Margaret Thatcher was secretly urged to abandon Liverpool to a fate of "managed decline" in the wake of the Toxteth riots, new papers reveal.
Senior ministers in her Conservative government urged her not to waste public money on the "stony ground" of Merseyside, suggesting it would be like "trying to make water flow uphill", files released by the National Archives under the 30-year rule, show.
The outbreak of rioting in the rundown Toxteth district in July 1981 triggered a wave of disturbances in cities across England.
A shocked Mrs Thatcher responded by dispatching Environment Secretary Michael Heseltine to Liverpool in a blaze of publicity as "minister for Merseyside" to lead a programme of urban regeneration.
But behind the scenes in Whitehall, other senior figures were soon casting doubt on Mr Heseltine's ambitious plans.
The sceptics were led by the Chancellor, Sir Geoffrey Howe, who wrote to Mrs Thatcher warning of the need "not to overcommit scarce resources to Liverpool".
"I fear that Merseyside is going to be much the hardest nut to crack," he cautioned.
"We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.
"It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.
"I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill."
Sir Geoffrey acknowledged the suggestion that the city could be left to a "managed decline" was potentially explosive.
"This is not a term for use, even privately," he warned Mrs Thatcher. "It is much too negative."
The head of the No 10 policy unit, John Hoskyns, also questioned the wisdom of sending Mr Heseltine to Liverpool, suggesting it was little more than a "political gesture".
"The automatic assumption within Whitehall and in the country will be that such a minister, if he is to be seen taking action - which is, after all, his political raison d'etre - must be seen to spend money," he wrote.
"This money is likely to be money wasted. Neither the chosen minister nor Whitehall as a whole, will have much idea of how to tackle the real problem-solving task, as distinct from the (important) political gesture.
Heseltine, who was pressing for an annual budget of £100 million, insisted that he needed real powers to act.
"There is no point in thinking for one moment that the exercise would be anything other than a disaster if I was not empowered to take real decisions on my own responsibility whilst I am there," he informed Mrs Thatcher.
"Without the announcement that some extra resources will be available I am sure that the Government's commitment will lack credibility.
However when ministers met that September to discuss his proposals, he was out-manoeuvred by the Treasury which insisted it would "impossible" to fix a sum in advance without seeing exactly how the money would be spent.
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