John Barnes, Historian

© John Barnes 1996

THE PRIME MINISTER'S ROLE IN FOREIGN AFFAIRS AND ECONOMIC POLICY: creeping bilateralism in action?

One casualty of the debate over Prime Ministerial power has been detailed consideration of what the Prime Minister does and does not do. In this context Richard Rose observed that where the Prime Minister was "most involved, British government is now inevitably weak: this is true of the management of the economy as well as foreign affairs."[i] Since the economy's performance is central to the Government's performance and chances of re-election, no Prime Minister can afford to neglect it. Involvement in foreign policy looks more a matter of choice and the temptation to become involved, which few postwar Prime Ministers have resisted, irrational. Although it yields photo opportunities and affords politicians the chance to appear in a non partisan context, psephologists are agreed that foreign policy issues are not of great moment to the electorate. Not surprisingly therefore Wilson's Political Secretary regarded his involvement in the conduct of diplomacy as a distraction.[ii] Her Conservative successor writes that in December 1973, a "rush of other events prevented senior ministers from giving the coal crisis that attention which it needed. On Sunday 8 December, for example, the Prime Minister entertained the Italian Prime Minister.... to dinner at Chequers. The meal was hardly over when Mr Heath flew to Sunningdale by helicopter to preside over the last stages of the conference on the future of Northern Ireland. Three days later it was time for the State Visit of President Mobutu of Zaire. Two days after that the European summit began in Copenhagen. These were four major events, two of them (Sunningdale and Copenhagen) of outstanding importance. They were all the kind of diplomatic event which in normal times Mr Heath would much enjoy and at which he would perform very well. They all involved talks, travel, long meals, extensive briefing beforehand; yet none of them had anything to do with the crisis which was swallowing us up."[iii]

To imply choice is to ignore the extent to which these two areas of policy, increasingly linked through Britain's membership of the European Union, necessarily swallow up Prime Ministerial time and energy, precluding the sustained involvement in other policy areas which alone can lead to results.[iv] In his second term Wilson consciously left more to his Foreign Secretary,[v] but in a 242-page account of his Final Term eight pages are devoted to the European council at Paris (December 1974), ten to that at Dublin (March 1975) and four to the abortive Rome Summit (December 1975).[vi]

Study of decision making in these key areas shows that it depends increasingly on bilateral relationships between No 10 and the ministers principally concerned. While formal obeisance is paid to collective responsibility, genuine collegiality is at a discount. The involvement of Cabinet committees and the full Cabinet is limited even in crisis situations, but recently there has been a disposition for the Prime Minister to look to an inner Cabinet, to ensure perhaps that potential succesors cannot distance themselves from his actions.

"The round of international summits makes a Prime Minister's life nowadays very different from what it was", Mrs Thatcher writes.[vii] In fact her Cabinet Secretary estimated that, during the early years of her premiership, about a third of her time had been "taken up not just with meetings to discuss foreign policy, but conducting diplomacy"[viii] and a glance at Mrs Thatcher's diary from May to December 1983 amply justifies this estimate. The earlier part of the year had been largely concerned with election preparations, although she found time for talks In February with Vice President Bush about the deployment of Cruise missiles and to urge a new initiative in the INF talks. Although she cancelled pre-summit talks with the President in May, she attended the G7 meeting in Williamsburg even though - some would say because - she was campaigning for re-election at the time. Subsequently she attended the Stuttgart Council in June, met with the Dutch Prime Minister and the German Chancellor in September, visited Canada and the United States at the end of September (during that visit she also held an emergency meeting in the Washington embassy on the Hong Kong currency crisis which the Chancellor and Governor of the Bank of England attended), had a second bilateral discussion about Northern Ireland with Garret Fitzgerald and one of her regular summits with Chancellor Kohl in November, and attended the Athens Council in December.

Sir Anthony Parsons, who became her Adviser on Foreign Policy in 1982, doubts if there was any qualitative change in the formulation of foreign policy under her, although he acknowledges that many would differ. He believes that the Argentinian invasion of the Falklands "may well have convinced the Prime Minister that she must take a closer interest in foreign policy questions, particularly those which contained the seeds of sudden crisis, in order to avoid the government being taken by surprise in future. Accordingly she strengthened her personal staff in No 10 in 1982, but not to the extent of creating an alternative source of foreign policy formulation on the lines of the National Security Council in Washington." However, he suggests that basically "the system has continued to function as before, with the Prime Minister playing a greater supervisory role over important areas of policy" and doubts "whether this change of emphasis is much greater than was the case under previous prime ministers who have developed, or come into office with, predilections for foreign affairs."[ix]

Parsons is right: the two big changes came much earlier. The first was in part due to summitry, as both Macmillan and Wilson suggest, but was largely the result of Britain's position as a nuclear power. The second is clearly linked to British membership of the European Community. The timing of the change is significant. Wilson noted that in the 68 months of his first term of office, he met the President of the United States 9 times and in the 25 months between 1974 and 1976 6 times. The "trend of world affairs in the mid-seventies and its close connection with overriding world economic problems, together with a noticeable trend to meetings between heads of government on overseas affairs, has meant that prime minsters were drawn more and more into the higher reaches of diplomacy", he wrote in The Governance of Britain (1976). "Both bilaterally and in NATO and the EEC, the prime minister was more and more involved."[x]

A more independent and central role for the Prime Minister first appeared in the area of nuclear interdependence. From the moment that Churchill on his own authority agreed to the American decision to drop the atomic bomb on Japan to Wilson's rejection in December 1965 of suggestions that he should commit Polaris irrevocably to NATO for the duration of the North Atlantic Treaty, Prime Ministers often took the initiative in nuclear matters and frequently acted without consulting more than a handful of ministers. Thus it was Macmillan who made the first moves in 1957 which led to his Washington visit, agreement on the Declaration of Common Purpose, and eventual amendment of the McMahon legislation. The Defence Minister was clearly consulted and the move approved, so Macmillan tells us, by the Foreign Secretary and Chancellor. The Cabinet were told of the purpose of the visit after it had been arranged.[xi] The decision to abandon Blue Streak in February 1960 was effectively taken by a small group, which met twice before Macmillan himself put a recommendation to the Defence Committee and it was Macmillan who secured the Skybolt agreement with Eisenhower in March 1960 which allowed the decision to be implemented.

Similarly the discussions which led to the British bid for Polaris at the Nassau Conference were prefaced by a meeting of the ministers and officials concerned with Skybolt and the negotiations were conducted by the Prime Minister backed by his Foreign Secretary and Defence Secretary. Regular reports went to the Cabinet in London. Although Macmillan claims to have incorporated the amendments they suggested to the agreement he reached with President Kennedy, in fact he ignored their largely cosmetic reformulation of the key phrase safeguarding British control, certain that he must stick to what had already been agreed.[xii] The decision to retain the Nassau agreement and hence the nuclear deterrent, in contradiction of pledges to renegotiate it, was made by Wilson in consultation with his Foreign and Defence Secretaries and conveyed to Washington by the Foreign Secretary personally. Subsequently it was "endorsed" (Wilson's phrase) by the Defence Committee "and later by the Cabinet".[xiii] The decision to go ahead with the Chevaline project to modernise Polaris was taken by a small group so secret that it was not even given a Cabinet Committee designation and the same formula was employed by the Callaghan Government a decade later when considering Polaris's replacement. The matter was regarded as "too delicate to put before the Cabinet's Defence and Overseas Policy Committee".[xiv]

Only the decision to build the H-bomb in 1954 was fully debated in Cabinet. The Wilson government's decision to go ahead with Chevaline was reported to Cabinet in September 1974 in terms sufficiently anodyne as to marginalise the dissenters and the Thatcher Cabinet's endorsement of the decision to buy Trident came just hours before it was announced to Parliament in July 1980. As with Chevaline the real decision on Trident was taken by a small body of senior ministers chaired by the Prime Minister. It was Attlee, despairing of the possibility of international control of nuclear weapons, who had set this pattern of decisions confined to ad hoc Cabinet Committees and even smaller bodies, but it was the increasingly close involvement with the Americans which meant that so much was settled in high level talks with them, frequently by Prime Minister and President.

But it is membership of the European Community that has most affected the Prime Minister's job, drawing him firmly into the conduct of international affairs and greatly increasing his influence to the point where a recent Cabinet Secretary could speak of the job developing in recent years "to include the conduct of international relations."[xv] The Prime Minister now has a formidable programme of overseas work, which includes two European Councils each year, any specially called European Council or intergovernmental conference, an annual Economic Summit, a Commonwealth Prime Ministers' meeting every two years, and a whole series of bilateral meetings, many of them devoted to easing Britain's path in Europe. In addition, for a six month period every six years (1977, 1981, 1986 and 1992) the Prime Minister takes on the rotating Presidency of the European Council and Council of Ministers, an increasingly important and onerous task, although one which can be turned to domestic political advantage.

Although Heath delegated the detailed negotiation of Britain's entry into the EC, his summit with the French President in May 1971 was crucial to the outcome and was a precursor of what was to follow. He took an equally crucial decision when deciding that the handling of European business should not be left to the Foreign Office or given to a ministry for Europe. Instead it was to be co-ordinated by the newly created European unit in the Cabinet Office. In retrospect it is clear that even if the Prime Minister did not wish to be the principal actor in Britain's European relationships, the machinery makes it almost inevitable that he should play that role. Margaret Thatcher demonstrated what was necessary to obtain success in EC affairs, although her tactics were controversial and some observers felt that she did not always know when she had won. But whatever the role of Carrington, Howe and on occasion others including the senior British Commissioner in paving her way, only the Prime Minister could conduct business at the summit, whether it was to obtain a permanent settlement of Britain's budgetary problem, engineer revisions to the CAP or negotiate the Single European Act. Similarly the negotiation of the intergovernmental pillars to Maastricht and the securing of opt outs on the Social Chapter and single currency depended on John Major's conduct of the final negotiations in the European Council.

Table I illustrates the possible relationships between Prime Minister and Foreign Secretary. From the mid 1950s the norm has been either Prime Ministerial dominance or a close partnership between the two. If the Foreign Secretary dominates the scene

TABLE I

or seems to be the senior partner, that is invariably because the Prime Minister chooses to handle matters in this way. As Henderson sapiently observes "because of the crucial nature of foreign policy decisions and the way the conduct of such policy is bound to attract the limelight, with inevitable domestic consequences, some degree of friction is inherent in the relationship.... The first.... that I was able to observe directly for any length of time was that between Attlee and Bevin.... and it was evident to me, as it was to every witness, that the avoidance of strife then depended not upon any clear-cut constitutional division of authority, but upon the forbearance and unobtrusiveness of the Prime Minister. Coming now to the present day," Henderson confided to his diary in December 1979, "it did not require any profound perception of character to realise that, self effacement not being Mrs Thatcher's long suit, any more than disregard of his proper responsibilities was Carrington's, tensions must be expected."[xvi]

Nevertheless there was a rapport which enabled Carrington in a series of private conversations to persuade Mrs Thatcher to alter her approach to the internal settlement in Rhodesia and which enabled her, with the exception of one helpful intervention, to leave the handling of the Lancaster House Conference to him. In part, no doubt, it was because she recognised that he was much more than a mouthpiece for Foreign Office views.[xvii] This rapport simply did not exist between Mrs Thatcher and Carrington's successor, Francis Pym. During the Falklands crisis, when in the United States, as he confessed to the British Ambassador, he was not adept at reading the mood in London and he subsequently clashed with Mrs Thatcher about their approach to Britain's continuing problem over the European budget. But it was less the clashes than a total absence of any affinity that brought about his dismissal.

"There is nothing so difficult or delicate in the management of a government as the relations between the Prime Minister and the Foreign Secretary," Macmillan concluded. "Both sides of Downing Street must work in complete harmony if confusion and something worse are to be avoided." It was on the ground that the Foreign Secretary must be within walking distance of No 10 and that the two should meet frequently and quite informally "almost every day" that he refused to agree to proposals to move the Foreign Office.[xviii] "There was hardly a day when I was not in touch with him", Lloyd recalled. "If I was overseas by telegram; if the House was in recess by telephone; more usually by seeing him at No 10."[xix] Home "had an arrangement by which we met twice a week, for a quarter of an hour, twenty minutes. Privately, off-the-record so to speak, and without officials. We reviewed the scene every third day, and so we knew exactly how we were thinking on the issues of the time.[xx] Howe was later to write with feeling about the way in which his frequent absences abroad prevented him, although he saw Mrs Thatcher in Cabinet and committees, from "keep[ing] up even the weekly timetable that was our aim."[xxi]

Parsons was wrong to think that there has been no change at all in the Prime Minister's role. Macmillan blamed "this flying business.... Nowadays there is no particular difficulty about having a meeting almost anywhere in the world at the drop of a hat. So you get pressures to have them. And of course, quite a number of countries - it isn't only Russia - choose to do the really important business at the summit. So the prime minister tends to get more and more caught up in meetings, in travelling and receiving visitors."[xxii] Owen points to the inevitable consequence: "In the olden days you could have a Foreign Secretary who had an independent power base from the Prime Minister and who held different views. But in the last twenty years that's become progressively harder to imagine.... heads of government are more and more being sucked into international affairs, they meet more frequently, they are involved in more detail, you can't shut the Prime Minister out any more. So the Foreign Secretary and the Prime Minister have got to have very similar views if the foreign policy of this country is to be properly pursued."[xxiii]

Since Attlee few Prime Ministers have sought to avoid involvement. Some, notably Eden, Macmillan and, at times, Wilson have almost reduced their Foreign Secretaries to the role of loyal executant of policies decided elsewhere. In Eden's case, this was scarcely surprising since it was his own field and he brought to it the experience of more than a decade as Foreign Secretary. Macmillan had always fancied himself in the job and enjoyed his brief tenure in King Charles Street. "Foreign affairs was his vocation, economics his hobby", Maudling said. Stewart, who twice served Wilson as Foreign Secretary, read Macmillan's memoirs and "felt glad that I had not been required to work with a Prime Minister so firmly resolved to take foreign affairs into his own hands." Nevertheless he thought it axiomatic that, while the Foreign Secretary conducted foreign policy and took the lead in Cabinet discussion of it, he could not make it by himself. Much of his time was spent in discussion with the Prime Minister, the Minister of Defence (with whom he met weekly) and the Chancellor. Further, on "the great issues of power, defence, and international dispute", only heads of government could deal with them, even though "the 'summit conferences' to which they give rise are unwelcome to Foreign Ministers, and still more unwelcome to diplomats."[xxiv] Where Stewart wished to take a line of his own, most notably to renew Britain's application to join the EEC, Wilson refused to back his criticisms of De Gaulle or to allow him to circulate a paper to the Cabinet.[xxv]

There is, of course, much more going on in the field of foreign affairs than the Prime Minister can hope to master, hence the need for mutual trust of the kind that Wilson and Callaghan clearly, if somewhat surprisingly, established in 1974-6. One way of handling the load is to split it as Heath and Home did in 1970-74. In effect Heath took control of the European scene (with Rippon handling the detail under his broad supervision) while Home handled the rest of the world. There was no significant divergence of view between them (the war between India and Pakistan is a possible exception), although Home was always more sensitive to the needs of the Atlantic alliance and the Commonwealth than Heath, the most genuinely Eurocentric of all postwar Prime Ministers.[xxvi] But, even on issues which the Prime Minister regards as central to his concerns, the work simply cannot be done without full use of the Foreign Office. Even when No 10 was taking the lead in EC matters, Carrington spent some four fifths of his time on them, while his deputy, Sir Ian Gilmour, has detailed the trips he made to all the European capitals as part of the build-up to the Luxembourg summit.

Callaghan was the last Foreign Secretary before Hurd to have the predominant role in the partnership. In part, this was because Wilson was ageing, ill, and reluctant to interfere. While he chaired the Cabinet Committee supervising the renegotiation of Britain's terms of entry into the EC, the real work was done by a sub-committee under Callaghan, and Wilson's part in the negotiations was confined to EC summits.[xxvii] In retrospect it is clear that Wilson skilfully held the line at home until certain that the terms obtained were sufficiently good to command a majority in the Cabinet. He then relied upon "an agreement to differ" during the referendum campaign to hold Government and party together. Roy Jenkins thought renegotiation a "smoke screen under which both Wilson and Callaghan could make their second switch of position on Europe".[xxviii] However, as an observer of government he might have made a rather different point, the extent to which a Foreign Secretary has to rely on the Prime Minister to guard his back and see his policies through Cabinet.

Working with Mrs Thatcher, Hurd was of necessity the junior partner in European matters, although in close alliance with Major, then Chancellor, he secured Britain's entry into the Exchange Rate Mechanism and came to operate "on the basis that both sides of Downing Street had a veto: the Prime Minister could block a decision by the Foreign Secretary but equally if the Prime Minister wanted something done by the Foreign Secretary, he could say 'No'."[xxix] As her third Foreign Secretary in a matter of months, he knew that to a large extent he was fireproof. Mrs Thatcher also relied a good deal on his expertise in Middle Eastern affairs. Major's deference to Hurd in the earlier stages of his Prime Ministership evolved into something approximating partnership, not least when it came to the negotiations which led to the Maastricht Treaty. If Major left much to his Foreign Secretary, it did not preclude him from initiatives like the proffer of safe havens for the Kurds. Relationships do change and develop. Varying over time and from issue to issue, they should never be seen as static. Even formerly close partners - Mrs Thatcher and Howe are an obvious example - can fall out. The relationship between Hurd and Major confirms that Prime Ministers, even if they define the parameters within which it takes place, cannot prevent themselves from being drawn in. From the start of the Gulf War relationships with the other states involved were necessarily handled in No 10, as Charles Powell has made clear. The Kuwait crisis and Gulf War "occupied [the Prime Minister's] waking hours almost solidly from the day he walked into Number Ten in November [1990] until well into the following year".[xxx]

Although the pattern is similar to that identified by Hill in the late 1930s, when the initiative and much of the content of policy lay in the hands of a "foreign policy executive" consisting of the Prime Minister and Foreign Secretary, which operated within a framework formally constituted by the Cabinet and Foreign Policy Committee,[xxxi] there are differences. Attlee left Bevin to operate in a loose co-ordinating role in overseas matters and no foreign policy committee came into existence before 1963. The Defence Committee, meeting infrequently with military matters uppermost, was no surrogate. Macmillan usually involved the Defence Secretary in a troika of decision makers, sometimes by exchange of minutes, somtimes in meetings, for example when discussing how the Prime Minister should respond to American suggestions for action in Syria in 1957 or in Laos at the time of the second Geneva Conference.[xxxii] There are similarities with the way in which Wilson, during the 1967 Middle East crisis, "was in the closest touch with the Foreign Secretary, the Defence Secretary, the Chiefs of Staff and all our advisers, meeting either in ad hoc meetings at any time of the day or night, or more formally in the Defence Committee."[xxxiii]

Given the absence before 1963 of any forum short of the Cabinet "where ideas, issues and strategies could be reviewed,[xxxiv] Prime Ministers often turned to small groups to act, or at least prepare the way for a Cabinet decision. The decision to commit troops to WEU was effectively taken by a small group of ministers at an evening meeting during the London Conference in September 1954, for example, and later in the decade Macmillan showed himself adept at using small groups to prepare the way for subsequent Cabinet discussion - "rolling the pitch" as it was jocularly described. Few Prime Ministers were as ready to "bounce" the Cabinet as Churchill was in his search for detente and the Cabinet crisis in July 1954, caused by his efforts to secure a personal summit with the Soviet leadership in July 1954, with threats of resignation on the part of two senior ministers counterbalanced by thoughts that the Prime Minister might appeal to the country over the heads of his colleagues indicates why they chose not do so. Eden was scrupulous in involving the Cabinet in all the major decisions taken during the Suez crisis (even if they were not perfectly informed about the extent to which collusion with the Israelis had gone). Fourteen key decisions can be identified, nine of them taken in full Cabinet. Decisions confined to the Egypt Committee were purely military and only the timing of the decision to go to the Security Council was taken by the Prime Minister and Foreign Secretary acting alone.[xxxv] However, the Egypt Committee was also used by Eden as a way of predigesting decisions which were going to Cabinet and informally as the only body to which the details of collusion were reported.

The Cabinet remained an important forum for foreign policy decisions well into the 1960s, although the initiative lay with a foreign policy executive of varying composition centring on the Prime Minister. What then of the Defence and Overseas Policy Committee? This had been announced publicly as a corollary of Macmillan's integration of the Service Ministries into a Ministry of Defence and was certainly responsible for major questions of defence policy.[xxxvi] Wilson gave the impression to Crossman among others that it was the Cabinet's "inner club", but in practice its detailed consideration of particular items precluded broad discussion of issues like "east of Suez". Even when such a discussion did take place, for example on "a new position paper" in June 1967, Crossman noted the appalling quality of the documents submitted as the basis for their discussion.[xxxvii] He also became aware that when he secured decisions from OPD which the Prime Minister did not like, the latter quietly engineered their reversal and that much was simply fixed by the Prime Minister and Defence Secretary. In retrospect it is clear, as Crossman and others suspected, that prior commitments had been given by Wilson and his Foreign Secretaries in Washington.

Although the Committee continued to meet under successive Governments to take a number of detailed decisions (it agreed, for example, the negotiating position on the Falklands in 1977 and the deployment of forces later that year when it looked as if Argentina might resort to force, meeting three times in November 1977)[xxxviii] it was not allowed near nuclear decisions and issues like Rhodesia were handled elsewhere in the committee structure. There is no evidence to suggest that it was anything other than a purely reactive body, in general confirming the line already agreed by its senior members. By Howe's time it met only rarely.[xxxix] While it meets more often in the 1990s, at least on matters related to the development of the EC (now the EU), this is less the result of a change in Prime Ministerial style than a reflection of the increased impact of the Community on the domestic agenda. The detail is for the Cabinet Committee on European Questions. Major leaves the chair of that committee to the Foreign Secretary, but he regards European policy as domestic policy and it takes up a sizeable part of his week.[xl]

While it would be wrong to ignore the part played by EQ or the Prime Minister's need, on so disputatious an issue, to take issues to Cabinet and go round the Cabinet table, most notably on the British negotiating position at Maastricht and on the White Paper setting out Britain's approach to the 1996 IGC, thus ensuring that collective responsibility will hold, the plain truth is that the more senior ministers and in particular the Prime Minister, Foreign Secretary and Chancellor are taking the key decisions on 'trade offs' and securing the endorsement of their colleagues. Under Major, however, an inner Cabinet can be discerned in which Heseltine and Clarke have been involved, whatever their formal post, together with the Chancellor and Foreign Secretary. More recently Howard seems to have been added to the group. But no one doubts that on the European agenda, the Prime Minister's role is central.

This suggests is that the initiative in international affairs is no longer solely with the Prime Minister, Foreign Secretary and Defence Secretary, although that pattern, which obtained until the 1970s, can still be detected in the handling of the Bosnian crisis and in most British dealings with the United States. However, governments cannot ignore the extent to which the economy has become part of a global economy. The Chancellor himself is an actor in the international field, consulting with and on occasion being stimulated by the Prime Minister.[xli] With Britain's membership of the European Community, not least because she is a large-scale net contributor, a new troika was bound to emerge with the Chancellor heavily involved. The démarche made by Howe and Lawson before the Madrid Council is usually recalled because they were trying to force the Prime Minister's hand on membership of the Exchange Rate Mechanism. More significant for this chapter is Howe's complaint that Mrs Thatcher, unusually, had failed to involve the two of them in the preparations for a European Council.

If Prime Ministers retained some choice about involvement in foreign affairs before summit diplomacy became commonplace, none could escape involvement in the work of the Treasury. Nor would they have been wise to try. Even before the Chancellor was vested with responsibility for managing the economy, no one but the Prime Minister had "such influence, or starting point for influence in the whole field of policy": the Treasury has, Lawson notes, "a finger in pretty well every pie that the Government bakes".[xlii] Uniquely powerful amongst the world's finance ministers, the Chancellor need consult only the Prime Minister before taking action on tax and interest rates and the initiative in economic matters is almost invariably in his hands. Even the Prime Minister may find it difficult to control so powerful a figure. Economic success may make him "unassailable". However, Chancellors have few friends and the economic switchback is such that "few Chancellors of the Exchequer have left office with their reputations enhanced."[xliii] They are conscious therefore of their need for Prime Ministerial backing. Together they are a match for almost any Cabinet combination.

"It was not my intention when I became Prime Minister to over-involve myself in economic policy", Callaghan recalled, but alas for his intentions, "I found, as I suppose other Prime Ministers have done, that economic problems obtruded at every street corner..."[xliv] No Prime Minister since the war has been able to escape considerable involvement in economic affairs. Even Home, who memorably confessed to his lack of economic expertise and left the chair of his Economic Policy Committee to his Chancellor, talked with him regularly. His first act as Prime Minister was to ask him whether there was a case for an economic 'squeeze'.[xlv] Despite an evident lack of touch in economic matters, Attlee could not avoid taking the chair of the Economic Policy Committee when it was created in 1947. Nor did Churchill fail to see his Chancellor daily, although, doubtful of his understanding of modern economics, he gave him an increasingly free rein. Despite a background confined to international affairs, Eden was more active than his immediate predecessors in proffering advice to his Chancellors and became actively involved in the search for wage and price restraint in 1956. Macmillan, with more economic expertise, constantly chivvied his Chancellors, as Richard Lamb records.[xlvi]

During his first term, Wilson played his Chancellor and First Secretary against one another, successfully dividing and ruling. After devaluation he found himself forced to live with a man whom he knew to be after his job. Miraculously their relationship, although strained between April and November 1968, survived.[xlvii] In his second term, more relaxed, Wilson gave Healey what amounted to a free hand and firm backing, although prompted otherwise on occasion by his Policy Unit and by the Chancellor of the Duchy, Harold Lever, whom he had lodged in No 10 because of his economic expertise. Healey recalls with satisfaction how Lever became "something of a double agent, helping me as much as the Prime Minister."[xlviii] Callaghan was equally supportive of his Chancellor, although more involved. To him goes the credit for the development in 1977 of the "informal 'Seminar' to discuss interest rates and exchange rates, on which prime ministers and chancellors so often disagree."[xlix] It consisted of Prime Minister, Chancellor, the Governor of the Bank of England, Lever in his personal capacity, and a handful of officials. It was an innovation which Mrs Thatcher continued in a somewhat different guise, and it was at a meeting attended by the Foreign Secretary, the Trade Secretary, as well as the Chancellor, Governor, Nigel Lawson and some key officials that it was decided to abolish exchange controls.[l]

Perhaps the most dominant Prime Minister of all in economic matters was Edward Heath, a verdict which may surprise those who saw Mrs Thatcher at close quarters. But, as Heath's biographer notes, Barber "was never able to stand up to Heath.... Heath already had a poor opinion of the Treasury, which he suspected of a lack of enthusiasm for Europe.... it was increasingly marginalised, as Heath sought more congenial economic advice elsewhere."[li] The 1972 budget was "not in reality the Chancellor's Budget, but the Prime Minister's", framed in opposition to the Treasury as a deliberately European policy and derived in large part from a small group comprising members of the cabinet Office and the CPRS led by the Head of the Civil Service.[lii]

Mrs Thatcher worked closely with both Howe and initially Lawson. "My regular pattern of contact with the Prime Minister comprised a weekly 'bilateral' (this was part of the bureaucratic routine for senior colleagues, with agenda items and sometimes papers flagged up in advance) and two or three brief informal chats a week," Howe recalls, and he attended the Thursday Breakfast Group also, which predigested the Cabinet agenda. There would also be a Sunday evening chat and drink with the Prime Minister every two to three weeks.[liii] Lawson notes the Prime Minister's fondness for seminars in the context of three on monetary policy held in the autumn of 1980, and he writes of her "intense, if spasmodic, attention to Treasury detail" which he saw as advantageous to the Treasury.[liv] Although less close than Howe, he saw the Prime Minister each week. Every alteration in interest rates also required a meeting with her, usually with the Governor of the Bank of England present as well. On two occasions in 1986 she prevented Lawson from raising the rate and on a further occasion in May 1989 insisted on a cut, but for the most part was content to welcome any cut in interest rates and to acquiesce grudgingly in decisions to raise them. Comparison of their memoirs suggests that Howe kept the Prime Minister more closely informed on the progress of budget making than Lawson, although the latter invariably took her into his confidence about the broad shape of his thinking late in January each year and subsequently submitted two or three Minutes detailing alterations to the Medium Term Financial Strategy, tax changes and reform proposals. It is evident also that the final draft of the Budget speech was usually cleared with No 10. There were also other meeting à deux or with small groups of ministers where decisions were reached, the most notable of these being that on 13 November 1985 when Mrs Thatcher in true Lincolnian style rejected British membership of the ERM although the meeting was 6 to 2 in favour, and the meetings between the Prime Minister, Chancellor and Foreign Secretary on the same subject prior to the Madrid Council in June 1989, which Mrs Thatcher describes as "an ambush".[lv]

Increasingly Mrs Thatcher relied on advice in such matters from two hardline monetarists, the head of her Policy Unit, Professor Brian Griffiths and Professor Alan Walters, who had been recruited to Downing Street in 1980 and quickly won her confidence in the run up to the 1981 budget. Although he took up an American academic post in 1984, he continued to advise her informally. His formal return to No 10 in May 1989 coincided with growing public awareness that policy towards sterling was a matter of dispute between No 10 and No 11. Mrs Thatcher's belief that the market could not be bucked was so clearly at odds with the Chancellor's wish to use the exchange rate to discipline inflation that, even without their increasingly public row over the ERM, it could well have led Lawson to resign much earlier. The actual occasion in October 1989 was the impossibility, as Lawson saw it, of conveying to the markets an agreed policy line so long as Walters was at No 10. Lawson wrote to Mrs Thatcher, "the successful conduct of economic policy is possible only if there is, and is seen to be, full agreement between the Prime Minister and the Chancellor..."[lvi] and that no longer obtained.

To lose one Chancellor might be taken as misfortune, to lose two in short measure would rightly be seen as bad management. Inevitably the resignation or dismissal of a Chancellor strengthens the hand of his successor: if he is not given a fair run, the Prime Minister would be confessing to a serious error of selection on his/her part. Lawson's successor, John Major was able to use his much stronger position in regard to No 10 not only to persuade the Prime Minister to give her consent to entry to the ERM in June 1990 but to secure her endorsement of an alternative route to monetary union, the so-called hard ecu plan. Both moves were accomplished without in any way prejudicing Major's position as Mrs Thatcher's favoured successor.

Prime Ministers have an inbuilt tendency to interfere in interest rate policy and political considerations ensure that their bias is to see them lower. It was no doubt this which prompted the present Chancellor to move to a situation where the minutes of his discussions with the Governor of the Bank become public after a few week's delay. Although the Prime Minister knows what line the Chancellor will take in the discussion, nothing short of giving the job to an independent central bank could have been better calculated to take undue pressure from No 10 out of the equation. Kenneth Clarke self-evidently has been his own man at the Treasury, resisting, for example, pressures from No 10 to abandon VAT on fuel. In general his relationship with the Prime Minister has been easy. There is genuine goodwill between them, which has proved one of the Government's strengths in troubled times, not least the months when Clarke himself was widely seen as Major's inevitable successor. Differing, so it is believed, on the likelihood of early British membership of a single currency, they agreed a compromise, promising a referendum should the Government decided to join it when the time came for a decision in 1998.

This confirms Lawson's view that there are two main checks on the power of the Prime Minister, the first being the damaging effect of a resignation, the effect being cumulative. More important to the day-to-day operation of government is what he describes as "a mutual blackball system.... By that I mean that if a Minister wishes to do something within his own field which the Prime Minister profoundly disapproves of, then the Prime Minister has a blackball which he or she can cast.... Equally, however, unless the Minister concerned is absolutely spineless.... then if the Prime Minister wants something done in a particular area, and the Minister responsible disagrees with it, then it will not happen.... he has a blackball, too."[lvii]

In contrast to the Prime Minister's relationship with the Foreign Secretary postwar, his relationship with the Chancellor suggests continuity rather than change. While they cannot escape the need to work hand in glove, the relationship will vary with the personalities involved and, even with the same incumbents, may change over time. Lawson's relationship with Margaret Thatcher, for example, began in mutual confidence to the point where he was not even disposed to take her ERM veto to Cabinet or resign. It was more than four years (September 1987) before it began to deteriorate. Many variables are involved, not least personal chemistry, their relative economic expertise and their relative political standing. Wyn Grant identified four possible relationships (see Table II).

TABLE II

Source: adapted from Grant (1993)

However, he ignored the possibility of a close working relationship amounting to partnership. The Thatcher/Howe tandem and, to a lesser extent, the Macmillan/Maudling relationship suggest that such a partnership can exist.

The Economic Policy Committee, more recently known as Economic Affairs (EA) and, under John Major's chairmanship, as Economic and Domestic Policy (EDP), has, like the Overseas and Defence Committee, been attributed a rather larger role in the formation of policy than it actually enjoys. Mrs Thatcher's memoirs, when taken together with those of Howe and Lawson, make it clear that in the conduct of macroeconomic policy she had no need to rely on EA. Indeed there are very few mentions of the committee in Lawson's very full View From No 11. The Cabinet was in practice marginally more important since the control total and final public expenditure package were always discussed there. Bilateral discussions between the Chief Secretary and the spending ministers and on occasion appeals to the "Star Chamber", a special Cabinet Committee set up to hear them, had usually settled its content, but in 1980, "after three exceptionally long discussions", Mrs Thatcher and Howe suffered a Cabinet defeat over the proposed cuts and the Chancellor had to retrieve the position by increasing national insurance payments.[lviii] After the dismay expressed when the Cabinet were faced at the last moment with the exceptionally controversial (although ultimately successful) 1981 Budget, Howe arranged with Mrs Thatcher for there to be some discussion of economic policy not only when the public expenditure control total was settled in July, but also some weeks in advance of the budget.[lix] However, a more recent Chancellor observed that the discussion is "rather general and not particularly useful", not least perhaps because the Chancellor does not take an active part.[lx]

The conduct of economic policy remains very much a matter for Prime Minister and Chancellor, with the Economic Policy Committee being used to take decisions on individual questions like the future of Westland, the abolition of the price commission, energy pricing or the decision not to sell Rover to an American buyer. That is not to minimise the committee's importance, simply to say in contradiction of Burch that this is not the way in which "economic policy has effectively been hived off from the scrutiny of the whole Cabinet."[lxi] Indeed it would be wrong to suppose that the way in which macroeconomic policy was conducted in Mrs Thatcher's governments differed in any major respect from the way in which it was conducted by her predecessors and successor. There were fewer sterling crises, however, and it was at times of crisis that, under earlier Prime Ministers, Cabinets became involved in genuine policy discussions, in 1957, for example, and again in 1966. It is worth observing, however, that the packages to deal with successive crises were rarely the product of such discussion.

In July 1965 Wilson, Brown, Callaghan and Jay settled the main features of the necessary package, the details were worked out by officials and the proposals discussed with the ministers involved in the cuts at a meeting in No 10 on 26 July, with Wilson, Brown and Callaghan settling the final details that night. Both the Americans and the press had already been briefed by the time the Cabinet received the package that they were to discuss the next morning, 27 July. "What happened then was as near to central dictatorship as one is likely to get in a British Cabinet.... we were not given time either to discuss the underlying strategy or even to consider the document as a whole."[lxii] There was more room for Cabinet discussion in 1966, since the need for a package was broken to the Cabinet on 14 July, devaluation discussed and rejected on the 19th and the package agreed on the 20th. But the results were much the same. "The Treasury papers before us, making precise proposals and not offering alternatives, had only been in ministers' hands about thirty hours. This was a mockery of sensible government..."[lxiii]

Increasingly, if there was collective discussion, it took place in committee, Cabinet ratifying the result. The 1967 devaluation discussions were confined to an informal airing of the issues at the Steering Committee on Economic Policy on 8 November, two meetings between Wilson, Brown and Callaghan, the decision to go ahead which was taken by Wilson and Callaghan late on the 13th, ratified and taken forward by the "Tuesday Club" (Prime Minister, Chancellor, Foreign Secretary, First Secretary, Commonwealth Secretary, Defence Secretary and President of the Board of Trade) at two meetings on the 14th and 15th whose main purpose was to settle details of the accompanying economic package. The Cabinet, faced with the decision and package on 16 November, would have found it difficult to do other than "confirm" the decision already reached. The creation of the Steering Committee on Economic Policy in September 1966 had been meant to allow the Wilson government to predigest vital economic matters, but it was not allowed to discuss devaluation, even informally, until 8 November 1967, more than a year after it was formed, and did not meet again until the decision had been taken when its role was to consider Callaghan's post-devaluation statement.

The evidence suggests that Heath too used his economic policy committee to prepare for departures from previous policies over industrial intervention and prices and incomes control, although the key decisions were always ratified by Cabinet. The Labour governments of 1974-9 certainly used the Ministerial Committee on Economic Strategy in this way, although not to any great extent until the European issue was off the agenda.[lxiv] Wilson also used a smaller committee, MISC 91, to pave the way for an incomes policy in June 1975 as well as to monitor its implementation.[lxv] Donoughue credits the Cabinet Secretary, Sir John Hunt, with the decision to replace both these committees and the parallel Official Committee (PIO) with "a single strategic economic Cabinet Committee which would cover the whole broad economic field and would be serviced by various committees concentrating on particular micro areas of policy."[lxvi] Clearly it was used by Callaghan and his Chancellor in exactly the same way as the earlier committees, so much so that Healey was discommoded when it was agreed in Cabinet on 18 November 1976 that continued discussion of the IMF terms would not take place in EY but at the full Cabinet.[lxvii] Callaghan's use of the Cabinet for a genuine consideration of the alternatives to a settlement with the IMF has attracted much attention. However, not only is it very much the exception to the general pattern, but in fact it confirms that if Prime Minister and Chancellor stick together, they usually win. When Callaghan came down in favour of his Chancellor, a majority of the Cabinet was against them. They had no need to threaten resignation. Thoughts of press stories that they had been overruled were sufficient to bring the Cabinet into line.

In reflecting on 'Cabinet Government in the Thatcher Years,'[lxviii] Lawson emphasised that he did not see fiscal and monetary policy as matters for collective decision-making and in a later seminar on Labour Cabinets, Edmund Dell agreed. Indeed it became part of his ongoing argument that collective responsibility is a myth and ought to be abolished: "Read Lady Thatcher's account of her dealings with Howe and Lawson over joining the ERM. Not a whiff of collective responsibility in it. The three of them were going to take the decision. When we did join the ERM in October 1990 it was not a Cabinet decision..."[lxix] During the Thatcher years, the Chancellor and Prime Minister handled runs on sterling without any consultation of colleagues,[lxx] although there was discussion within the framework of the G7. Nor did the Cabinet choose to debate Major's strategy when, in the summer of 1992 and again in the autumn, he outlined the considerations which had led the Chancellor and himself to dismiss devaluation and seek a support package for the pound. On "Black Wednesday", when Britain was forced out of the ERM, the decisions were taken by the Prime Minister and chancellor in consulation witha group consisting of Clarke, Hurd, Heseltine and the Chief Whip. It had been convened to discuss contingency plans for the aftermath of the French referendum, but the decision to involve them was deliberate. The Prime Minister wished to ensure that his senior colleagues were fully involved - "dipping their hands in the blood" as Clarke put it - but the nexus between Prime Minister and Chancellor remained the heart of the meeting.

The Prime Minister has sought from time to time to enhance both his capacity and role in the making of economic policy. Where Attlee was content to rely on Douglas Jay and did not replace him in No 10 when he entered Parliament, Churchill incorporated Lord Cherwell in the Downing Street set up and asked him to recreate the Statistical Section that had serviced him during the 1939-45 war. Neither Eden nor Macmillan looked beyond their Private Office for inside advice, although the latter was always ready to canvass the Treasury for comment and reply to what amounted to a running critique by Sir Roy Harrod of its conduct of affairs. Wilson lodged the Oxford economist, Thomas Balogh, a close friend, and Michael Stewart in the Cabinet Office to provide him with economic advice and, when the civil service appeared to get in the way of constructive communication, he then brought Balogh into No 10. Briefly he also took charge of the Department of Economic Affairs himself in 1967 with Peter Shore working to him. However, the Department was abolished in 1969. Brian Reading, who had advised Heath in opposition was appointed to the Cabinet Office, but the creation of the CPRS and the existence of the Civil Service Department under a former Permanent Secretary to the Treasury gave him more potent alternative sources of advice. When he returned to office in 1974, Wilson could rely on his new creation, the Policy Unit, which contained economists of the stamp of Gavyn Davies. Callaghan also looked to the CPRS and eventually made its head, Sir Kenneth Berrill, Chief Economic Adviser. Both he and his predecessor also looked to Harold Lever for an input into economic policy and they were rarely disappointed. Initially Mrs Thatcher sharply reduced the staff and inevitably the scope of the No 10 Policy Unit, but in 1980, as we have seen, she added Alan Walters to the No 10 strength. When she expanded the Policy Unit after the abolition of the CPRS in 1983, she had other sources of economic advice to draw on, most notably Brian Griffiths of LSE and the City University, who was its head from 1985 to 1990. Major took Judith Chaplin with him from the Treasury to No 10, but his choice of Sarah Hogg to head his Policy Unit was more significant. She was an outstanding economic correspondent. However, with the exception of the set up under Heath and, more questionably, Mrs Thatcher's arrangements, the Prime Minister has rarely been in a position to make a sustained and effective challenge to the Treasury.

An increase in Prime Ministerial involvement does not automatically amount to an increase in Prime Ministerial power. Rose's salutary reminder about the degree of international interdependence in economic and foreign affairs can be reinforced by reference to the interdependencies which exist between the Prime Minister and his most senior ministers. The former holds high cards, and his place in the European Council may well allow him to run the most significant part of the international agenda. But the time given to that part of his job may well mean that he exercises less control over prioritisation in domestic policy. One of the more significant innovations made by the Major Government, the creation of a Cabinet Committee (EDX) chaired by the Chancellor to steer the bilaterals and settle public expenditure disputes, has improved the coherence of Government strategy, but it has also strengthened the Chancellor's hand in that process. In the actual conduct of economic policy the Prime Minister's role is more "hands on" and much will rest on the relative balance of expertise, confidence and political standing. The Prime Minister's power to shift and to sack remains a double-edged sword. In the short run it may enable him/her to evade a policy urged by Chancellor and Foreign Secretary, but as Mrs Thatcher found, that in turn can render him/her virtually a prisoner of whoever takes their place, that is unless success and high political standing give fresh authority to the Prime Minister's position. Major seems to have found his own solution, institutionalising these interdependencies by bringing senior ministers together in an informal inner Cabinet where there can be a genuine pooling of minds. That is a measure perhaps of the need for an overarching strategy linking these fields and the need also for skilful Prime Ministerial politics in dealing with the "biggest beasts in the jungle".

NOTES