Index SUBJECT
MOST CONFIDENTIAL RECORD Date Contents
No.
CC(85) 3 r d C o n c l u s i o n s Thursday
24*January
198 5 TYPE 2 2 FRIGATES (8713) Wt. 24871/6103 lm . 6/64 P.I . Op. 610
SECRET SIR
cc
ROBERT ARMSTRONG
As y o u w i l l
explicit
Mr W i g g i n s see t h e s e d r a f t m i n u t e s c o n t a i n no r e c o r d o f Mr H e s e l t i n e ' s d i s s e n t .
Although
he made h i s d i s s e n t v e r y c l e a r a t t h e e n d o f t h e d i s c u s s i o n he d i d n o t , i n o u r h e a r i n g , a c t u a l l y ask
f o r i t t o be r e c o r d e d .
He may, h o w e v e r , have made a r e q u e s t t o y o u o r t o t h e P r i m e M i n i s t e r .
practice,
as y o u know, i s t o a v o i d ,
wherever p o s s i b l e , t h e r e c o r d i n g o f d i s s e n t from
Conclusions
e x c e p t when a M i n i s t e r
P L GREGSON 24 J a n u a r y 1985 SECRET Cabinet resigns.
we l e a v e i t t o y o u t o do w h a t y o u j u d g e
i n t h e circumstances? The
May
necessary
CONFIDENTIAL ONE COPY ONLY MOST CONFIDENTIAL RECORD TO CC(85) 3rd
Conclusions
Thursday 24 January 1985 TYPE 22 FRIGATES The Cabinet c o n s i d e r e d a memorandum by the S e c r e t a r y o f S t a t e f o r Trade and I n d u s t r y about the M i n i s t r y o f Defence o r d e r s f o r two f u r t h e r Type 22 f r i g a t e s (C(85) 3 ) . They a l s o had b e f o r e them minutes t o the Prime M i n i s t e r by the S e c r e t a r y o f S t a t e f o r Defence o f 18 December 1984, by the S e c r e t a r y o f S t a t e f o r Trade and I n d u s t r y o f 21 December 1984 and by the S e c r e t a r y o f S t a t e f o r t h e Environment o f 18 January 1985, t o g e t h e r w i t h a minute o f 23 December 1984 from the Prime M i n i s t e r ' s P r i v a t e S e c r e t a r y t o the P r i v a t e S e c r e t a r y t o the S e c r e t a r y o f S t a t e f o r Defence. THE SECRETARY OF STATE FOR DEFENCE r e c a l l e d the circumstances which had r e s u l t e d i n the Cabinet's d e c i s i o n a t t h e i r p r e v i o u s d i s c u s s i o n i n J u l y 1984 t o c a l l f o r a t h i r d round o f t e n d e r i n g f o r the two Type 22 f r i g a t e o r d e r s . Simply on the b a s i s o f the t h i r d round t e n d e r s , those o r d e r s would go t o the Swan Hunter (SH) y a r d . I n h i s view, however, i t would be wrong t o accept t h i s course o f a c t i o n , e s s e n t i a l l y because the t h i r d round o f t e n d e r i n g had been c a r r i e d out on a b a s i s o t h e r than t h a t which had been agreed by C a b i n e t .
Plans a l r e a d y i n course o f i m p l e m e n t a t i o n by B r i t i s h S h i p b u i l d e r s (BS) a t the time o f the Cabinet's p r e v i o u s d i s c u s s i o n had d e p r i v e d Cammell L a i r d (CL) o f the c a p a c i t y t o b u i l d b o t h s h i p s , b u t i f a l l t h e i r overhead c o s t s had t o be loaded on t o the p r i c e o f one o f the s h i p s , they c o u l d never compete a g a i n s t the o t h e r y a r d . I n these circumstances the Government c o u l d be r e p r e s e n t e d as h a v i n g deceived the management o f CL, and the moderate members o f the w o r k f o r c e who had been s t r i v i n g w i t h some success t o overcome m i l i t a n c y and t o b r i n g about improved i n d u s t r i a l r e l a t i o n s and b e t t e r p r o d u c t i v i t y i n t h e y a r d , by a l l o w i n g them t o b e l i e v e t h a t t h e r e was a p o s s i b i l i t y o f t h e i r w i n n i n g the c o n t r a c t f o r t h e two f r i g a t e s when the p o s s i b i l i t y d i d not i n f a c t e x i s t . On the two p r e v i o u s occasions CL had been the lowest t e n d e r e r , w i t h o u t any i n t e r f e r e n c e from Departments o r from BS c e n t r a l management. The l e a s t the Government should do now should be t o g i v e CL one o f the o r d e r s d e s p i t e the e x t r a c o s t s . There was an u n e n v i a b l e c h o i c e between p r e s e r v i n g a g i v e n number o f j o b s on Merseyside o r i n t h e N o r t h E a s t ; but whereas g i v i n g b o t h o r d e r s t o SH would d e f i n i t e l y r e s u l t i n the c l o s u r e o f CL (which was e x t r e m e l y i m p o r t a n t t o the economy o f M e r s e y s i d e ) , s p l i t t i n g the o r d e r s would not mean the c l o s u r e o f SH. For these reasons he proposed t h a t one o r d e r should go t o CL and one t o SH. THE SECRETARY OF STATE FOR TRADE AND INDUSTRY s a i d t h a t he d i d n o t accept t h a t the t h i r d round o f t e n d e r i n g had been c a r r i e d out on a f a l s e b a s i s . BS had p e r m i t t e d CL t o make f a v o u r a b l e assumptions about o t h e r work over which they c o u l d spread t h e i r overheads, even though t h e r e seemed t o be l i t t l e p r o s p e c t o f these assumptions b e i n g r e a l i s e d . P e r m i t t i n g CL t o undertake b o t h o r d e r s would have r e s u l t e d i n CL t a k i n g on f r e s h l a b o u r w h i l e SH had t o impose a comparable number o f a d d i t i o n a l CONFIDENTIAL CONFIDENTIAL redundancies.
S p l i t t i n g t h e o r d e r between t h e two y a r d s , as proposed by the S e c r e t a r y o f S t a t e f o r Defence, would mean i n e f f e c t spending £47 m i l l i o n - £7 m i l l i o n d i r e c t l y by t h e M i n i s t r y o f Defence, and a f u r t h e r £40 m i l l i o n t h r o u g h BS - t o d i v e r t j o b s from t h e N o r t h East t o M e r s e y s i d e . I f t h e o r d e r s were s p l i t , i t would be c l e a r t h a t s u b s t a n t i a l a d d i t i o n a l c o s t s were b e i n g i n c u r r e d e s s e n t i a l l y f o r p o l i t i c a l reasons, and t h i s would add t o t h e b i t t e r n e s s which would be f e l t i n t h e N o r t h East i f SH's b e t t e r r e c o r d o f p r o d u c t i v i t y and i n d u s t r i a l r e l a t i o n s was seen t o be i g n o r e d . The c l o s u r e o f t h e A u s t i n and P i c k e r s g i l l y a r d would g i v e r i s e t o 700 s h i p b u i l d i n g redundancies i n the N o r t h East i n t h e near f u t u r e , and would make t h e f u r t h e r 1,200 redundancies r e s u l t i n g a t SH i f CL r e c e i v e d one o f t h e Type 22 o r d e r s a l l t h e harder t o bear.
I n i n d u s t r i a l terms t h e c o r r e c t course was undoubtedly t o place b o t h o r d e r s w i t h SH. I f n e v e r t h e l e s s t h e Cabinet decided t h a t one o f t h e o r d e r s should go t o CL, they should a t the same time decide how t h e a d d i t i o n a l c o s t s t h i s would impose on BS should be f i n a n c e d ; h i s Department had no funds a v a i l a b l e t o meet these c o s t s . He r e c o g n i s e d t h a t t h e r e was a v e r y s t r o n g moral and p o l i t i c a l case f o r some Government a c t i o n t o support t h e w o r k f o r c e a t CL. Some such a c t i o n would have been p o s s i b l e i f CL had r e c e i v e d t h e o r d e r f o r t h e c o n v e r s i o n o f t h e Balder London, and i t would a l s o have been p o s s i b l e t o have had t h e submarine HMS O t t e r r e f i t t e d t h e r e . Some measures on these l i n e s which enabled t h e y a r d t o c o n t i n u e i n o p e r a t i o n and demonstrate i t s improved p r o d u c t i v i t y and i n d u s t r i a l r e l a t i o n s r e c o r d c o u l d be implemented a t r e l a t i v e l y modest c o s t , and so h e l p CL t o
j u s t i f y i t s own s u r v i v a l f o l l o w i n g p r i v a t i s a t i o n . The
f o l l o w i n g were among t h e main p o i n t s made i n d i s c u s s i o n : a.
G i v i n g b o t h o r d e r s t o SH would be seen as a means o f i m p r o v i n g the p r o s p e c t s f o r p r i v a t i s a t i o n ; i t c o u l d be p o l i t i c a l l y damaging i f t h e Government were thought t o be g i v i n g h i g h e r p r i o r i t y t o p r i v a t i s a t i o n than t o t h e s o c i a l and i n d u s t r i a l f a b r i c o f Merseyside. b.
The Government had been ready t o spend v e r y l a r g e amounts o f money t o r e s i s t m i l i t a n c y elsewhere i n t h e economy; t h e m i n e r s ' s t r i k e and t h e DHSS computer s t r i k e a t Newcastle (which had c o s t £150 m i l l i o n ) were b o t h examples o f t h i s .
The CL w o r k f o r c e ' s achievement i n overcoming m i l i t a n c y was second i n importance o n l y t o t h e s t r u g g l e i n t h e coalmines. c.
Postponing economic change, and m a i n t a i n i n g excess c a p a c i t y , as would r e s u l t from s p l i t t i n g t h e o r d e r s between t h e two y a r d s , s i m p l y i n c r e a s e d t h e c o s t s o f measures which would a t some p o i n t be inevitable. d.
The Government had a r g u a b l y h e l d o u t t o t h e CL w o r k f o r c e t h e p r o s p e c t o f competing f o r a p r i z e which was beyond t h e i r grasp. T h i s added t o t h e s t r e n g t h o f t h e argument f o r some a c t i o n t o a s s i s t CL i f SH r e c e i v e d b o t h o r d e r s . CONFIDENTIAL CONFIDENTIAL THE PRIME MINISTER, summing up t h e d i s c u s s i o n , s a i d t h a t t h e balance o f v i e w i n t h e Cabinet was i n f a v o u r o f b o t h o r d e r s g o i n g t o SH. A t t h e same time t h e r e was a s t r o n g f e e l i n g t h a t t h e Government should take a c t i o n t o r e c o g n i s e t h e v a l u e and importance o f t h e stand taken by t h e moderate w o r k f o r c e a t CL. There should t h e r e f o r e be a f u r t h e r e x a m i n a t i o n o f t h e scope f o r o t h e r a c t i o n t o h e l p CL; t h e Departments concerned should c o n s i d e r t h i s u r g e n t l y , and a f u r t h e r paper should be prepared f o r d i s c u s s i o n a t an e a r l y d a t e . THE SECRETARY OF STATE FOR DEFENCE s a i d t h a t he would be ready t o co-operate i n t h e f u r t h e r e x a m i n a t i o n proposed, b u t wished t o p u t on r e c o r d t h a t , i f i t was n o t p o s s i b l e t o f i n d work f o r CL which would be b r o a d l y e q u i v a l e n t t o an o r d e r f o r a Type 22 f r i g a t e , he would n o t be a b l e t o accept a d e c i s i o n by t h e Cabinet t o p u t b o t h t h e Type 22 f r i g a t e o r d e r s t o SH. The
Cabinet -
Took note t h a t t h e Prime M i n i s t e r would arrange f o r t h e p r e p a r a t i o n o f a paper assessing t h e scope f o r a c t i o n t o a s s i s t Cammell L a i r d t o c o n t i n u e i n o p e r a t i o n , i n t h e event o f a Cabinet d e c i s i o n t o place b o t h Type 22 f r i g a t e o r d e r s w i t h Swan Hunter. Cabinet
Office
25 January 1985 CONFIDENTIAL SUBJECT
MOST CONFIDENTIAL RECORD Contents
No.
CC(85) 6 t h C o n c l u s i o n s Thursday
14 F e b r u a r y 1985 ECONOMIC STRATEGY (8713) Wt. 24871/6103 lm . 6/64 P.I . Gp. 610
Date SECRET u n t i l 20 March 1985 then CONFIDENTIAL Copy No 1. o f 4 Copies
MOST CONFIDENTIAL RECORD TO CC(85) 6 t h
Conclusions
Thursday 14 February 1985 ECONOMIC STRATEGY The Cabinet c o n s i d e r e d a memorandum by t h e C h a n c e l l o r o f t h e Exchequer (C(85) 4) on economic s t r a t e g y . THE CHANCELLOR OF THE EXCHEQUER s a i d t h a t t h e development o f t h e
U n i t e d Kingdom economy d u r i n g t h e p a s t y e a r had been dominated by
t h e m i n e r s ' s t r i k e and t h e a p p r e c i a t i o n o f t h e U n i t e d States d o l l a r
a g a i n s t a l l o t h e r major c u r r e n c i e s . More r e c e n t l y t h e weakness and
u n c e r t a i n t y o f o i l p r i c e s had had a s u b s t a n t i a l impact.
I n most r e s p e c t s
t h e U n i t e d Kingdom economy had been f a i r l y r e s i l i e n t ; d e s p i t e t h e
m i n e r s ' s t r i k e , t h e c u r r e n t account balance had remained i n s u r p l u s ,
and t h e Gross Domestic Product (GDP) had i n c r e a s e d by about 2 i per c e n t ,
as a g a i n s t t h e e a r l i e r f o r e c a s t o f 3 per c e n t . I n f l a t i o n had been
h e l d t o about 4^4 per c e n t d e s p i t e t h e d e p r e c i a t i o n o f s t e r l i n g , as
a g a i n s t t h e e a r l i e r f o r e c a s t o f k\ p e r c e n t . Not a l l o f the overshoot
of t h e 1984-85 P u b l i c Sector Borrowing Requirement (PSBR) c o u l d be
a t t r i b u t e d t o t h e m i n e r s ' s t r i k e ; t h i s f a c t o r had however p r o b a b l y
i n f l u e n c e d sentiment i n f i n a n c i a l m a r k e t s , and t h e r e s u l t i n g i n c r e a s e
i n i n t e r e s t r a t e s had f u r t h e r exacerbated t h e PSBR problem.
For 1985 t h e p r o s p e c t was f o r 3 per cent growth i n GDP, w i t h i n f l a t i o n r e m a i n i n g a t about 5 p e r c e n t , a l t h o u g h i t might go somewhat h i g h e r d u r i n g t h e f i r s t h a l f o f the y e a r , p a r t i c u l a r l y as a r e s u l t o f t h e impact o f h i g h e r mortgage i n t e r e s t r a t e s . There were c o n s i d e r a b l e u n c e r t a i n t i e s , b o t h e x t e r n a l and domestic.
The v e r y l a r g e U n i t e d S t a t e s budget d e f i c i t and the h i g h l e v e l o f d o l l a r i n t e r e s t r a t e s , w i t h t h e d o l l a r remaining extremely strong against a l l other c u r r e n c i e s , r e p r e s e n t e d a t h r e a t t o t h e w o r l d economy; the U n i t e d States were i n
e f f e c t i m p o r t i n g o t h e r c o u n t r i e s ' savings and e x p o r t i n g t h e i r own i n f l a t i o n , w h i l e t h e d e b t o r c o u n t r i e s were f a c i n g an i n c r e a s i n g r e a l burden o f debt s e r v i c e . On t h e domestic f r o n t one main w o r r y was t h a t e a r n i n g s were r i s i n g s u b s t a n t i a l l y f a s t e r than p r i c e s , w i t h p r o d u c t i v i t y s t a g n a n t ; t h e r e s u l t was r i s i n g U n i t e d Kingdom u n i t l a b o u r c o s t s , w h i l e those o f o t h e r major c o u n t r i e s were s t a t i c o r f a l l i n g .
This
f a c t o r was p r e v e n t i n g t h e economic r e c o v e r y f r o m g i v i n g r i s e t o an i n c r e a s e i n numbers o f people employed. The o t h e r main w o r r y was t h e c o n t i n u i n g upward p r e s s u r e on p u b l i c e x p e n d i t u r e . A l a r g e r overshoot o f the 1984-85 p l a n n i n g t o t a l as i n the r e c e n t P u b l i c E x p e n d i t u r e White Paper was now expected than c o u l d be a t t r i b u t e d t o t h e c o n t i n u a t i o n o f t h e m i n e r s ' s t r i k e beyond t h e end o f 1984.
Higher i n t e r e s t r a t e s would mean h i g h e r debt s e r v i c e payments, and l o c a l a u t h o r i t y overspending now seemed l i k e l y t o exceed e a r l i e r f o r e c a s t s . These p r e s s u r e s were expected t o c o n t i n u e i n 1985-86 and t h e r e a f t e r . Because o f these d i f f i c u l t i e s he t h o u g h t i t prudent t o i n c r e a s e the s i z e o f t h e Contingency Reserve f o r 1985-86 and t h e two subsequent y e a r s , w h i c h would n e c e s s i t a t e p a r a l l e l i n c r e a s e s i n the p l a n n i n g t o t a l s . Great e f f o r t s would s t i l l be needed t o keep p u b l i c e x p e n d i t u r e w i t h i n these somewhat higher t o t a l s .
The f i n a n c i a l markets sensed these d i f f i c u l t i e s , and SECRET u n t i l 20 March 1985 then CONFIDENTIAL SECRET u n t i l 20 March 1985 then CONFIDENTIAL t h i s made i t a l l t h e more i m p o r t a n t t h a t t h e Government should s t i c k t o t h e i r economic s t r a t e g y . A g a i n s t t h i s background t h e r e seemed l i k e l y t o be much l e s s room f o r a f i s c a l adjustment i n t h e Budget than had been foreshadowed t h e p r e v i o u s autumn; whatever scope t h e r e was should be devoted t o measures which would h e l p t h e growth o f employment. I n d i s c u s s i o n , t h e f o l l o w i n g main p o i n t s were made ­
a.
There was g e n e r a l agreement on t h e need f o r c a u t i o n i n s e t t i n g t h e 1985-86 PSBR: r e s t r a i n i n g b o r r o w i n g t o t h e l e v e l c o n s i s t e n t w i t h t h e Medium Term F i n a n c i a l S t r a t e g y (MTFS) was a minimum r e q u i r e m e n t . An adverse r e a c t i o n f r o m f i n a n c i a l markets would add t o t h e d i f f i c u l t y o f managing economic p o l i c y . I t would be i m p o r t a n t t o a v o i d c r e a t i n g e x p e c t a t i o n s t h a t t h e Budget would have a s u b s t a n t i a l impact on unemployment. b.
The o u t l o o k f o r p u b l i c e x p e n d i t u r e was e x t r e m e l y s e r i o u s , and t h e f a c t t h a t major d i f f i c u l t i e s would remain a f t e r t h e m i n e r s ' s t r i k e was over would be e x t r e m e l y d i s a p p o i n t i n g b o t h t o t h e f i n a n c i a l markets and t o t h e Government's s u p p o r t e r s . The Government r i s k e d g e t t i n g t h e w o r s t o f b o t h w o r l d s :
unpopular
e x p e n d i t u r e c u t s were b e i n g made over a wide range o f s e r v i c e s , w h i l e a t t h e same t i m e t h e Government were unable t o keep t o t a l expenditure w i t h i n the prescribed l i m i t s .
The problem c o u l d be r e s o l v e d o n l y i f changes were made i n t h e s t r u c t u r e o f demand-led programmes, a l t h o u g h even here t h e scope was l i m i t e d by p r e v i o u s pledges t o m a i n t a i n t h e r e a l v a l u e o f c e r t a i n b e n e f i t s . I t was n e v e r t h e l e s s e s s e n t i a l t o f i n d ways o f r e d u c i n g s o c i a l s e c u r i t y e x p e n d i t u r e and e x p e n d i t u r e by l o c a l a u t h o r i t i e s . c.
There was a widespread f e e l i n g t h a t t h i s was n o t t h e year i n which t o embark on r a d i c a l changes i n t h e t a x s t r u c t u r e which would a t t r a c t t h e h o s t i l i t y o f p o w e r f u l i n t e r e s t groups o r increase the general p r i c e l e v e l . d.
Much o f t h e r e s p o n s i b i l i t y f o r t h e upward movement i n u n i t l a b o u r c o s t s was a t t r i b u t a b l e t o i n e f f e c t i v e managements. Recent improvements i n p r o f i t s , and t h e g r e a t e r p r o f i t a b i l i t y o f e x p o r t s r e s u l t i n g f r o m t h e d e p r e c i a t i o n o f s t e r l i n g , seemed t o have made companies more r e l u c t a n t t o r e s i s t e x c e s s i v e wage c l a i m s and r i s k i n t e r r u p t i o n s i n p r o d u c t i o n . The e f f e c t s then s p i l l e d over i n t o t h e p u b l i c s e c t o r , by c r e a t i n g p r e s s u r e f o r " c a t c h i n g up" pay s e t t l e m e n t s . A l t h o u g h t h e c l i m a t e o f o p i n i o n was changing, t h e r e were s t i l l f a r t o o many examples o f w o r k f o r c e s p r e s s i n g f o r pay i n c r e a s e s v e r y damaging t o t h e i n t e r n a t i o n a l c o m p e t i t i v e p o s i t i o n o f t h e companies employing them. e.
Rather than l o o k f o r f u r t h e r t a x concessions t o b u s i n e s s , the Government should now be seeking a g r e a t e r c o n t r i b u t i o n f r o m business towards r e d u c i n g unemployment and p r o v i d i n g b e t t e r t r a i n i n g f a c i l i t i e s f o r young p e o p l e .
Employers should r e c o g n i s e t h a t t h e U n i t e d Kingdom Government p r o v i d e d f a r more f i n a n c i a l a s s i s t a n c e t o t r a i n i n g than t h e Governments o f t h e U n i t e d S t a t e s , Germany and Japan. SECRET u n t i l 20 March 1985 then CONFIDENTIAL SECRET u n t i l 20 March 1985 t h e n CONFIDENTIAL f.
D e s p i t e t h e h i g h l e v e l o f unemployment, i t remained d i f f i c u l t t o f i l l vacancies f o r lower-paid workers.
T h i s i n
p a r t r e f l e c t e d t h e f a c t t h a t t h e d i f f e r e n t i a l f o r men w i t h f a m i l i e s between income f r o m s o c i a l s e c u r i t y b e n e f i t s and income f r o m work was v e r y s m a l l . I f t h e problem were t o be overcome, i t would be necessary t o c o n s i d e r r e d u c t i o n s i n e n t i t l e m e n t t o b e n e f i t as w e l l as i n c r e a s e s i n t a x t h r e s h o l d s f o r t h e lowest p a i d . However, n o t a l l t h e burden o f r e s t r a i n i n g p u b l i c e x p e n d i t u r e c o u l d be p l a c e d on t h e p o o r e s t s e c t i o n s o f t h e p o p u l a t i o n ; w h i l e f o r t h e l o w e s t p a i d t h e p r o p o r t i o n o f income taken i n t a x had i n c r e a s e d , t h e h i g h e r income groups had seen t h e i r t a x burden reduced under t h e p r e s e n t Government. THE PRIME MINISTER, summing up t h e d i s c u s s i o n , s a i d t h a t t h e Cabinet r e c o g n i s e d t h a t t h e C h a n c e l l o r o f t h e Exchequer had l i t t l e room f o r manoeuvre i n h i s f o r t h c o m i n g Budget. There was g e n e r a l agreement on t h e need f o r a new e f f o r t t o secure b e t t e r c o n t r o l over p u b l i c e x p e n d i t u r e , and on t h e need t o secure f u r t h e r r e d u c t i o n s i n t h e r a t e o f i n f l a t i o n ; 5 p e r c e n t a year i n f l a t i o n was s t i l l f a r t o o h i g h . The o b j e c t i v e o f r e s t o r i n g t h e PSBR t o t h e p a t h s e t o u t i n t h e MTFS was g e n e r a l l y endorsed, and w i t h i n t h i s c o n s t r a i n t t h e Cabinet agreed t h a t t h e C h a n c e l l o r o f t h e Exchequer should c o n c e n t r a t e on measures which would c o n t r i b u t e t o t h e g r o w t h o f employment. The need t o g i v e f u l l and c l e a r e x p l a n a t i o n s o f t h e Government's p o l i c i e s , b o t h t o t h e Government's s u p p o r t e r s i n P a r l i a m e n t and t o t h e w i d e r p u b l i c , was generally recognised.
I n q u i r e r s f r o m t h e media about t h e Cabinet's d i s c u s s i o n would be t o l d t h a t t h e Cabinet had c o n s i d e r e d t h e economic s i t u a t i o n and t h e approach t o t h e Budget, and r e a f f i r m e d t h e i r commitment t o t h e c e n t r a l o b j e c t i v e s o f t h e Government's economic s t r a t e g y : lower i n f l a t i o n , f i r m c o n t r o l o f p u b l i c spending and a continuing reduction i n p u b l i c sector borrowing. The Cabinet ­
1.
Took n o t e , w i t h a p p r o v a l , o f t h e Prime M i n i s t e r ' s summing up o f t h e i r d i s c u s s i o n . 2.
I n v i t e d t h e C h a n c e l l o r o f t h e Exchequer t o t a k e account o f t h e i r d i s c u s s i o n i n p r e p a r i n g h i s f o r t h c o m i n g Budget. Cabinet
Office 18 February 1985 SECRET u n t i l 20 March 1985 then CONFIDENTIAL SUBJECT
MOST CONFIDENTIAL RECORD Contents
No.
CC(85) 1 7 t h C o n c l u s i o n s T h u r s d a y 16 May 198 5 ECONOMIC AFFAIRS:
(8713) Wt. 24871/6103 lm . 6/64 P.I . Op. 610
RETAIL PRICE INDEX Date SECRET Copy No I
of 5
Copies
MOST CONFIDENTIAL RECORD TO CC(85) 1 7 t h Conclusions Thursday 16 May 1985 ECONOMIC AFFAIRS THE SECRETARY OF STATE FOR EMPLOYMENT s a i d t h a t t h e i n c r e a s e i n t h e R e t a i l P r i c e Index (RPI) f o r A p r i l , which would be announced t h e f o l l o w i n g day, would be 6.9 p e r c e n t . I t had been expected t h a t the f i g u r e would be h i g h e r than t h a t f o r March (6.1 p e r c e n t ) f o r
Retail s e v e r a l reasons:
t h e second i n s t a l m e n t o f t h e i n c r e a s e i n mortgage Price r a t e s ; i n c r e a s e s i n r e n t s and r a t e s ; and t h e e f f e c t o f t a x a t i o n Index changes i n t h e Budget. I n t h e event t h e magnitude o f t h e i n c r e a s e had been h i g h e r than p r e d i c t e d , p r o b a b l y because companies had found Previous i t p o s s i b l e t o r e f l e c t t a x a t i o n i n c r e a s e s i n r e t a i l p r i c e s more q u i c k l y Reference: CC(85) 1 3 t h t
h a n t h e p r e v i o u s y e a r . The May f i g u r e was a l s o l i k e l y t o be h i g h C o n c l u s i o n s , and t h i s would have an unwelcome e f f e c t on t h e s o c i a l s e c u r i t y u p r a t i n g s and on p u b l i c e x p e n d i t u r e . L a t e r t h a t year t h e monthly Minute 4 i n c r e a s e would f a l l , r e f l e c t i n g t h e s t r e n g t h e n i n g o f t h e s t e r l i n g exchange r a t e and t h e r e d u c t i o n i n mortgage i n t e r e s t r a t e s which ought t o occur b e f o r e l o n g . The l i n e t o t a k e i n p u b l i c would be t h a t t h e Government s t i l l adhered b r o a d l y t o t h e v i e w o f i n f l a t i o n p r o s p e c t s t a k e n by t h e C h a n c e l l o r o f t h e Exchequer i n h i s Budget speech which f o r e c a s t a r i s e i n t h e RPI t o over 6 p e r cent b u t a f a l l t o 5 p e r cent by t h e end o f t h a t y e a r . The
Cabinet -
Took n o t e . Cabinet
Office
17 May 1985 SECRET SUBJECT
MOST CONFIDENTIAL RECORD Contents
No.
CC(85) 32nd
Thursday
Conclusions 14 November 1985 NORTHERN IRELAND AFFAIRS (8713) Wt. 24871/6103 lm . 6/64 P.I . Op. 610
Date CONFIDENTIAL Copy No
o f 6 copies MOST CONFIDENTIAL RECORD TO CC(85) 32nd
Conclusions
Thursday 14 November 1985 NORTHERN IRELAND AFFAIRS Previous Reference: CC(85) 31st Conclus i o n s , Minute 3 THE PRIME MINISTER s a i d t h a t , s i n c e t h e Cabinet's p r e v i o u s d i s c u s s i o n , the F o r e i g n and Commonwealth S e c r e t a r y and the S e c r e t a r y o f S t a t e f o r N o r t h e r n I r e l a n d had o b t a i n e d f u r t h e r improvements i n t h e package which had been n e g o t i a t e d w i t h the I r i s h Government. The I r i s h s i d e had been brought t o agree t o a f i r m e r statement about c o n t i n u i n g and enhanced c o - o p e r a t i o n i n combating t e r r o r i s m . The I r i s h Government had agreed t o announce t h a t i t would accede as soon as p o s s i b l e t o t h e European C o n v e n t i o n on the Suppression o f T e r r o r i s m ; t h e I r i s h A t t o r n e y General had a d v i s e d t h a t t h e r e would be a r i s k o f c o n s t i t u t i o n a l c h a l l e n g e i f t h e I r i s h Government signed the C o n v e n t i o n b e f o r e the r e q u i r e d l e g i s l a t i o n was passed i n the D a i l , w i t h a v i e w t o r a t i f y i n g i t a f t e r w a r d s . The U n i t e d Kingdom Government had s a i d t h a t the S e c r e t a r i a t o f the I n t e r g o v e r n m e n t a l Conference c o u l d n o t be housed i n Stormont; b u t a r e a s o n a b l y secure b u i l d i n g n o t f a r from t h e r e had been i d e n t i f i e d , which might be purchased and c o n v e r t e d f o r t h e S e c r e t a r i a t . The U n i t e d Kingdom Government had made c l e a r t o the I r i s h Government t h a t , i f the r e a c t i o n i n N o r t h e r n I r e l a n d t o the Agreement was worse than expected, these m a t t e r s would have t o be d i s c u s s e d a g a i n . W i t h r e g a r d t o the r i s k o f l e g a l c h a l l e n g e t o the proposed Agreement, which the Cabinet had d i s c u s s e d on 7 November 1985, the A t t o r n e y General had a d v i s e d t h a t an a p p l i c a t i o n f o r j u d i c i a l r e v i e w c o u l d be launched but t h a t the Government would have a good defence and i t should n o t succeed. The Prime M i n i s t e r s a i d t h a t the Agreement m a i n t a i n e d two i m p o r t a n t f e a t u r e s p r e v i o u s l y noted by the Cabinet: t h a t the I n t e r g o v e r n m e n t a l Conference would have no e x e c u t i v e powers and t h a t t h e r e would be no d e r o g a t i o n from U n i t e d Kingdom s o v e r e i g n t y . A l t h o u g h a v e r y d i f f i c u l t s i t u a t i o n had now a r i s e n , because o f r e v e l a t i o n s i n t h e I r i s h media o f much o f t h e c o n t e n t s o f t h e Agreement, she and the two S e c r e t a r i e s o f S t a t e were i n no doubt t h a t i t was r i g h t t o go ahead w i t h t h e proposed Agreement. THE SECRETARY OF STATE FOR NORTHERN IRELAND s a i d t h a t t h e r e had been a long s e r i e s o f major press leaks from the I r i s h s i d e . The r e s u l t i n g r e p o r t s i n the media had been s l a n t e d , i n t h a t they had c o n c e n t r a t e d on elements i n the package which were welcome t o the Republic o f I r e l a n d . The a c t u a l package was more f a v o u r a b l e t o U n i t e d Kingdom i n t e r e s t s than the press s t o r i e s had suggested. For i n s t a n c e , the I r i s h w i l l i n g n e s s t o accede t o t h e European Convention on t h e Suppression o f T e r r o r i s m had not f e a t u r e d i n the media. Once the Agreement had been p u b l i s h e d , t h e Government s h o u l d emphasise t h a t t h e I r i s h R e p u b l i c was r e c o g n i s i n g f o r the f i r s t time t h a t the s t a t u s o f N o r t h e r n I r e l a n d would n o t change u n l e s s a m a j o r i t y t h e r e so wished and t h a t the p r e s e n t wish o f a CONFIDENTIAL CONFIDENTIAL m a j o r i t y was f o r no change; t h a t t h e r e was no d e r o g a t i o n from s o v e r e i g n t y and t h a t the Agreement c o u l d encourage d e v o l u t i o n i n N o r t h e r n I r e l a n d i n due course, a development which the u n i o n i s t s wanted. I n d i s c u s s i o n the f o l l o w i n g p o i n t s were made ­
a.
I f the e x p e r t advice on s e c u r i t y r i s k s made i t necessary
arrangements f o r the A n g l o - I r i s h Summit would be changed. the
b. The Prime M i n i s t e r had i n v i t e d the Leader o f the O p p o s i t i o n , the l e a d e r s o f the L i b e r a l P a r t y and the S o c i a l Democratic P a r t y , and the l e a d e r o f the U l s t e r U n i o n i s t P a r t y t o c a l l on her b e f o r e the A n g l o - I r i s h Summit f o r a s t r i c t l y c o n f i d e n t i a l b r i e f i n g on P r i v y C o u n c i l terms about the g e n e r a l c o n t e n t s o f the proposed Agreement. The Leader o f the O p p o s i t i o n would be accompanied by Mr Roy H a t t e r s l e y MP. c. B r i e f i n g about the Agreement would be sent t o a l l Cabinet M i n i s t e r s t h a t e v e n i n g , s t r i c t l y f o r t h e i r p e r s o n a l use o n l y . d. A f t e r the A n g l o - I r i s h Summit, the Agreement, the Summit Communique' and the press r e l e a s e summarising the Agreement would be sent t o Members of P a r l i a m e n t on b o t h s i d e s o f the House who had shown p a r t i c u l a r i n t e r e s t i n N o r t h e r n I r e l a n d a f f a i r s .
Similar
m a t e r i a l would be sent t o members of the N o r t h e r n I r e l a n d Assembly and t o a number o f i n f l u e n t i a l persons i n N o r t h e r n I r e l a n d . e. The t e x t s o f the Agreement and the Communique would be made a v a i l a b l e t o Members of P a r l i a m e n t a t Westminster a t the time when the Prime M i n i s t e r was b e g i n n i n g her press conference w i t h the Taoiseach a t the c o n c l u s i o n o f the A n g l o - I r i s h Summit. This would ensure, among o t h e r t h i n g s , t h a t Members o f P a r l i a m e n t had access t o the t e x t s no l a t e r than members o f the N o r t h e r n I r e l a n d Assembly. f . Given a l l the leaks i n the media, t h e r e was a r i s k t h a t i n the House o f Commons on t h a t day or the f o l l o w i n g day U n i o n i s t Members would mount some k i n d of d e m o n s t r a t i o n ; or t h a t i n s i s t e n t moves would be made t o c a l l f o r a statement by the Government on the proposed A n g l o - I r i s h Agreement or t o t a b l e a P r i v a t e N o t i c e Q u e s t i o n . A move t o t a b l e a P r i v a t e N o t i c e Question was a l r e a d y being r e s i s t e d . g. A form o f words s h o u l d be agreed f o r the use o f the Prime M i n i s t e r and the S e c r e t a r y o f S t a t e f o r N o r t h e r n I r e l a n d a t Q u e s t i o n Time t h a t day.
I f asked when or where the Agreement would be s i g n e d , M i n i s t e r s would say t h a t they were unable t o comment. I f asked whether the Cabinet had taken d e c i s i o n s on the proposed Agreement, M i n i s t e r s should r e p l y t h a t a statement would be made i n due course.
I f t h e r e was p r e s s u r e on the Government t o g i v e an assurance t h a t no Agreement would be s i g n e d b e f o r e a f u l l debate had taken p l a c e i n the House o f Commons, M i n i s t e r s c o u l d r e p l y CONFIDENTIAL CONFIDENTIAL t h a t , i f t h e r e was t o be an Agreement, i t would/center i n t o f o r c e b e f o r e a f u l l debate or w i t h o u t the a p p r o v a l o f P a r l i a m e n t . h. I f pressed i n the House o f Commons on t h e f o l l o w i n g day, t h e L o r d P r i v y S e a l , and o t h e r M i n i s t e r s as necessary, c o u l d say t h a t the Prime M i n i s t e r would make a statement t o the House on Monday 18 November and t h a t the t e x t o f t h e Agreement and o f the Communique' on the A n g l o - I r i s h Summit would be a v a i l a b l e i n t h e Vote O f f i c e from the moment o f p u b l i c a t i o n . i . The debate on t h e Agreement i n the House o f Commons was l i k e l y t o take p l a c e i n the week b e g i n n i n g 25 November. The debate i n the House o f Lords would f o l l o w l a t e r i n the same week or on Monday 2 December. I t was p r o b a b l e t h a t few members o f t h e House o f Lords would oppose the Agreement. The Cabinet ­
1. Confirmed i t s d e c i s i o n t h a t the proposed A n g l o - I r i s h Agreement s h o u l d be s i g n e d by the Prime M i n i s t e r . 2. I n v i t e d t h e S e c r e t a r y o f S t a t e f o r N o r t h e r n I r e l a n d t o propose a form o f words f o r h i s use and t h a t o f the Prime M i n i s t e r i n case t h e r e were q u e s t i o n s i n the House o f Commons t h a t a f t e r n o o n , about the proposed Agreement. 3. I n v i t e d the S e c r e t a r y o f t h e Cabinet t o arrange f o r copies o f t h e A n g l o - I r i s h Agreement and t h e Summit Communique" t o be made a v a i l a b l e i n the Vote O f f i c e o f the House o f Commons a t the time when the Prime M i n i s t e r was s t a r t i n g her press conference a t the c o n c l u s i o n o f the A n g l o - I r i s h Summit. Cabinet
Office 15 November 1985 SUBJECT
MOST CONFIDENTIAL RECORD Contents
No.
CC(85) 32nd
Thursday
Conclusions 14 November 1985 TEACHERS' PAY DISPUTE (8713) Wt. 24871/6103 lm . 6/64 P.I . Op. 610
Date CONFIDENTIAL Copy No J o f 2 copies
MOST CONFIDENTIAL RECORD TO CC(85) 32nd
Conclusions Thursday 14 November 1985 TEACHERS' PAY THE PRIME MINISTER s a i d t h a t she hoped t h a t c o l l e a g u e s concerned w i t h e d u c a t i o n m a t t e r s would be g i v i n g c a r e f u l thought t o t h e s i t u a t i o n DISPUTE r e g a r d i n g t e a c h e r s ' pay. Previous Reference: THE LORD PRESIDENT OF THE COUNCIL s a i d t h a t he had t h a t morning convened, CC(85) 2 9 t h a t t h e r e q u e s t o f t h e S e c r e t a r y o f S t a t e f o r E d u c a t i o n and Science, a Conclus i o n s , meeting o f M i n i s t e r s t o c o n s i d e r t h e s i t u a t i o n . The meeting had concluded Minute 1 t h a t i t would be u s e f u l f o r a group o f M i n i s t e r s , w i t h a p p r o p r i a t e o f f i c i a l s u p p o r t , t o c o n s i d e r t h e p r e s e n t s i t u a t i o n and suggest p o s s i b l e courses o f a c t i o n . The Cabinet -
Took n o t e t h a t t h e Prime M i n i s t e r would arrange f o r a group o f M i n i s t e r s t o c o n s i d e r t h e p r e s e n t s i t u a t i o n i n t h e t e a c h e r s ' d i s p u t e s i n England and Wales, and i n S c o t l a n d , and t h e p o s s i b l e courses o f a c t i o n open t o t h e Government, and r e p o r t . Cabinet
Office 19 November 1985 CONFIDENTIAL SUBJECT
MOST CONFIDENTIAL RECORD Contents
No.
CC(85) 3 6 t h
Thursday
Conclusions 12 December 1985 WESTLANDS PLC i
* (8713) Wt. 24871/6103 lm . 6/64 P.I . Op. 610
Date CONFIDENTIAL One Copy Only MOST CONFIDENTIAL RECORD TO CC(85) 3 6 t h C o n c l u s i o n s Thursday 12 December 1985 WESTLANDS PLC THE SECRETARY OF STATE FOR DEFENCE r e p o r t e d on developments s i n c e t h e m e e t i n g o f t h e M i n i s t e r i a l Sub-Committee on Economic A f f a i r s ( E ( A ) ( 8 5 ) 24th M e e t i n g ) on 9 December had c o n s i d e r e d c e r t a i n p r o p o s a l s r e l a t i n g t o the f u t u r e o f Westlands. He suggested t h a t those developments were such as t o make necessary a f u r t h e r m e e t i n g o f M i n i s t e r s , t o w h i c h he c o u l d c i r c u l a t e a memorandum. The m e e t i n g on 9 December had agreed t h a t time should be g i v e n u n t i l 13 December f o r a c o n s o r t i u m o f B r i t i s h and c o n t i n e n t a l European f i r m s t o make f i r m and f u l l y worked out p r o p o s a l s f o r p a r t i c i p a t i o n i n Westlands, so t h a t these c o u l d be p r o p e r l y c o n s i d e r e d a l o n g w i t h t h e p r o p o s a l s by U n i t e d Technologies and F i a t .
The European f i r m s ' p r o p o s a l s would need t o be p r e s e n t e d t o Westlands by 3.00 pm on F r i d a y 13 December 1985. S i g n i f i c a n t p r o g r e s s had been made. B r i t i s h Aerospace (BAe) and Mr A l a n B r i s t o w had expressed w i l l i n g n e s s t o j o i n the European c o n s o r t i u m . One o f BAe s reasons was t h a t , i f a U n i t e d S t a t e s c o r p o r a t i o n gained c o n t r o l o f a B r i t i s h f i r m l i k e Westlands, t h i s would p r e j u d i c e t h e i n t e r e s t o f BAe and o t h e r B r i t i s h companies i n
European programmes such as t h e European F i g h t e r A i r c r a f t and A i r b u s . As w e l l as the i n d u s t r i a l i s t s concerned w i t h a p o s s i b l e European o f f e r and the N a t i o n a l Armaments D i r e c t o r s o f the c o u n t r i e s i n v o l v e d , t h e M i n i s t e r s o f Defence o f those c o u n t r i e s were a l s o i n touch w i t h each o t h e r . I f t h e European c o n s o r t i u m was t o make a f i r m o f f e r , i t would have t o be based on the g o o d w i l l o f the Defence M i n i s t e r s and t h e knowledge t h a t i t was i n l i n e w i t h t h e i r f u t u r e procurement p o l i c i e s . I t f o l l o w e d t h a t h i s own views must be p r e s e n t e d t o L l o y d s Merchant Bank, which was l e a d i n g the European c o n s o r t i u m , and a l s o t o U n i t e d T e c h n o l o g i e s . Before d o i n g t h i s , he needed the agreement o f o t h e r M i n i s t e r s t o the views he would be p u t t i n g f o r w a r d . 1
I n d i s c u s s i o n , i t was p o i n t e d out t h a t the m i n u t e s o f t h e Sub-Committee's m e e t i n g on 9 December 1985 r e c o r d e d the d e c i s i o n t h a t , i f a v i a b l e European package w h i c h the Westlands board c o u l d recommend were n o t a v a i l a b l e by 4.00 pm on F r i d a y 13 December, the U n i t e d Kingdom Government would n o t t h e r e a f t e r be bound by the recommendation o f t h e N a t i o n a l Armaments D i r e c t o r s o f t h e U n i t e d Kingdom, West Germany, France and I t a l y , t o the e f f e c t t h a t the Governments o f a l l f o u r c o u n t r i e s s h o u l d i n f u t u r e meet t h e i r h e l i c o p t e r r e q u i r e m e n t s i n t h r e e s p e c i f i e d c l a s s e s by equipment designed and b u i l t i n Europe. The d i s c u s s i o n i n
the Sub-Committee on 9 December, f o r p a r t o f which S i r John Cuckney, t h e Chairman o f Westlands had been p r e s e n t , had been t h e t h i r d m e e t i n g o f M i n i s t e r s on t h i s s u b i e c t . No f u r t h e r d e c i s i o n s were needed a t t h e p r e s e n t t i m e . The Westlands Board had l e g a l d u t i e s towards s h a r e h o l d e r s and employees and must take the u l t i m a t e d e c i s i o n between the p r o p o s a l s o f S i k o r s k y and a p o s s i b l e European o p t i o n . There was a r e a l danger t h a t , i f t h e Government i n t e r v e n e d , i t would i n c u r a degree o f CONFIDENTIAL CONFIDENTIAL r e s p o n s i b i l i t y f o r t h e company which c o u l d prove t o be e x t r e m e l y expens i v e . The
f o l l o w i n g p o i n t s were a l s o made i n d i s c u s s i o n ­
a.
N e i t h e r t h e S e c r e t a r y o f S t a t e f o r Trade and I n d u s t r y , who was the M i n i s t e r r e s p o n s i b l e f o r Westlands, n o r t h e Prime M i n i s t e r had been warned t h a t the q u e s t i o n o f Westlands would be r a i s e d a t t h e p r e s e n t m e e t i n g o f the C a b i n e t . b.
S i k o r s k y , w i t h t h e i r p r e s e n t B r i t i s h p a r t n e r , Short Bros L t d , had t r i e d a year p r e v i o u s l y t o s e l l t h e i r Blackhawk h e l i c o p t e r t o the M i n i s t r y o f Defence. T h i s o f f e r had been r e j e c t e d , s i n c e t h e M i n i s t r y had n e i t h e r a r e q u i r e m e n t nor t h e funds f o r such a helicopter.
S i k o r s k y had now made c l e a r t o t h e M i n i s t r y o f Defence t h a t they would expect t o s e l l t h e Blackhawk i f i t was manufactured by Westlands. Without o r d e r s i n t h e U n i t e d Kingdom, Westlands was u n l i k e l y t o be able t o s e l l t h e Blackhawk overseas i n markets which were n o t the p r o p e r t y o f S i k o r s k y . c.
I f t h e M i n i s t r y o f Defence were t o buy t h e Blackhawk h e l i c o p t e r from Westlands, i t would be thought t h a t the Government, h a v i n g r e s i s t e d pressure from Short Bros d e s p i t e t h e economic problems o f N o r t h e r n I r e l a n d , had succumbed t o pressure f o r t h e west o f England. On t h e o t h e r hand, t h e M i n i s t e r o f S t a t e , N o r t h e r n I r e l a n d O f f i c e had been p r e s e n t a t t h e meeting on 9 December, and had n o t r e s e r v e d h i s S e c r e t a r y o f S t a t e ' s p o s i t i o n on the d e c i s i o n taken. d.
The d e c i s i o n reached by t h e Sub-Committee on 9 December had been based on t h e e x p e c t a t i o n t h a t a s e r i o u s European o f f e r t o Westlands c o u l d be p u t f o r w a r d . No such o f f e r c o u l d be made w i t h o u t a f u l l d i s c u s s i o n o f M i n i s t e r s . Such a d i s c u s s i o n had a p p a r e n t l y been envisaged by t h e Cabinet O f f i c e , which a t 10.00 am on 10 December had telephoned M i n i s t e r s ' o f f i c e s about t h e p o s s i b i l i t y o f such a m e e t i n g b u t had l a t e r rung t o say t h a t no m e e t i n g was b e i n g c a l l e d . A g a i n s t these p o i n t s , i t was p o i n t e d o u t t h a t t h e Cabinet O f f i c e o f t e n made e x p l o r a t o r y e n q u i r i e s about M i n i s t e r s ' a v a i l a b i l i t y i n case a m e e t i n g should be r e q u i r e d . The Prime M i n i s t e r , summing up a s h o r t d i s c u s s i o n , s a i d t h a t E(A) had taken a d e c i s i o n a t i t s meeting on 9 December. The m a t t e r had been r a i s e d a t Cabinet w i t h o u t n o t i c e . Cabinet c o u l d n o t p r o p e r l y c o n s i d e r the m a t t e r o r take d e c i s i o n s w i t h o u t papers and w i t h o u t time f o r p r e p a r a t i o n . There was n o t h i n g i n t h e developments s i n c e 9 December o r i n t h e d i s c u s s i o n i n Cabinet t o i n v a l i d a t e o r g i v e grounds f o r
r e c o n s i d e r a t i o n o f t h e d e c i s i o n reached on 9 December. The
Cabinet
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Took n o t e . Cabinet O f f i c e 13 December 1985 CONFIDENTIAL