Thatcherism's Representation of a Revolution in Economic Management in the UK

To what extent did Thatcherism represent a revolution in economic management in the UK?

It is a fair assessment that Thatcher did represent a sea change or ‘revolution’ in economic management. It can certainly be said that Thatcherite policy transformed Britain to a post-industrial economy and killed off any remnants of post-war collectivism and egalitarianism with the aims of public ownership and full employment. Thatcherism also restructured the UK from a country dominated by big government to one dominated by big business and trade in services rather than goods. Thatcherism revolutionised many facets of the economy which in turn brought about much needed modernisation to Britain against the consensus which had previously been developed.

Prior to Thatcher it can be said that there was a ‘Keynesian collectivist consensus’ as claimed by Ralph Harris in ‘Tory Tory Tory’. Within this consensus were the ideas that in order for an economy to function there had to be full employment as well as public ownership in order to ensure that this aim was met. There was an underlying belief that the state could plan for prosperity and growth by being the principal employer in the country. Furthermore, the simultaneously implemented Beveridge’s vision of a welfare state. These policies were successful in rebuilding Britain post World War Two but it can be argued that by 1970 this policy had run its course and did not keep Britain competitive in the wake of globalisation and an end to the industrial era. Immediately before Thatcherism in the 1970s, consensus started to fall this was largely a result of rising crime, a stagnant economy with declining productivity, high inflation and high taxation. The UK was also bankrupt and had to borrow from the IMF in order to stay afloat being labelled ‘the sick man of Europe’. All of this was in contrast to the image of Britain being ‘the workshop of the world’ at the beginning of the 20th Century. It can be said that Thatcherism was not completely revolutionary and had its roots in earlier policy that the Conservative Party wanted to pursue. Edward Heath saw the benefits in monetarism and neoliberalism and tried to control inflation using it, albeit unsuccessfully. The revolutionary aspect of Thatcherism is that to an extent it worked. When Heath’s resolve was tested in the wake of unemployment figures reaching a socially unacceptable 1 million, he made a U turn and returned to interventionism.

The first way in which Thatcherism revolutionised economic management was to shift the main economic goal from full employment to low and stable inflation. Friedman whom Thatcher was influenced by stated that ‘inflation is always and everywhere a monetary phenomenon’. Thatcher stayed true to these beliefs and changed the interest rate to 17% after which inflation fell from 18% to just under 5% within 4 years. Although Thatcher’s record was good relative to her predecessors she still let inflation slip into double digits and left Major with an economy in recession. The idea of shifting the economy from one to facilitate full employment to one which was centred around limiting inflation was at the time a revolutionary idea and went against the consensus that had been built up in the preceding 40 years. Thatcherite monetary policy was revolutionary when first implemented but was only really successfully implemented by John Major and Ken Clarke who created an inflation target and focused policy to help adhere to that target. Monetarism has a lasting legacy and so Thatcherism was revolutionary in that it represented a sea-change in the approach to this aspect of the British economy.

Another aspect in which Thatcherism can be said to be a revolution is in taxation. Thatcherism effectively changed the narrative on taxation from ‘tax ‘n spend’ with redistribution to one of low direct taxation and relatively high indirect taxation. It meant that governments from 1979 onwards have focused on making taxation as low as feasibly possible. This brought about the new age of ‘One Nation’ conservatism with a focus on pragmatism. Thatcher reduced the basic rate of tax by 3p in her first year and the top rate from 83p to 60p . On the other hand VAT went up from 8% to 15%. Ideologically it was meant to liberate people from the burden of taxation and to promote commerce. Within a few years the top rate fell to 40p and the basic rate fell to 25p. The drop to below 50% of the original rate was of paramount importance and remained unchanged until it was forced 2010 which indicates a sea change in fiscal policy. Thatcherism also helped to cement the Conservative Party position that it was the moral party by increasing excise duty. Sin taxes were increased to some of the highest in the world, which helped the environmental, and public health imperative. Therefore, it can be said that taxation under Thatcherism was a revolutionary change that has remained intact; there has been no real talk from Labour or the Conservatives about reintroducing a ‘super tax’ that was normal before 1979. Furthermore, Major allowed people to have money, which the government were unable to tax in the form of a Tessa, which was the precursor to the ISA.

Furthermore, it can be said that Thatcher’s vision of a small laissez faire state with an emphasis on individualism rather than collectivism went against the narrative that had been formed after 1945. By 1979 the state had become all encompassing and had a stake in every facet of the economy. Thatcherism wanted to roll back the welfare state and reduce the cost. This ran symbiotically to low tax policy as it was what enabled her to do so. The government had spent inordinate amounts of money on propping up relics from World War 2 such as Rolls Royce and Upper Clyde Shipbuilders that were essentially zombie firms. Public spending reforms challenged the idea that the government was just able to tax and spend without any constraints and again changed the narrative of sensible government trying to reach an equilibrium of spending and revenue. Thatcher managed to balance government spending twice during her time in No. 10. During the 1980s government spending dipped below 39% of GDP as opposed to above 48% in 1976. That’s not to say that Thatcherism was thrifty, in real terms government spending did increase in real terms by 13% on things like law and order as well as defence. This reshaping of the government budget structure endured until 2007 which shows that a new consensus had been formed.

Another revolutionary aspect of Thatcherism was deregulation and employment. A lasting legacy of Thatcherism is the acclimatisation to high unemployment and a sea change in the way that employment is viewed. 30 years ago, it can be said that the narrative was that the government was responsible for employment but now it is the responsibility of the private sector to try and get people into work. This isn’t to say that the government is completely absolved but it is not blamed as much. The desensitising of the nation to unemployment is evident in that from 1979-1990 unemployment was never lower than when Thatcher took over as Prime Minister. At the time, there was backlash from the electorate as they felt that unemployment was intolerably high. However, Keynesians argued that ‘the net effect of the policy was simply to (...) add one million people to the ranks of the permanently unemployed. On the other hand, the modern consensus is that Thatcher forced ‘industry and labour to become more efficient’, therefore the best way to increase employment is to deregulate the labour markets so firms have more power to hire and fire employees. However, labour markets were only one manifestation of deregulation. Neoliberal economics is now the most broadly accepted theory of economics in the west but prior to Thatcher Keynesian Collectivism, which proposed regulated markets, was the consensus. Thatcher essentially ‘set the market free’. Thatcherites took the view that these regulations stunted innovation and drove up prices. For example, many in business saw Sunday Trading legislation prior to Thatcherism as an archaic block on commerce. Perhaps the most revolutionary change made by Thatcherism with regards to deregulation was The Big Bang in 1986. These changes ‘broke up what many saw as a gentlemen's club, ruled by restrictive practices’ and effectively modernised the London Stock Exchange and made it more accessible to a globalising economy by moving trading to computers and phones which helped to cement London as the financial capital of the world. Furthermore, it facilitated the change of Britain to a post-industrial service based economy rather than an industrial economy.

In addition, perhaps the most iconic and controversial aspect of Thatcherism is the privatisation of public assets. In the 1980s and 1990s industries and businesses which had been acquired during the war such as energy, mail, telecoms and energy were making losses and were costing the public money to run rather than being self sufficient. This was in part because of a commitment to Clause IV which although a Labour policy was at times followed by Conservative leaders. It can be said that Thatcherism was best exemplified in privatisation with the unleashing of the free market as a result of the destruction of government monopolies; this was literally ‘rolling back the frontiers of the state’. This was revolutionary as prior to 1979 a wholesale transfer of government possessions to the private sector would have been unprecedented and gone against the Keynesian Collectivist Consensus. Privatisation was also revolutionary as it opened up access to things such as shares in companies that were not widely acceptable to the public. From 1979 to 1987 share ownership rose from 7% to 20% of the population. The largest privatisation was the Right to Buy Scheme that allowed people to buy their council houses. It was one of the most popular policies of the Thatcher era in which over 1 million people purchased their council house during her time in office. A form of this system is still running in the UK. This marked a change where the public were subject to ‘embourgeoisement’ to create as Nigel Lawson described ‘popular capitalism’ and as Thatcher described ‘a property owning democracy’ where 66% of the population owned a property in 1987.

Finally, the last major change brought about by Thatcherism was industrial relations. Reforms to the Trade Union movement that by 1979 could be said to have been far too powerful, transformed the ethos and culture of Britain. There was another sea change brought about by Thatcherism that saw the public opinion of unions from supportive to hostile within a decade. Furthermore, in 1979 there was a genuine mandate for this change with more union members voting Conservative than Labour in that general election. It can be said that during this time there was the rule of mob over the rule of law. For example the Grunwick dispute in which members from other trade unions simply joined the protest despite them not being members of that union. Thatcher made unions more democratically accountable by making strikes an issue to be voted for by secret ballot rather than archaic methods such as a show of hands. Furthermore, the issue of lightning strikes was eradicated by the provision of 28 days notice prior to strikes. It has been estimated that approximately 20 million working days had been lost to strike action in the late 1970s, this was cut down to ½ million by the late 1990s. Unions also lost their legal immunity that made strike action much harder to conduct. As a result, union membership fell from 13 million in 1979 to 9 million in 1990 and 9 % of companies derecognised unions altogether. It was also revolutionary, as it had taken away the majority of trade union power that had been a hallmark of British politics since the 1930s.

Therefore, it can be said that Thatcherism did represent a revolution in economic management. As an ideology it completely changed the narrative and consensus of post-war socio-economic policy from one of collectivism to one of neoliberalism. Thatcherism was an extreme change in comparison and represented a new age of economics. The creation of a middle class by these Thatcherite policies meant that politics had to restructure the narratives from that of class difference and egalitarianism that had dominated politics for 35 years before Thatcher took office to that of opportunism and inclusive capitalism. The extent to which these changes would have happened without Thatcher is debatable, it can be argued that Heath saw what was needed as demonstrated by his manifesto, but it was a different story implementing these policies successfully.

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