Two Thatcher Aides Quit in Policy Dispute

A bitter internal dispute over government economic policy erupted Thursday in a British Cabinet shake-up and a political crisis described as the worst in Prime Minister Margaret Thatcher’s decade in power.

The resignations of Nigel Lawson as chancellor of the exchequer and Alan Walters as Thatcher’s personal economic adviser caused turmoil in the financial markets and left the impression of chaos in a policy area that has long been considered the cornerstone of the prime minister’s success.

The pound fell sharply because of uncertainty over the government’s economic policies, losing more than 2% against the U.S. dollar and the West German mark.

Even Conservative members of Parliament described Lawson’s resignation as an “extraordinary blow” and expressed their astonishment that Thatcher and Lawson had allowed their differences to go so far. Leaders of the opposition Labor Party made it clear that they will press the crisis to the hilt.

According to Neil Kinnock, the Labor Party leader, Thatcher “has demonstrated that . . . she is not fit to run a government.”

The head of the Liberal Democrats, Paddy Ashdown, told a tumultuous late-night session of Parliament that “what is at stake here is the integrity of the government. . . . She must go!”

Geoffrey Howe, deputy prime minister and Conservative leader in the House of Commons, responded, “The integrity of government is in good hands and will remain so.”

The crisis occurs as Thatcher’s Conservative Party is declining sharply in the public opinion polls, due in part to economic problems. The most important thing in Thatcher’s favor, barring a major rebellion within her own party, is that she does not have to face a general election until late 1991 or early 1992.

Lawson, whose resignation followed an increasingly public feud with Walters, said in his letter of resignation:

“The successful conduct of economic policy is possible only if there is--and is seen to be--full agreement between the prime minister and the chancellor of the exchequer. Recent events have confirmed that this essential requirement cannot be satisfied so long as Alan Walters remains your personal economic adviser.”

Thatcher expressed “profound regret” at Lawson’s action, but within minutes announced his replacement by John Major, a former assistant to Lawson who had become foreign secretary in a Cabinet reorganization just three months ago.

Walters, who is now visiting the United States, resigned upon hearing of Lawson’s move. But by then Major had already moved into his former superior’s office at the Treasury, and there was no question of reversing the process.

Later Thursday, the prime minister’s office announced that former Home Secretary Douglas Hurd will take over the Foreign Office.

Thatcher and Lawson have reportedly had growing differences for months, as Britain’s trade deficit has mounted along with the rate of inflation.

To combat inflation and support the pound, Lawson has pushed interest rates to a punishing 15%, seriously squeezing two groups long considered part of the Conservatives’ natural constituency--businessmen and homeowners.

The government’s immediate problem in the wake of Thursday’s developments will be somehow to reassure London’s--and the world’s--financial markets that it has a clear economic policy. Whatever his perceived faults, Lawson had been seen as a guarantee of stability.

A spokesman for the prime minister’s office said Thursday night that “the government’s economic and monetary policies remain unchanged.”

In the longer term, the incident is considered certain to bring more criticism of Thatcher’s alleged arrogance.

Kinnock said Lawson had been “handbagged” aside by a prime minister “who simply will not let the people she appoints to the senior departments of state get on with their jobs.”

Ashdown of the Liberal Democrats said the whole affair amounted to “a typical example of Mrs. Thatcher’s increasing isolation and her increasingly autocratic method of running Britain.”

BACKGROUND

A key issue in Britain’s economic dispute has been full British membership in the European Monetary System, including the Exchange Rate Mechanism, which links the currencies of the European Community countries. Nigel Lawson, who resigned as chancellor of the exchequer on Thursday, and Conservative leader Geoffrey Howe have both argued in favor of Britain’s joining the mechanism as a means of stabilizing its currency. Prime Minister Margaret Thatcher agreed last summer to an interim step in that direction, but she is reluctant to endorse a move she sees as ceding partial control over Britain’s economic policy to the European Community. Alan Walters, who resigned as Thatcher’s economic adviser, has dismissed the monetary system as “half-baked.” Earlier this week, Lawson said in a BBC television interview that Walters should keep his opinions to himself and the prime minister, an implied criticism believed to have angered Thatcher.