For the Record

This was the big call I had been waiting for, and I can still remember the thrill of walking through the famous black door to join the team that briefed the prime minister for what was then a twice-weekly encounter.

My partner in this endeavour was a rising star in the whips’ office, the Boothferry MP David Davis. Fifteen years later we would become rivals for the leadership, but in 1990 he would come to my office very early on Tuesday and Thursday mornings, and we would discuss what bullets we could put into John Major’s gun. We worked together well.

Some people look at Prime Minister’s Questions, with all its noise, poor behaviour and often heavy-handed prepared jokes, and think it is somewhere between a national embarrassment and a complete waste of time. They miss the point. In our system, prime ministers have to be on top of their game and across every subject. PMQs exposes them if they are not. Weaknesses, failings, uncertainties, lack of knowledge – all these things and more are found out.

Not only does it help hold prime ministers to account; it gives them more power and control by enabling them to hold Whitehall to account. While serving in No. 10, I saw policy being either determined in double-quick time, or fundamentally changed, on many occasions because the spotlight was suddenly shining brightly on a particular area, and credible answers were urgently required. It is one of the mechanisms that makes our system so responsive. You can use it to change policy and override other ministers and departments. I did this a number of times when I became prime minister.

I got to know and like, and admire enormously, John Major. He was a passionate Conservative, but a practical one, not an ideologue. If he was unsure about how he should act on a particular issue, he seemed almost always to default to the decent thing. He had a temper, to be sure – and I was on the rough end of it once or twice – and parts of the job clearly weighed heavily on him. But he was a fundamentally good man.

He was also a very tactile one. I used to arrive early for the briefing sessions and sit at the bottom of the narrow flight of stairs that led to his No. 10 flat, just outside the door to the study where we held the briefing meeting. John had a habit of bounding down the stairs and, with a cheery hello, ruffling my hair.

My main job as leader of the political section of the CRD was taking apart the Labour opposition and preparing for the 1992 general election.

The tale of that election is extraordinary. The Conservative Party had ditched its most successful ever leader, caused inflation to rise, put up interest rates, seen the property market crash and the country tip headlong into recession. Meanwhile, the Labour Party under Neil Kinnock had scrapped some of its most unpopular policies, such as unilateral nuclear disarmament, and seemed hungry for, and perhaps even ready for, power.

Yet we won. And the scale of the victory should not be measured by the small parliamentary majority – twenty-one seats – that John Major achieved. The true scale of his victory was the fact that we were almost eight percentage points ahead of Labour, and he had attracted more votes than any other prime minister in British political history.

To be sure, we didn’t expect it. I had a strong sense then that the only person who really thought we would win was John Major himself. He seemed to have an innate confidence that when given the choice, the British people would stick with him.

No one should underestimate the personal triumph for John Major. In the head-to-head with Neil Kinnock, people knew who they wanted as prime minister. But allied to this was the most systematic destruction of opposition policy that I have ever seen in a campaign. The mantra that ‘Oppositions don’t win elections, governments lose them’ was turned on its head. The hubris of Labour’s pre-polling day Sheffield rally, and the self-inflicted wound of its shadow Budget, in which Labour promised to raise taxes on people who saw themselves as middle-earners, are well documented. But those of us who were in the campaign team would argue that the costing of Labour’s spending pledges, together with the blunderbuss of our advertising campaign, were what made the biggest difference. By polling day everyone knew that a Labour government meant higher taxes.

Norman Lamont’s pre-election Budget was a political masterstroke: by stealing Labour’s plan for a 20p starting rate of income tax he pushed them into making new tax proposals. So just at the moment they should have been talking about anything other than tax, they walked into our trap.

Election night, when predictions of Labour victory turned to the reality of a Conservative majority, was a moment of pure political joy. While I would experience the excitement of getting elected to Parliament in 2001, and the topsy-turvy night in 2010, the exhilaration of 1992 wouldn’t really be matched until May 2015, twenty-three years later.

Victory in the general election, and my relationship with Norman Lamont, provided me with the chance to take the next step in my political career – becoming a special adviser, or ‘spad’, at the Treasury.

The Treasury today retains much of the power and aura it had back then, but the place I worked in nevertheless seems a world away. Women in white coats would wheel tea trolleys around the so-called ‘magic circle’ on the principal floor of the Treasury building in Whitehall where the key officials and spads sat. The office I had then – all to myself – was substantially bigger than the one I would have as prime minister.

And many of the rooms – particularly the chancellor’s – were gen­uinely ‘smoke-filled’. Norman smoked an endless succession of small cigars. His principal private secretary, later to become my cabinet secretary, Jeremy Heywood was rarely without a cigarette between his fingers. Chief economist Alan Budd and specialist economic adviser Bill Robinson were constantly puffing away. When the deputy governor of the Bank of England, Eddie George, came to see the chancellor he would light up too. Back then I was smoking twenty Marlboro Lights a day, and would happily join in. There were times when you couldn’t see the other side of the room.

Going to the Treasury also introduced me properly to William Hague. Elected at a by-election in 1989, he was Lamont’s parliamentary private secretary, the first rung on the ladder for a new MP.

William immediately struck me as one of the brightest and most talented Members of Parliament I’d ever come across. He had a huge understanding of the economic and other policy challenges we faced, while knowing his parliamentary colleagues and the complexity of Conservative politics back to front. We formed a friendship that has lasted ever since.

Seismic events were ahead for all of us. The decision to join the ERM – a fixed exchange rate between European currencies – was made by John Major and Margaret Thatcher in October 1990, before Norman Lamont arrived at the Treasury. Our task was to try to make the policy work. We failed.

The story of the end of Britain’s membership of the ERM is simply told. Following reunification, the German economy required high interest rates. Following the Lawson boom, the United Kingdom economy was in recession and required low interest rates. It was Germany that drove the European economy, and the mighty Bundesbank had a critical say in the ERM. Naturally, they prioritised German domestic policy. In the end the ERM could not contain this fundamental structural imbalance. That, above all, is what lay behind Britain’s exit.

But the ERM wasn’t just a story about Britain’s economic circumstances. It became an essential proxy in the Conservative war over the burgeoning European Union. Pro-Europeans made the argument then – and some still do now – that Britain joined at the wrong time and at the wrong rate, and if only different decisions had been made,the ERM might have worked. They also argue that leaving it so dramatically was unnecessary, that there was some middle way by which Britain could have been part of a realignment of Europe’s currencies, thus avoiding the humiliation of either a very public devaluation of the pound, or the exit that eventually took place. Some anti-Europeans claimed then – and still claim now – that the ERM actually caused the British recession, and was therefore responsible for all the pain it would cause in terms of job losses and house repossessions.

Both these views are, in my view, wrong.

The pro-Europeans miss the real point. Of course it might have been better if Britain had joined the ERM at a different time or at a lower rate, but in the end what did so much damage to the British economy was not the precise exchange rate, but the high interest rates, and therefore high mortgage rates, required by the ERM because of what was happening in Germany. No country ever managed for any sustained period to have interest rates below those prevailing in Germany. So even if we had joined at a lower exchange rate, those high interest rates would still have been necessary.

The argument that a ‘middle way’, with a more general currency realignment, was possible simply doesn’t stand up to scrutiny. All that was effectively on offer was a substantial British devaluation. Economists will continue to argue about whether that could have prevented our forced exit from the ERM. I would simply point out that several other countries had devalued more than once. The problem was interest rates.

The anti-European argument was equally bogus. The ERM did not cause the recession in Britain. It was caused by a rise in inflation at the end of Lawson’s period as chancellor, and the need to raise interest rates to bring it under control. It is true that the ERM resulted in high interest rates for longer than was necessary, but most economists agree that that was for a matter of months, not years. The ERM made the recession longer and deeper; it didn’t cause it in the first place.

The clear conclusion from all this was that fixed exchange rate systems can put huge pressures on the economies of different countries when their economies have different needs. The real lesson was that what was true for the ERM would be doubly true for a European single currency. It would be the ERM without an emergency exit route. My mantra became ‘We cannot join the single currency, because it requires a single interest rate, and sometimes that will not suit us.’

The truth turned out to be even worse. During the Eurozone crisis, effective interest rates in the struggling economies like Spain, Greece and Portugal were far higher than in Germany because, in spite of the lack of a formal exit route from the euro, markets still thought departure was possible, and demanded a premium for funding governments, in the form of much higher rates in the most stricken countries.

William Hague’s phrase describing the euro as a ‘burning building with no exits’ would prove doubly prescient.

By the time of the 1997 election I broke with the official policy that we would ‘wait and see’ on the euro, and joined the many who took a stronger position. My time in the Treasury had made me a Eurorealist, or a Eurosceptic. That did not, however, mean being anti-European. Norman Lamont and I drafted a pamphlet, ‘Europe: A Community not a Superstate’, to explain the consequences of what had happened, and the broader lessons for Britain’s European policy. Membership of the EU was necessary for trade and cooperation, but Britain had never welcomed, and would never welcome, the political aspects of the Union. We wrote: ‘No one would die for the European Union.’ No. 10 asked us to take it out. We kept it in.

By this time Norman was in deep trouble. And politicians in trouble need everything to go right for them. They cannot afford any slip-ups, whether self-imposed or externally generated. Unfortunately, the campaign to save Norman’s ministerial career got off to a bad start at the party conference in October.

We had spent too long crafting our pamphlet, and not enough time on his crucial conference speech. Getting the balance right, between a degree of contrition about the past and excitement about a future in which we could cut interest rates and generate growth, was a big challenge, which we failed. While the speech’s reception in the hall seemed all right, the reaction of even quite friendly colleagues was that it was ‘workmanlike’.

Whenever I’ve heard that word since to describe a performance, I know that what’s really meant is ‘bad’. And there’s a rule with these things: if something is seen as quite bad on day one, it’s a disaster on day two, and a career-shortening catastrophe by the end of the week.

The next task for Norman was to formulate an economic framework that would deliver the recovery the British economy so badly needed. Here he was in his element. Because he had seen that our ERM membership might well fail, he was ready to put a new policy in place. A cred­ible domestic monetary policy to support the economy and deliver stable inflation. A tough, long-term fiscal policy to get the budget deficit under control. And supply-side reform to make our economy competitive.

This was pretty much the same medicine my government prescribed twenty years later. It worked well both times. But the right strategy needs the right implementation plan. And that is where we went wrong in 1992.

When you have to take lots of difficult and potentially unpopular decisions – including raising taxes – the trick is to separate those that are painful but deliverable from those that are potentially explosive. Step forward the proposal to put VAT on domestic heating bills. This was a mistake; and in many ways it was my mistake. We took the view then, just as we would in 2010, that we could not fairly and credibly reduce the budget deficit by cutting spending alone. Some tax increases would be needed. I looked carefully at all of the options, and came to the view that some of the zero rates on VAT were ripe for change. Energy prices were low, environmental concerns were growing, and we could protect the vulnerable from price increases through the benefits system.

Not for the last time in my political career, I had failed to spot the essential political equation: rational case versus emotional argument equals political disaster. And it was a disaster. We were defeated in the Commons, and had to revert to the much simpler (and less politically toxic) move of a small across-the-board increase in VAT. That taught me a lesson for the future – but it was another nail in Norman’s coffin.

Meanwhile, the economic medicine was working. Cheap money, fiscal discipline and competitiveness ushered in a period of growth that would continue throughout the decade.

And so yet another lesson was learned: while, all things being equal, reductions in public spending can have an effect on the overall level of demand in an economy, in practice other things are not equal. Controlling public spending, in an open economy like the UK, helps to lower the exchange rate and support exports, and even more importantly it frees up monetary policy to support the economy.

The most powerful memory of my time in the Treasury is of course watching – and failing to prevent – the end of the chancellor’s career.

I liked Norman Lamont immensely, and I still do. He was a thoughtful, intelligent, decent man. But he was also deeply sensitive, with a skin too thin for this sort of politics. We subsequently fell out over Brexit, of course. When I heard that he was coming out for the Leave campaign, I pleaded with him that while I had stayed true to the pamphlet we had written together all those years ago, knowing it was in the national interest to stay and fight, he – outside the responsibilities of office – was now arguing a more populist and easy case.

After the disasters of what became known as Black Wednesday and our departure from the ERM, Norman had travelled to America. When he returned he asked William Hague and me what we thought he should do. One of the reasons he was so against resigning was that he felt – rightly in some regards – that he had seen what was coming, and was warning others about it. And, more than anyone else, once we had left the ERM, he knew what needed to be done.

Could he have recovered his position without the other slips that took place: the reports of singing in the bath, the ‘Je ne regrette rien’ remark at the Newbury by-election and the other controversies? Frankly, I doubt it. The truth, as we were all to learn, was that ERM membership may not have been a policy Norman invented, but he was responsible for it – and it failed. And above all, when the ‘narrative’ in the press changes so fundamentally, it is hard to fight against it.

I tended to be the bearer of the bad news. Indeed, I had to call Norman late one night to tell him about a call I had received from a deputy editor at the Sun: ‘The good news is that your boss’s picture is on the front page of tomorrow’s newspaper. The bad news is that his head is in the middle of a cut-out-and-keep dartboard.’

Without going into all the horrors of the months that followed our ERM exit, one story stands out in my memory which demonstrates just how bad things had got. The suffix ‘-gate’ is now appended to almost every so-called ‘political crisis’, no matter how minor or short-lived. My first serious ‘gate’ was the so-called ‘Threshergate’ affair, when the chancellor of the exchequer was basically accused of consorting with prostitutes and lying.

In November 1992 the Sun managed to get the details of Norman’s credit card. It had – big deal – an outstanding balance. Along with whatever negative coverage could be squeezed out of such an unremarkable fact, one other thing caught the interest of the press: he had spent a small amount of money at a Threshers off-licence in Paddington. The hacks descended on what they assumed was the right shop in Praed Street, where an assistant, a Mr Onanugu, happily told them that the chancellor had popped in to buy some cheap champagne and Raffles cigarettes before heading out into the night in what was then, in part, a red-light district. The newspapers had a field day, with innuendos galore and cartoons featuring champagne bottles and ladies of the night.

After a day of stonewalling we decided we had to get to the truth. Norman told us he had been shopping in Paddington, but had only bought two bottles of wine for his family to drink at home. All Treasury business came to a complete halt as Norman hunted through his wallet in search of the receipt, while his wife Rosemary tried to find the bottles of wine in the No. 11 flat. All this time the shop was sticking rigidly to its story. And then came the moment of truth: Norman told us that the Threshers he went to wasn’t in Praed Street. The only trouble was that he couldn’t remember where it was.

By this stage he was at a European Council meeting in Edinburgh. I recall the absurdity of telephoning to pull him out of important discussions so he could describe the route he had taken that night, and where he had gone into the shop. I followed his directions with my finger on an A–Z, and we both concluded that it must have been in Connaught Street. I despatched an official in a taxi, and hallelujah – there was a Threshers in Connaught Street.

After the full pressure of the government was applied – I think it even took a call from the permanent secretary to the Treasury, Sir Terence Burns, to the head of the company that owned Threshers – finally the receipts were found and the puzzle solved. Norman was telling the truth. No cheap champagne. No cigarettes. And no prostitutes.

But even with all this evidence, the press didn’t want to believe it. My final memory of the saga is wandering into the press gallery with a colleague and saying, ‘For heaven’s sake, who do you believe – the Chancellor of the Exchequer of the United Kingdom of Great Britain and Northern Ireland, or Mr Onanugu?’ The unanimous cry came back: ‘Mr Onanugu!’ Today we would call it ‘post-truth politics’. Back then it was the moment I should have known we were sunk.

Eventually the summons for Norman did come. In May 1993, John Major said he was having a reshuffle, and wanted to move Norman to be secretary of state for the environment. Norman was livid. I briefly tried to persuade him to stay on and rebuild, but it was no use. He would rather let it be known that he had been sacked by Major.

The end of Norman Lamont meant the end of my time as a special adviser at the Treasury. Terry Burns and Jeremy Heywood put in a good word for me with the new chancellor, Ken Clarke, and I joined his meetings on his first day, and even wrote part of his speech in the House of Commons debate that Labour had called following Norman’s defenestration. But Ken’s two special advisers, Tessa Keswick and David Ruffley, were keen to have complete control of the political side of the Treasury. So I was summoned to Ken’s office and politely fired.

Ken was thoughtful about my future career, and had called up his old friend Michael Howard, now the new home secretary, and secured me a job as one of his advisers.

Michael was a man on a mission to reform the criminal justice system. His analysis, which I came to share, was pretty simple. More work was needed to prevent crime. The police needed to be freed from red tape to catch more criminals. The courts needed reform, so that there were more convictions. And sentences needed to be tougher, to send a clear message of deterrence. So he set us to work.

Patrick Rock was the senior special adviser, and we held meeting after meeting with experts and officials looking through every area where we could change the country’s approach to crime. What came out of this was a package of measures that Michael announced in his party conference speech. It was a radical departure. Juvenile detention centres. Reforms to the right to silence. Proper use of DNA evidence. Restrictions on bail. Longer sentencing options. And far greater use of closed-circuit television cameras. These ideas led to an effective period of change which future home secretaries, Labour and Conservative, have generally stuck to. It ushered in a prolonged period of falling crime rates.

It’s undoubtedly true that some of the motivation for this frenetic activity was the arrival of a new political figure as the Labour Party’s shadow home secretary: Tony Blair.

I remember my first meeting with him. He had proposed an amendment to our criminal justice Bill on so-called ‘video nasties’. He clearly cared about the issue, but also recognised that it was a brilliant ‘wedge’ issue: a Labour politician grabbing a small ‘c’ conservative theme and using it against a big ‘C’ Conservative government.

Meeting Tony Blair for the first time, I instantly realised that we were dealing with a different sort of politician. It wasn’t just his mixture of charm, intelligence and a touch of star quality; he also struck me as a man with the common touch, full of common sense. This was to prove a lethal combination for the Conservative Party.

I remember exactly where I was on the evening of the day Blair’s predecessor as Labour leader John Smith died. I was having an after-work pint outside the Two Chairmen pub in Westminster with Patrick Rock. The news had been shocking and tragic, but the political implications were clear. We looked at each other and said almost simultaneously, ‘That’s it. Tony Blair will become leader and we’re stuffed.’

5

Samantha

Something else happened while I was a special adviser: properly meeting the love of my life – and my wife for the past twenty-three years – Samantha.

I say ‘properly’ because Samantha was a friend of my younger sister Clare, and we first met when she was just seventeen. I remember being struck by this laid-back, almost silent, waif-like thing lying on my parents’ sofa, smoking rolled-up cigarettes and sniggering gently as my sister took the piss out of me.