NRPLUS MEMBER ARTICLE E ven with Donald Trump’s dramas, the death of Nigel Lawson, former U.K. chancellor of the Exchequer (Treasury secretary) under Margaret Thatcher dominated the newspaper headlines in the U.K. This was a measure of his impact on British politics where his powerful intellect and drive made him one of the most influential politicians never to have become prime minister.
He was, with Keith Joseph, Geoffrey Howe, and, of course, Thatcher herself, one of the main architects of what became known as “Thatcherism”: a belief in markets, privatization, low taxes, and limited government.
Nigel Lawson was involved in the Thatcher project from the very beginning to almost the very end. Although not a Cabinet minister in her first administration, he was, as a junior Treasury minister in 1979, hugely influential in developing the medium-term financial strategy (MTFS), a framework designed to control money supply and public spending and bring Britain’s rate of inflation down. He was a fan of Milton Friedman and other monetary economists.
As secretary of state for energy in 1981, his first Cabinet post, he became a powerful advocate of the privatization policy that had not featured in the Conservative manifesto for the 1979 general election, which brought them to power. He became an evangelist for popular capitalism and wider share ownership.
Sometimes people wrongly thought of Lawson as a technocrat rather than a politician. While he had little patience with political tittle-tattle, he always thought strategically and was something of a master of political strategy. His annual budgets accorded with his philosophy but were also designed with an eye on elections. His sense of direction was shown when, as energy secretary, he arranged for the build-up of coal stocks (the coal mines had been nationalized since the late 1940s) at power stations (most of Britain’s power stations at the time were fueled by coal) in anticipation of a strike by the highly politicized coal miners’ union. When the strike duly came, the lights stayed on. After a year, the strike collapsed, a major turning point in Britain’s industrial relations, which had been marked by growing trade-union militancy for years. Lawson later described the costs of that strike as “a very good investment.”
To those who did not know him, Lawson might appear rather forbidding. The truth was very different. He had a strong sense of the ridiculous and was not averse to making fun of himself. I remember one of his birthday parties where he appeared in a velvet dinner jacket and began to entertain everyone singing like Noel Coward in Las Vegas. He appeared on a satirical TV program, Have I Got News for You, and made wry comments about his critic Alan Walters, who was an economic adviser to Mrs. Thatcher, an arrangement that, as we see below, was to cause trouble.
It was in his six years as chancellor of the Exchequer from 1983 to 1989 that he set out to move the British economy, which had lagged its competitors for years, onto a path of faster growth, lower taxes, and a smaller state. His defining moment was the 1988 budget when he cut the top rate of income tax from 60 to 40 percent and the basic rate from 27 to 25 percent.
But he didn’t just cut taxes. He reformed them and simplified them. He abolished four different rates above the top rate and, abolishing a 180-year-old rule, introduced independent taxation of husbands and wives. He aligned the rates of capital-gains tax with those of income tax. This change was not so popular with Conservative MPs but to him was a logical part of the total package. He believed in lower taxes, particularly lower marginal rates but fewer reliefs and loopholes.
Lawson never had any time for special pleading by vested interests, as he demonstrated when transforming the way the City of London was run, the “big bang” that ensured that London was one of the world’s two leading financial centers for decades to come. Equally, when the 1987 stock-market crash took place in the middle of the sale of part of the government’s stake in British Petroleum (BP), he ignored protests from the city’s investment bankers and insisted the losses were borne by the financial institutions that had underwritten the share offer.
Some politicians recently have praised Lawson’s tax cuts and attempted to use his memory to advocate policies which he strongly opposed. At the time of the recent Conservative Party leadership election, he made clear future tax cuts should depend on getting inflation down first, and also needed to be matched by cuts in spending. He declared Rishi Sunak, now the prime minister, to be the only candidate “who understands Thatcherite economics.”
Lawson worked closely with U.S. Treasury Secretary James Baker, someone for whom he had great respect, in negotiating the Plaza Accord in 1985 designed to weaken the U.S. dollar.
Many people were puzzled by Nigel Lawson’s attitude to Europe and the EU. He supported joining the ERM, the Exchange Rate Mechanism, the pre-euro quasi-fixed exchange-rate regime that linked many of the currencies of the EU together. However, he later backed Brexit and for a time was chairman of the “Vote Leave” organization in the 2016 referendum. In many respects, he shared De Gaulle’s preference for a Europe of nation-states with unity developing at the intergovernmental rather than supranational level. And he had become increasingly Eurosceptic as European integration had developed over the previous decades.
His support for the ERM had nothing to do with Europe and came after he lost faith in attempting to control the money supply as an anti-inflation policy. He felt that linking the pound to a strong currency like the Deutschmark (which was inside the ERM) would drive down U.K. inflation. He did not remotely believe in joining the euro when it came into existence.
It was this attitude to the exchange rate together with criticism from Mrs. Thatcher’s Alan Walters, that led to his so-called “falling out” with Thatcher and his resignation. I tried hard to persuade him not to resign, but I had the impression he felt he had been chancellor long enough.
It has to be admitted Mrs. Thatcher, who largely agreed with Walters, had a point in her concern about the direction in which Lawson wanted to take policy (in fact, it emerged that he had been “shadowing” the Deutschemark for a while). Economists still argue about the causes, but inflation at the end of his period in office was again moving up sharply.
Despite his departure from the government, Lawson always retained the highest regard and affection for Mrs. Thatcher. He felt together they had achieved great things.
Nigel Lawson’s energy remained irrepressible. He was highly active after his elevation to the House of Lords and became one of the leading skeptics in the U.K. about the accepted theories of global warming.
It is sometimes said that individuals cannot alter the course of history. Nigel Lawson was the exception: He made a true difference to economic policy-making in Britain.
This piece is a lightly adapted version of an article written for OMFIF — the Official Monetary and Financial Institutions Forum.