13

The Unacceptable Face of Capitalism

PATRICK: The pursuit of money is a force for progress.

CURLY: It’s always been the same.

PATRICK: The making of money.

CURLY: The breaking of men.

– David Hare, Knuckle (1974)

Midway between Crawley and Tunbridge Wells, the nondescript commuter town of East Grinstead, with its quiet streets of identikit inter-war semis, is not exactly one of the world’s most glamorous destinations. When the suburban seducer Norman in Alan Ayckboun’s comic trilogy The Norman Conquests (1973) announces that he has booked a dirty weekend in East Grinstead, the other characters’ open hilarity speaks volumes about the town’s decidedly unromantic reputation. But East Grinstead does have one small claim to fame. On the rural edge of the town stands a squat building that for a brief moment in the early 1970s found itself in the headlines of every major newspaper in the country. With its brick and glass façade, its flat roofs, its stains of damp and rot, it might be a science block in some under-funded comprehensive school. In fact, it was a dance theatre: to be precise, the Adeline Genée dance theatre, the pet project of the Home Secretary’s wife Beryl Maudling, and a symbol of a virulent financial and political cancer at the heart of British public life. And as he contemplated the wreckage of his political career, Reginald Maudling must have wished he had never heard of it.¹

When Maudling resigned as Home Secretary in July 1972, the consensus was that he was an honourable man brought down by sheer bad luck. During the mid-1960s, he had agreed to serve as chairman of an export company owned by a successful Yorkshire architect called John Poulson. In return, Poulson promised to help with the financing of Beryl Maudling’s beloved theatre project, a ‘Little Glyndebourne for Ballet’ on the edge of East Grinstead. As a teenage ballet prodigy, Beryl dreamed that the Adeline Genée theatre would help to bring dance to the masses, and she was delighted when Poulson offered a financial covenant that would bail out the troubled scheme. So work on the theatre went ahead, and in January 1967 it opened its doors with a gala performance attended by Princess Margaret, Lord Snowdon and Dame Adeline herself, a former ballet dancer now in her nineties. But then disaster struck. Despite his air of success, John Poulson was a rather less adept businessman than he seemed, and in January 1972 he was forced to declare bankruptcy. When investigators looked into his murky finances, they found some very mysterious donations to civil servants and politicians, as well as the details of the covenant to Beryl Maudling’s theatre. As the Attorney General reported to the Cabinet on 13 July 1972, not only was Poulson himself possibly guilty of fraud, but at least two Members of Parliament, ‘several civil servants and various individuals in public life in the north of England’ might also have to face ‘charges of corruption’.²

All of this left Maudling in a distinctly tricky spot. As Home Secretary, he would nominally be in charge of any investigation, but since he and his wife had benefited from Poulson’s largesse, he could hardly claim to be unbiased. He had to leave the Cabinet Room while his colleagues were discussing the issue, which must have been excruciatingly embarrassing, and there were isolated calls from Liberal MPs for him to step down. Even so, colleagues and commentators alike were astonished when, on Tuesday, 18 July, Maudling suddenly resigned as Home Secretary. He had, he explained, done nothing wrong himself, but ‘it would not be appropriate’ to continue in office while the Poulson case was rumbling on. Maudling was a popular figure on both sides of the House; even as Heath was reading out his resignation letter, there were gasps of shock and cries of ‘Shame!’ Maudling had ‘acted in the best traditions of the public service of this country’, said Labour’s deputy leader Ted Short, while the former Home Secretary Jim Callaghan jumped to his feet to condemn the ‘witch-hunt’ against his Tory successor, even adding that Heath should not have accepted his resignation – an extraordinary statement coming from the Opposition front bench. In private, Callaghan was even angrier. Grabbing one of Maudling’s junior ministers by the lapels afterwards, he said: ‘You’ve let him down. He’s a good man and he shouldn’t have gone.’³

At a time when public affairs seemed infected by greed and self-interest, the Home Secretary’s self-sacrifice was a rare and inspiring moment. ‘There can be little wrong with public life,’ said the Daily Express, ‘when a man in Mr Maudling’s position resigns as a matter of honour.’ The Sun’s editorial hailed ‘Maudling, man of honour’ and called it ‘one of the most sensational personal political tragedies of the century’. The Mirror agreed that he ‘could not have acted more honourably’. And The Economist even suggested that at a time when investigative journalists were uncovering corruption scandals in everything from local government to the Metropolitan Police, Maudling’s resignation should mark a turning point. It was ‘time now for everyone in public life, politics and journalism to consider where the line should be drawn between responsible criticism and irresponsible, even if unwitting, support to the gravediggers of parliamentary democracy’. For it had been ‘a bleak week in British politics. A few MPs, and rather more Pharisees in the press, have contrived to bring down a fine politician. In doing so they have shocked the country, and some of them may even have shocked themselves.’⁴

These were fine and noble sentiments. The only problem was that Maudling was deeply, irredeemably guilty.

The roots of the Poulson scandal lay in the unprecedented moneymaking opportunities presented by the redevelopment of Britain’s urban landscape. Many cities, such as London, Birmingham, Coventry and Hull, had been badly scarred by German bombing raids in the war. Some ripped out acres of slum housing and moved their inhabitants to new high-rise housing blocks; others demolished parts of their central areas to make way for brand-new motorways and dual carriageways; and still others tore down their Victorian buildings out of sheer utopian modernism, believing that only clean lines, concrete surfaces and Brutalist austerity would present an appropriately up-to-date image. Labour and Conservative local authorities alike agreed that, as The Times put it, ‘smart typists and skilled young workers will not put up with Victorian by-law streets any longer’, and by 1965 at least 500 different redevelopment schemes were being considered across the country. Since regulations were lax, however, more than a few planners and architects took the opportunity to feather their own nests. In Bradford, an investigation at the end of the 1960s uncovered an extraordinary saga of corruption, expenses-fiddling and municipal kickbacks. In Wandsworth, the police found that the head of the council’s Labour group, Sidney Sporle, had pocketed thousands of pounds from developers in return for contracts to replace Victorian terraces with system-built flats. And in one of the most egregious cases, Newcastle’s swashbuckling leader T. Dan Smith came up with a sweeping scheme of flyovers, shopping precincts and high-rise blocks while simultaneously acting as a paid consultant to the Crudens building company, who unsurprisingly won a lot of contracts in the North-east. He also happened to be a consultant to John Poulson, who specialized in big public commissions in the North of England.⁵

On the surface, Poulson seemed an unlikely candidate to become the incarnation of corruption. A blunt, narrow-minded, even moralistic man, the son of a Methodist preacher, Poulson never actually qualified as an architect but nevertheless set up his own Pontefract practice in 1932, when he was just 22. He was not a particularly talented architect – one of his rivals commented that he ‘couldn’t design a brick shithouse’ – and was regarded as an impatient and unfeeling boss, once sacking an employee merely for having a beard. But he was a man of enormous ambition and enterprise, and after the war he realized that he could cut costs and attract much greater business by adopting the new concrete system-building methods and by combining architectural, surveying, engineering and valuation services under one roof, giving clients an all-in-one service. His other great insight was that not only could he cash in on the redevelopment boom in the North of England, but he could also make money abroad by winning big public contracts in the Mediterranean and Middle East. Steadily his business grew and grew, and by the late 1960s it was the biggest in the country, employing more than 700 people, most of them in Pontefract but others dispersed across the North and some even in Beirut and Lagos.

Outwardly, Poulson was a highly respectable man, a Commissioner of Taxes whose wife chaired the Yorkshire Women Conservatives, his business raking in a reported £1 million a year. But there was a dark side to his success. While some of his architects were highly talented, there were murmurs that his buildings were often cheaply and hurriedly put up. Even his best-known constructions were heartily loathed by many residents, and buildings such as London’s Cannon Street station and Leeds’s International Swimming Pool and British Railways House became bywords for dreary Stalinist concrete-and-glass austerity. Critics also muttered that he won contracts only through his vast network of local politicians and council officials, among them T. Dan Smith, on whom he lavished expensive presents. Indeed, for a supposedly shrewd businessman, Poulson was remarkably cavalier with money. His employees often wondered why, given that they worked so hard and completed so many contracts, the firm always seemed to be short of cash. The explanation was that Poulson was paying out so much money in bribes, retainers and kickbacks – a total of at least £334,000, according to some estimates, although it may well have been much more.⁶

In the summer of 1966, when Reginald Maudling was feeling sorry for himself after losing out on the Tory leadership, Poulson approached him to become an international ambassador for his firm. A sharper, more scrupulous politician would have run a mile, or at least would have looked more closely into Poulson’s business practices. But even at this early stage Maudling was in physical, intellectual and moral decline, his mind dulled by greed and drink. As a family friend told his biographer, Beryl Maudling had become ‘insatiably greedy for the good things in life’, putting her husband under ‘constant pressure at home for money’, and insisting that they lead a lifestyle of parties and holidays well beyond an ordinary MP’s means. It was under this pressure that Maudling lent his name to the Real Estate Fund of America, an offshore investment trust run by the American fraudster Jerome Hoffman. Although he resigned from the board as soon as REFA became controversial, Maudling’s involvement was highly embarrassing, and his excuse – that he just wanted ‘a little pot of money’ for his old age – notably feeble. Yet with the honourable exception of Private Eye, the press gave him a free ride. He was an immensely amiable chap, as well as a former Chancellor and senior member of Heath’s front bench. How could anyone suspect him of doing anything wrong?⁷

In fact, as his biographer Lewis Baston has shown, Maudling was not just quite corrupt. He was immensely corrupt. From his first meeting with Poulson, he pocketed tens of thousands of pounds in gifts and retainers. In 1967 alone he accepted some £25,000, almost half a million in today’s money. In return, he made some characteristically lazy efforts to suborn Tory councillors on Poulson’s behalf, and, rather more seriously, intervened in the House of Commons to demand more government aid to Malta. This was a particularly unforgivable episode: Maudling knew that the money would go towards a new hospital on the island of Gozo, for which the contract had been awarded to … John Poulson.^* Later, the House of Commons let Maudling off with a slap on the wrist, but according to the journalist who broke the story, Ray Fitzwalter, it was a clear and blatant case of parliamentary corruption. ‘Poulson asks him to do underhand things to further the cause,’ Fitzwalter explained. ‘Maudling does it. The effect follows. Then there is reward and congratulation flowing from Poulson to Maudling’ – not just the cash presents, but the covenant for Beryl’s beloved theatre.

Almost incredibly, though, Maudling’s greed did not end there. When he flew to the Middle East to publicize Poulson’s business, the architect paid for his suit and even his luggage, claiming it as a tax-deductible expense. In return, Maudling seems to have conspired to bribe a senior Dubai official, offering him a mysterious ‘favour’ in return for a lucrative hotel deal. The really astonishing thing, though, is not that he was corrupt but that he was so brazen about it. On one occasion when both Maudlings were steaming with drink, the former Chancellor dug out a pile of uncut diamonds to show Poulson, explaining that they were a bribe from Dubai. Meanwhile, he thought nothing of showing off the fancy new swimming pool at his Hertfordshire home, even though it was another present from Poulson (and a characteristically botched job that always leaked). And in January 1970, Reggie and Beryl even pitched up to Antonia Fraser’s Field of the Cloth of Gold Ball dressed as Arab sheikhs – a singularly inappropriate choice of costume given their relationship with the region.

Maudling’s corruption did not end when he became Home Secretary. In July 1970, for example, he received a gift of £3,000 from one of Poulson’s firms, for which he sent a grateful letter noting that it would ‘meet all my cash requirements for the foreseeable future’. And although he no longer flew to the Middle East on missions for Poulson, he suborned his own son Martin instead, recommending him as his replacement on Poulson’s board. He also encouraged his son to act as a glorified bagman for the corrupt property tycoon Eric Miller, who combined the roles of fundraiser for Harold Wilson, chairman of Peachey Properties and director of Fulham football club. Miller was so crooked he made Poulson look a man of probity, and he liked to show off Martin Maudling as a kind of trophy. One lunch guest later remembered that at the end of the meal, Miller asked young Maudling to hand round the cigar box: when opened, it proved to be stuffed with £50 notes. But the links between the tycoon and the Home Secretary did not end there. Miller owned the freehold on Maudling’s house, frequently invited him for dinner (baked potato with caviar, rather oddly, was a favourite dish), and in December 1970 presented Beryl Maudling with a silver chess set worth £2,750 (roughly £32,000 in today’s money). At one level, it beggars belief that the minister responsible for law and order in Britain thought he could get away with this kind of behaviour. But if John Poulson had been a better businessman, then Maudling might well have got away with it.⁸

Poulson’s business had been running into trouble since the late 1960s, when two large cheques to the Inland Revenue bounced. As Maudling’s biographer writes, Poulson was ‘leaking money all over the place’, and on New Year’s Eve 1969 he was forced to relinquish power over his own empire, giving way to his wife’s brother-in-law John King – later the ruthless chairman of British Airways and Mrs Thatcher’s favourite businessman. Disastrously, however, Poulson was still badly in debt, and in January 1972 he declared bankruptcy. Since he had always kept detailed records of his financial transactions, exposure was now inevitable. Confronted with the evidence of his wrongdoing during a tumultuous hearing in Wakefield, Poulson melodramatically collapsed under the strain, thereby guaranteeing himself a place in the headlines. By the end of July 1972, the Metropolitan Police had opened a criminal investigation, and a year later, after wading through mountains of paperwork, they charged Poulson with fraud. And when the case opened in October, it all came out: the presents, the bribes, the brown envelopes. ‘It was not corruption,’ Poulson said defiantly, ‘because it is generally done by every building firm in this land.’ There was ‘so much drinking and entertaining’, he insisted, that it was unfair to single him out. But it was no good: on 11 February 1974, Poulson was found guilty. Even in the depths of humiliation his self-confidence never deserted him. ‘I have been a fool,’ he said, ‘surrounded by a pack of leeches. I took the world on its own terms, and no one can deny I once had it in my fist.’ Mr Justice Waller, however, called him an ‘incalculably evil’ man and sent him down for five years, later increased to seven. ‘To offer corrupt gifts’, the judge said, ‘strikes at the very heart of our government system.’⁹

As for Maudling, he never returned to government after July 1972. While Poulson’s trial did not quite uncover the extent of their collaboration, it offered more than enough hints to leave the former Home Secretary looking distinctly shop-soiled. By 1974 he was under investigation by the Fraud Squad, the DTI and the Inland Revenue, although they never managed to unearth enough dirt to bring him down. When Granada’s World in Action programme revealed the details of the Malta hospital scam in March 1974, Maudling made a personal statement in the Commons denying any impropriety – a statement that while not technically a lie, fell very short of the truth. A year later, Mrs Thatcher recalled him to the front bench as Shadow Foreign Secretary, but as she later put it, his performance was ‘a source of embarrassment’. She sacked him in November 1976, and a year later, after more revelations about his association with Poulson, he suffered the indignity of being investigated, albeit very feebly, by a parliamentary Select Committee. After sinking into outright alcoholism, he died of cirrhosis of the liver in February 1979. Perhaps it was appropriate that he died at exactly the moment – the Winter of Discontent – when the post-war consensus was breaking up, for, as an unrepentant One Nation moderate, he had been its most articulate Tory champion. Even so, his passing at the age of just 61 seemed a dreadful waste. Few politicians of his generation were blessed with greater intelligence and charm, but few were cursed with such indolence and greed. He had found ‘nothing more worth the wear of winning’, he wrote on the final page of his memoirs, ‘than laughter and the love of friends’. Except, perhaps, the love of money.¹⁰

Like all good scandals, the Poulson–Maudling affair captured public attention not only because it offered a compelling morality tale of individual greed and overweening ambition, but because it exposed the deep corruption beneath the surface of public life. As investigators dug deeper in the mid-1970s, they discovered that Poulson’s contacts amounted to more than a handful of rogue civil servants. Subsequent trials saw officials of British Rail, the National Coal Board and even the South-Western Metropolitan Hospital Board in the dock, while an entirely unrelated investigation into local government corruption in South Wales ended with thirty people being found guilty, most of them local businessmen. And in a sensational case overshadowed by the Poulson scandal, the Birmingham city architect Alan Maudsley, who had almost single-handedly controlled the country’s biggest public housing programme outside London, was arrested in November 1973 and charged with corruption. Maudsley had been in cahoots not just with the architectural firm of Ebery and Sharp, but with the Bryants housing giant, to whom he had given two-thirds of all Birmingham’s high-rise contracts. Ebery and Sharp paid him £10 a house; Bryants paid for holidays, excursions and fine living. When the case came to court in the spring of 1974, Maudsley pleaded guilty, but it did not save him from prison. He had fallen short of the ‘high standards the public of this country expect of public servants’, Mr Justice Mocatta said solemnly. But the judge was behind the times. To anybody who read a newspaper, high standards seemed a thing of the past. The Maudsley case, said the prosecuting counsel George Carman, was merely ‘the tip of the iceberg’.¹¹

Was Britain really more corrupt than ever in the 1970s? It is certainly true that the sweeping redevelopment of towns and cities offered unprecedented possibilities to builders, planners and councillors: as the go-getting, Cortina-driving developer puts it in John Betjeman’s poem ‘Executive’ (1974), all he needs is a ‘luncheon and a drink or two’ to ‘fix the Planning Officer, the Town Clerk and the Mayor’. It is also true that most people genuinely believed that things had got worse. Indeed, if the press was to be believed, the nation had sunk into an unprecedented rut of selfishness, avarice and unashamed graft. ‘Corruption runs through all levels of British public life,’ wrote the journalist Clive Irving in his state-of-the nation survey Pox Britannica (also 1974), aimed at American readers. ‘Careers have been finished by the temptations of a few bottles of whiskey, a vacation in Majorca, a swimming pool in the yard. There’s a subtle, interlocking brotherhood with connections in every town – and there’s always the man to see.’¹²

What allowed this to thrive, Irving thought, was the ‘absence of any tradition of muckraking’. But this diagnosis was out of date. The revival of muckraking since the mid-1960s, epitomized by the success of Private Eye, the Sunday Times Insight Team and Granada’s World in Action, was precisely what had convinced people that Britain had succumbed to massive corruption. And in an intensely competitive and increasingly populist media climate, where the irreverence of the Eye or the Sun often set the tone, readers now looked at the shadowy world of quiet handshakes, unspoken agreements and brown envelopes – a world that had long existed – in a new light. In 1970 alone, Private Eye’s Footnotes column ran stories about Poulson, T. Dan Smith, BP’s sanctions-busting in Rhodesia and the Irish government’s role in IRA gun-running, most of which the mainstream press ignored until later. Two years later, during Paul Foot’s last year at the magazine, the column included stories about the corrupt Tyneside politician Andy Cunningham, the Heath government’s secret talks with the IRA, Lord Carrington’s land deals, Jim Slater’s property deals and a pollution scandal at Rio Tinto-Zinc’s Avonmouth smelter. In many respects this was the magazine’s finest hour: more than any other publication, the Eye could claim to have punctured the bubble of self-congratulation and secrecy surrounding British public life. It might get more than a few details wrong, but, as ITV’s What the Papers Say commented after its Poulson allegations had been vindicated, Private Eye was ‘more important to journalism than half the Fleet Street papers’.¹³

By this point corruption had become one of the clichés of national cultural life. In Lindsay Anderson’s film O Lucky Man!, which was shot in the summer of 1972 and released a year later, Malcolm McDowell’s journey through contemporary society is the vehicle for a satire in the best picaresque tradition. Beginning the film as a young coffee salesman, he gets mixed up in everything from state-sponsored torture to the sale of chemical weapons to a crooked African dictator. As the critic Alexander Walker put it, Anderson’s film presents ‘the comedy of private corrup-tion in public life’, with a splendid array of character actors – Ralph Richardson, Arthur Lowe, Rachel Roberts, Graham Crowden, Dandy Nichols – playing ‘ruthless tycoons, hypocritical town-hall worthies, venal policemen, perverted judges, fascist mercenaries, two-faced PR people, tyrant rulers from Black Africa [and] sin-obsessed do-gooders’. And while other British films of the era preferred to wallow in lurid escapism, the radical young playwrights of the early 1970s were quick to follow Anderson’s lead. ‘We thought, wrongly, as it turned out, that England was in a state of apocalyptic crisis,’ recalled the dramatist David Hare. ‘We had lost faith in its institutions, we thought that Britain’s assumption of a non-existent world role was ludicrous, and we also thought that its economic vitality was so sapped that it wouldn’t last long.’¹⁴

Hare’s plan was to write ‘short, nasty little plays which would alert an otherwise dormant population to this news’, but in 1973 the new artistic director of the Nottingham Playhouse, Richard Eyre, invited him and his friend Howard Brenton to write a ‘big’ play diagnosing the state of the nation. The result was Brassneck, a sprawling satire of British life since the 1940s, told through the story of one ambitious Midlands family, the Bagleys. Hare later called it the story of the ‘People’s Peace … seen through the lives of the petty bourgeoisie, builders, solicitors, brewers, politicians, the Masonic gang who carve up provincial England’. The family wealth is based on ruthless property speculation, while both Tory and Labour politicians are suborned through bribes and blackmail. And in the architect Roderick Bagley we meet the embodiment of national corruption in the age of Poulson and Maudling. When Roderick wins the contract for a new hospital, his uncle cynically forecasts ‘problems on the site, weather, that sort of thing, costs will rise during the building, we’ll have to revise the estimates. Revise the profits. Slightly. Often. Upwards.’ The years pass: Roderick builds tower blocks, makes money, exploits his political contacts and expands into the new markets of post-colonial Africa. The wheel of fortune turns: his tower blocks leak, his business goes bankrupt, he unwittingly admits to taking bribes and he is sent to prison. ‘The Labour Party will whisper down the line,’ one of his political cronies assures him. ‘Builders, councils, Government departments will gloss over fat bad debts … Vast sums you owe will disappear in the fog. Books will be fiddled and invoices burnt the length of the land.’ And in the play’s supremely depressing final scene, the survivors of the Bagley network meet in a seedy strip-club in 1973 to plot their next move. One of them suggests a new venture, ‘a product for our times, the perfect product, totally artificial, man-made, creating its own market, one hundred percent consumer identification’: heroin from China. The deal is done: as the curtain falls, they raise their glasses ‘to the last days of capitalism’.¹⁵

If Brassneck seemed rather downbeat, it was as nothing compared with Hare’s next play. Knuckle opened in the West End in the first week of March 1974, a coincidence of timing making it the perfect theatrical epitaph for the Heath years. Again, the theme is the shabbiness and corruption of modern Britain, which we see through the eyes of Curly, a gun salesman who has returned to his native Guildford to investigate the death of his sister Sarah. And again property speculation lies at the heart of the mystery. Sarah killed herself, it turns out, after stumbling upon a gigantic scam in which an elderly woman was committed to an asylum so that developers could replace her house with ‘seventeen floors of prestige offices crowned with an antique supermarket’. Even the cynical Curly is taken aback by the state of the nation after twelve years away. ‘Newspapers can be bought, judges can be leant on, politicians can be stuffed with truffles and cognac,’ he remarks. ‘When I got back I found this country was a jampot for swindlers and cons and racketeers. Not just property. Boarding houses and bordellos and nightclubs and crooked charter flights, private clinics, horse-hair wigs and tin-can motor cars, venereal cafés with ice-cream made from whale blubber and sausages full of sawdust.’ Even Guildford itself, supposedly a genteel Surrey county town, emerges as a sleazy, shabby place, a haven for property swindlers, sado-masochists and ‘middle-aged voyeurs’. ‘I have twice been attacked at the country club,’ the club hostess Jenny tells him; ‘the man in the house opposite has a telephoto lens, my breasts are often touched on commuter trains, my body is covered with random thumbprints, the doctor says he needs to undress me completely to vaccinate my arm’.¹⁶

At the centre of the play is the confrontation between Curly and his father Patrick, an old-fashioned gentlemanly capitalist who works in the City, reads Henry James and relaxes by playing the cello. It quickly becomes clear, though, that Patrick is even more crooked than his arms-dealer son; indeed, his corruption is all the more shocking because it is so understated, being hidden beneath the veneer of gentility that his money has bought him. Caught up in the property scam through a web of connections, he makes no apology for leaving his own daughter to kill herself on Eastbourne beach. In classic early 1970s agitprop style, Patrick is the incarnation of sexual and financial depravity, sleeping with his housekeeper and metaphorically raping the public. ‘In the City,’ he says complacently, ‘the saying is, “The exploitation of the masses should be conducted as quietly as possible.” ’ And although we never see the City, it is always there, looming in the background, the supreme embodiment of the abuses of capitalism. ‘I told her some stories of life in the City,’ muses Patrick, remembering his daughter’s final moments, ‘the casual cruelty of each day; take-over bids, redundancies, men ruined overnight, jobs lost, trusts betrayed, reputations smashed, life in that great trough called the City of London, sploshing about in the cash.’ He justifies himself with one cliché after another: ‘Somebody’s bound to get hurt … The pursuit of money is a force for progress … If I didn’t do it’ – and on cue, his son completes the sentence: ‘Somebody else would.’ At the end, far from punishing his father, Curly just walks away. ‘Money can be harvested like rotten fruit,’ he says dismissively. ‘People are just aching to be fleeced. But those of us who do it must learn the quality of self-control.’¹⁷

In the left-wing demonology of the early 1970s, no institution loomed larger than the City, that great financial fastness at the centre of the British establishment. To walk east from the West End, wrote Anthony Sampson in his New Anatomy of Britain in 1971, was to enter a different world, for ‘as you pass St Paul’s you can sense in the air a certain narrowing and intensifying of ambitions, like the narrowing of the street-corners themselves’. The crowds thinned, leaving only scurrying pale-faced men in dark grey suits; the colourful shop fronts gave way to ‘bleak grey office blocks, frosted windows and ponderous bankers’ façades’. The City of London: the last bastion of an institutional conservatism that was otherwise dying out; the last bastion of a stiff-upper-lip Englishness that was on the wane everywhere else; the last bastion, indeed, of the bowler hat. The City: ‘overgrown village, rumour mill, with an atmosphere of a regimental mess and the sense of humour of an Edwardian boys’ paper, full of private language, secret rituals and enough games to last a working lifetime,’ as the narrator puts it in David Jordan’s financial thriller Nile Green (1973). Nowhere better captured its values than Sweetings, the famous restaurant where ‘the City man goes for lunch when he’s nostalgic for his schooldays … Bread and butter, brown and thin and damp, a memory of cricket on the lawn before Evensong. Ginger beer and lemonade. Sherbert. Rice pudding, apple pudding, jam roly-poly and treacle tart.’ The tastes and values of the English public school, preserved into the age of the IBM punch card.¹⁸

And yet despite the sartorial conservatism and the spotted dick, the City of London was on the brink of some of the most tumultuous changes in its history. During the 1960s, an unprecedented number of international banks had opened offices in the Square Mile: whereas there had been just 14 American banks in 1960, there were 37 ten years later, just a fraction of the 159 foreign banks that now had London branches. Thanks to low American interest rates, vast numbers of dollars were now being invested in London to take advantage of the better rate of return, and these so-called ‘Eurodollars’, the basic currency for international trade and multinational companies, helped the City to maintain its reputation as one of the world’s greatest financial centres, even though Britain’s economy had long since tumbled off the podium. But it was not only American money that made the difference. As the oil-exporting Arab members of OPEC raised their prices and began to recoup enormous rewards, so they too turned to the City of London to invest their ‘petrodollar’ winnings. Beneath the veneer of institutional conservatism, the City was becoming the crucible of financial globalization.

Some things remained the same: a survey of City directors in 1971 found that Eton, Oxbridge and the clubs of St James’s still held sway. But even the geography of the Square Mile told a story of change that belied the City’s stuffy reputation. On Old Broad Street, for example, work on Richard Seifert’s NatWest Tower began in the first year of the decade: even though its fifty-two floors of steel and glass were later seen as an emblem of Thatcherism (since it opened in 1981), in commission and design it was a product of the Heath years. Further along Old Broad Street, nothing symbolized the new City better than the Stock Exchange Tower, which was formally opened by the Queen in the autumn of 1972, although trading did not start until six months later. With its Brutalist concrete façade, electronic currency displays and clocks showing the time in nine different financial centres, the new trading floor seemed light years away from the days when a waiter’s rattle at a quarter past three had announced the last part of the trading day, when smoking was allowed. Even the floor itself, which was lined with rubber tiles instead of the familiar wood, represented radical change: for since cigarette butts would damage the tiles, smoking was now banned outright.¹⁹

The man who, more than anybody else, came to embody the new City was the son of a west London building contractor, a former grammar school boy who, like Edward Heath, became a symbol of modernization, mobility and ruthless efficiency. Jim Slater was a trained accountant who had worked for Leyland’s sales division, rose to become their financial director, and wrote an acclaimed share-tipping column for Nigel Lawson’s Sunday Telegraph City pages in the mid-1960s. In the winter of 1963, he met Peter Walker, the insurance whizz-kid turned ambitious Tory MP, and persuaded him to join forces. Slater Walker, as their new enterprise was known, became easily the most glamorous and controversial City firm of the late 1960s and early 1970s. To their admirers, Slater Walker represented a breath of fresh air and a dose of much-needed modernization; to their critics, they were nothing more than ruthless asset-strippers, buying companies of all shapes and sizes, ripping out the loss-making elements and selling them off to make a quick profit. ‘While the directors were out on the grouse moors or golf courses, the gimlet eye of Slater cased the company records,’ one observer wrote. ‘Then the predators moved in.’ The paradigmatic example was his first major takeover victim, Crittall-Hope, a family-run window-frame manufacturer. Slater told the directors that he was ‘not there to make windows, but to make money’, immediately sacked numerous workers, and soon sold off the profitable parts of the company. Yet as the firm’s previous chairman pointed out, its performance after the takeover was not much better than it had been beforehand, while ‘any activity with a speculative or long-range future was ruthlessly pruned’. Indeed, when Slater Walker finally collapsed in the mid-1970s, it became clear that Slater’s castle had been built on sand. As the City’s historian David Kynaston writes, he never managed to dispel the sense that he had been running ‘a systematic, quite shameless insider-dealing operation’. Either way, given the endless pages of press enthusiasm, ‘it was amazing how little of substance’ he really achieved.²⁰

In the early 1970s, however, Slater’s reputation was at its peak. He was a radical hero, ‘the most brilliantly successful’ of ‘the City’s self-made men’, wrote the admiring journalist Jonathan Aitken. Slater seemed to have ‘found, untapped, a whole new vein of talent, particularly from the post-war grammar schools’, observed the Sunday Telegraph in 1971, while another profile claimed that he brought ‘a sense of tension, of high voltage, into the room’. Not unpredictably, one of Slater’s biggest fans was another self-made grammar school boy, himself seen as the incarnation of social mobility, naked ambition and the victory of style over substance. In February 1972, Slater announced that he had bought a company called Equity Enterprises as ‘a sort of investment piggy-bank’ for his new best friend, David Frost. At about this point, the Sunday Times began running a series of articles hostile to Slater, so when Frost spotted one of the paper’s executives at a garden party a few weeks later, he pounced. The newspaper should invite Slater to lunch, he gushed: ‘You would be absolutely fascinated by his mind.’ For dramatic effect, Frost pointed to a rosebush that stood nearby in the gathering twilight. ‘I mean,’ he said, ‘Jim is as interested in why that rose should wither and die as he is in a balance sheet.’²¹

Even the generally sceptical journalist Anthony Sampson fell for the Slater myth. ‘Still only forty-two, Jim Slater has a sense of command which quickly gives confidence to others,’ he wrote in a gushing paean of praise:

 

He contemplates his own motivation as if he were talking about someone else; he sees himself as a chess-player (at which he excels), extending his skills to the great game of the City, and urged on by a driving desire to prove himself right. Politically, like most self-made men, he supports Heath’s views on the need for self-reliance and the dangers of cosseting; he has dined at Downing Street, and he is (like Walker) the very paragon of the new Heath-type Tory – self-made, hard-working, unsentimental, competitive. Certainly in the financial world he has stimulated a new aggressiveness, unleashing energies and money-mindedness: he loves to watch his young protégés discover their money-making potential, as he discovered his ten years before.

The link with Heath was more than merely metaphorical. Slater donated thousands of pounds to the Conservative Party, praised Heath as the ‘personification of meritocracy in politics’ and urged him to ‘generate an atmosphere in which success and profit in business are regarded as important and in the interest of the country’, while Walker became one of Heath’s more effective ministers. And Slater Walker was good to Heath, who bought shares in the firm, as well as its satellite companies Ralli and Tokengate, in 1965, and sold them five years later for £21,500 – worth more than ten times that in today’s money.²²

What contemporaries often called the ‘new capitalism’ left a deep imprint on popular culture, manifested not just in the fawning profiles of entrepreneurs like Jim Slater, but in television series like ATV’s The Power Game and the BBC’s The Trouble Shooters, with their endless boardroom battles, hostile takeovers and merciless power struggles. Barely two months after the FT30 share index had reached 500 points for the first time in its history, the BBC launched perhaps the most successful series of this kind, The Brothers (1972–6), which chronicled the boardroom (and bedroom) intrigues behind a family haulage firm, and was mercifully a lot more glamorous than the premise sounded. If nothing else, shows like this gave the lie to the notion that the BBC merely pumped out left-wing propaganda and working-class agitprop; the critic Kenneth Tynan complained that The Trouble Shooters was ‘naked propaganda for capitalism’. The Brothers even had a good claim to have produced television’s first Thatcherite villain in the character of the City whizz-kid Paul Merroney (played with relish by Colin Baker, never knowingly understated). A ruthless proto-yuppie with an ‘ambitious, cold personal manner and willingness to discard traditional practices’, as an appalled cultural studies textbook of the day put it, Merroney would have fitted in very nicely at Slater Walker. Baker did his best to stand up for the character, insisting that he ‘never told outright lies [and] never broke the law’, and was merely ‘ruthless in his ambition for the company’. Evidently viewers did not agree: at one point, Sun readers even voted him ‘the ‘most hated man in Britain’.²³

As the Sun’s poll might suggest, the buccaneer capitalism of the 1970s was not to everybody’s taste. Even during Slater’s heyday, there were plenty of doubters, particularly among the City old guard who resented the meteoric rise of a self-made upstart. And with the stock and property markets booming at a time of industrial strife and mass unemployment, it was no wonder that many people saw a disturbing link between the two. When the FT30 index hit 500, many City insiders were deeply embarrassed, for on the very same day, 30 January 1972, unemployment reached the dreaded figure of one million. Even the Financial Times admitted that the coincidence made ‘an easy anti-capitalist debating point’. And to find another uncomfortable debating point, the City’s champions had only to walk half an hour west. During the previous ten years, a handful of ambitious speculators had borrowed enormous sums of money to develop space in the centres of London, Birmingham and Manchester, throwing up high-rise glass and concrete office blocks that were loved by few and hated by many. By far the most notorious was the secretive Harry Hyams, who had bought a small space beside Tottenham Court Road tube station and commissioned a thirty-two-storey skyscraper to fill it. Since the proposed building would totally dominate the area, permission would not usually have been given. But in classic David Hare-villain-style, Hyams managed to persuade the council by promising to build a transport interchange – which never quite materialized.²⁴

What turned Centre Point into a national scandal, though, was the fact that when it was finished, Hyams refused to let it out. With property prices rising so quickly, he preferred to wait for a single tenant who would take the building for £1.25 million, rather than let it floor by floor, as the council repeatedly requested. London was therefore left with the embarrassing spectacle of a 385-foot concrete tower at the end of its most famous thoroughfare, finished but completely vacant, at a time of mass unemployment and rising public concern about homelessness. By June 1972, it had been empty for almost eight years, yet still Hyams showed no signs of finding a tenant; indeed, because of the tax laws on capital gains, he was probably making more money by keeping it empty than if he had rented it out. At one stage, the borough of Camden threatened to apply for a compulsory purchase order, while Peter Walker even threatened to use public money to nationalize it. A year later, a group of Labour MPs organized a public protest on the steps outside the unoccupied building, and in January 1974 more than a hundred demonstrators managed to get into it. Still Hyams refused to budge. Indeed, by the time Heath faced the voters, Centre Point had become a nationwide symbol of the excesses of property speculation and the apparent callousness of the new capitalism.²⁵

For a government keen to encourage enterprise and entrepreneurship, Centre Point was a painful embarrassment. Heath’s administration, said a stern leader in The Times, had been ‘too soft in its attitude towards property development’, encouraging the widespread feeling that ‘the Conservatives are to a considerable extent to blame for it’. Writing in May 1972, as the railwaymen prepared to join the dockers on strike for a better wage, the paper’s star columnist Bernard Levin wondered if Heath realized the resentment that was building among the low-paid. ‘Has he any idea what a man earning £20 a week feels when he sees speculators about to make untold millions by befouling Piccadilly Circus and Covent Garden and indeed any other bits of any other city that they can get their hands on?’ Levin wrote. ‘What sort of a society is it that says dockers are holding the country to ransom by striking but does not say that developers are doing so by keeping office blocks empty until the rent has risen high enough to satisfy their greed?’ And it was a sign of the times that the piece next to Levin’s column took a similar line. Written as an open letter from a company director who had lost his job, his Jaguar and his £5,000 annual salary, it warned the Prime Minister that working-class people had lost all faith in his sense of fairness. ‘You may sincerely believe it when you talk about “one nation” and conquering inflation for the common good but they frankly don’t believe it,’ the former director wrote. ‘To them you are a plummy-voiced, granite-hearted lot of bastards who are out to kill the unions and grind them down. And everything you say about inflated wage demands confirms it.’²⁶

Given that Heath’s ministers spent more money on social services than any of their predecessors, planned to expand the NHS and state education, pumped millions into Upper Clyde Shipbuilders and Rolls-Royce, and rapidly abandoned their early economic rigour in an attempt to get people back to work, it is ironic that they were perceived as granite-hearted bastards. The problem for Heath, though, was that he could never shake off the albatross of Selsdon Man. By talking so much about competition, enterprise and meritocracy, he had earned the reputation of a ruthless modernizer, the political equivalent of Jim Slater, slashing through the red tape of the welfare state. Even though the union leaders knew that this image was a myth, their members were convinced it was true. On top of that, Heath had become the symbol of a deeper change sweeping through British society: the rise of the ‘self-made men’, ambitious and assertive grammar school boys like Slater and Merroney, impatient with tradition, determined to wring every possible penny from a society ripe for development. Ten years later they would be called Thatcherites; now they were the ‘new capitalists’, the young meteors of a society in which, as the researcher Mark Abrams wrote in October 1974, ‘more money has become almost a terminal value’. And it was not only left-wing idealists who found them deeply unsettling. Plenty of Tory voters shared the sentiments of the ex-serviceman Turner in David Edgar’s play Destiny (1976), who is dumbfounded when his beloved antique shop is ripped down by developers. ‘You bastard,’ he tells the long-haired, denim-jacketed Monty, the incarnation of the new capitalism. ‘No, not bastard,’ Monty says. ‘Selsdon Man … We make money out of money. We covet on a global scale. We got cupidity beyond your wildest dreams of avarice.’ Despite his years of service, his love of country, Turner is out of date; it is Monty who represents the future. ‘Once we stood for patriotism, Empire,’ laments an old-fashioned middle-class Conservative lady in the same play. ‘Now it’s all sharp young men with coloured shirts and Cockney accents, reading the Economist.’²⁷

But it was Heath himself who coined the phrase that defined the excesses of the era. Amid all the rumours and revelations of financial corruption that dominated headlines in the early 1970s, one name cropped up again and again: Lonrho. Founded at the start of the century as the London and Rhodesian Mining Company, it had fallen in the early 1960s into the hands of an Anglo-German financial adventurer, ‘Tiny’ Rowland, who drank and gambled with, among others, Jim Slater and James Goldsmith at the Clermont Club in Mayfair. Like his gambling partners, Rowland called himself a ‘revolutionary capitalist’. A tall, charismatic man, he cultivated the image of an imperial adventurer, jetting ceaselessly around Africa, charming the black leaders of the newly independent states, and gradually acquiring a vast portfolio of concessions, mining and trading rights, newspapers and even a Malawian railway. ‘He was brought up against a background of restless danger,’ an aide reverentially explained, ‘so his mind never worked in conventional ways.’ By the early 1970s, Rowland had become one of Britain’s best-known and most flamboyant entrepreneurs, having bought the Hadfields steelworks, the distillers Whyte and Mackay, the Volkswagen agency and a string of casinos. He also seemed determined to buy his way into the British establishment, having recruited the former Conservative Defence Secretary Duncan Sandys, the former Labour Attorney General Lord Shawcross, and the chairman of the backbench 1922 Committee Edward du Cann to act as his advisers.²⁸

Rowland’s methods made him plenty of enemies. As early as 1971, his banker Sir Siegmund Warburg, no shrinking violet himself, had decided that he could no longer represent Lonrho. Meanwhile some of the firm’s older directors were getting cold feet about Rowland’s buccaneering, autocratic style. At last, led by the former BOAC chairman Sir Basil Smallpeice, they tried to have him dismissed as Lonrho’s chief executive. The ensuing scandal dominated press headlines in May 1973, as Rowland first tried to get the High Court to restrain his adversaries, and then decided to take his case to a full shareholders’ meeting, hoping that Lonrho’s small shareholders, who had made large amounts of money under his guidance, would stay loyal. Since it was clear that Rowland had not only bribed African officials and defied international sanctions against Rhodesia, but had systematically hidden from his own board various other activities, including an annual $100,000 tax-free bribe to Duncan Sandys, the press was unanimous. ‘Mr Rowland Must Go,’ insisted a long Times leader just before the shareholders’ meeting, explaining that he could not be allowed ‘to run a major British public company as if it was still a personal fief’.²⁹

For Heath, the Lonrho affair was yet another embarrassment. The problem was not just that it involved two well-known Conservatives in Sandys and du Cann, for the affair had come to symbolize a broader financial culture of irresponsibility, ruthlessness and greed, which the government itself was supposed to have encouraged. In the House of Commons on 15 May, the Labour backbencher Jack Ashley pointedly asked how Heath could ‘justify the double standard of constantly refusing to intervene in the great national scandals of big business … while he constantly intervenes and moralises about the legitimate wage claims of trade unions?’ Would he accept, added the Liberals’ Jo Grimond, that excesses on Lonrho’s scale were ‘fatal to the counter-inflationary policy’, and that ‘greed does not now seem to be a monopoly of the trade unions’? The questions gave Heath no choice, for as he later explained, Lonrho had ‘presented socialists with a marvellous propaganda coup. To have defended such behaviour would have been a disgraceful own goal.’ And what he said next guaranteed his place in the dictionary of quotations. Lonrho, he gloomily told the House, represented ‘the unpleasant and unacceptable face of capitalism’.³⁰

It has since been suggested that Heath’s best-known saying was actually a mistake, and that his notes called for him to say ‘facet’ rather than ‘face’, which, if true, speaks volumes about his insensitivity to language. In his memoirs, however, he stuck by the famous formula. He never understood why the remark was seen as a mistake: it was ‘sheer stupidity’, he thought, for Conservatives to ‘fall into the trap of reflexively defending’ the excesses and defects of capitalism, and ‘no true friend of free enterprise could have said less’. But even he was taken aback by the way in which the phrase stuck, being brandished time and again by Labour MPs like some badge of victory. At a time when sub-Marxist ideas were proving enormously popular in academia and the arts, when the headlines were full of the ‘class war’ between the government and the unions, and when the property boom had drawn fresh attention to the economic inequalities in British society, Heath seemed to have scored a dreadful own goal. Even capitalism’s most eminent champion, it seemed, could not deny its ‘unpleasant and unacceptable’ face. Perhaps the remark would soon have been forgotten. But on the right of the Conservative Party, there was a growing sense that it was a Freudian slip, a mistake that revealed the crypto-socialist behind the mask of the self-made man. For by this stage Heath had left the ‘quiet revolution’ long behind, and to his Conservative critics, he was fast becoming more socialist than the socialists themselves.³¹

To many Tory activists, Heath’s government seemed to be losing conviction. On the left, Sir Gerald Nabarro leads a rebellion against the Maplin airport scheme. In the centre, Enoch Powell makes a typically lonely stand against the EEC. On the right, Heath himself denounces the ‘unacceptable face of capitalism’. Cummings in the Daily Express, 15 June 1973.

On New Year’s Day 1973, Britain finally became a member of the European Economic Community, fulfilling Edward Heath’s dearest dream. For the United Kingdom’s 55 million people, however, little seemed to have changed. On the front page of The Times, the main headline reported that Heath and Wilson had clashed over Britain’s future in Europe, the latter claiming that the government had accepted ‘utterly crippling’ terms in defiance of public opinion. Elsewhere, headlines announced that the Irish police had arrested ‘one of the most wanted men in Northern Ireland,’ the Provisional IRA’s Londonderry commander Martin McGuinness; that London’s gas workers were on an unofficial overtime ban, endangering gas supplies to almost a million people in the South-east; and that the Ugandan president Idi Amin had accused Britain of interfering in his plans for economic renewal. In other news, Jimmy Savile had been awarded the Variety Club’s award for showbusiness personality of the year, while Peter Cormack’s goal against Crystal Palace had taken Liverpool clear at the top of the First Division. On the letters page, the controversy over the Post Office’s admission that it had made a mess of Christmas deliveries still rumbled on. In the Women’s Advertisements, there were appeals for travel representatives in Majorca and Torremolinos, for ‘young ladies with personality’ to work as general assistants at the Richmond Arms Hotel, Goodwood, and for a ‘young attractive receptionist’ to work for a Chelsea estate agent. On Radio One, Tony Blackburn was in Luxembourg, of all places, to mark the big European day, while Jimmy Young was in Brussels and Dave Lee Travis in Cologne. That evening, television viewers could look forward to The Generation Game, Tarbuck’s Follies, Opportunity Knocks and Coronation Street. And in the charts, little Jimmy Osmond still held sway over the hearts and minds of Britain’s teenagers, thanks to his merciless rendition of ‘Long-Haired Lover From Liverpool’.³²

Even as he celebrated Britain’s accession to the Common Market, Heath’s mind was on the next stage of his pay policy. On 17 January, flanked by Anthony Barber and Sir William Armstrong in the gilded splendour of Lancaster House, he unveiled Stage Two, which was scheduled to begin on the first day of April. Under the new regime, pay rises were to be limited to a flat £1 a week plus 4 per cent, with nobody’s annual increase allowed to exceed £250. There were strict controls on rents and dividends, and companies’ profits were not allowed to exceed the average of their best two years out of the last five. Meanwhile, there were two new government bodies to police the new arrangements: a Pay Board to examine all settlements involving more than 1,000 employees; and a Price Commission to scrutinize retail, wholesale and manufacturers’ prices, with manufacturers allowed to raise prices only in exceptional circumstances, as defined by a new Prices and Pay Code. All of this seemed a long way from Selsdon Man, and Heath insisted that it was merely a cruel necessity before the government could return to voluntary arrangements. But a strategy paper prepared for the Tory high command a few weeks later told a different story. ‘Few people are in the long term going to be prepared to leave it to the government to decide the remuneration appropriate to their work,’ the paper correctly noted, while a ‘large section of the middle class’ was bound to resent ‘the prodigious extension of the powers of the state’. But it was ‘unlikely’, the authors concluded, that Britain could return to free pay bargaining until there had been ‘some fundamental change in the techniques of economic management’ as well as a ‘completely new solution to the problem of cost-push inflation’ – and neither seemed likely to materialize any time soon.³³

Not unpredictably, union leaders reacted furiously to the news of Stage Two. The general secretary of NUPE, Alan Fisher, colourfully claimed that Heath’s concern for the low paid had been exposed as ‘political pornography; it stimulates the desire but does not relieve the need’, a slightly strange formula given that, with the pornography trade booming, thousands of men clearly thought it did offer relief of a kind. In the weeks after the announcement, individual unions rushed to try to impose more generous settlements; by February, gasmen, teachers, hospital staff, train drivers and Ford car workers had all walked out, with the Civil Service staging its first ever one-day strike on 27 February. By the standards of the previous year, however, this was all fairly small-scale stuff. The NUM, for example, was divided, and in a strike ballot on 13 April the miners voted by almost two to one against striking for higher pay. This took much of the sting out of the TUC’s planned resistance, and although the unions called for a ‘day of national protest’ on 1 May, the result was a damp squib. While the railways, engineering firms and car factories suffered severe disruption, hundreds of thousands of workers defied their unions’ instructions. At British Leyland, eight out of ten workers reported for duty, more than a hundred NUM pits carried on as usual, and in London, most buses and tube trains ran as normal. Heath’s pay policy, it seemed, might just work: even the hawkish Economist predicted that inflation for 1973 should be around 8 per cent, less than half the figure for 1972. The government was well on the way, it said, to a ‘historic, if temporary, victory’.³⁴

If Stage Two had genuinely worked to keep inflation down, then perhaps it would have been worth the gargantuan bureaucracy of Pay Boards and Price Commissions, which smacked of some Eastern European Ministry of Tractors rather than a government that talked endlessly about dynamism and competition. But although Heath had brought a temporary end to inflationary wage claims, rising prices meant that workers were bound to demand a pay rise eventually – and when that happened, the logic of the incomes policy meant that the government was legally bound to confront them. As the Financial Times’s columnist Samuel Brittan, an early cheerleader for monetarism, never ceased to point out, the only way to avoid a fight was to institute ‘a permanent system of [wage] regulation’, which rather defeated the point of a free economy. The real problem, though, was that the world economy was rapidly sliding into a new age of inflation, recession and instability. Across the industrialized world, productivity and output were slowing down after years of massive growth. Automation and computers were throwing millions out of work, and yet consumers’ enlarged expectations meant that inflationary pressures were greater than ever. Meanwhile, the end of the old colonial empires and the rise of the developing nations meant that world commodity prices were sharply increasing, most famously oil, which had begun to climb even before the emblematic shock of late 1973. The truth was that although many politicians – especially on the Labour benches – refused to face it, Britain was now part of a globalized economic system, and not even the most powerful Pay Board or Price Commission could hold back the tide of world inflation.³⁵

It is often thought, quite wrongly, that the oil shock of late 1973 changed everything. In fact, global commodity prices were already rising by terrifying margins. According to The Economist’s authoritative indices, the cost of materials used in manufacturing almost doubled between September 1972 and September 1973, with the price of copper going up by 115 per cent, cotton by 127 per cent, cocoa by 173 per cent and zinc by a staggering 308 per cent. What was particularly bad news for Britain was that prices were going up at precisely the moment when the government had launched a domestic boom, so demand not just for commodities but also for imported consumer goods like cars and colour televisions was unusually high. With import prices up by 26 per cent, Britain spent an extra £2 billion on imports during 1973, plunging the balance of payments deep into the red. It was no wonder that the pound continued to drop on the international exchange markets (thereby making imports even more expensive); little wonder, either, that the markets were becoming seriously worried about the long-term prospects of the British economy. Within the walls of the City of London, panic was quietly setting in. Not even the most prestigious institutions were immune: when Cazenove’s, brokers to the Royal Family, sent a circular to its clients in February 1973 condemning ‘the general lack of respect for important values (ignored murders in Ulster, indiscipline and public exhibitions of filth)’, it was hard to miss the whiff of hysteria.³⁶

As Heath was often the first to point out, there was not much he could do about the rise in global commodity prices, short of closing Britain’s borders to imports. But the Barber boom made a bad situation much worse. Not only did it stimulate demand for imports at the worst possible moment, it also sent the money supply rocketing far beyond the limits of good sense. With broad money (M3) growing at more than 25 per cent for two successive years, it did not take a dogmatic monetarist to see that there was an enormous risk of the economy tipping into rampant inflation.^* Even in the City, where many people made vast amounts of money from the credit boom, there was considerable unease; in September 1972, the Banker ran a critical editorial entitled ‘Money Out of Control’, warning that the gigantic explosion in bank lending had gone not into industrial investment, but into inflating the price of ‘existing resources, such as houses, building land and shares’. In the second half of 1972, the price of new houses had gone up by 25 per cent and older properties by 18 per cent, a boom of unsustainable proportions. As the paper put it, this was ‘Keynesianism gone mad’. And by 1973, the economy was showing all the symptoms of dangerously overheating. In the first six months alone, Britain’s GDP soared by 6.1 per cent, well in advance of the government’s projections. To be sure, unemployment was falling, down from over a million to just over 500,000 in less than eighteen months. But already there were reports of companies suffering shortages of labour and parts, of construction firms overloaded by more business than they could possibly want, of more job vacancies than there were men to fill them – the classic signs of a boom that had run well out of control.³⁷

At first, Barber stubbornly refused to take action before the boom turned inexorably to bust. Defying entreaties from the right to slash spending, his Budget on 6 March gave away a further £120 million, raising pensions and benefits and cutting National Insurance contributions. Given the circumstances, this was bold to say the least, but once again it owed more to Heath than to his Chancellor, who was privately becoming deeply ‘frustrated’, as he later put it, over the extravagant level of public spending. A few denounced him as criminally reckless: the Times’s economics editor Peter Jay, an early convert to monetarism, warned in May of ‘the most acute prospect of overheating on the back of the weakest balance of payments in the postwar period’, while the Spectator predicted that the atrocious trade figures would inevitably mean ‘radical and punishing deflation, probably later this year’. Yet still most commentators and Tory backbenchers remained wedded to the principle of breakneck expansion, seeing it as welcome relief after the unemployment of early 1972. Meanwhile, Labour even accused the government of being too timid, as did the TUC and, making an unlikely trinity, The Economist. Indeed, as pressure built over the summer, The Economist maintained that Britain was ‘two-thirds of the way to an economic miracle’, while The Times ran an editorial entitled ‘No Time to Moan and Weep’, urging the government to stick to ‘the policy of economic expansion’. This was no time, it said sternly, for a ‘squeeze’ in the money supply: the government must remain committed to a ‘large investment programme’, and ‘the British must not behave like a self-defeated and self-dividing nation of weaklings and cowards’.³⁸

Not even this rather hysterical rhetoric, however, could blind Anthony Barber to the realities of economic life. With food and housing costs surging and the pound in free fall, he finally bowed to the inevitable, slashing £500 million from public spending in May 1973 and raising the Bank of England’s minimum lending rate to 11.5 per cent by the end of July, the highest level since the outbreak of the First World War. By the middle of August, building societies’ mortgage rates were up to 10 per cent, bursting the property bubble almost overnight, and on 12 September the Bank of England, alarmed at the prospect of a general liquidity crisis, imposed strict lending restrictions on the entire banking system, including curbs on personal credit and tighter rules for financial transactions. But even this was not enough. By 13 November, the Bank had raised the minimum lending rate to 13 per cent, a record, and called in 2 per cent of the banks’ liabilities to be held as special deposits. But it was too late; hubris had long since given way to nemesis. In the last week of November, rumours began to circulate about the health of London & County Securities, one of the fringe banking groups that had done very well out of the credit boom by lending heavily on property. As luck would have it, it was known as ‘Thorpe’s bank’, after the charismatic Liberal leader, a non-executive director. But even Thorpe’s famous suavity could not withstand the news that, on the last day of November, London & County was on the brink of collapse, stretched to the limit by plummeting shares and massive liabilities. The age of the City buccaneers was over. The secondary banking crisis had begun.³⁹

Throughout the late summer of 1973, Edward Heath’s poll ratings remained becalmed. Recent by-election results had been dreadful, with the government losing Rochdale in October 1972, Sutton and Cheam in December 1972, and both Ripon and the Isle of Ely in July 1973, all to Thorpe’s resurgent Liberals, who had come from nowhere to become the political sensation of the moment. For Heath, it was not much consolation that the victorious Liberal candidates – among them the vastly and splendidly overweight Cyril Smith and the lugubrious Clement Freud – added greatly to the colour and gaiety of Westminster life. Indeed, the Prime Minister’s personal standing remained very poor: according to Gallup in July, only one in five people thought he would be re-elected in late 1974 or 1975, and with the Liberals approaching 30 per cent there were even murmurs that the Tories would be relegated to a poor third.

Heath himself, however, remained surprisingly upbeat. When Douglas Hurd accompanied him on a tour of the constituencies that September, the mood was relaxed and optimistic, the sun shining as Heath conducted a calypso at a Walsall primary school, shook hands with ‘waving women in sunny streets’, drank gin with local newspaper editors and signed autographs for a big and friendly crowd in Reading. Even when Hurd was given the latest poll figures, showing Labour on 34 per cent, the Liberals on 32 and the Conservatives on 31, the Downing Street staff remained calm and cheerful. After all, they had until June 1975 to call an election, and by that time, they hoped, the country would be basking in the sunshine not just of a decent British summer but of the economic miracle wrought by Barber’s dash for growth. And the next step towards recovery, they hoped, would be the latest instalment of Heath’s plan for wages and prices: Stage Three.⁴⁰

Since Stage Three was a monument to bureaucratic grandiosity, it made perfect sense for Heath to unveil it in the gilded baroque surroundings of Lancaster House, lecturing the television cameras like some latter-day General de Gaulle. Under the new regime, pay rises were to become more flexible. Although the ceiling was set at 7 per cent or £2.25 a week, with a maximum per individual of £350, there were now exceptions for unsocial hours, efficiency schemes and ‘equal pay’ measures. Prices, however, were even more tightly controlled than before, with an extra 1,000 companies coming under the supervision of the Price Commission. All in all, it was an even more complicated package than Stage Two: the consultative Green Paper published to accompany the announcement was fifty-five pages long, including a mind-numbing thirty-seven pages of amendments and clarifications. The TUC’s reaction was predictably negative, and general secretaries queued up to offer gloomy criticisms. But Heath had thrown them more than a few bones, including a Christmas bonus for pensioners, a strict limit on dividend payments, and ‘threshold payments’ to protect living standards if import prices increased too much. As he explained that evening on Panorama, the threshold payments guaranteed that workers would not suffer from inflation: since they would kick in automatically, there was no need for the unions to seek inflationary pay rises themselves. And since unemployment had fallen so fast it was almost at a record low, he was confident that the unions would make little trouble. Even The Economist agreed that world commodity prices might soon fall, which would inevitably mean a recovery in the balance of payments. ‘As a nation, as a country,’ Heath intoned at the end of his presentation, ‘we have a great opportunity, and it is up to all of us as a nation to seize it.’⁴¹

Yet even before Heath published the new plan, there were signs of trouble. An ITN poll released on 6 October hinted at what critics called a ‘serious failure of communication’, with 53 per cent describing Heath’s incomes policies as unfair and only 38 per cent calling them fair. Only 28 per cent said that they were better off than in October 1972, while 30 per cent said they were about the same and 41 per cent thought they were worse off. Perhaps most worryingly for the Prime Minister, only 14 per cent expected things to get better over the next twelve months, while 49 per cent thought they would get worse – hardly a vote of confidence in his economic policies. And plenty of experts had their doubts that Stage Three was the answer to the nation’s problems. As Alan Watkins wrote in the New Statesman, the much advertised threshold payments ‘could turn out to be catastrophically expensive’ if prices defied Heath’s predictions. Under Stage Three, workers were entitled to an extra 40p a week as soon as the retail price index went above 7 per cent, and then another 40p for every percentage point thereafter. If prices remained stable, or increased by only a small margin, then it would be no more than a clever gimmick to win union support. But if they went up, then the threshold payments might be an inflation accelerator, piling wage rises on price rises, a certain recipe for hyperinflation.⁴²

It was at this moment that fate took a decisive hand. Whatever Heath’s weaknesses – his atrocious communication skills, his impatient dismissal of tradition, his inability to understand the passions of others, his curious lack of political sensitivity, his towering personal rudeness – they were dwarfed by one flaw he could do absolutely nothing about: he was extraordinarily, incredibly unlucky. Just three days before the unveiling of Stage Three, Egyptian and Syrian troops crossed the ceasefire lines in the Sinai desert and the Golan Heights, launching a coordinated offensive that took Israel almost completely by surprise. Six days later, American planes began airlifting supplies to Israel – a decision that President Nixon and his Secretary of State, Henry Kissinger, had already been warned might provoke severe economic repercussions from the Arab nations who dominated OPEC, the oil-producers’ cartel. And vengeance came swiftly. On 16 October, the delegates of OPEC’s six Gulf states released their first bombshell: a 70 per cent increase in the posted price of oil, which now reached a record $5.11 a barrel. It was the first time they had set the price without bothering to consult the world’s major oil companies, among them the part-British firms BP and Shell. ‘The moment has come,’ remarked the Saudi oil minister. ‘We are masters of our own commodity.’⁴³

It is a complete myth that the oil shock of late 1973 was a surprise, breaking like thunder in an untroubled blue sky. In fact, the papers had been predicting it for months, even years, and the OPEC nations had actually secured their first price increase two years before, reflecting not only the new self-assertion of the post-colonial Arab world, but the fact that greedy Western consumers were guzzling more oil than ever before – 44 million barrels a day by 1970 – while trying to sell the Arabs manufactured goods at rapidly rising prices. What is more, the notion that the Arabs kept their monopoly of oil hidden up their capacious sleeves as a kind of secret weapon is utter nonsense. As early as 1971, Heath himself had told the West German Chancellor Willy Brandt that if there was another war between Israel and the Arabs, then OPEC might cut oil supplies to the West. A year later, officials at the Department of Trade and Industry predicted that a steep increase in the price of oil was bound to happen soon, and in June 1973 Reginald Maudling warned the readers of the Sunday Express that conflict in the Middle East was bound to trigger a sharp increase in the near future. Indeed, the Arabs hardly made a secret of their intentions. In May 1973, Saudi Arabia’s King Faisal publicly declared that the West must ‘do something to change the direction that events were taking in the Middle East’, or they would have to pay the price. And as late as September, he told American television that ‘America’s continued support of Zionism against the Arabs makes it extremely difficult for us to continue to supply the United States with oil’. The West could hardly say it had not been warned.⁴⁴

What few had anticipated, however, was how savage the blow would be. Since Heath’s government was regarded as friendly by the Arab world, Britain was spared a full embargo. Even so, the impact of the price hike as well as severe production cutbacks meant that the price of a barrel of oil surged from $2.40 in early 1973 to a staggering $11.65 by the end of the year – and this compared with just $1.80 at the turn of the decade. But Heath believed, with characteristic stubbornness, that Britain could escape the storm because of its connections to Shell and BP, of which it owned 40 per cent and 51 per cent respectively. A few weeks after the crisis began, he summoned Sir Frank McFadzean, the chairman of Shell, and Sir Eric Drake, his counterpart at BP, to a secret meeting at Chequers, and told them that they must not cut their supply to Britain, as they were doing elsewhere in the world. McFadzean pointed out that since Shell was 60 per cent owned by the Dutch, he could hardly give Britain preferential treatment. So Heath focused on Sir Eric Drake, not asking him but ordering him, as his majority shareholder, to do as he was told. Not for the first time, though, Heath had chosen his adversaries badly. A tough and blunt man, Drake had once been threatened with death in Iran, and had no intention of letting Heath ‘destroy my company’. As he aggressively pointed out, if Britain insisted on preferential treatment, not only would BP’s smaller shareholders sue the government, but its subsidiaries in France, West Germany and elsewhere would almost certainly be nationalized in retaliation. If Heath insisted, Drake said, ‘then I must tell you that I must have it in writing. Then we can plead force majeure to the other governments because I’m under government instructions.’ Heath hesitated: such a document, he knew, would destroy his relationship with his new European partners. ‘You know perfectly well I can’t put it in writing,’ he snapped. ‘Then I won’t do it,’ Drake said calmly.⁴⁵

Heath’s fury was understandable, because the oil crisis had the potential to destroy his economic ambitions; but it was impotent fury all the same. In the long run, the crisis was a watershed not just in British but in world history, the moment when globalization made itself felt, when the Western industrial powers realized that they could not have everything their own way, and when millions of ordinary families felt the shuddering impact of distant events hundreds and thousands of miles away. As a result of the price rise, the industrialized world faced a bill for more than $70 billion a year on top of what they were paying already. And with oil at almost $12 a barrel, the Western economy plunged almost overnight into a nightmarish combination of recession and inflation, ‘stagflation’, amounting to the worst global downturn since the Second World War. For Heath, it was the worst possible news, and there was no silver lining. The Economist estimated that the cost in imports would add an extra £1.8 billion to the balance of payments deficit in the next twelve months, while the inflationary effect would be as if the entire country had awarded itself a pay rise of 15 to 20 per cent. And with prices increasing, Heath’s own policies guaranteed that wages would rise too, thanks to Stage Three’s threshold payments, which were triggered eleven times in the next few months. ‘I realised very quickly’, said Anthony Barber, ‘that all we’d been trying to achieve was really coming to an end.’⁴⁶

But it is also a myth that the oil shock was always bound to bring doom and disaster in its wake. In the United States – which was punished even more severely than Britain, because of its support for Israel – the Nixon and Ford administrations managed to weather the economic blizzard without plunging the economy into a devastating bout of inflation, and although there was a prolonged and painful recession, the American economy was in recovery by early 1976. But coming after three draining years of industrial conflict, pay restraint and rhetorical class warfare, the oil shock brought out the very worst in British politics. What was more, it exposed all the weaknesses of Heath’s economic policies: the wishful thinking, the reckless spending, the naive faith in rational bureaucratic solutions. And it handed power to the one group of workers that Heath most dreaded seeing again in the headlines: the miners. Only months earlier, Joe Gormley had promised the NUM conference that ‘never again will we say we shall be more loyal to the country than to our members’. With the country desperate for energy, the miners found themselves in a position of unprecedented power – and they intended to use it.⁴⁷