Bound to end in tears

as it seemed to me John Cole was on the inside as Thatcher's relationship with Nigel Lawson, her chancellor, deteriorated

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APART from the Prime Minister herself, Nigel Lawson was the decisive figure of the Thatcher years. Like his leader, he had come to the top in politics with a strong ideological commitment. He also had a mission: to be Chancellor of the Exchequer. Kenneth Clarke used to joke: "Nigel has never really liked politics, but has concluded that they are a necessary, if disagreeable preliminary to becoming Chancellor of the Exchequer."

John Smith once remarked that the Chancellor was "a clever fellow". But he also explained why he found him irritating. Lawson tended to say, not that he disagreed with Smith, or even that his opponent was wrong, but that he "did not understand". If a Labour man was offended by a sense that he was being patronised, the effect on Lawson's boss may be imagined. Lawson has never been either a hypocrite or a good actor. He once convulsed the Cabinet by praising an international finance ministers' meeting: there had been no bank governors or prime ministers present, so everybody had known what they were talking about.

At that time, politicians and journalists usually scoffed at the thought of Lawson as party leader. My view was that he ought not to be ruled out, particularly as the Tory right had no obvious candidate. Occasionally I asked him about this, but the furthest I ever got was a confession that if the entire Cabinet fell down dead - a tragedy which I suspect the phlegmatic Lawson would have borne with more equanimity than most - he was not prepared to say he would push the crown away.

After the 1987 General Election, his quarrels with the Prime Minister developed a new velocity. The fissure between them eventually engulfed both Prime Minister and Chancellor. Their dispute concerned his wider economic judgments, their ideological differences over exchange rate and monetary policy, and over Europe; and, crucially, whether the pound sterling should be in a fixed relationship with other European currencies, notably the Deutschmark. And the Government faced a gathering crisis over the poll tax, a subject on which the Chancellor never wearied of telling the Prime Minister that she was mistaken.

But their deteriorating relations derived as much from personal chemistry as from ideology. He and Thatcher, though holding many common beliefs, were ultimately chalk and cheese. Lawson is a fully paid-up intellectual, who wrestles ideas into submission. Thatcher is more like a barrister, who niggles away at chinks in an argument, with an instinctive politician's zeal. It was bound to end in tears. Colleagues close to both believed she recognised his competence, but they concluded that "because neither Nigel nor Margaret is a warm person", they could not come close to each other.

He was a strong-minded minister, expert in his own subject, who was not prepared to accept the kind of personal treatment from her which others had grown used to. The strains sometimes showed in Cabinet. One minister told me that Lawson, like the rest of them, hated to be interrupted by the Prime Minister; but unlike most of them, he did something about it: he kept on talking, if necessary allowing a duet to develop. He said: "Nigel has excellent volume control."

By 1989, Lawson, despite his own less than fanatical support for the European ideal, had concluded that Britain's trading and economic future lay there and that we should join the Exchange Rate Mechanism. As Margaret Thatcher resisted, entry became increasingly important to him. His battle was not only with the Prime Minister, but with her economic adviser, Professor (now Sir) Alan Walters. He liked Walters personally, and did not deny the Prime Minister's right to have independent advice. The trouble was that the professor not only had trenchant views on monetary matters but had published his analysis widely. The markets rightly concluded that his writings represented the advice Walters was pouring into the Prime Minister's ear. That left them wondering what the Government would do next. This uncertainty made the markets nervous, and the Chancellor's job more difficult.

For many younger politicians, Thatcher's attitudes to Europe were becoming ever more uncongenial. I asked one minister, just before the European election defeat in 1989, what were the real reasons for her doubts about Europe. He replied succinctly: "She thinks they are a bunch of wankers."

The Cabinet majority were reluctant to involve themselves openly in a dispute about which Thatcher felt so strongly. Lawson was sufficiently worried to consult the Home Secretary, Douglas Hurd, and he received sympathy from him and Kenneth Clarke. There were many subjects on which Hurd and the Chancellor did not agree. But as a novelist, and connoisseur of the human condition, Hurd found that, for his own taste, he had too many "saccharine people" around him in government, and appreciated Lawson as one of the salty ones. In Lawson's final year, these two characters met regularly in private.

Lawson had now been engaged in this long and frustrating struggle with Thatcher since 1985, when she flatly refused to consider early British membership of the ERM. In June 1989, she was due to attend a European summit in Madrid with Geoffrey Howe, the Foreign Secretary. Lawson hoped that Howe's presence would exercise a modifying influence and that she would set conditions for British entry to the ERM which made it likely within two or three years. At the time, the two tense meetings at which the Foreign Secretary and Chancellor warned the Prime Minister they might have to resign were kept secret. It was a year later that a right-wing junior minister delightedly explained to me that they had told her "unless she signed on the dotted line at Madrid", they would resign and make a very public row.

Nigel Lawson did eventually resign on 26 October 1989. I had left Westminster early that evening to write a script for On the Record at the old Lime Grove studios of the BBC. My wife Madge and I were due to go on to a party for Alastair Hetherington, the former editor of The Guardian, who was retiring from the Scott Trust, which owned the paper. A researcher suddenly shouted "Lawson's resigned". He had a reputation for practical jokes, so colleagues invited him to shut up.

But in minutes I was in a taxi to the news studios a mile or so away. My job was to provide the background to what, for many people who had not followed Lawson's quarrel with Thatcher, was a bolt from the blue. I had to keep on broadcasting during the rest of the evening. Alastair's farewell proved to be one of many social occasions on which my telephone calls kept promising I would arrive any moment now. I never did.

Lawson's resignation was the result of the Prime Minister's growing determination that she would not be challenged, even on the comparatively minor matter of her economic adviser. Only two days before, a minister as close to her as Cecil Parkinson still believed she would not force the issue. But for her, Walters represented ideological commitment, unpolluted by political considerations. That was important to Margaret Thatcher. Walters himself resigned that same evening. Her adviser's past writings had caught up with them, and the schism between Prime Minister and Chancellor had become too publicly obvious for a proud man like Nigel Lawson to bear.

Extracted from "As It Seemed to Me" by John Cole, to be published this week by Weidenfeld and Nicolson, £20. Another extract will be published in the "Independent" tomorrow.

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