Back from the Brink: The Inside Story of the Tory Resurrection

Lamont had lost confidence in Major. ‘I don’t know why the Prime Minister didn’t attempt to defend himself more,’ he says. ‘We never attempted to get across to people that this was a crisis that began in Germany and spread to every country in Europe. In the same week that we spent nearly all our reserves, every other European central bank did the same. They all devalued, like us.’³⁸ Major concedes that not enough emphasis was given to the presentation of the government’s position. His terse exchanges with the German Chancellor, Helmut Kohl, were lost in the reports of the events, but this does not excuse the fact that Major failed to make his case sufficiently. The government did not look as if it was in control of events. The damage to the Conservatives’ credibility in managing the economy was immense, but the political ramifications were even greater. Black Wednesday had a shattering effect on John Major’s confidence, and the confidence of the party in him.

The crisis had been highly instructive for the new special adviser at the Treasury. After the election, Cameron had left the CRD to help write speeches for the second most senior minister in the government. As Lamont made his brief statement outside the Treasury that evening, Cameron looked on in the full glare of the cameras. He had witnessed the day’s chaotic events from a front-row seat. ‘He would be conscious of how rough politics can get, but he would have also seen what the opportunities are that are sometimes thrown up by great setbacks,’ recalls Lamont. ‘We had a great political setback, but it presented us with an economic opportunity; I think he understood that very well.’³⁹ Indeed, Cameron did not believe that that day spelled the end of the government. ‘He didn’t think at the time, “Well that’s it, the Tories would be out of power for twelve years – it’s all over,”’ recalls a friend. Instead he came away with a heightened awareness of the dangers of a fixed rate mechanism and all that that would entail for a single European currency. Black Wednesday was a formative day for the future Conservative leader, not least in shaping a sceptical outlook towards closer European integration.

Major did not ask for Lamont’s resignation as Chancellor, but he did come very close to tendering his own in the week that followed. ‘I was ready to resign,’ he says. ‘I had written a resignation letter and a broadcast, and I thought that it was probably right to resign.’⁴⁰ He told Ken Clarke, his preferred successor, to prepare for an imminent leadership election. Only after a senior Downing Street official, Stephen Wall, spent two hours talking him out of it did he resolve to carry on.⁴¹ ‘I thought it was my mess, I ought to clear it up,’ Major recalls. Neil Kinnock had resigned after the election, and Labour’s new leader, John Smith, accused Major of being ‘a devalued Prime Minister of a devalued government’. The government would never apologise for the ERM débâcle, believing that it had been right to enter it in 1990, as all political parties had agreed at the time (with the exception of Mrs Thatcher and her closest advisers).

Despite the myth that the Conservatives’ opinion poll ratings dropped overnight on Black Wednesday, it took a while for the public to register their full dissatisfaction with the government. The party’s average rating fell by a mere two percentage points, from 38 to 36, between September and October 1992.⁴² It was the following year that was in fact the annus horribilis. The public finances were in a parlous state, as the budget deficit grew. The Conservatives had promised during the election that they would ‘continue to reduce taxes as fast as we prudently can’, and had promised specifically that there were ‘no plans and no need for an extension of VAT’.⁴³ But now Major and Lamont realised that they would have to raise taxes and cut spending. In March 1993 Lamont’s budget included tax rises, including the imposition of VAT on fuel. It pushed public support for the government over the edge. By May the party’s average poll rating dropped below 30 per cent, and it would stubbornly remain there for the next four years.⁴⁴ Major’s personal ratings as Prime Minister went into even steeper decline than the popularity of his party.

Lamont’s 1993 budget came to be seen as a necessary evil, restoring confidence in the City by placing the country’s finances on a more even keel without endangering the recovery. However, there would be a price to pay for the broken promises. A string of by-election defeats, beginning with Newbury in May 1993, began to erode the government’s perilously small majority. During the Newbury campaign, Lamont uttered the infamous words ‘Je ne regrette rien’ when asked by a reporter whether he regretted making comments about ‘green shoots’ of economic recovery. Having taken account of the views of the City and other senior ministers, Major realised that he had to appoint a new Chancellor, and on 27 May Lamont resigned from the government, after having been offered the position of Environment Secretary. Embittered, he felt that he had been made the fall guy. Yet it was Major who carried the responsibility for holding on to his Chancellor for too long after Black Wednesday.

The Poison Begins to Flow

As the public’s confidence in the Major government declined, the unity and discipline of the parliamentary party began to fragment. Inside the precincts of Westminster, the party became transfixed by Britain’s relationship with Europe. Having soured relations within the higher ranks of the Thatcher administration, the European question infiltrated the veins of the parliamentary party like poison. The Maastricht Treaty, which Major had signed three months before the election, now had to be ratified by Parliament, and a growing number of Conservative MPs were implacably opposed to the Treaty, despite the negotiated opt-outs on the Social Chapter and the single currency. A battle royal was in the making.

The 1992 general election had vastly changed the complexion of the Conservative parliamentary party, which had shifted in a more Eurosceptic direction. There were fifty-four newly elected Tory MPs, many of whom could be described as ‘Thatcher’s Children’ rather than ‘Major’s Friends’. Some of his closest allies, such as Chris Patten, had lost their seats, and Major now had to contend with a new generation of MPs who had come into politics inspired by the Euroscepticism of Mrs Thatcher’s Bruges Speech. For them, opposing a federal Europe was just as important as, if not more important than, party unity. The newly ennobled Baroness Thatcher gave them succour, as did a number of other former ministers now residing on the backbenches. No sooner had the first Queen’s Speech of the new Parliament been delivered, containing a Bill to ratify Maastricht, than the former Prime Minister gave her most important speech since leaving office. Speaking in The Hague, she set out her vision for a radically different Europe from that envisaged by Major’s government, calling for powers to be removed from Brussels and returned to nation states.

For senior ministers who represented an earlier generation of pro-European thinking, like Douglas Hurd, the Foreign Secretary, and Ken Clarke, who succeeded Lamont as Chancellor, the omens were not good. The question of Europe had now become inextricably linked with Mrs Thatcher’s downfall. ‘It stemmed from the bitterness after Margaret’s removal from office,’ says Ken Clarke. ‘She became very bitter when she lost power, and her immediate entourage persuaded her that there had been a plot and revenge had to be taken. She lurched to the right and became even more Eurosceptic than she had been in government. This was all taken up by faithful young acolytes who hadn’t served in her government but took up bizarre views which they thought were Thatcherite.’⁴⁵ To Thatcher’s loyal supporters, Clarke was one of those who had betrayed her in November 1990 by telling her that she had no hope of winning in the second ballot. The resentment would flow both ways.

The Eurosceptics opposing the Maastricht Bill were emboldened by the result of a referendum in Denmark in June 1992, when a narrow majority voted against ratifying the Treaty. Rebellion had become respectable, and as the Bill made its way through the Commons the rebels grew in number and confidence, encouraged by the tacit support of senior figures from the heyday of the Thatcher revolution. Iain Duncan Smith, one of the leading Eurosceptics elected in 1992, recalls: ‘I think the Whips got used to thundering things through because they could beat rebellions with large majorities. They believed they could ram Maastricht through, but they couldn’t. It was the key to the whole thing unravelling.’⁴⁶ Major could not escape the fact that the ‘fundamental unreconstructed anti-Europeans’ outnumbered the government’s diminishing majority. ‘We were a minority government from the start,’ he asserts. He was incensed by the behaviour of the Maastricht rebels. ‘They wanted me to renege on a treaty I had negotiated on behalf of the British people. Worse, they wanted me to renege on a deal on which I had absolutely cast-iron parliamentary approval before I negotiated. If I had done that, no one would ever have trusted a British Prime Minister in negotiating in Europe today. The same people who talk about honour and sanction were the people that were asking me to break our word. That was why I was prepared, if necessary, to take it to the country.’⁴⁷ On 22 July 1993 the Bill failed to pass one of its last parliamentary hurdles (three Cabinet meetings having been held in one day in an attempt to carry the government), and the next day the government held a vote of confidence, which it won by thirty-eight votes.

Hours after the government survived, an exhausted Prime Minister sat down to be interviewed by Michael Brunson, ITN’s political editor. Believing he was having a private conversation while the cameras were not rolling, he vented his frustration. ‘The real problem is one of a tiny majority. Don’t overlook that. I could have done all these clever, decisive things which people wanted me to do but I would have split the Conservative Party into smithereens. And you would have said I had acted like a ham-fisted leader … Just think it through from my perspective. You are the Prime Minister, with a majority of eighteen, a party that is still harking back to a golden age that never was, and is now invented. You have three right-wing members of the Cabinet who actually resign. What happens in the parliamentary party?’ Brunson suggested he could easily find replacements. Major replied: ‘I could bring in other people. But where do you think most of this poison is coming from? From the dispossessed and the never-possessed. You can think of ex-ministers who are going around causing all sorts of trouble. We don’t want another three more of the bastards out there.’ The tape of the conversation was leaked to the Observer.

Major’s remark about ‘bastards’ was taken to refer to Michael Portillo, the Defence Secretary, Peter Lilley, the Social Security Secretary, and John Redwood, the Welsh Secretary, all prominent Eurosceptics, although he insists he did not have anyone in particular in mind. But his words brought into full public view the animosity that was absorbing the highest reaches of government. The fact that commentators swiftly identified the three Cabinet members in question revealed how much briefing was occurring. ‘Tory MPs asked themselves what they were in power for during the Maastricht debates, while John Major struggled to keep discipline,’ says one former aide. ‘It reinforced an impression of division in the public’s eyes. Here was a party that had become dogmatically obsessed, like a bickering, neurotic couple on a train – everyone just wanted them to shut up.’

There was a genuine ideological rift occurring within the Conservative Party in the early 1990s. Closer European integration created a powerful tension between a belief in the nation and the desire to spread commerce and trade. The struggle to reconcile these forces was tearing the party apart, from the Cabinet table to the grassroots in the country. The party’s presence in local government had shrunk since 1979, when it had over twelve thousand councillors, to a point where it controlled just thirteen councils in 1995. Party membership had also been in decline since the 1970s, and that decline became even sharper in the 1990s.⁴⁸ ‘Our associations on the ground were left with the more politically interested members, and they attracted too many zealots,’ one Cabinet minister observed. The increasingly polarised views of activists and members reinforced the divisions in Westminster.

What turned the crisis into a deeper malaise was the fact that the bitterness associated with Mrs Thatcher’s departure had become entangled with the disputes about Maastricht. Eurosceptics disappointed with Major’s premiership after Black Wednesday despaired that, as they saw it, a great leader had been unceremoniously dumped and her inheritance was being betrayed. By the end of 1993, the trauma of the events of November 1990 had come to haunt the party. To the most ardent Thatcherite MPs, turning the tide of European integration was far more important than loyalty to the Prime Minister, who they believed was weak and indecisive, while Thatcherism had never suffered an electoral failure. Every day the Whips’ Office battled to keep the government afloat, as the party’s overall majority dwindled after successive by-election defeats. The malcontents had to be kept on board. ‘It always irritated me, because people said Mrs Thatcher was much stronger than John Major, but he had a majority of twenty-one, which was reduced by two every time we lost a by-election, all the way down to zero at the end,’ says one former whip, Andrew MacKay. ‘It’s easy to be strong with a big majority, but it’s very difficult to be strong when you’re held to ransom by the venal, the cranky or the issue-obsessive.’⁴⁹

What made matters worse was that the pro-European members of Major’s government – Ken Clarke, Douglas Hurd and Michael Heseltine – underestimated the depth and breadth of feeling in the parliamentary party about Maastricht. Indeed the ‘bastards’ in Cabinet were just as vexed about Europe as the backbench rebels. Hurd contends that it was not so much complacency among the senior ranks as a ‘mixture of exhaustion and fatalism’ within the government. ‘It was more a case of a rabbit stuck in the headlights; so much energy was taken up by the Maastricht votes.’⁵⁰ Major removed the whip from eight of the rebels in November 1994: it was a move that did him more harm than good. As the government’s majority almost completely disappeared, a sense of paralysis in office pervaded. Its room for manoeuvre was now extremely limited. Senior ministers were exasperated. ‘The rebels thought all you had to do was take an anti-European position, be beastly to foreigners and the world would flock to your side,’ said one. ‘It was never true. It was a fantasy.’

‘Put Up or Shut Up’

‘I am not prepared to see the party I care for laid out on the rack like this any longer … It is time to put up or shut up.’ With those words, Major stunned his party on 22 June 1995. His last throw of the dice was to resign as party leader, prompting a leadership election to resolve differences, restore discipline and reassert his authority after three years of infighting. It was an extraordinary move for a sitting Prime Minister. When the Whip had been restored to the eight rebels in April on the promise of loyalty, they had circulated the television studios boasting of their success. Major felt he could never trust their word again, and realised that a leadership challenge in the autumn was highly likely. He feared that the party conference would descend into farce, undermining everything the government was trying to accomplish. ‘The only way to exorcise that was to resign and determine where parliamentary opinion really rested,’ he recalls.⁵¹

Once it was clear that Michael Portillo was not going to stand for the leadership, only one Eurosceptic member of the Cabinet challenged Major: John Redwood. The Welsh Secretary believed that if there was ‘no change’ in leadership there was ‘no chance’ at the next general election. Redwood launched his campaign surrounded by the leading rebels, many of whom were held in contempt by Major and loyal members of the Cabinet. The effect was unfortunate: ‘You can practically hear the flapping of white coats,’ one of Major’s campaign team remarked. But Redwood attracted the support of eighty-nine MPs, mainly from the right of the party, while twenty more abstained. Two hundred and eighteen voted for Major. He prevailed, but it was not an overwhelming vote of confidence. If it is assumed that almost all of the hundred or so ministers backed the Prime Minister, then up to half of backbench MPs had failed to vote for him. ‘The message that I would give to every Conservative … is that the time for division is over,’ Major declared on the steps of Number 10 after the result had been announced. ‘It made him seem weaker to the public,’ one leading rebel recalled. ‘It may have bought him some parliamentary time, but the worst thing was that it left us with more stories about a Prime Minister whose party was not behind him.’ Major’s allies were unrepentant. ‘You cannot deal with unreason, and on Europe there was no middle ground, no meeting point with them – they were utterly intransigent and intractable,’ recalls one. ‘Whatever they may have said, most of them wanted us out of the EU, but they didn’t say that because that was beyond the pale.’

It was soon apparent that Major’s victory had not put an end to the government’s problems. A string of further by-election defeats, and the defection of three Tory MPs to Labour or the Liberal Democrats, undermined the Prime Minister’s attempts to show that he was back in command. Fatal for a government struggling to hold itself together was the accumulation of crises outside its control. An uneasy truce in Northern Ireland which Major strove to achieve in 1994 came to an end in February 1996 when the IRA exploded a massive bomb in London’s docklands. Suggestions the following month of a link between BSE, or ‘mad cow disease’, and a form of human brain disease led to a catastrophic decline in the sales of British beef at home and a worldwide ban on its export by the European Commission. The government’s policy of ‘non-cooperation’ with the EU in retaliation became the subject of ridicule.

As the party gathered in Bournemouth in October 1996 for its last annual conference before the election, Major and his Cabinet tried to put on a brave face. Speaking up against Europe and defending the Thatcherite inheritance would almost certainly be a crowd-pleaser. ‘We should be proud of the Tory tax record but [not forget] that people needed reminding of its achievements … It’s time to return to our tax-cutting agenda,’ the new prospective parlia mentary candidate for Stafford, David Cameron, declared in his first speech from a conference platform. Playing to the gallery, he set his sights on the Labour leader, Tony Blair. ‘The socialist Prime Ministers of Europe have endorsed Tony Blair because they want a federalist pussycat and not a British lion. It is up to us in this party, in this country, to make sure that lion roars, because when it does no one can beat us.’⁵² The audience lapped it up, although Ken Clarke, who was sitting behind Cameron, did not look amused.

After finding himself out of a job when Norman Lamont resigned in May 1993, Cameron had been snapped up by the new Home Secretary, Michael Howard, who appointed him one of his special advisers. If Cameron’s experience at the Treasury had toughened him up, the Home Office under Howard was no place for shrinking violets either. It was one of the few areas of government where a minister was actively driving an agenda, often against the grain of civil servants and commentators – Howard was unapologetic about tightening penal policy, famously saying that ‘Prison works.’ Cameron enjoyed working for Howard, although he considered himself much more of a liberal than his boss. Even so, his fifteen-month spell under Howard’s wing at the Home Office had given him a flavour of politics at the sharp end of Whitehall. Cameron’s eye for detail and flair for words were put to use by his new boss, but more importantly Howard valued his capacity for hard work. Working for Howard also provided an insight into the rapid rise of the Shadow Home Secretary, Tony Blair. In the late summer of 1994 Cameron left the service of a beleaguered government for the private sector, joining Carlton Communications, a media company which owned London’s weekday ITV station, Carlton Television. Under the watchful eye of the charismatic chairman Michael Green, Cameron was soon promoted to be the company’s director of corporate affairs. However, his heart was really set on becoming a Tory MP. In January 1996, when two shortlisted contenders for what seemed to be a reasonably safe Tory seat dropped out, Cameron was called to interview at the last moment. ‘I must admit that my first thought was that, at twenty-nine, he was too young. But then he spoke and it was obvious that he was the best candidate,’ recalled one of the stalwarts of the Stafford Conservative Association.⁵³

While Cameron’s star rose, it seemed that anything that could go wrong did go wrong for the party in power. Major had seriously considered calling an election in autumn 1996, but decided to hold off until March or May 1997, the last date at which it could take place. While the competence of the government had long been called into question, the misdemeanours of a handful of Conservative MPs further damaged the party’s reputation in office. In a speech primarily about education, Major declared that it was time to go ‘back to basics’ by restoring values of decency and respect in communities across the country. Unauthorised briefings from junior staff in Central Office claimed that he was actually talking about personal morality rather than education. Major was incensed. When several ministers were exposed in the press for having extramarital affairs, ‘back to basics’ suddenly blew up in the government’s face. Allegations of ‘sleaze’ also came to haunt the party. Investigations by the Guardian revealed that two Conservative MPs, Tim Smith and Neil Hamilton, had taken cash in brown paper envelopes from the owner of Harrods, Mohamed Fayed, for asking parliamentary questions, while Jonathan Aitken, like Hamilton a minister in the government, became embroiled in damaging allegations about receiving hospitality at the expense of associates of the Saudi royal family. To the public, these matters tarred the whole party with the same brush. There was a firm impression that the Conservative Party was synonymous with a culture of greed and arrogance that had taken root during the Thatcherite heyday of the 1980s.

Outmanoeuvred and Outclassed

While the Major government headed for the rocks, the Labour Party was undergoing a revolution of its own. Neil Kinnock’s resignation following the 1992 election defeat prompted a period of soul-searching for the party. Kinnock’s successor, John Smith, was a capable parliamentary performer, but his strategy was largely to ride the wave of growing discontent with the government. He believed that ‘one more heave’ would be enough to deliver victory at the next election. A small group of Labour politicians were not so convinced. They realised that the party had to change even more drastically than it had under Kinnock. Among them were Gordon Brown, the Shadow Chancellor, Tony Blair, the Shadow Home Secretary, and Peter Mandelson, the party’s former Director of Communications, who had become an MP in 1992. Their ambition to modernise the Labour Party would come a step closer on 12 May 1994.

Cameron was enjoying a pint of beer outside the Two Chairmen pub in Westminster when he heard about John Smith’s death earlier that day. In shock, he turned to a colleague: ‘This means Tony Blair will be leader of the Labour Party,’ he declared. ‘He’ll move it onto the centre ground and we’ll be stuffed.’ It was a sound prediction. The path was clear for the Shadow Home Secretary to emerge as the front-runner to replace Smith, after his friend and colleague Gordon Brown stepped aside (a decision that would haunt Brown for the rest of his career). Blair possessed immense skills as a communicator, and he also had youth and charisma on his side. He, Brown, Mandelson and Alastair Campbell, the former tabloid journalist who became Blair’s press secretary, formed a powerful clique at the top of the party.

‘New Labour’ would extend its appeal across the political spectrum, unlike the old party of the left. It sought to blend the modern economic agenda that had been entrenched by the Thatcher–Major governments with a passion for social justice, redressing the inequalities that had arisen during the 1980s and 1990s. New Labour would position itself as the ‘One Nation’ party of British politics. Rewriting Clause IV of the party’s constitution, stripping it of the commitment to public ownership of industry, was a clear signal to the electorate that the party had changed. Presentation was crucial. While Kinnock had done the heavy lifting in abandoning unpopular policies, it was now for a new generation to take a symbol like Clause IV and rebrand Labour for the wider electorate. By accepting aspects of the Thatcher revolution, including the sweeping reforms of the trade unions, restructuring of the economy and a tough stance on law and order, the party manoeuvred itself onto fertile electoral territory. Learning the lessons of the disastrous ‘shadow budget’ in 1992, Labour pledged not to increase income tax and committed itself to Tory spending targets for two years if elected. The leadership took absolutely nothing for granted: there would be no room for ideological purity or reckless dissent in the New Labour project. Hungry for power after eighteen years in opposition, the party loyally followed its new leadership.

For an embattled government, the advent of New Labour presented considerable practical and philosophical challenges. ‘I attended many meetings with John Major in Number 10, and while we were sitting there four or five major governmental decisions had to be made while we were having a discussion about the next manifesto,’ recalls Daniel Finkelstein, who joined Central Office in 1995. ‘There comes a point when you’re holding a coalition together with a tiny majority that the wider political picture becomes secondary.’⁵⁴ Central Office was reorganised, but it could not match New Labour’s state-of-the-art war room at the heart of its Westminster headquarters in Millbank Tower. The Conservative election machine, which had been so formidable in previous campaigns, was completely outclassed.

New Labour presented a far more fundamental problem to the Conservatives. ‘We knew Tony Blair would be a formidable opponent,’ recalls William Hague, who was promoted to the Cabinet in 1995. ‘He had the right appearance and attitude at the right time. It made our political strategy that much harder. The Cabinet found it very hard to decide how to attack New Labour.’ It was a dilemma that caused many of the Tories’ brightest brains to falter: they could not find a convincing response to being outmanoeuvred. ‘It was clear Blair was giving us a political nervous breakdown because we weren’t sure what we stood for, and trying to define ourselves in contrast to him was extremely difficult,’ recalls George Bridges, the youthful Assistant Political Secretary in Number 10 between 1994 and 1997. ‘He was picking up Tory principles that he felt were appealing to middle England and playing them for all they were worth.’⁵⁵

Central Office strategists and election planners went through contortions trying to decide how to attack New Labour. Guided by research showing that the public believed that Labour had indeed changed, they argued that it was a change that heralded new dangers. ‘New Labour, New Danger’ became the catchy slogan inspired by the party’s advertising agency, M&C Saatchi, accompanied by a poster showing Tony Blair’s ‘demon eyes’ lurking behind red curtains. It was partly inspired by Steve Hilton, who had left Central Office after the 1992 general election to become an apprentice of the advertising guru Maurice Saatchi. But the attack on the opposition had a flaw, as Finkelstein admits: ‘It showed that we didn’t actually know what we thought was wrong with New Labour, and that the only way we could fight them was by pretending in our own heads that they were dangerous.’⁵⁶ There was confusion about the approach throughout the party. Central Office staff became frustrated that Major would veer from one line of attack to another. ‘He followed what we used to call the Coca-Cola strategy, which argued that Labour was copying us, as Cola Light, and that we were the real thing. We repeatedly tried and failed to get him to understand that you couldn’t say they were dangerous and copying you at the same time.’⁵⁷ Yet Major was convinced that the public would see through the ‘froth’ of Blair, which contrasted with the late John Smith, who he believed was a politician of substance.

The fact was that the party was in total disarray about how to attack the resurgent opposition. Some senior figures believed that Blair was a left-winger in disguise, while others tried to portray him either as a puppet of the old left or as believing in nothing at all. ‘Of all the iterations we went through, the one thing that never occurred to anybody was that Tony Blair might actually mean it,’ Andrew Cooper admits. ‘We completely underestimated him and the New Labour project.’⁵⁸ Very few on the Tory side understood what they were up against. ‘Tony Blair was an extremely accomplished, protean, shape-shifting politician who managed brilliantly to appeal to old Labour voters and simultaneously to huge number of middle-ground Tory voters in 1997,’ Boris Johnson reflects.⁵⁹