay or pit closures. It was acase of one step back prior to a decisive march forwards just three years later.

The government also wanted to ensure that the maximum possible levelof coal stocks were stored at power stations rather than at pit heads in theeventuality of a miners’ strike, because this would reduce some of the poten-tial transport and policing problems.60 Moreover, as Hoskyns pointed out, ifminers picketed power stations, they would not enjoy legal immunity,because the Central Electricity Generating Board (CEGB) was not theiremployer;61 the NUM could only lawfully picket property owned by theNational Coal Board.62 Meanwhile, Lawson urged the CEGB to prepare forthe movement of coal by road in case of a refusal by train drivers to delivercoal to power stations. This was in accordance with Ridley’s advocacy ofrecruiting non-unionized road haulage companies whose workers wouldalmost certainly have fewer qualms about driving through picket lines at theentrances of coal mines or power stations.63 In the event, some drivers whowere members of the Transport and General Workers’ Union defied theirunion’s policy and moved coal during the strike.64

The government also acknowledged that it ‘would be important over thenext few years to insure against the consequences of over reliance on home-produced coal by developing alternative sources of energy and, in particular,facilities for importing coal’.65 The CEGB was instructed to increase thenumber of ‘dual-powered’ power stations, which could use oil as well as (andpartly instead of) coal if supplies of the latter diminished. Many power stationsinstalled ‘Firefly burners’ which enabled them to produce up to a third of theirelectricity output by using oil alone.66 And by the beginning of the miners’strike, the CEGB (with full ministerial support and encouragement) had made


59 7th conclusions, minutes of Cabinet meetings, 19 February 1981, minute 4, CAB 128/72,CC (81), TNA; M. Thatcher, The Downing Street Years, pp. 139–43; Michael Portillo[Special Adviser to the Secretary of State for Energy, 1979–81], interviewed on the BBC’sThis Week, 11 April 2013.

60 Thatcher, The Downing Street Years, p. 341.61 Hoskyns to Thatcher, 23 April 1980, PREM 19/304, TNA.62 This restriction was enshrined in the Employment Act 1980. 63 Lawson, The View from No. 11, p. 149.64 F. Beckett and D. Hencke, Marching to the Fault Line: The 1984 Miners’ Strike and the Death

of Industrial Britain (Constable: 2009), p. 79; P. Riddell, The Thatcher Era and its Legacy(Blackwell: Oxford: 1991), p. 52; Adeney and Lloyd, The Miners’ Strike, pp. 142–3.

65 Hoskyns to Thatcher, 23 April 1980, CAB 134/4442, E (80); Ministerial Committee onEconomic Strategy, 25th Meeting, 16 July 1980, PREM 19/304, TNA.

66 S. Milne, The Enemy Within: The Secret War Against the Miners (Verso: 2004), p. 263, p. 264.

arrangements to import coal from several countries, Poland especially (ironicthat the Thatcher governments imported cheap, state-subsidized, coal froma Communist Eastern bloc country in order to defeat a major symbol of theLeft in Britain), but also from Australia, Canada, South Africa, the UnitedStates, and (what was then) West Germany. It has also been claimed that therewas a ‘massive use of imported oil, including from Libya [and] Romania’.67

Finally, it is worth noting that Thatcher chaired the Cabinet committee toco-ordinate the government’s response to the miners’ strike.68 Whereas thecreation of such a committee – usually meeting weekly – was normal in suchcircumstances, the character of its membership was noteworthy. In onerespect, this was ‘functional’ in so far as the ministers serving on thecommittee were naturally those whose departments were most relevant to,or affected by, the miners’ strike. However, as Thatcher generally tended toappoint her closest and most trusted colleagues to the key economicministries, this particular Cabinet committee was notable for its ideologicalweighting, comprising Lawson, Chancellor of the Exchequer (but havingpreviously served as Energy Secretary); Tebbit, Secretary of State for Tradeand Industry; Ridley, Transport Secretary (and thus concerned with main-taining the movement of coal by road and rail); Leon Brittan, HomeSecretary; Tom King, Employment Secretary; and Walker, Energy Secretary.Although Walker was not as close to Thatcher ideologically, he wasrespected and trusted by her as both a negotiator and a communicator, thelatter quality being seen as vital to presenting the government’s case, espe-cially as MacGregor was deemed lacking in public presentational skills.

Given the degree of preparation by ministers, the range of resources at thestate’s disposal, and the manner in which much of the media focused bothon Scargill per se and graphic images of picket-line violence (therebyensuring that public opinion was generally negative or hostile towards theNUM), the miners’ defeat in 1985, a year after the strike began, was virtuallyinevitable. Perhaps the only surprise was that the strike lasted as long as itdid. The Cabinet had not only resolved to avoid the capitulations of the Heathgovernment when faced with major industrial conflict, but had learned valu-able lessons about how to withstand such a confrontation, which, of course,made capitulation unnecessary.

Conclusion

Certainly, as one sympathetic commentator has noted: ‘The defeat of theminers was, in effect, the culmination of the plans that had been made by


67 Ibid., p. 145.68 Thatcher, The Downing Street Years, p. 346.

[Thatcher’s] people in the opposition years.’69 Not surprisingly, NicholasRidley fully shared this view, for he later looked back proudly at

the preparations which the government had made. The coal stocks at the powerstations held out. The maximum oil burn was achieved. Coal continued to beimported through the docks and coal moved on the roads and railways almostwithout interruption. The police were sufficiently well organized and equippedto prevail. Perhaps my ‘confidential annexe’ had been worthwhile after all. Inthe event, it turned out to be the exact blueprint that the government followed.70

From the opposite end of the political spectrum, it was conceded thatRidley’s confidential annex ‘provided the framework for the governmentduring the coal strike in 1984’.71

However, one case study of the 1984–85 miners’ strike has played downthe apparent consistency and coherence of the Thatcher government’s prepa-rations for this major conflict. According to Martin Adeney and John Lloyd:

Every piece of contingency planning, every appointment made by the govern-ment in the period between early 1981 and early 1984 has been seen inretrospect as part of a wholly conscious plot leading to the miners’ downfall.It clearly was not: rather, it was a series of zig-zagging, often opportunist,sometimes accidental moves, though deserving the name of strategy becauseimbued with a common purpose: to render the government and the state asprotected as it was possible to be from a miners’ strike.72

This seems a plausible perspective. The various measures proposed in theannex were all integral to the preparation for a major industrial dispute whichConservative ministers judged inevitable sooner or later. Certainly, onceScargill became NUM president, it was widely anticipated that theconfrontation would be in the coal industry, and imbued with an underlyingpolitical objective – to defeat a Conservative government through a form ofsyndicalism.

Yet while the preparations for such a confrontation with a key group ofworkers in a nationalized industry evinced an overall coherence and clearsense of strategic purpose, individual events were not always planned inadvance, even though they subsequently worked to the Cabinet’s advantage.For example, it has been noted that although the 1980 steel strike looks, withhindsight, ‘like a well-planned engagement with the union enemy’, thereality was that ‘far from deliberately courting the strike as an early test of


69 J. Ranelagh, Thatcher’s People: An Insider’s Account of the Politics, the Power and thePersonalities (Fontana: 1992), p. 223.

70 Ridley, My Style of Government, p. 70.71 Schwarz, ‘Let Them Eat Coal’, p. 54. 72 Adeney and Lloyd, The Miners’ Strike, p. 79.

strength, the government had blundered into it.’73 This was certainlyHoskyns’s view. He suggested that:

The government had not regarded the strike as a strategic stepping stone … adeliberately provoked showdown as the best – or only – way to achieve itswider aims. Indeed, the government’s own objectives, if it had any, had neverbeen collectively discussed at all … The whole thing had started as a muddle,and the government was luckier than it deserved.74

Meanwhile, the co-ordinated policing which characterized the 1984–85miners’ strike can, as noted earlier, be partly attributed to the urban riots thatoccurred in the summer of 1981. It was these, rather than explicit preparationfor a major industrial confrontation per se, which precipitated the institu-tional embedding of the police’s National Reporting Centre. Only after theriots did ministers appreciate just how effective this would be in policing aserious strike, accompanied by mass picketing, by a key group of workersor a militant union. As Gilmour subsequently reflected (even though he wasa senior Conservative critic of Thatcher and her politics on very manyissues), the policing of the 1981 riots ‘had provided a valuable trial run,demonstrating that even those government policies that produce the mostdeplorable results can have some useful unforeseen consequences’.75

Ultimately, although Conservative ministers made little explicit referenceto the Ridley Report, either publicly or privately (as far as can be gleanedeither from the Cabinet papers and ministerial correspondence released todate by the National Archives, and the papers in the Thatcher Foundation’sarchives), it is evident that many of the measures implemented by individualministers and their departments from 1979 onwards followed the recommen-dations of the Ridley Report and its annex. Their importance cannot be under-estimated. The Thatcher government’s defeat of the miners in 1984–85provides a remarkable case study of political learning, with ministersdrawing clear lessons from the mistakes of their predecessors, and tailoringtheir own strategy accordingly. As such, the miners’ strike seems to havebeen both inevitable, and yet doomed to fail.

School of European Languages, Translation and PoliticsCardiff University65–68 Park PlaceCardiff CF10 3A


73 Denham and Garnett, Keith Joseph, p. 348. 74 Hoskyns, Just in Time, p. 182.75 I. Gilmour, Dancing with Dogma: Britain under Thatcherism (Simon and Schuster: 1992),

p. 85.


APPENDIX1

ECONOMIC RECONSTRUCTION GROUP

The next meeting will be held on Friday 8th July 1977 at 11.00 a.m. in the new West-minster Hall Interview Rooms at the House of Commons, Room W1.

AGENDA To discuss the Final Report of the Nationalised Industry Policy Group chaired by theHon. Nicholas Ridley.

Paper enclosed: Nationalised Industries Policy Group Report (PG/10/77/38).

Anne Bulloch, AB/LSA, 30th June 1977The Conservative Research Department24 Old Queen Street London SW11

*******

CONFIDENTIAL PG/10/77/38

ECONOMIC RECONSTRUCTION GROUP

8TH JULY 1977

Final Report of the Nationalised Industries Policy Group

CONTENTS

Part 1 – Running Nationalised Industries A. MotivationB. Management InformationC. CompetitionD. Financial ControlE. Price ControlF. Uneconomic ActivitiesG. Investment ControlH. AccountsI. GeneralJ. Ministerial ResponsibilityK. Wages PolicyL. Management

Part II – DenationalisationM. GeneralN. Ending MonopoliesO. Long Term Policy of FragmentationP. Ways of denationalising

Part III – Summary of Proposals

Annex: Countering the Political Threat

1 Reproduced with the kind permission of Chris Collins at the Margaret Thatcher Founda-tion and Stephen Parkinson at Conservative Party HQ.

FINAL REPORT OF THE POLICY GROUP ON THE NATIONALISED

INDUSTRIES

PART I – RUNNING NATIONALISED INDUSTRIES

A. MOTIVATION1. There are fundamental differences between the private and the public sector. In the

private sector there is the fear of bankruptcy and redundancy – ‘the stick’; there isalso the hope of reward in the form of higher dividends, salaries or wages, as theresults of success – the ‘carrot’.

2. These ‘sticks’ and ‘carrots’ are weaker in the nationalised industries. The sanctionof bankruptcy does not and cannot apply although that of redundancy can and does.The incentive of working for higher reward applies in relation to piece-work orpayment-by-result schemes – in no cases does it apply to management, let aloneto the providers of investment capital. People are rarely dismissed for inefficiency.

3. There is a need to provide sticks, and carrots, in the public sector. They are boundto be infinitely less effective than those in the private sector – because of the verynature of the public sector and its immunity from bankruptcy. But some sanctionis necessary when there is a serious failure – and some reward is necessary whenperformance is good.

4. One element of our policy for the public sector should be to provide greater rewardsfor success and penalties for failure – particularly for managers – but as far as ispractical for all concerned.

5. More and more the nationalised industries are run for the benefit of those who workin them. The pressures are for more jobs for the boys, and more money for eachboy. The need to satisfy the customer is less and less apparent: mainly because theytend to be monopolistic concerns.

6. Another element of our policy should be to break up the monopolies, and to makeeach unit of public industry survive, and prosper, by means of providing a betterservice to the public than its competitor. There are sections later in this paperdescribing how we should do this.

B. MANAGEMENT INFORMATION1. Unit costs are vital information in relation to measuring efficiency. Any attempt to

improve efficiency must start from considering unit costs. In the nationalisedindustries the output is measurable and unit costs can be obtained.

2. The strange thing is that this information about unit costs is not made availablepublicly, although it is probably available to managers in the nationalised indus-tries. This information would be of the greatest value in monitoring efficiency.Parliamentary questions asking for information about the unit costs of nationalisedindustries and the comparable costs in other industrialised countries are answeredby Ministers by saying that the information is not available. It is clear from answersthat the civil service either does not know or will not release such information.

3. The truth is that the Government’s attitude to the public sector is not commerciallyorientated. The cost of producing steel, or electricity, or coal, or air travel is deter-mined by a mixture of the political pressures and the union pressures. The incomethat may be obtained depends upon what the customers will pay, and the politicalpressures at work. The resulting return on capital varies between zero in the Steel


Industry, to a 120% return on capital in the duty free shops at London Airport, buyit is usually much less than the cost to the State of providing the capital.

4. The cost and the income are not related in the bureaucratic mind. It follows thatthe loss is a residual representing the political price that must be paid. Striving afterefficiency has thus tended to be fruitless – because both the financial inputs andthe financial outputs are the result of political determination. Publishing unit costswould at least highlight the extent of the inefficiency.

5. The nationalised industries should be required to keep and to publish detailed unitcosts in the interests of public accountability.

C. COMPETITION1. The public sector is very seldom found in successful direct competition with

private producers. There are exceptions – buses, some ports, special steels, Giro,parts of the National Freight Corporation and a few others. Such competitionnearly always results in heavy public sector losses, rather than in an attempt beingmade by the public sector enterprise to improve its performance. The usual reactionis to seek ways of disguising the loss, and/or of disadvantaging the private sectorcompetitor, or better still obliterating it. For instance the National Bus Companysought to dress up its 1975 loss of £19m as a profit of £1m in its accounts – theGiro behaved similarly. The BTDB’s [British Transport Docks Board] answer toFelixstowe’s success was to try to buy it out; the BSC’s [British Steel Corporation]reaction to competition in special steels was to put up the price of crude steel to itscompetitors discriminatingly. None of them sought to increase efficiency in orderto meet the competition.

2. The sanction of competition for the public sector therefore, although in theorydesirable, is not really effective so long as no penalty attends upon losing in thatcompetition. Losses have always been made up in the past. Special pleading as tohow they arose has always been accepted. No disciplinary action has ever resulted.

3. There is another respect in which such competition is unfair. Private companieshave to raise capital in the market at commercial rates, whereas the NationalisedIndustries can borrow from the Exchequer easily and relatively cheaply.

4. It follows that competition between private and public sector companies should beavoided until there is designed for the public sector a financial discipline whichreally works, and there is equality in the cost of capital raising.

D. FINANCIAL CONTROL1. It is clear that the next Tory Government will have to manage a sizeable public

sector, even if in the long run it can be reduced. The proposals later on in this papermight result in a much larger number of units (albeit a smaller total volume) in thepublic sector. Further proposals are therefore put forward for managing thoseconcerns with which our government will find itself burdened.

2. The principal instrument of control should be to set each concern a financial obli-gation to achieve. This obligation should be expressed as a required rate of returnon capital employed. The amount of capital employed in each undertaking is, ofcourse, arbitrary. Many industries have had capital written off, and none hasupdated the value of its assets to cope with inflation. Government should thereforeset arbitrary capital employed figures for each concern, upon which each wouldbe required to pay the prescribed rate of return. (The ‘capital employed’ could be


increased (or decreased) annually in the light of any changes in the value of itsexisting assets. The rate of return should be the same for all industries.)

3. New advances of capital for the industries should be made at a price a little abovethe cost of capital to the Exchequer, at the time they are drawn, in order, as nearlyas possible, to lend to the industries at the same interest rate at which the privatesector borrows.

4. This control mechanism is analogous to cash limits. It could be used to squeezepublic industry a little over the years – but it must not be used to squeeze too hardor it would break down.

5. It would be important to establish that the required rate of return was totally inflex-ible. It must eventually be taken for granted that in order to meet the obligationplants must be closed and people must be sacked. It would therefore be treblyimportant for the obligation to be worked out realistically – first in relation to thelikely rate of inflation, secondly, in relation to the likely relative movement ofwages between different groups, and thirdly in relation to the possibility ofimproving productivity.

6. If the nationalised industries were eventually to be broken up into smaller units,the return on capital obligation could be applied to each unit, just as a holdingcompany with a number of subsidiaries does.

7. The importance of such a policy should be stressed. If the required rate of returnon capital was not achieved, either management must demonstrate that it wastaking effective action to rectify the omission, or it must be replaced. Effectiveaction might mean that men would be laid off, or uneconomic plants would beclosed down, or whole businesses sold off or liquidated. The National FreightCorporation, BSC, the Giro, Govan shipbuilders would be on the list, among manyothers, for drastic treatment, if this policy were followed.

8. It should be asked whether we have the political willpower for such a policy. Ifthere were to be weakness in one case – doubtless a politically embarrassing one– the whole policy would be lost. There is no other way to restore financial respon-sibility in the public sector of industry. Something like this has to be done if thecountry’s economy is to be brought under control. Nevertheless there is no pointin undertaking it if we are not prepared to go through with it.

E. PRICE CONTROL1. Price control must be avoided at all costs. If there is evidence of exploitation by a

State monopoly, either in the form of excessively high margins, or of discrimina-tory or cross-subsidised pricing, government should refer the matter to the DirectorGeneral of Fair Trading. (Powers already exist). The general level of prices wouldin fact be determined by the required rate of return on capital employed. This wouldresult in some pressure for higher productivity and efficiency, as well as transfer-ring some of the odium for price rises from government to the industries. It must,however, be recognised that prices calculated to produce a commercial rate ofreturn to nationalised industries would result in the government incurring a degreeof unpopularity.

F. UNECONOMIC ACTIVITIES1. Whenever an industry considered it was being asked to undertake uneconomic


activities (rural telephone kiosks, branch or commuter railway services, uneco-nomic pits, or steel mills, etc.) it would be open to it to apply for a specific subsidyfrom government, if government wanted it continued. If Government refused, theactivity must either be fully charged for or be discontinued. The industries shouldbe required to keep proper accounts and show the results on each of their activities,including the losses on uneconomic ones. This policy could lead to undesirablebargaining situations, but the advantages of identifying and quantifying the loss-making activities would outweigh this disadvantage. If it could be seen publiclyhow much we were paying for what, there would be more informed public debateabout whether we were getting value for money.

2. The cost of subsidies to continue uneconomic activities should be borne on the voteof the Department which wanted them carried on. It would be necessary for theDepartment to be precise and specific about those uneconomic activities it wishedto buy: e.g. 3 million tons of extra coal; or a commuter service from Reigate toLondon of a certain frequency; or 1,000 extra rural telephone kiosks, etc. If therequests are specific, to do this is practical, and would not involve a lot of extrapaper work.

3. It is by these means that provision can be made for major social problems resultingfrom making the Nationalised Industries more efficient. There are whole townsdependent on steel work, coal mines and ports, which might be severely deprivedif full efficiency policies are carried out. The responsibility for dealing with theseproblems is that of Government rather than the Industry. The Government caneither refund the industry for the continuation of uneconomic plants for socialreasons, or it can use its financial strength to bring in new industries; or cancompensate financially the victims of industrial change.

4. Such direct subsidies for uneconomic activities should be the only additionalsource of Exchequer money available to an industry to meet its required rate ofreturn.

5. It is worth noting that this policy would make infinitely more difficult suchconcepts as ‘energy policy’ or ‘transport policy’. Any Minister seeking to promotesuch policies would have to pay for the uneconomic costs he imposed on anyindustry with money from his own vote. It would also mean ending social conces-sions – such as the government contribution to the Redundant MineworkersPension, and half fares for students and pensioners on public transport, unless therelevant sponsoring Ministers were prepared to pay the cost of them out of theirvotes.

G. INVESTMENT CONTROL1. Investment control by government must alas continue. Admittedly it is this control

which gives the Civil Service its opportunity for detailed, fussy supervision of theindustries. But it should be possible to insist on overall control only – and preventthe bureaucracy checking each item of investment. The control is necessary bothfor purposes of public expenditure control as part of macro-economic policy, andalso for preventing the industries extending their empires too much, or into unde-sirable fields. For the latter purpose Ministers must have enough information tosay no, if they want to. For both purposes, having to earn the required rate of return


will be a steadying influence, but the Chancellor must retain the power to makearbitrary cuts.

2. Investment control should be carried out by means of the preparation and negoti-ation of five-year rolling corporate plans, agreed between each industry and itssponsoring Department and published. There should be a commitment by govern-ment to the investment intentions in such a plan as follows:

Year 1 100% of totalYear 2 90% of totalYear 3 75% of totalYear 4 50% of total

H. ACCOUNTS1. Government should insist on an improvement in the industries’ accounts. They

should be published half-yearly and follow a standard laid down pattern. In addi-tion to the usual information the accounts should show the cost per unit of output,plus the comparable figures for previous years, and those of rival concerns in othersimilar countries. This might be an added spur to greater efficiency. They shouldalso show audited profit and loss accounts and balance sheets for all subsidiaries.

2. It is for the Public Accounts Committee to consider whether it would like to getthe Comptroller and Auditor General to audit the accounts of Nationalised Indus-tries, and to report upon them to it.

I. GENERAL1. It is recognised that there are defects in this overall system of control. Doubts must

arise because there never has been, and never can be, any real financial disciplinewhere the possibility of bankruptcy does not exist. Any system of financial controllacks an ultimate sanction. Nevertheless, this system, which is neither novel norimpractical, would seem to have the greatest authority, and also to have the meritof increasing public knowledge of what each activity really costs. If later someindustries are broken down into a larger number of ‘profit centres’, this is probablythe only practical control system which could have general application right acrossthe board.

2. Until such time as we can make the financial disciplines real (if we ever can) it isnot wise to consider nationalised industries as commercial undertakings, and togive them full freedom to expand into new activities which catch their fancy. Theyare at present almost certain to undercut, and to make losses, in the belief that theycan recoup from the taxpayer. In the process they damage private sector competi-tors. Investment control should therefore be used to restrict the industries strictlyto their main-line activity.

3. Where they are already engaged in such extra-mural activities it is probably notworth a major fight to get them to divest. Electricity and gas showrooms are casesin point – and so is the NCB [National Coal Board]’s landscape gardening and iron-mongering activities. If an easy opening to sell off such peripheral activities aroseit should certainly be taken. But a major political battle for a very small piece ofindustrial ground is not to be recommended.


J. MINISTERIAL RESPONSIBILITY1. It follows from the policy for financial control proposed above that there should

be only one Minister responsible for setting rates of return on capital, monitoringperformance, and acting as banker to each industry. To have each of the sponsoringMinisters doing this might lead to different industries being treated differently.Some Ministers might be tempted to be more lenient than others, in return for anindustry doing what he wanted. It is essential to concentrate responsibility forfinancial control in one pair of hands, if ‘arm twisting’, and Ministerial interferencein the running of the industries, is to be avoided.

2. The Minister with the overall responsibility for the financial performance of theindustries should undoubtedly be a Treasury Minister. He should be the ChiefSecretary, or if he is overloaded, any other Treasury Minister could take the workon.

3. ‘Sponsoring’ Ministers would of course negotiate for and provide subsidies foruneconomic activities on their votes.

4. The major remaining function of government in relation to the nationalised indus-tries is control of investment, and on balance it would seem reasonable to leavethis initially to the sponsoring Minister, with ultimate Treasury control, as atpresent.

K. WAGES POLICY1. Even if an incomes policy of a sort is thought to be necessary for the public serv-

ices, there is a strong case against having one for the Nationalised Industries. Afirm control, and a much more flexible one, can be exercised through the requiredrate of return on capital.

2. One reason why an incomes policy for the Nationalised Industries is inferior to arequired rate of return is that it is neither desirable nor necessary to have identicallevels of wage increases throughout the public sector. Some workers are in muchshorter supply than others. Some work in industries much more vulnerable to strikeaction than others. It is wrong that, say, a 25% pay increase for miners shouldnecessarily result in a similar one for typists. ‘Across the board’ negotiation ofwages and salaries should be discouraged wherever possible. By having a financialobligation, managers can be given the freedom to increase pay where shortagesexist or where productivity is increased within the overall limit of financial control.

3. We can exercise some control of wage increases in the nationalised industries byrequiring our specified financial result of the year’s trading. There would becomplete freedom for the industries to increase their prices. The sanction forconceding an excessive wage claim, or tolerating a high degree of overmanning,would be that prices have to be increased to pay for it, in order to meet the financialobligation. This would lead both to unpopularity for unions that obtained excessivewage claims, and more important, to resulting high prices which would in somecases lead to falling demand resulting in closures and redundancy. Firmness wouldbe necessary in insisting that there would be no extra financial help to meet higherwages costs.

4. There is no doubt that this new regime and, through it, the government would bechallenged sooner or later. A number of different unions might try to be the first tobreach it, so that all might pour through the breach. It would be cardinal for the


government to hold firm; even if high wage claims had to be conceded in oneindustry or another, the policy must remain intact. It would be essential that, as aconsequence, prices in that industry were raised enough to pay for the cost of settle-ment, or surplus land or assets be sold off, or uneconomic activities closed down.

5. It is essential to get away from the concept of wage comparability and to substitutethat of public vulnerability. Just because one industry pays 25% more, there is noneed for another industry to pay more. The things that should really determinewage settlements are:

i) The shortage of manpower in the industry concerned.ii) The vulnerability of the nation to a strike.

Either or both of these two should always be the determining factor.6. It is perhaps worth trying to set down a table of public ‘vulnerabilities’. This can

be no more than a rough guide to illustrate the principle above.

Industry Weeks of strike the nation can surviveCategory I Sewage and Water zero

Electricity zeroNHS zeroGas zero

Category II Railways fourCoal sixDocks eightDustmen ten

Category III Buses and Tubes a long timePosts and Telephones "Education "Civil Service and Tax "Air Transport "Steel "

7. It is interesting that these fall neatly into three categories – those where a strike isvirtually unacceptable, those where survival can be only for a month or so, andthose where strikes have little effect. For the first, and possibly second category itis worthwhile to consider a policy of making strikes illegal.

8. The following table gives the present position in the major industrialised countriesabout the legality of strikes, in various public sector industries and occupations.

Country Industry Restrictions on strikingUnited Kingdom Police Illegal to organise a strike

Armed Services IllegalGas and Electricity Could be illegal under

certain circumstancesPost Office Could be illegal under

certain circumstances

USA Federal employees IllegalState employees Varies, but generally legal


France State employees Strikes are illegal

Germany }

Japan State employees Striking is illegal, and remains so despite a strike [sic] to make public sector striking legal which failed quite recently

9. It is the case in these countries generally that public sector strikes are illegal,although the trend is towards liberalising the position. In Britain, the law wouldhave to be extended to making strikes illegal, or restricting their legality, tosewerage, water, coal, railways and docks, if there were to be any legal defencesagainst strikes in our most vulnerable industries. One can imagine the zest withwhich such legislation would be opposed; legislation of this sort would cause themaximum political ‘aggro’ with very little worthwhile result.

10. Legislation to deal with tax refunds and unemployment pay for strikes would befar more likely to succeed than making strikes illegal in certain sensitive industries.

11. Finally, the idea must be rejected of a strikebreaking corps of trained volunteersstanding by to run the mines, the trains, or the power stations.

12. There seems no alternative in the short run to paying the price of state monopolyindustrial unions. Since they have the nation by the jugular vein, the only feasibleoption is to pay up. This should not mean that the increase becomes available tothe whole of the public sector automatically; nor should it result in the wholepolicy being in ruins. Government must make it clear that increased wages willhave to be found from either:

increased prices,or increased productivity,or cutting our inefficient units.

In setting required rates of return on capital, government should seek to anticipatethese situations.

13. As a long term policy government should seek to manoeuvre the nation out of theposition where it is vulnerable to monopoly unions in vital industries. This is dealtwith in Part II of the paper.

L. MANAGEMENT1. Management in the nationalised industries has been given a hopeless task hith-

erto. It has been under statutory obligations to break even or make a certain profit,but in practice they have been constantly overlaid by political requests fromMinisters which vary from keeping rural telephone kiosks going to not puttingup prices when they should. The objective is thus lost.

2. It is hoped that a policy of rewarding nationalised industries for uneconomicactivities separately would improve this situation. Managers should be given theclear and simple objective of earning their required rate of return. Later proposalsin this paper suggest ways of insulating the managers from political direction,whether by Ministers or by Civil Servants.

3. Salary scales, particularly in the last two years of incomes policy, have becomehopelessly compressed, making promotion often unwelcome and making it


increasingly difficult to attract good managers. There must be far higher rewardsat the top in future, including if possible some sort of extra payment for success.

4. There has been a tendency for nationalised industry boards to seek to centralise,unify and concentrate power. The opposite is needed – diversity, smallness andindependence.

5. Better management of the public sector is fundamental to success. This is notonly a question of selecting better people, but rather one of putting managers intoa position where their objectives as managers are clear and where they areallowed to get on with achieving them. There must also be clear political objec-tives and this is harder still to achieve.

6. The political objective must be to fragment the public sector of industry into anumber of independent units, which could eventually be denationalised.

7. The financial discipline outlined above – return-on-capital obligations for nation-alised industries – would make it quite easy to devolve financial control. If, forinstance, the Chairman of the NCB had to make £10m return on his capital, hecould allocate that target in a series of different targets for each pit. Indeed itshould be the reaction of a hardpressed manager to pass on his responsibilitiesdown the line – otherwise he has no one else to blame but himself if things gowrong.

8. This has not happened hitherto. There has been a tendency in public industry tocentralise all decision-making and financial responsibility at the centre.Subsidiary units, controlled by close monitoring of their performance as in theprivate sector, are very rare. It is probable that part of the reason for this has beenthe demand for total, instant information about nationalised industries by the civilservice, making decentralisation difficult. Part of the reason may lie in the moti-vation of their managers; empire-building is the only human ambition not deniedto them. Part of it is an ugly modern fashion for uniformity.

9. To alter this situation Ministers would have to show more self-discipline. Theywould have to refuse to answer PQs [Parliamentary Questions] and MPs’ lettersdealing with the day-to-day affairs of the nationalised industries, in accordancewith the statutory position. They would have to eschew trying themselves tomanage the industries and concentrate solely upon obtaining the required returnon capital. More difficult, they would have to prevent the civil service fromcrawling all over the industries they sponsor. The following suggestion isdesigned to achieve just that, as well as to facilitate the better management of theindustries.

10. The boards of the nationalised industries should become ‘supervisory’ boards.The Chairman, and Deputy-Chairman might even become part-time, and all theother members should certainly be part-time. Their functions would be:

a) to protect the management against ministerial and bureaucratic pressures andinterference, and to deal with MPs and the public;b) to hire, fire and reward the management;c) to ensure that the required return on capital was met;d) to reorganise the industry into smaller accountable units as best they could;e) not to attempt to manage the industries themselves. They would in effectbecome holding company boards; management would be left to subsidiarymanagement boards.


11. The advantages of this idea are that it would not require legislation; that it wouldprovide the opportunity of getting the right people into the right jobs; and that itwould provide a way of accommodating a certain amount of worker participationif that is soon to be imposed by law. It would also be, superficially, not very faraway from the recent NEDO [National Economic Development Office] Report,which might make it slightly more acceptable to the establishment. These pointsare expanded in the next three paragraphs.

12. There is a strong case for avoiding legislation in the field of public industry asfar as possible. Not only is legislative time scarce but it would stir up an unnec-essary hornet’s nest. The only necessary Bill would be one to end the public sectormonopolies. Ministers already have power to make all board appointments tonationalised industries.

13. Government could appoint competent people to run the holding boards (who hadnot necessarily made their careers in the industry) and who were sympathetic tothe objectives set out above. Capable managers who are at present on the mainboards could be given executive responsibility on the subsidiary managementboards. Most would be happy to accept this because the pay and conditions ofservice of senior managers are much better than those of board members. Butcompensation to induce such moves might be necessary. Thereafter the hiringand firing of members of management boards would be for the holding board, aswell as the determination of senior managers’ pay and conditions.

14. If there was a statutory obligation (or it was thought prudent in relation to thecircumstances) to have some worker or trade union directors on nationalisedindustry boards, they could be appointed to the holding board. Provided theywere in a distinct minority they could do little harm.

15. Commercially-minded bankers and holding chairmen are the sort of peoplegovernment would need to recruit, and thought should be given immediately topotential candidates. They should not be appointed for a fixed period of years, inorder both to give them continuity if they were successful and to facilitate theirdismissal if they were not. In addition to decent salaries, success should berewarded with a public honour. They should be thoroughly committed to thepolicy of fragmentation and strict financial control outlined above before theywere appointed.

16. Holding board chairmen and deputy-chairmen should be extremely well-paid inorder to allow room for a pecking order all the way down the line. Other holdingboard members could presumably be non-executive and could be paid as such.

17. The holding board should be able to devise bonus and incentive schemes formanagers. As the management board members would not be board memberswithin the meaning of the Acts, this would be legal. They should be encouragedto devise ‘carrots’.

18. Considerable unpopularity would attach to board chairmen if they used the systemof financial control purposefully. It would result in sackings, redundancies andclosures. It would be the main method to achieve higher productivity but wouldnot be popular. However, it is more desirable that the commercial buck shouldstop with them than with Ministers. This is another reason why Ministers shouldeschew responsibility for all but the rate of return on capital. It is also anotherreason why successful board chairmen should be awarded with public honours.


PART II – DENATIONALISATION

M. GENERAL1. The process of returning nationalised industries to the private sector is more diffi-

cult than ever. Not only are the industries firmly institutionalised as part of our wayof economic life, but there is a very large union and political lobby wanting to keepthem so. A frontal attack upon this situation is not recommended. Instead the groupsuggest a policy of preparing the industries for partial return to the private sector,more or less by stealth. First we should destroy the statutory monopolies; secondwe should break them up into smaller units; and third, we should apply a wholeseries of different techniques to try and edge them back into the private sector.

N. ENDING MONOPOLIES1. The first problem to deal with is to end statutory monopolies in the public sector.

It is no good selling pits, or steel mills, etc. if it is illegal to operate them. Moreoverthe monopolies are in themselves damaging and restrictive of innovation and effi-ciency.

2. To do this will require legislation, but this nasty little Bill is the only legislationcalled for in this paper. It has some psychological importance – it sets the keynotefor our attitude to competition. However it will attract considerable opposition.

3. The Bill would need to do the following things:–

Coal a) Transfer the licensing of private mines from the NCB to theMinister and restrict the conditions of licence to safety consider-ations only.b) Transfer coal royalties from the NCB to the State.

Electricity Permit private generators of electricity to sell to the Grid, as ofright.

Post Office a) Split the letter post from Telecommunications. (The present PO[Post Office] is all in favour of this).b) End the telephone monopoly at subscribers’ ‘front door’. (ThePO oppose this, unconvincingly).c) End the Post Office monopoly on the delivery (not the collec-tion) of letters. (The PO oppose this and the idea requires morestudy).

Steel Remove the Ministers [sic] power to approve private sectorinvestment in Steel plant.

Buses End the system of licencing (this might come better in a TransportBill).

4. There may be other matters which should be included in this Bill. It might be neces-sary to take powers to dispose of assets in accordance with Part II of this paper. Itseems sensible to seek blanket powers in this respect if advice shows it to be neces-sary.

O. THE LONG TERM POLICY OF FRAGMENTATION1. The next phase should be to break up the industries into smaller units. The reasons

for doing this are:–i) To break up the power of monopoly public sector unions;


ii) To root out inefficient units and cross-subsidisation;iii) To spread responsibility and power wider in management;iv) To make it easier for the worker to link his reward with his own effort.v) To facilitate denationalisation.

2. The scope for fragmenting the industries varies from industry to industry.

Group A It is greatest in:Coal Motor Car ManufactureShipbuilding BusesDocks FreightAirports

Group B It is in-between in:Airways Nuclear FuelSteel Cable and WirelessAircraft

Group C It is minimal in: (these are the true utilities)Gas PostsElectricity TelephoneRailways (less ships and hotels) Underground RailwaysWater

3. It is interesting that the ‘true utilities’ (Group C) are mostly industries where theright to strike is denied by law; and also industries where the ‘public vulnerability’to a strike is high. There really is very little Government can do about these indus-tries other than get them to price their wares correctly through a rate of return oncapital policy.

4. The industries in Group B are industries where there is room for some fragmenta-tion, although often economies of scale considerations will make it difficult to gofar. Nevertheless government could and should take immediate steps to dividethese up at least a little. Subsidiary and peripheral activities can certainly be madeinto separate profit centres – e.g. BSC’s construction company, gas and electricityshowrooms, BA [British Airways]’s domestic services.

5. The real opportunity lies in Group A. All of these industries could be broken downinto the basic industrial unit – the pit, the yard, the port, the airport, etc. It shouldbe a central part of our policy to seek to do this as quickly and as tactfully aspossible. As a first step we could try to have bonus schemes based on productivityat each unit – leading perhaps to a demand for greater independence.

6. The difficulties of doing it are substantial but at least it would not need legislation.There would be trade union objection and opposition. It would need dedicated topmanagement to carry it through. The civil service would resist it. The motivationof all concerned – from worker to board chairman to Permanent Secretary – is todo the opposite. The key to doing it lies in top management. This has beendiscussed earlier.

7. It will be very much easier to attempt a permanent form of denationalisation afterwe have achieved a certain degree of fragmentation, for most of the industries,rather than to try and denationalise whole corporations.

8. The scope for such a policy would not be enormous. It could not apply to the util-


ities like posts, gas, electricity, and the railways – at any rate in the first instance.But it might succeed in those industries where there was room for greater efficiency– because earnings could be higher after denationalisation. This would be agenuine experiment in co-ownership or worker control. It would be difficult forthe Labour Party to attack. Indeed, if it succeeded it would be irreversible by afuture Labour Government. There might be demand for its extension by workersin other nationalised industries.

9. There is probably room for up to a three-fold increase in productivity (and thereforeof earnings) in large parts of the public sector of industry. This potential could betapped by demonstrating the scope for higher earnings (as well as a share of theassets) which could follow denationalisation of small packages. The problem is tofind sufficient areas where the plan would be practical.

P. WAYS OF DENATIONALISING1. Where we decide to denationalise any industry, or unit of an industry, there are a

number of ways in which it can be done:–a) We could give one share to each person whose name is on the Electoral Roll(an idea advocated by [Milton] Friedman).b) Give (or sell) the shares to the workers, in proportion to their years of work.(This was done at Volkswagen).c) Sell the shares on the open market.

There are many schemes being suggested to make nationalised industries issuetheir own equity shares, convertible shares, or loan stock to the public. They canbe summarised as ‘BP [British Petroleum] solution’ schemes. The following pointsabout these schemes should be noted.

i) There is no point in nationalised industries issuing loan stock guaranteed bythe Treasury; it would be cheaper for the Treasury to borrow direct. If it was notguaranteed no one would lend to them, unless at higher cost.ii) The issue of equity capital would only be meaningful as a means of denation-alisation, since equity means ownership. It is a way that could be employed todenationalise a specific industry at some stage. Witness the recent sale of BPshares.iii) Issuing convertible shares is another possibility; they constitute a sort ofdelayed-action method of denationalisation.iv) There is also a scheme for partially guaranteed equity shares being advancedat present. This would also be a sort of delayed-action method of denationalisa-tion.v) There seems no point in these schemes unless we issue more than 50% of theequity to the private sector, by whatever means. Otherwise control remains withthe Government with all the evils of State-run industry remaining. Their pointis as a means of denationalisation, rather than as a means of getting more moneyfor the state from the public.d) Sell whole units to private buyers direct.

2. Different schemes are appropriate for different industries. It is perhaps easiest toconsider each industry in turn, starting with the least hopeful.

3. The utilities are clearly the least likely candidates – partly because they are big andunlikely to be saleable, and partly because they might need ‘regulating’ if they were


sold back. In any case it is suggested they are in a lower category. They are:–Gas, Electricity, Railways, Water, the Telephone network, letter post (apart fromdelivery).

4. Next there is a group of industries, all, or parts of which, could be sold, either directto private buyers, or by floating shares on the market (or by more complicatedmarket operations). These are:–

National Bus Company – sell companies as appropriateNational Freight Group – " " " "BLMC – " " " "

[British Leyland Motor Corporation]British Shipbuilders – " " " "

split into A) Civil – " " " "B) Warships – " " " "

British Aerospace – " " " "Alfred Herbert – sell if at all practicalRolls Royce – " " " " "

5. Next there are some industries which can, and should be broken into basic units,and for these giving (or selling) the shares to the workers is recommended:-

NCB break down into pits, and seek to form worker co-operatives wher-ever possible.

Ports make all state-owned ports into separate profit centres and seek tosell them or make them into worker co-operatives.

Airports make each airport independent, and seek to sell them, or get the LocalAuthority to take them on.

6. The rest of the industries seem to be special cases.A) British Steel Corporation should be divided into autonomous companies,mainly, but not entirely, on a regional basis. Each company will differ in prof-itability. The more profitable ones could seek capital from the market (withoutTreasury guarantee). They could thus be ‘eased’ into the private sector over aperiod of time.B) British Airways is another case where it seems practical to imply the ‘BP solu-tion’. BA could be made to raise new capital by the issue of equity, orconvertible, shares, again without Treasury guarantee. C) British Aerospace – these companies, or parts of them, could either be solddirect, or encouraged to issue equity or convertible shares as above.D) Cable and Wireless could be sold as a going concern – there may be securityreasons why it should not be. E) BNOC [British National Oil Corporation] should be denationalised. Theremay be a regulatory function for it to discharge. A separate company could beformed to deal with this, while its assets could either be sold to other oil compa-nies, or sold or given to the public at large. Here is the greatest possibility of a ‘coup de theatre’. It is not appropriate to givethe shares to the workers – it is too capital heavy. It might be politically unwiseto sell the assets to other oil companies – particularly American ones. The assetsof BNOC are worth approximately £1,000m. We could offer them at a price, say,of half their value to the public at large, with a maximum holding permissibleof, say, £ for each individual. They could be marketed through banks, post


offices, or direct. This would be a positive act of giving public assets to thepublic, as well as making every man a capitalist.

PART III – SUMMARY OF PROPOSALS

PART I – RUNNING NATIONALISED INDUSTRIES

1. We should seek to provide greater rewards for success, and penalties for failure,in public industry.

2. We should avoid competition between the public and private sector until we havea workable system of financial discipline for the public sector, including capitalraising.

3. We should set a required rate of return on capital for all Nationalised Industries.The rate should be constant, but the valuation of the capital should take intoaccount realistically a number of other factors.New advances of capital should reflect the cost of borrowing to the Government.The required rate of return should be adhered to as a major political objective.

4. There should be no price control.5. Uneconomic activities should be costed and separately rewarded by the Minister

thinking them desirable. This is the way to deal with the difficult problem of massredundancy caused by closing uneconomic plants, etc.

6. Investment control by the Government must continue.7. Better, more frequent and fuller accounts should be required. 8. We should prevent, for the time being, nationalised industries extending their

activities into new fields, by means of investment control.9. A Treasury Minister should be responsible for administering financial control of

the industries. Sponsoring Ministers would have much less to do with the indus-tries, and there should be much less Ministerial interference.

10. We should exercise such control over wages as is possible, by means of therequired rate of return on capital we set.High wage settlements would cause the industry to have to slim down, and/or sellassets, and/or put its prices up, if it were to meet its rate of return.We should build into our rate of return figures an allowance to meet a politicallyorganised wage claim, in an industry where we are vulnerable, or where labouris in short supply.We should not seek to extend the illegality of strikes in the public sector – strikers[sic] social security benefits are a more fruitful field.

11. Managers should be given clear objectives.They should be much better paid then at present.Nationalised Industry Boards should be made into Holding Boards, with mostmembers part-time. Management should be pushed down the line into subsidiarycompanies.We should start now to recruit chairmen who will be sympathetic to our objec-tives.

PART II – DENATIONALISATION

12. Denationalisation should not be attempted by frontal attack, but by a policy of


preparation for return to the private sector by stealth.13. We should first pass legislation to destroy the public sector monopolies. We might

also need to take power to sell assets.14. Secondly, we should fragment the industries as far as possible; and set up the units

as separate profit centres. We discuss the scope for doing this, which variesgreatly from industry to industry.

15. There is a number of ways by which the denationalisation, either of whole indus-tries or of fragmented units, could be achieved.The utilities are low in the list of priorities. There are a number of industries which should be broken up into separate compa-nies, as many of which as possible should be sold to private buyers.There are some industries – coal, ports, and airports – where we should seek tosell, or form workers’ co-operatives of each pit, port or airport. There are a number of special cases:–BSC should be fragmented regionally.BA Should be ‘BP-ized’.BNOC could form the subject of a special political initiative whereby the sharesare sold at half price to everyone who wants to buy them.

CONFIDENTIAL ANNEX

COUNTERING THE POLITICAL THREAT

There is no doubt that at some time the enemies of the next Tory Government willtry and destroy this policy. It is easier to predict the timing of this challenge than theexact area in which it will come. It is unlikely to be in the first six months after theElection – there is a sort of close season of goodwill, usually. But our enemies willnot be able to let the policy get too well established, or it will be harder for them tobreak it. It seems likely that we will face the challenge between 6 months and 18months after the Election.

The casus belli could be one of the following:–a) an unreasonable wage claimb) redundancies or closuresc) our policy for the nationalised industriesd) some other political issue

It seems infinitely more likely that the challenge will come either over a wage claimor over redundancies. Political strikes do not get the same support from the member-ship as strikes over issues which affect their pockets. Some issues of discontent willbe found, where feeling is strong, and the full force of the communist disruptors willbe used to exploit that discontent.

Doubtless it will occur in a ‘vulnerable industry – coal, electricity, or docks forinstance.

The strategy for countering this threat should be as follows:–

First, we should design our return on capital figures to allow some scope, in the


vulnerable industries, for paying a higher wage claim than the going rate. This willnot be easily apparent to the Unions but if the policy can survive intact by paying ahigher than average wage claim it would be a victory.

Secondly, we might try and provide a battle in a non-vulnerable industry, where wecan win. This is what happened when we won against the postal workers in 1971. Wecould win in industries like the Railways, BLMC, the Civil Service and Steel. Avictory on ground of our choosing would discourage an attack on more vulnerableground.

Third, we must be prepared for these strategems to fail, however; and we must takeevery precaution possible to strengthen our defences against all out attack in a highlyvulnerable industry. If the attack comes in Electricity (or gas) there are really veryfew defences – we should be especially careful to avoid provoking the workforce inthese industries. Luckily there is no great need to create redundancies in these indus-tries.

The most likely area is coal. Here we should seek to operate with the maximumquantity of stocks possible, particularly at the power stations. We should perhapsmake such contingent plans as we can to import coal at short notice. We might beable to arrange for certain haulage companies to recruit in advance a core of non-union lorry drivers to help us move coal where necessary. We should also instal [sic]dual coal/oil firing in all power stations, where practicable as quickly as possible.

The chosen battle ground could be the Docks. Here again the best policy is keepstocks as high as possible, and to try and keep some ports open (e.g. Felixstowe andShoreham?) for essential supplies and exports. A dock strike is not as crippling as anelectricity stoppage.

Road Transport is another industry which is vulnerable, but the diversity of firmsand ownership and the weak nature of the Unions, makes it less likely that actioncould succeed here.

Fourth, by far the greatest deterrent to any strike, whether in the public or the privatesector, is clearly to cut off the supply of money to the strikers, and make the Unionfinance them. This is a policy question going beyond the Nationalised Industries,although as employer in these Industries the Government could be said to have someright to treat strikers differently in relation to supplementary benefit and tax refunds.This seems too partial, however, and is not recommended. It is clearly vital in orderto defeat the attack which assuredly will come in one public industry or another thatour policy on state funds for strikers be put into effect quickly and that it is sufficientlytough to act as a major deterrent.

Fifth, we must be prepared to deal with the problem of violent picketing. This againis a matter going beyond policy for nationalised industries. But it is also vital to ourpolicy that on a future occasion we defeat violence in breach of the law on picketing.The only way to do this is to have a large, mobile squad of police who are equippedto uphold the law against the likes of the Saltlay Coke-works mob.

It also seems a wise precaution to try and get some haulage companies to recruitsome good non-union drivers who will be prepared to cross picket lines, with policeprotection. They could always be used in the crunch situation which usually deter-mines the result of any such contest.


Conclusion. These five policies seem all that is available and if integrated and usedwisely they provide a pretty strong defence – particularly when there is no IncomesPolicy against which to strike. They should enable us to hold the fort until the longterm strategy of fragmentation can begin to work.


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