Taxbriefs Chancellors – 2 Geoffrey Howe 1979 – 1983

Geoffrey Howe

Geoffrey Howe served as Margaret Thatcher’s first Chancellor from 1979 to 1983 and then as foreign secretary, leader of the House and deputy prime minister.

In November 1990, after 11 years of loyal government service, the ostensibly mild-mannered and equitable Howe unexpectedly provided one of the most dramatic of parliamentary scenes with his famous resignation speech. With Mrs Thatcher’s premiership called into question, the doors were flung open to a leadership challenge which precipitated her downfall within weeks.

After his resignation, Howe was apparently sent little bags from constituencies containing ‘30 pieces of silver’, which he donated to Guide Dogs for the Blind.

What he did

  • In his first Budget in 1979, Howe raised VAT from 12.5% (on luxury items) and 8% (on anything else VATable) to a flat 15%. At the same time he cut the basic rate of income tax from 33% to 30% and the top rate from 83% to 60% on earned income. Base rate – then in the Chancellor’s control – was raised from 12% to 14%.
  • The 1979 Budget also marked a major relaxation in exchange controls which were finally withdrawn in October after a 40-year run. As well as reducing the cost of overseas investment, abolition meant that the restrictions on foreign currency for holidays abroad disappeared.
  • His most memorable Budget was 1981 against a dire economic backdrop – inflation nudging 20%, the largest drop in industrial output since 1920, borrowing soaring and 2.5 million unemployed. Geoffrey Howe raised taxes by freezing allowances (fiscal drag – a familiar ploy ever since), abolished Labour’s 25% lower rate band and introduced a windfall tax on bank profits and North Sea oil (déjà vu). The aim was first and foremost to crack down on inflation. Cuts to public spending and increased duty on petrol contributed to a plummet in poll ratings.
  • The 1981 Budget prompted a letter warning of dire consequences to The Times, signed by 364 economists, including Mervyn King, who was later to become Governor of the Bank of England.
  • Geoffrey Howe’s last Budget in 1983 was a pre-election affair, with substantial real terms increases in tax allowances.

Some see echoes of Geoffrey Howe in George Osborne – notably Osborne’s VAT-hiking first Budget and Howe’s 1981 dose of bitter medicine.

Geoffrey Howe died in October 2015 at 88, the same age, and very shortly after, his old adversary, Denis Healey.

What he said

“It’s rather like sending our opening batsmen to the crease only for them to find that before the first ball is bowled, their bats have been broken by the team captain… The time has come for others to consider their own response to the tragic conflict of loyalties, with which I have myself wrestled for perhaps too long.” 1990 resignation speech in the House of Commons

“Inflation is a great moral evil. Nations which lose confidence in their currency lose confidence in themselves.” From 1982

Budget soundtracks

An eclectic mix of sounds accompanied Geoffrey Howe’s Budgets in the early 1980s, along with flamboyant haircuts and fashions. The nation’s TVs were also able to tune in to a fourth channel from November 1982 when Channel 4 went on air with Countdown.

June 1979 Anita Ward ‘Ring my Bell’
March 1980 The Jam ‘Going Underground’
March 1981 Roxy Music ‘Jealous Guy’
March 1982 Tight Fit ‘The Lion Sleeps Tonight’
March 1983 Michael Jackson ‘Billie Jean’

 

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