When the Dogs Caught the Car: or, the Whigs and Tories Ride Again
Ferdinand Mount hobnobbing with the leaders of the Commonwealth Assembly groupings at a meeting in September 1993
Despite the dramatic circumstances of its birth, the Liberal-Conservative coalition proved to be very capable and work well together. Steel and Mount, in particular, proved to have a genuinely friendly working relationship. Despite the concerns of some, stoked by Labour during the election campaign, Steel’s Liberals did not revert to Thatcher-style slash-and-burn economics and instead governed as moderates concerned with sound public finances and harmonious domestic affairs. On the welfare state, Malcolm Bruce presided over a modest raising of benefit levels in 1993 and confirmed that social security would rise in line with inflation in the future. On race relations, the Home Secretary David Trimble expanded the powers of the Race Relations Board, empowering it to launch full public enquiries into institutions such as the Metropolitan Police Force, leading to an explosive report published in 1995 and dramatic reorganisations of the force’s internal culture to make it more responsive to what was termed ‘institutional racism.’
During the early part of the 1990s, the British economy was the beneficiary of the ‘credit crunch’ and subsequent social unrest in France, with much of the financial services work that had flowed to Paris since their ‘neoliberal’ reforms now flowing to London. Following the collapse of the Fourth Republic and the declaration of the Fifth in September 1993, the Bank of England agreed to make a special sterling credit line available to the French government in November 1994. This enabled the nascent government in France to solve its immediate liquidity problems (not, ultimately, that it would save them) but at the price of making the Commonwealth and the SWF France’s biggest creditors. The British government also undertook a series of measures to reform the regulation of the financial services industry, notably the Commodity Futures Act 1996, which modernised the regulation of derivatives trades. However, moves to undertake similar liberalising measures in respect of merchant and highstreet banking, which would have effectively removed the regulatory distinction between them, were blocked by David Triesman, the chairman of the Bank of England.
In foreign affairs, Steel attempted to chart what he called a ‘liberal’ foreign policy, which often brought him into conflict with his Foreign Secretary, the Conservative Rupert Carrington, who favoured a more Toryish isolationist approach. Allying with a cross-section of other Commonwealth prime ministers (notably John Button (Australia), Manmohan Singh (Pakistan), George Saitoti (East Africa) and Orton Chirwa (Rhodesia)) as well as the Commonwealth Chairman Zulfikar Ali Bhutto, Steel pushed through the South African Liberation Plan in 1993. In response to the continued apartheid regime of Andries Treurnicht (closely supported by his near-psychopathic lieutenants Eugène Terre'Blanche and Clive Derby-Lewis), the Plan argued that the South African government had committed numerous violations of international law and UN resolutions since the end of the Zulu-Natal War and committed the Commonwealth to a policy of ‘regime change’ in the country. Using this authority, Commonwealth planes undertook a four-day bombing campaign against alleged South African chemical weapons facilities in December 1994.
In Commonwealth affairs, the Assembly elections in 1995 were a landmark moment, with the Socialists losing their position as the largest party and allowing the Liberal Democrat Ken Clarke to be chosen as Speaker on the back of an informal alliance with the Conservatives and the Greens. Clarke, a former Liberal MP, proved energetic in the role, pushing forward on Commonwealth regulation in a number of directions. Perhaps the most significant moment was an agreement, in 1998, to expand the internet into other countries, linking it to other pre-existing networks around the world. Notable countries to ‘join’ the internet in this period were Brazil, the United States and France.
Arguably the most symbolically significant moment of Steel’s premiership, however, was completely out of his hands. In August 1991 the Drake 5 blasted off from its base in Woomera for its manned mission to Mars. On 23 December 1991, the British astronaut Michael Foale became the first human to set foot on another planet.
For the first three years of Steel’s premiership, the UK enjoyed robust economic growth and the Treasury reported budget surpluses, the majority of which was returned to the public via tax credits in the budgets of 1993 and 1994. However, as the country headed into the final quarter of 1994, a number of factors combined to make the economic outlook decidedly shakier. The most publicly obvious development was the failure of Rootes’ ‘New Beetle’ (the world’s first car to be powered entirely by solar energy) to gain popularity with Commonwealth drivers following its launch in 1991 and its unceremonious scrapping in August 1994. This, however, was just one feature of a general decline in the automobile market, the result of a general public shift away from personal cars to trains in the UK. At the same time, there was a plateauing of the increase in incoming capital from continential Europe as the continential economies (with the notable exception of France) staged recoveries. The UK also caught some of the backwash of the US 1993-94 recession that had been triggered by the bankruptcy of InGen Corporation following the Isla Nublar disaster.
Most significantly of all, however, seems to have been the actions of the Bank of England, which remain shrouded in controversy to this day. Following the Commonwealth-wide financial services boom from the late 1980s, concerns began to emerge in the mid-1990s that the economy could overheat, resulting in the Bank raising interest rates in the first two quarters of 1994, each time by 0.25%. While they did not move during the third quarter, a raise of 0.5% in October caused a notable slowdown in the construction industry and is believed to have been key in tipping the UK into a technical recession.
The key controversy arose from the role of David Triesman. Before being appointed to the chairmanship of the Bank in 1986 (as Evan Durbin’s handpicked replacement), Triesman, a youthful member of the Communist party, had been an economics lecturer and subsequently a Labour MP and junior treasury minister under Castle and Rodgers. This fueled allegations of partisanship (which had, admittedly, circled around Durbin too) which enraged Steel and many of the Liberals around him. Although Steel himself remained out of this, many of his media and Parliamentary outriders began a concerted campaign to shift blame from the government to the Bank. In particular, an attempt was made to portray the raises in interest rates as a partisan attempt to prevent an economic recovery before a general election.
(It should be noted that the debate around the Bank’s actions remain sharply polarised. On their face, the actions of a Bank managed by a former Labour hack do look distinctly unfriendly to the Liberals. But, on the other hand, the Bank’s primary aim now was Commonwealth macroeconomic stability and the rate cuts are often credited with playing a part in electoral victories as varied as the Australian Liberals in 1994 and the East African Socialists in 1996, not to mention with the protection of the Commonwealth economy as a whole from greater damage than was suffered.)
If Steel had been expecting a wave of support to follow behind him, he was sorely disappointed. He announced that he would be taking up the cause of Bank of England reform at the next prime ministers’ conference but when the other Big Four prime ministers (Jean Chretien of Canada, Manmohan Singh of Pakistan and Andrew Peacock of Australia) publicly distanced themselves from the idea, Steel was left looking isolated and impotent.
The theatrics with the Bank rather overshadowed what was actually a competent response to the downturn by all sides. The government authorised the temporary loosening of restrictions on mortgages to encourage construction and fast tracked rail improvements and other infrastructure work to counteract unemployment. Furthermore, when the Bank of England became aware of the extent of the recession, it made moves to act through monetary policy, announcing a cut in base rates in January 1995. The economy returned to growth in the second quarter of 1995, well before Steel dissolved Parliament and went to the country in spring 1996.
