Editing Geoffrey Howe (section)

=== Chancellor of the Exchequer ===
With the Conservative victory in the [[1979 United Kingdom general election|1979 general election]], Howe became [[Chancellor of the Exchequer]].<ref>{{cite tweet |user=CrownOffFOIDs |number=1516766799391604742 |author=Crown Office |author-link=Crown Office in Chancery |accessdate=17 August 2022 |title=Letters patent appointing Geoffrey Howe as Chancellor of the Exchequer }}</ref> His tenure was characterised by an ambitious programme of radical policies intended to restore the public finances, reduce inflation and liberalise the economy. The shift from direct to indirect taxation, the development of a medium-term financial strategy, the abolition of [[exchange controls]] and the creation of tax-free enterprise zones were among the most important decisions of his chancellorship.

The first of five budgets, [[June 1979 United Kingdom budget|in 1979]], promised to honour Professor [[Hugh Clegg (industrial relations)|Hugh Clegg]]'s report that recommended a return to pre-1975 pay levels in real terms, conceding Howe's point about "concerted action".{{efn|Clegg was chairman for the Pay Comparability Commission.}} Rampant inflation had, however, eroded competitiveness, and devalued pensions, investments, and wages. Thatcher reminded him: "On your own head be it, Geoffrey, if anything goes wrong," commencing an often tense and querulous working relationship.<ref name="Telegraph obit" />   Thatcher's point was that the vast increase in (indirect) taxation and government spending (notably in public sector pay) in 1979 would lead to terrible consequences&nbsp;– which it did, as unemployment doubled. The financial policy tightened the money supply and restricted public sector pay, ultimately driving up inflation, at least in the short term, and unemployment in the medium term.

{{quote|Fundamentally we do believe in German principles of economic management and should be able to get ourselves alongside them&nbsp;... pronounce in favour of&nbsp;... providing greater stability as encouraging convergence on economic policies.<ref>Howe, "Sir Geoffrey Howe to Margaret Thatcher, 31 Oct. 1978, THCR 2/1/1/32", in {{harvnb|Moore|2013|p=405}}.</ref>}}

During Thatcher's first term, the government's poll ratings plummeted until the "[[Falklands Factor]]". Howe's [[1981 United Kingdom budget|1981 Budget]] defied conventional economic wisdom by slowing the inflation rate during a recession. At the time, his decision was fiercely criticised by 364 academic economists in a letter to ''[[The Times]]'', who contended that there was no place for de-stimulatory policies in the economic climate of the time, remarking the budget had "no basis in economic theory or supporting evidence". Many signatories were prominent members of the academic sphere, including [[Mervyn King, Baron King of Lothbury|Mervyn King]] who later became the [[Governor of the Bank of England]].<ref>{{cite press release |url=http://www.iea.org.uk/in-the-media/press-release/can-364-economists-all-be-wrong |title=Were 364 Economists All Wrong? |publisher=Institute of Economic Affairs |date=13 March 2006 |access-date=12 October 2015 |archive-date=25 October 2015 |archive-url=https://web.archive.org/web/20151025012656/http://www.iea.org.uk/in-the-media/press-release/can-364-economists-all-be-wrong |url-status=live }}</ref>

The logic in his proposals was that by reducing the deficit, which at the time was £9.3&nbsp;billion (3.6% GDP), and controlling inflation, long-term interest rates would be able to decline, thus re-stimulating the economy. The budget did reduce inflation from 11.9% in early 1981 to 3.8% in February 1983. Long-term interest rates declined from 14% in 1981 to 10% in 1983.<ref>{{cite web|first=Lawrence H.|last=Officer|title=What Was the Interest Rate Then?|work=MeasuringWorth|year=2008|url=http://www.measuringworth.org/interestrates|access-date=11 March 2019|archive-date=4 September 2010|archive-url=https://web.archive.org/web/20100904024944/http://www.measuringworth.org/interestrates/|url-status=live}}</ref> The economy slowly climbed out of recession.  However, already extremely high unemployment was pushed to a 50-year high of 12% by 1984, narrowly avoiding the figure reached during the [[Great Depression]] of 13.5%. Some have argued that the budget, although ultimately successful, was nevertheless over the top.<ref>{{cite news|url=http://news.bbc.co.uk/1/hi/programmes/newsnight/4803858.stm|title=Were all 364 economists wrong?|first=Stephanie|last=Flanders|work=BBC News|date=14 March 2006|access-date=11 March 2019|archive-date=29 September 2021|archive-url=https://web.archive.org/web/20210929054132/http://news.bbc.co.uk/2/hi/programmes/newsnight/4803858.stm|url-status=live}}</ref> Specialist opinions on the question, expressed with 25 years' hindsight, are collected in an [[Institute of Economic Affairs]] report.<ref name="IEA_364allWrong">{{cite report|url=http://www.iea.org.uk/sites/default/files/publications/files/upldbook310pdf.pdf|title=Were 364 Economists All Wrong?|publisher=Institute for Economic Affairs|access-date=11 March 2019|archive-date=17 December 2019|archive-url=https://web.archive.org/web/20191217133805/http://www.iea.org.uk/sites/default/files/publications/files/upldbook310pdf.pdf|url-status=live}}</ref>

Unlike [[Reaganomics]], his [[Macroeconomics|macro-economic policy]] emphasised the need to narrow the budget deficit rather than engage in unilateral tax cuts – "I never succumbed&nbsp;... to the mistaken interpretations of [[Laffer curve|Lafferism]], which have led some US policymakers  so far astray";{{sfn|Howe|1994|p=128}} despite these measures the budget deficit remained on average 3% of GDP during Howe's tenure. His macroeconomic policy was designed to liberalise the economy and promote supply-side reform. This combination of policies became one of the defining features of Thatcherism in power.{{efn|As noted, for example, by {{harvtxt|Lawson|2006|p=123}} and preceding.}}  However, by the time of his last budget, shortly before a general election, there were early signs of a recovery, which Howe used to justify a tax cut.<ref name="Telegraph obit" />

Documents released under the British government's 30-year rule in 2011 revealed that in the wake of the [[Toxteth riots]] in Liverpool in 1981, Howe had warned Thatcher "not to overcommit scarce resources to Liverpool", writing that "It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey. I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill".<ref name="liverpool">{{cite news|url=https://www.bbc.co.uk/news/uk-england-merseyside-16355281|title=Toxteth riots: Howe proposed 'managed decline' for city|work=BBC News|date=30 December 2011|access-date=2021-04-26|archive-date=28 December 2018|archive-url=https://web.archive.org/web/20181228202618/https://www.bbc.co.uk/news/uk-england-merseyside-16355281|url-status=live}}</ref> Howe later stated that he had not advocated the "managed decline" policy and that he had merely been warning of the danger of concentrating excessive resources on one area of need.<ref name="liverpool" />