Nigel Lawson: our best chancellor (almost)

Nigel Lawson was the Chancellor who set out to abolish a tax in each budget he presented. This admirable aim, surely something every chancellor should aspire to, culminated in his scrapping a tax which had the effect of increasing, rather than diminishing, the revenue to the exchequer. From henceforth, he announced, gains on sales of government securities would be free of capital gains tax.

At the time, gilt prices were depressed, and there were no gains. The effect of the measure was to disallow losses against taxable gains on other assets. Still, it made for good theatre, as Lawson intended. It also helped make his point that taxes should be low, simple and compulsory.

His reputation had risen in the years since the dramatic falling-out with Mrs Thatcher in 1989, and the great and good from Westminster and The City flocked to his Memorial Service this week.

From an era where chancellors could expect to spend years, rather than months, in office, he could plan ahead in a way that must make Jeremy Hunt weep. Lawson was a huge beneficiary of the hard grind put in by Geoffrey Howe during the four years of the first Thatcher administration. The dramatic switch which cut income tax and raised the rate of VAT encouraged the novel idea of allowing you to keep more of what you earned. Scrapping exchange controls, that comfort blanket to corral British capital in the UK, had been considered too dangerous by former chancellors. In the event, there was no rush for the exit.

When he took over as chancellor, Nigel Lawson faced all the crises familiar to students of the UK economy, reflected as usual in the exchange rate. The all-time low against the dollar, $1.0420, reached on 26 February 1985, despite the Bank of England’s base rate at 14 per cent, marked the nadir of his six years as chancellor.

His ambition for fewer taxes and the principle that individuals could spend money better than the state, were the leitmotif of his years, and by British standards, the economy performed well for most of the time. Unfortunately, like so many before and since, he decided that if he said it would be so, then it would be. The familiar signs of overheating were effectively ignored, and then he fell out with the boss.

In her memoirs, she observed: “I had by now come to share Nigel’s high opinion of himself.” But when that opinion included a policy of secretly shadowing the deutschemark without bothering to tell her, he had to go. For reasons that baffled many of us at the time, he had argued that the ERM was not a precursor to a European single currency which (he said) Britain would not join.

Fading gently away was hardly his style, and he established the Global Warming Policy Foundation to try and bring logic, thermodynamics and the vital role of cheap energy into the renewables crusade. There are, finally, a few signs that the magnitude of the task and the sacrifices of living standards needed to achieve net zero are starting to appear in the debate.

He may only have been Britain’s second most successful post-war chancellor, but we were reminded this week of the intellectual rigour, understanding of his subject and commitment to policy stability that few of his successors have been able to match.

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