Chapter 8 – Jenkin’s Retreat

Every victory of Liverpool City Council, whether in elections or in negotiations with the government, has been disputed and denigrated by the ruling class and by the right-wing leadership of the labor movement. But no victory has been more attacked than the eventual settlement with the government in July 1984. So terrified were the ruling class of the contagious example of Liverpool that any pretense of “objectivity” was abandoned.

A balanced account of these events conclusively demonstrates that it was the mass movement in Liverpool that compelled the Tory government to beat a retreat. Liverpool gained major concessions, although not all that was demanded. It was only the second time since Thatcher came to power that she had been forced to beat a retreat.

The Liverpool council, the council workforce in particular, and the mass of the working class of Liverpool proclaimed the 1984 settlement as a great victory, although Patrick Jenkin, the Environment Minister, angrily disputed this claim. While the capitalist press at first leaned towards Liverpool’s interpretation of the agreement, they subsequently did everything they could to back up Jenkin’s account. There is no shortage of analyses, academic papers, and even books (such as Michael Parkinson’s Liverpool on the Brink), which provide a searing indictment of the government’s approach to the terrible social problems in Liverpool. Yet no academic, no matter how “unbiased”, has unequivocally sided with Liverpool.

What then are the facts pertaining to the agreement? Since coming to power in 1979 the Tories used the block grant system of government financial support to local authorities to cut spending. The government claimed that its method was being used to:

equalize the financial position of local authorities and to make sure that local authorities with very different financial resources can provide a similar level of local service which their different populations need, for a similar rate level.

Any pretense of “equalizing” the position of all local authorities, however, has been undermined precisely by the crude method of penalizing authorities who “exceed” the government’s prescribed limits.

The government succeeded in slashing back local authority spending: the percentage of local expenditure financed by central government fell drastically from 61 percent in 1979-80 to 48 percent in 1985-6. Moreover, the total block grant fell in real terms by 16 percent between 1981-2 and 1985-6. This meant (as has been outlined in Chapter 7) that, in order to balance the books, a local authority would either have to increase the rates, sometimes by a massive amount, or savagely cut back on jobs and services.

In the case of Liverpool, the government acted in a particularly arbitrary and unfair fashion. Once explained in simple propaganda terms by Labour, these facts helped to fuel the colossal local resentment felt throughout Merseyside against the Tory government. The calculation of how much the government gave in grant to a city was based on past expenditure levels of the local authority. The benchmark was the expenditure of local authorities in the year 1978-9. In Liverpool’s case, the Liberal-Tory coalitions had deliberately underspent throughout the 1970s. If Liverpool’s expenditure had increased at the same rate as other authorities and even within government guidelines throughout the 1970s, then the city’s target set by the government for 1984-5 would have been much higher. Liverpool’s subsequent difficulties in meeting targets and balancing budgets would have been far smaller if the city hadn’t been penalized because of the penny-pinching role of the previous Liberal-Tory coalitions.

Robbed of £30 Million

In 1984-5 the total target figure in real terms for all English authorities was only 6 percent lower than their expenditure in 1980-1, but Liverpool’s target was 11 percent lower than their spending in 1980-1. Liverpool’s officials estimated that between 1978-9 and 1983-4, the city had lost between £26 million and £34 million in government grant as a direct result of penalties being imposed for spending over target. This was the £30 million that the council claimed the government had stolen.

Other cities in a roughly similar position to Liverpool were treated better. Manchester, under Labour control, had spent much more than Liverpool throughout the 1970s, and in the long run this worked to their benefit. Liverpool was given a target for 1984-5 of £216 million while Manchester was given a target of £240 million. This was despite the fact that the government itself had actually estimated Manchester’s “need” to be £4 million less than Liverpool. If Manchester and Liverpool had been treated equitably, which was the stated intention of the government, Liverpool’s target for spending should have been £244 million, and there would have been no budget deficit in 1984-5.

In its “assessment of need” the Tory government rubbed salt into Liverpool’s wounds. In one of the most deprived cities in Britain, the government estimated in 1981-2 that Liverpool’s expenditure should be increased by only 8/5 percent while the average increase for all metropolitan districts should be 14 percent, and for all local authorities was 17 percent. Michael Parkinson comments:

Overall, officials calculated that since the Conservatives had taken office in 1979, Liverpool had lost grants in four different ways. Liverpool had had to pay heavy penalties for spending over its targets. It had also suffered because the way the grant was distributed between different kinds of local authorities had moved money away from the cities. On top of that, the government had failed to increase its grant in line with the level of inflation. And it had also reduced the overall percentage of local spending it would fund. Local officials calculated the combined effect of all these upon the city was that it had lost £116 million in 1983 figures.

At the same time, despite having a significant black population, the city was denied grants given to other local authorities with “racial disadvantage” and ethnic populations. Because the black population of Liverpool had been longstanding, it did not qualify for “ethnic deprivation”. This, merely three years after the Toxteth riots!

The “Joint Report”

At the end of June 1984, officials of the council and of the Department of the Environment produced a “joint report”. Predictably, government-appointed civil servants demanded that Liverpool adopt an austerity regime. All Labour’s plans for new spending on housing, education, etc., should immediately be cut. It suggested “capitalizing” housing repairs in 1983-4 and 1984-5. This meant transferring housing repairs from the revenue (day to day spending) account to the capital account. This would have meant that fewer resources would be available to finance the house building program. It would also have meant that in seven years the extra interest charges payable on the capital account could have added up to the original cost of repairs. The money needed to pay off the additional interest charges would then have incurred even greater government penalties for higher spending. The government hatchet men also suggested raising rents, selling off property, and a freeze on employment. All of these demands were rejected by the Liverpool City Council.

Moreover, even with the most “creative” of government accountancy, the national civil servants could only come up with a budget that would entail a rate rise of between 37 percent and 71 percent. Michael Parkinson correctly states: “Liverpool surely won the larger argument that it was facing major financial problems which were aggravating its even larger economic and social problems and that government policies, especially the target system, were making that bad situation worse.” In Labour’s eyes, the “joint report” completely vindicated its stand. Liverpool was impervious to all attempts of the government to bring it to heel and continued to insist that it would set a deficit budget. In this situation, negotiations behind the scenes recommenced.

Undoubtedly, one of the factors which compelled the government finally to come to an agreement was the nervousness within the money markets. On May 13 the Observer reported: “If Liverpool carries out its threat to set an illegal rate and the local government fails to bail out the city council, local authorities throughout the country may be unable to raise loans of the money markets.” The same article quoted a director of a municipal brokers: “If the government puts Liverpool into that situation, it could have a devastating effect on the status of borrowing requirements of other local authorities.”

The Agreement With Jenkin

Patrick Jenkin, undoubtedly with the support of Thatcher, wanted a quiet and behind-the-scenes deal which would cover up the extent of the government’s retreat. But the Liverpool labor movement was having none of that. They wanted to trumpet their victory to the labor movement nationally – and not without justification. When all the details were revealed, it clearly demonstrated the extent of the government’s climb-down.

Labour estimated that the deal would be worth something like £60 million. It involved £3.2 million from the Urban Program to cover for “time expired schemes” (landscaping for instance) which the council had expected to pay for and which would otherwise have been carried on rates. There was £0.5 million (capital) for environmental works on the housing action and general improvement areas. £1.5 million of new Urban Program funds were also provided to cover schemes otherwise borne by rates. In total it came to just under a £7 million net increase in aid to Liverpool. However, under the penalty rules imposed by the government, for every £1 of the rate “saved”, the council got back another £2 in rate support grant which would otherwise have been withheld by the government. The cost to the Exchequer of the concessions, therefore, was in fact about 20 million. The deal provided another £40 million as a result of capitalizing the £13.6 million from housing repairs. These would now be paid from borrowed money on the basis of an undertaking from Jenkin of around £130 million a year from the government but this would not affect the house building program.

The program included some concessions by Labour to the government. Labour had promised a £2 reduction in rents, although as explained earlier, 70 percent of council tenants were in receipt of supplementary benefit rebates. If the rents had been reduced, the government, through the DHSS, would automatically have taken the amount of the reduction out of the benefit rebates. Labour attempted to overcome this by introducing a decoration allowance and two such payments were distributed. The government then introduced legislation to block this and Labour pledged to find other ways of benefiting council tenants. Eventually the council were forced to retreat on this but rents did remain frozen from this point.

Another concession was made in setting a 17 percent rate increase which was 8 percent above that which the District Labour Party outlined in its manifesto. A 17 percent rate increase added 45p a week to most tenants’ costs, although again many got much of this back in benefits. To have refused to set a budget and to have entered into a mass struggle on the basis of saving ratepayers 45-50p per week would have been seen as unreasonable by the mass of working people Liverpool. Given the prospect which previously loomed – massive rate increases and job losses – the settlement wrung from the government was correctly seen as a tremendous victory. The council had got 95 percent of what it was claiming.

No matter how much the opponents of the Liverpool City Council and of Marxism whined, once the details were outlined to the active workers in the labor movement, there was enthusiastic support for the agreement. The Labour group unanimously accepted the package. A meeting was then held of over 400 District Labour Party members who also gave full support to the deal. This was followed by a meeting of 500 local authority stewards where John Hamilton and Derek Hatton were cheered to the echo even before they spoke. Mass meetings were held the day before and on the morning of the budget meeting to explain the offer. One of the most ecstatic reactions to the deal was at a meeting of the 1000 new workers who had been taken on by the council since they had come into office.

Not so enthusiastic were the bourgeois. In the days that followed, they poured out their rage in the press and in Parliament. The August Times (11 July) thundered: “Danegeld in Liverpool”. Danegeld comes from the tribute paid by English kings in the Tenth century to buy off Danish invaders. Beside themselves with fury, they went on:

Today in Liverpool, municipal militancy is vindicated… a third rate provincial politician, a self-publicizing revolutionary… Mr. Derek Hatton has made the government give way… Mr. Hatton and his colleagues threatened a course of disruptive action. The reward is the abrogation of financial targets which 400 other local authorities have been told are immutable… in order to buy off Militant.

The Daily Mail (11 July), under a headline “Two Unlovely Black Eyes”, declared:

If a week in politics is a long time, then the past fortnight for Environment Secretary Patrick Jenkin must have been a pulverizing eternity. He is now sporting not one but two far from lovely black eyes. Biff! their lordships in the Upper House forced him into embarrassing retreat over his plans for dismantling the Greater London Council.

Bang! – the Trotskyites and others of the hard left who run Liverpool have had the best of the fight with him in their threat to defy the law on that city’s overspending… No doubt the decision was not just his (Jenkin’s) but was taken by the whole Cabinet. No doubt, the calculation was that the confrontation should be avoided in Liverpool at a time when the government has enough on its hands with the pit strike. Even so, the impression must be left that militancy pays. What Liverpool got away with in 1984, a gaggle of left-wing councils will be queuing up to try on in 1985.

The Daily Express (10 July), not to be outdone by the other tabloids, carried under its own headline, “A cowardly deal”, the statement:

Environment Secretary Patrick Jenkin seems to have bought himself some peace from the Militant-led Liverpool City Council. This is a shoddy and cowardly deal… Mr. Jenkin has shown that defiance pays (and that the hapless taxpayer will do the paying).

Even the usually urbane and sober Economist (13 July) declared:

After all its huffing and puffing, the government this week capitulated to Liverpool City Council’s threats of an illegal budget – and set the scene for a full scale rebellion next year by Labour councils threatened with ratecapping. Both Mr. Jenkin and Mrs. Thatcher have made brave efforts at damage limitation. There was no concession, they insisted.

The threadbare protestations of “no concessions” from Thatcher and Jenkin could not hold water. This did not prevent the Labour leadership (and the ultra-left sects on the outskirts of the labor movement) from echoing Thatcher’s claims. Squirming in embarrassment, the Labour leadership paradoxically claimed to have orchestrated the Liverpool settlement while at the same time disputing any claims of “victory”. John Cunningham declared: “The settlement is far closer to what Neil Kinnock has wanted, from day one, than anything the Militant Tendency has ever said.” (Sunday Times 15 July)

Incredibly, Jack Straw in his local paper, the Lancashire Evening Telegraph (10 July), was quoted as claiming responsibility for the Liverpool deal:

A delighted Mr. Jack Straw was today able to claim victory in his fight to prevent a major clash between the government and the Liverpool City Council… It was widely believed today that without Mr. Straw’s intervention there would have been a confrontation between the council and Mr. Jenkin leading to commissioners being sent to run the city.

Derek Hatton, in a letter to the dame paper, disabused its readers of Jack Straw’s claims:

I am sure he [Jack Straw] has not sought to claim that our victory in Liverpool was due to him. I recall that in March 1984 Jack was telling us to raise the rates by 60 percent, an option which would still have meant job losses and cuts in services. We rejected that advice and continued out campaign, which was successful in securing the extra resources we needed. The Tory government only gave in because they knew that we had massive active support of the majority of the working class in Liverpool… The biggest contribution that Jack and others can make in the fight against the Tories is to stop expelling young people from the Labour Party and get on with the job of building a national campaign against the Tories.

Predictably, the press played up the criticisms of the ultra-left sects: “By contrast, the Trotskyist newspaper Socialist Worker has dubbed the deal a sell-out. Under a headline ‘The No Surrender council gives in’, the paper asserts that Liverpool was happy to settle for a ‘few measly concessions’.” The Sunday Times (15 July), which gleefully carried this statement, also reported that “Kinnock takes a very similar view”.

Thatcher and Jenkin joined hands with Kinnock and the ultra-lefts in decrying Liverpool’s claim to victory. But not so the Liverpool working class, nor the miners who were given an enormous boost by Liverpool’s success. William Wordsworth was to declare of the French Revolution, “Bliss was it in that dawn to be alive, but to be young was very heaven.” Liverpool in early June 1984 had not yet quite reached the stage of the French Revolution. But a working class which had experienced more than its fair share of disappointments and defeats was determined to enjoy its moment of victory.


Joyous scenes, more reminiscent of Anfield or Goodison football grounds after a famous cup victory, were enacted inside and outside the Town Hall at the council budget meeting. The lobby of the council saw local authority workers, miners, young workers, unemployed and housewives with their young children all listening to the victory speeches. All Labour speakers were greeted rapturously, while over the benches of the Liberals and Tories, hung a mood of dejection and demoralization.

Trevor Jones, the Liberal leader, poured out the class venom and spite of the Liberals and Tories in personal vituperation unleashed against Derek Hatton. He claimed that Labour had fooled the public, fooled the media(!) and had even fooled the clergy. He declared that a 17 percent rate increase would mean a mass exodus from Liverpool, and the answer from the public gallery was a loud “When are you moving?” In his desperate search for allies, he even quoted from Socialist Worker. This was probably the only support which the Socialist Workers’ Party could find on that day, since their members were virtually chased from the Town Hall by angry local authority workers.

Tony Mulhearn for the Labour Party warned the Tories that the Liverpool labor movement would never be bought off. Liverpool still faced appalling problems and would not be satisfied until the Tory government was removed from office. When Derek Hatton closed the debate he got a tremendous reception. He outlined in detail the extent of the gains for the working class which the Liverpool council had achieved. He also went on to warn the working class: “The Tory government has backed down from the organized and mobilized city of Liverpool. But just as the Tories regrouped and tried again after the U-turn over the miners in 1981, so the Liverpool labor movement must be prepared for future battles.” This has been the theme of Marxism throughout the Liverpool saga.

All victories, no matter how great, are temporary so long as capitalism continues to exist. Jenkin had complained that Militant and Derek Hatton personally were attempting to dance on his political grave. Derek Hatton replied in the council chamber, “We won’t be satisfied until every Tory Minister has lost his seat and we see the return of a Labour government with socialist policies.”

The vote for Labour’s budget was carried by 57 votes to 38 and concluded in scenes of wild celebration, with a standing ovation for the councilors from the public gallery. In appreciation of the role played by Militant in the struggle, the Labour councilors placed a large advert in their paper shortly after the victory: “Fraternal greetings and thanks to the Militant newspaper and its supporters for the outstanding help and assistance given to our campaign to defend jobs in Liverpool.” Among those signing this declaration were not only well-known Militant supporters but John Hamilton, Roy Gladden (who was later to stand against Derek Hatton for the deputy leadership) Mike Black and other future opponents of Militant. Militant itself celebrated with a rally which attracted over 500 people and marked a further increase in its support and influence in the city.

No matter what attempts were made to muddy the waters, the more sober journals of capitalism were forced to concede that Liverpool had won substantial concessions. Like Shakespeare they replied to Jenkin’s claims: Methinks he doth protest too much. Thus Robin Pawley, Financial Times local government expert, boldly declared, “The fact is that Liverpool’s muscle won… Mr. Jenkin has been wrong-footed by Liverpool almost daily for three months” (17 July). Even Michael Parkinson, who disputes the scale of Liverpool’s claims of victory wrote:

In fact, the government gave four pieces of aid and a promise of future help in the crucial area of housing… “This would reduce its grant penalties… The government tried to suggest that it could all have been achieved through the normal process of consultation, without the bankruptcy campaign.

He further comments, in a masterly understatement, “This seems doubtful.”

The concessions which Liverpool had extracted from the government were immediately seized upon by other local authorities who were preparing to do battle in 1985. John Austin-Walker, leader of Greenwich Borough Council, declared, “I believe that many authorities may refuse to levy a Tory rate… The government is quite frightened at the prospect of Liverpool City Council not being able to meet its loan debt and I believe that it is a powerful weapon in the council’s hands”. (The Times 25 June) Even the arch right-wing leader of Birmingham City Council, Dick Knowles, agreed in a letter to Labour Weekly (3 August) that “They [Liverpool] succeeded in getting from the government enough money to save about £20 million.”

Of course, the major reason why the government, with the acquiescence of the ruling class had conceded, was because of the miners’ strike, which was the powerful backdrop to the Liverpool drama. Teddy Taylor, Tory MP for Southend and severe critic of Jenkin for his capitulation over Liverpool, was to admit as much in a private discussion with Derek Hatton before a television program. He declared: “We were amazed how much Patrick was prepared to give”, and went on, “However, in 1984 we were determined to ‘get Scargill’ and not to fight on two fronts.” In other words, the Tories wanted to deal with the major “enemy within”, the miners, before concentrating attention on crushing Liverpool. In the miners’ strike and in Liverpool the seeds were planted for the future mass conflicts which will convulse Britain on a national scale in the next decade. In 1984 the Tories were already frightened by the prospect of a mass movement unfolding in Liverpool under a Marxist leadership. There can be no other explanation for the vile and unprecedented campaign of slander and personal vilification against the leaders of the city council and the District Labour Party. In 1985 in particular, the ruling class would construct a veritable Tower of Babel of misinformation, and half-truths and lies.