and their Socio-Economic Effects on
Die Wirtschaftspolitik der Regierung Thatcher
und ihre sozioökonomischen Auswirkungen auf
Großbritannien
Ella Terry
Class 8A
MMag.a Anita Groissmayer
GRG 17 Parhamergymnasium
Parhamerplatz 18, 1170 Vienna
February 2024
Abstract
This paper examines the principle economic policies introduced by Margaret Thatcher during her premiership, from 1979 to 1990, and their socio-economic effects on Great Britain. It briefly reviews the economic condition of Britain before Thatcher took office. Thatcher was intent on rejecting the previous Keynesian methods of state management and reversing Britain’s relative economic decline. As Prime Minister, she and her cabinet were responsible for the privatisation of previously state-owned enterprises and the deregulation and reformation of the financial industry, which included the removal of exchange controls in 1979 and the ‘Big Bang’ of 1986. Both of these had a significant impact on establishing London as a global financial centre. By introducing the ‘Right to Buy’ scheme, Thatcher also revolutionised home ownership, which saw a staggering increase during her premiership. Her persistent and successful fight against inflation by means of monetarist policies and the consequent extensive deindustrialisation of Britain, led to an initial and significant increase in unemployment. Ultimately, however, the economy stabilised, leading to a growth in gross domestic product (GDP).
1. ECONOMIC STATE OF GREAT BRITAIN BEFORE THATCHER’S PREMIERSHIP
2. CENTRAL ASPECTS OF THATCHER’S ECONOMIC POLICY
2.1 Privatisation of State-Owned Enterprises
2.2 Deregulation and Reformation of the Financial Industry
2.2.1 Removal of Exchange Controls
2.4 Housing and the ‘Right to Buy’ Scheme
3. EFFECTS OF THATCHER’S ECONOMIC POLICIES ON GREAT BRITAIN
3.1 Revolution in Home Ownership
3.2 London as a Financial Centre
Introduction
Margaret Thatcher became leader of the Conservative and Unionist Party of Great Britain and Northern Ireland in February 1975, replacing the incumbent Edward Heath, who had led the Conservatives to two defeats by the Labour Party in elections held in February and October of 1974. However, by 1979 the Labour led government had proved itself unable to deal with an escalating rate of inflation, initiated by the dramatic oil price rise in 1973 and a consistent decline in productivity. These factors culminated in the notorious ‘Winter of Discontent’, the period between November 1978 and February 1979, which saw extensive strikes and demonstrations.
Consequently, the Labour Prime Minister James Callaghan called a general election in May of 1979, which resulted in a victory for Margaret Thatcher and the Conservatives. Thus, she became Great Britain’s first female Prime Minister, a position she held for eleven years, until she was defeated in an election for the leadership of the Conservative party in November of 1990. Few in 1979 could have envisaged the radical changes which Margaret Thatcher was about to bring to the UK economy, which, since 1945, had been broadly based on both Keynesian concepts of government intervention in the economy and a consensus between the Labour and Conservative parties.
Thatcher’s premiership marks a turning point in Britain’s socio-economic order, as she reversed the British welfare state and instead transformed the nation into a predominantly free-market economy. The relevance of these transformational methods aimed at revitalising Britain’s stagnating economy are indisputable. Examining Thatcher’s core policies and their impact not only on the economy, but also on workers and employment during her premiership, is the foundation of this paper. This examination sheds light on the broader debate surrounding the relationship between economic productivity and social issues.
1. Economic State of Great Britain Before Thatcher’s Premiership
1.1 The ‘Post-War Consensus’
At the general election following the end of the Second World War in 1945, the Labour party, led by Clement Attlee, won a landslide victory and politics in Britain became defined by the ‘post-war consensus’. This consensus represented an economic and social accord between the Labour and Conservative parties, though there was not total agreement on all issues. While the Labour party pursued general socialist policies that were not in line with Conservative principles, the Conservative party did not fundamentally reject them. The consensus was heavily influenced by Keynesianism and the Beveridge Report of 1942, written by the liberal economist William Beveridge, which represented a “call to Parliament to establish a comprehensive system of social insurance for Britain’s population”[1].
One of the main goals of the incoming Labour government, which was subsequently accepted by the Conservative party, was full employment, which was to be created by increased state spending and the stimulation of industry. A further aim, though not accepted by the Conservatives, was the implementation of Clause IV. of the Labour party constitution of 1918, which called for the nationalisation of major utilities and industries, such as coal, electricity and the railways. Additional policies included further progressive taxation and the expansion of both comprehensive schooling and social housing. Moreover, the status of trade unions was enhanced, leading to increased acceptance by the Labour and Conservative parties. A result of this consensus was the creation of the British welfare state, which stressed the need for a social security net[2]. A lasting legacy of this post-war period in Britain was the establishment of the National Health Service (NHS) in 1948[3].
The governments of the post-war period were essentially successful in meeting their goal of full employment, as, from 1947 to 1973, the average unemployment rate in Britain was a mere 2.1%. Additionally, the average labour productivity growth per annum (p.a.) reached 2.4% in this period, higher than the decades before and immediately after. Furthermore, the annual rate of price inflation averaged 4.6% then, in contrast to the deflationary average of -2.4% between 1921 and 1938. The real interest rate was at an all-time low of 1.25%[4].
1.2 The Crisis of the 1970s
The 1970s in Great Britain were marked by stagflation, a combination of the words stagnation and inflation, which describes a period of static economic growth and simultaneously high inflation, coupled with a high unemployment rate[5]. In this decade, the annual rate of inflation soared from 7% in 1973 to 23% in 1975[6].
The Conservative party under Edward Heath won the general election of 1970, following six years of Labour led government under Harold Wilson. There was a subsequent political shift in favour of laissez-faire policies, meaning “a policy of minimum governmental interference in the economic affairs of individuals and society”[7], with the new government planning to discontinue financial support of struggling industries, eliminate controls on prices and wages and reduce and reform taxation.
By the beginning of 1972, rapidly rising unemployment was approaching one million. As a response, the government reversed their previous policy decisions, commonly referred to as a ‘U-turn’ in policy. Heath’s government utilised an expansionary fiscal policy in order to raise the growth rate of GDP and subsequently lower unemployment. These new policies were temporarily successful, as they led to a rise in the GDP growth rate to 5% p. a. and a fall in unemployment to around half a million by the end of 1973. Further policy ‘U-turns’ were introduced, foremost of which was an incomes policy designed to control inflation. The economic expansion was, however, too rapid, resulting in an annual growth rate of GDP of over 10% in the first quarter of 1973. The situation was exacerbated by an increase in the price of oil and strikes by coal miners and electrical power engineers over the government’s incomes policy. The high oil prices and corresponding shortages led to the implementation of a three-day working week in January of 1974, as well as restrictions in the use of energy. In February 1974, the government called an election[8] “over the issue of “Who rules Britain – the government or the miners?” and lost.”[9].
The new Labour government, which returned power to the previous Prime Minister Harold Wilson, was challenged by: the unsettled argument with the miners, rapidly growing inflation, a public spending deficit and the energy crisis, which led to a balance of payments deficit[10]. The rate of inflation peaked in 1975 at around 24%[11]. All of these factors resulted in the sterling crisis of 1976. As a consequence, the government, then led by James Callaghan, was forced to go to the International Monetary Fund (IMF) for a loan, the largest ever to have been requested at that time. This required large cuts in public spending and the introduction of monetary targets. There also followed the establishment of the ‘Social Contract’, a bargain between the government and trade unions to regulate inflation. These measures resulted in a rapid decline in inflation and an escalation in unemployment in the years 1976-77.[12] There was growing resistance in the grassroots of the trade unions against the ‘Social Contract’, resulting in widespread strikes and mass demonstrations, especially by public sector workers, who were demanding an increase in wages.[13] This period lasted from November 1978 to February 1979 and was dubbed the ‘Winter of Discontent’. By the end of Labour’s rule in 1979, inflation was beginning to rise again, intensified by the 1979 oil crisis, however, by 1981 Britain was a substantial oil producer, following the development of North Sea oil, which had mixed effects on Britain’s economy.
2. Central Aspects of Thatcher’s Economic Policy
Thatcher widely disapproved of the policies with which the British economy was managed under Attlee, the post-war Conservative governments and in effect through the ‘post-war consensus’, describing Britain’s economy as one “ravaged by state socialism”[14]. She criticised state intervention, generous welfare payments, high levels of business subsidies and high taxation on companies and income[15]. Furthermore, Thatcher believed that much of Britain’s relative economic decline, which she was intent on reversing, stemmed from “Keynesian methods of fiscal manipulation”[16].
2.1 Privatisation of State-Owned Enterprises
As a result of the Labour party’s landslide victory over the Conservative party in the 1945 general election, they were able to bring to fruition their plans to nationalise key industries. These industries, which included coal, railways, electricity, iron and steel, had been exhausted by the Second World War and needed substantial investment. The Labour government therefore completed their transfer to public ownership, realising Clause IV. of their constitution of 1918[17]. Their successful implementation of this policy was, to a large extent, not reversed, despite the election of the Conservative party, who were in power from 1951 to 1964[18]. It was not until the 1980s that a full reversal process of the Labour party’s nationalisation would be carried out under Margaret Thatcher’s government.
Before Thatcher was first voted into office in 1979, privatisation was not an objective of the Conservatives. While the 1979 general election manifesto of the Conservative party did promise to “offer to sell back to private ownership the recently nationalised aerospace and shipbuilding concerns”[19] and “sell shares in the National Freight Corporation to the general public”[20], denationalisation was only a minor goal. Rather, the prevention of further nationalisation by the Labour party was prioritised[21]. The few, small assets that were privatised in Thatcher’s first term were British Aerospace (BAe), Amersham International and Cable & Wireless, though only half of the telecommunications company was in fact privatised[22].
It was not until Thatcher’s second term as Prime Minister, which began in 1983, that privatisation became a, if not the, focal point of her premiership[23]. Through privatisation, Thatcher aimed to improve the efficiency of industries, reduce the Public Sector Borrowing Requirement (PSBR) and increase labour productivity and public share ownership. Privatisation encompassed “the sale of nationalized industries and government shareholdings in private companies, government land and property, and council houses”[24]. The first big step taken in that direction was the privatisation of major utilities such as British Telecom (BT) in 1984 and British Gas in 1986. Subsequently, British Airways, Rolls-Royce and British Airports Authority were privatised. The privatisation of regional water and electricity companies was completed in 1991[25].
Nationalised companies generally held a monopoly. Following the numerous privatisation measures, free markets were established, with a subsequent shift away from ministerial oversight. Consequently, to ensure proper market conduct, a regulatory framework was necessary. In the cases of British Telecom (BT) and British Gas, for example, Oftel and Ofgas were created to regulate the newly privatised utility companies[26].
By the time Thatcher was no longer Prime Minister in 1990, over 40 previously state-owned business had been privatised and more than 60 billion pounds of state assets were sold. Privatisation brought about a great surge in shareholding in Britain with the number of shareholders growing from around three million to between 12 and 15 million[27].
2.2 Deregulation and Reformation of the Financial Industry
2.2.1 Removal of Exchange Controls
After the Second World War, exchange controls, which are “government-imposed limitations on the purchase and/or sale of currencies”[28], constituted a common way for countries to regulate the value of their currency and balance of payments, even to the dismay of the International Monetary Fund (IMF). However, these controls had lost favour among advanced capitalist states and their decline in popularity in the 1970s is often attributed to competition amongst states to attract investment capital[29]. Shortly after Thatcher’s election, for example, her government implemented several measures which minimised the regulation of the financial industry and banking sector. Consequently, exchange controls were abolished in October of 1979, a policy which many other states followed. While often explained as part of the trend, it can, however, be viewed more as a response to the economic challenges of the late 1970s.
As a result of the IMF loan in 1976 and the discovery of North Sea oil, the value of sterling began to appreciate and, through subsequently rising prices, Britain’s volume of exports decreased. In order to lower the value of the currency and thus drive up British exports, exchange controls needed to be abolished. However, due to pressure from the Trades Union Congress (TUC), which believed that exchange controls were an import part of industrial support, the Labour government under Callaghan felt itself unable to do this, also believing that artificially devaluing the pound might instil fear in financial markets and potentially lead to a rapid sell-off of the currency, and only relaxed exchange controls in late 1977 and early 1978. The Thatcher government, however, was able to remove the controls, as their relationship with the trade unions became less significant following the ‘Winter of Discontent’ and owing to the Conservatives’ conviction in a rhetorical strategy aimed at pacifying financial markets. While members of the Thatcher government claimed that the removal of exchange controls was purely driven by laissez-faire convictions, it was more likely a method of reviving the competitiveness of British exports by the devaluation of the pound[30].
With the abolition of the exchange controls, the Bank of England’s ability to constrain the money supply was eroded, since Banks were then able to operate in foreign countries outside the Sterling area. Consequently, the Bank of England abandoned its previous method of limiting the growth of the money supply[31], known as its “system of supplementary deposits”[32]. Thatcher commented that “Not only did the ending of exchange controls increase the freedom of individuals and businesses; it encouraged foreign investment in Britain and British investment abroad…”[33].
2.2.2 The ‘Big Bang’ of 1986
Up until 1979, the London Stock Exchange had effectively been a self-regulating, private members club that had a disproportionate ability to influence the British economy. The financial reforms that took place in the 1980s emerged from challenges to the pre-established structures and restrictive practices of the London Stock Exchange, which included fixed commissions, the ‘single capacity’ rule, which divided the roles of broking and jobbing, and the exchange’s denial of corporate and international membership. These restrictions inhibited competition within the financial industry and limited Britain’s role in global finance.
When the London Stock Exchange was obliged to register its rule book with the Office of Fair Trading (OFT), a government department in charge of regulating competition, a series of investigations ensued[34]. In 1979, for example, an investigation was initiated into the exchange’s system of fixed minimum commissions, which referred to the predetermined minimum charges that a brokerage or financial institution may impose on investors when they executed stock or other securities transactions through their platforms[35].
As a result, an agreement between the Thatcher government and the London Stock Exchange was reached in July of 1983, in which the exchange promised to eliminate its restrictive practices and to enact profound reforms to boost the exchange’s international standing[36]. This promise was fulfilled on the 27th of October 1986. This change was so great and sudden that the event was dubbed the ‘Big Bang’. One major technological transformation which occurred was the switch from floor-based to screen based, electronic trading, which meant that brokers and jobbers no longer had to meet face-to-face and could communicate virtually from separate offices. Furthermore, membership restrictions were substantially eased with membership made available to corporations, for example banks and foreign brokers. The roles of jobber and broker were no longer separate and fixed minimum commissions were dropped[37].
It is believed that ‘Big Bang’ was simply an act of deregulation. Rather, it can be seen as a widespread unwinding of private regulation of the securities market and a transfer of regulatory power to the state. The ‘Big Bang’ was closely followed by the enactment of the Financial Services Act 1986, which was passed in order to regulate the financial services industry.[38] The Act created the Securities and Investment Board (SIB), which was mainly set up to “prevent fraud and insider trading”[39] and effectively supplanted the informal oversight previously carried out by the London Stock Exchange[40].
The SIB had broad authority and “authorised businesses, intermediaries and individuals”[41]. It successively formed various other self-regulatory bodies, which were in charge of different areas in the financial market. Although these regulatory bodies and exchanges were nominally self-regulatory, they could not operate without the SIB’s approval. Essentially, statutory regulation by the SIB or its authorised sub-bodies covered every aspect of financial market activities[42].
“Matters which were previously governed by common sense, ethical codes, private exchanges, professional bodies or where good practice was encouraged by a firm’s desire to have a good reputation for fair dealing, now became regulated activities under the Financial Services Act.”[43]
As a result, the London Stock Exchange lost much of its power over the securities market in Britain[44].
2.3 Fight Against Inflation
In May of 1979 when Thatcher became the Prime Minister of Britain, the inflation rate was around 13%[45]. As stated in the Conservative general election manifesto of 1979, one of Thatcher and her party’s main goals was to drastically reduce inflation, which had grown strongly under Labour leadership[46]. Thatcher believed that “Firm control of the money supply was necessary to bring down inflation”[47], a conviction which reflected her monetarist policies.
The first problem which needed facing was the way to measure the money supply. This was vital to economists for determining the productivity of the economy. Of all the measurements applied to an economy, £M3 was the most familiar at this time[48]. M3 is a combination of all other classifications of money, M0, M1 and M2. It includes “the currency in circulation, such as coins and cash”[49], “demand deposits, such as checking accounts, traveler’s checks, and currency that is out of circulation but readily available”[50], “savings deposits and certificates of deposit”[51] and “the least liquid components of the money supply that are not in circulation, such as repurchase agreements that do not mature for days or weeks”[52].
However, due to the Thatcher government’s deregulation and reformation of the financial industry and despite its familiarity, £M3 was, in retrospect, no longer the most effective nor the most reliable measurement. Since the data source previously provided by regulation was no longer available, £M3 figures were incomplete. Consequently, £M3 consistently exceeded the previously anticipated value for 1979 to 80. As a reaction to this figure, the government pursued a tight monetary policy, which included the Treasury raising interest rates sharply from the end of 1979 throughout 1980[53]. The desired effect of reducing inflation by raising interest rates failed, not in the least part due to the surge in world oil prices. While the government employed tactics to lower inflation, they simultaneously implemented inflationary policies, such as the increase of Value Added Tax (VAT) from 8% for the majority of goods to 15%. This increase was owed to the Conservatives’ goal of moving away from direct taxation and reducing the tax burden for individuals[54]. The result of these factors was a rise in inflation to 18% in 1980[55].
In response to the growing inflation rate, the government issued a ‘Medium Term Financial Strategy’ (MTFS) in its budget from March 1980. The government believed that continued borrowing from the public sector would further increase the deficit and eradicate attempts to reduce the money supply, since the borrowing would raise interest rates. Thus, their goal was the simultaneous and gradual reduction in government deficits and decreasing the growth of the money supply, measured in £M3. The government’s failure to achieve its established monetary targets, even when those figures were revised and which had been substantially affected by the deregulation of the financial industry, eroded the significance of £M3 as a measure of economic performance. The realisation of this lead to the complete abandonment of monetary targets by 1985. While the MTFS was, in this regard, ineffective, the government was better able to meet its targets for the PSBR[56].
1980 is known as one of Britain’s deepest recessions since the end of the Second World War and in this year “GDP had fallen by 6 percent, manufacturing production by 18 percent, and unemployment had nearly doubled – from 5.4 percent to 10.4 percent.”[57]. Inflation had kept rising and in the second quarter of 1980 reached 21.5% p.a..[58] Facing these mounting economic challenges in late 1980, Thatcher’s method was being doubted by many politicians, including those within her own party. Confronting these doubts at a Conservative Party Conference in October of 1980, Thatcher made a clear statement in her speech, in which she refused to go back on her policies:
“To those waiting with bated breath for that favourite media catchphrase, the ‘U-turn’, I have only one thing to say. ‘You turn if you want to. The lady’s not for turning.’ I say that not only to you, but to our friends overseas – and also to those who are not our friends.”[59]
The tax raising budget of 1981 introduced an extremely tight fiscal policy. By 1982, Britain experienced a decisive drop in interest rates, which had fallen by 5% p.a., mainly due to the fall in inflation, which had dropped to 5.4%, and the reduction in government deficits[60]. Furthermore, following 1981, productivity was growing steadily, especially in manufacturing. While the Thatcher government had succeeded in taming the rate of inflation, the unemployment rate was growing at an alarming rate. Moreover, Thatcher failed to reduce public expenditure in the years of 1982 to 1983 and spending significantly overshot its targets[61], focusing especially on “unemployment compensation, industrial support, and employment measures and raising the borrowing needs of nationalized industries”[62].
From then onwards, the economy seemed to be recovering from the recession of 1980. By 1985, Britain was experiencing a period of high growth and low inflation with a strong pound, one pound then being equivalent to 3.75 Deutschmarks. That same year, however, saw rising panic and anxiety levels within the government, who were anticipating falling oil prices and the consequently inevitable devaluation of the pound. Though their fears were confirmed, the action of permitting the pound to fall led to increased demand for British goods. Since there was a reduction in oil revenues, the exports of goods from non-oil sectors of British industry were bolstered[63]. Moreover, “interest rates were cut and by the election in June 1987 had fallen to 9%”[64]. There were also reductions in the basic rate of income tax, falling from 30% to 29% in 1986 and then to 27% in 1987[65]. Furthermore, Thatcher had succeeded in drastically reducing the PSBR, which from 1986 to 1987 constituted less than 1% of GDP[66].
By mid 1987, following Thatcher’s third election victory, interest rates were increasing with further rises anticipated, “given the balance of payments deficit, rising bank lending, and high consumer spending”[67]. However, interest rates were subsequently reduced in response to the stock market crash of October of 1987, which resulted in fears of a global crisis similar to that of 1929. This reduction in interest rates, combined with the aforementioned policies, resulted in rising productivity levels. The British economy seemed to be flourishing[68]. Furthermore, “in March 1988 the top rate of income tax was reduced from 60% to 40%, and the basic rate from 27% to 25%”[69]. By the time Margaret Thatcher was ousted from office in 1990, the inflation rate had settled at 8%[70].
2.4 Housing and the ‘Right to Buy’ Scheme
Prior to Thatcher’s premiership, the Conservatives had already been actively formulating housing policies, following an underlying trend in home ownership. This was due to a number of factors, especially: improving living standards, unsatisfactory alternatives, tax relief on mortgage interest and an appreciation in house pricing greater than the rate of inflation[71]. Thus, incentivising home ownership and making council homes purchasable for tenants was a popular move for the Conservative party and was also featured relatively prominently in the 1979 Conservative general election manifesto. The Conservatives claimed that “Unlike Labour, we want more people to have the security and satisfaction of owning property.”[72]. Their goal was realised in Thatcher’s first term, at a time when a third of all properties in England and Wales were owned by local authorities[73].
On the 3rd of October 1980, Thatcher’s government passed The Housing Act of 1980 which gave council tenants the right to buy their homes from local authorities at discounted prices. Several incentives were incorporated into the housing act, aimed at promoting the adoption of the Right to Buy, such as providing tenants with a 33% discount on the market value of their house if they had resided there for over to three years. Further encouragements included a progressive discount, going up to 50%, for those with a tenancy lasting more than 20 years and the option of securing the property with a £100 deposit, delaying the purchase for two years but maintaining the initial value. Lastly, 100% mortgages from the local authority were made available to facilitate the acquisition[74]. While the Right to Buy scheme was a cornerstone of Thatcher’s belief in a “property owning democracy”[75], many other methods were used to achieve this.
3. Effects of Thatcher’s Economic Policies on Great Britain
3.1 Revolution in Home Ownership
Thatcher and her government were successful in realising their goal of expanding property ownership. While extremely few sales were made in the remaining months of 1980, the years 1981 and 1982 saw a boom[76]: “in 1981, 66,321 English right to buy purchases; in 1982, 174,697 – a sales peak that would be repeatedly approached during the rest of the 1980s but never exceeded.”[77].
Since more tenants were purchasing and consequently developing their homes, many areas improved. Moreover, within many areas, socio-economic diversity was retained, as the inclination of more affluent individuals to relocate from public housing neighbourhoods was reduced through this Right to Buy scheme. Furthermore, local authorities made a substantial profit from the sale of council property, which, though discounted, frequently exceeded its book value, and were able to use this capital income for other purposes[78].
3.2 London as a Financial Centre
Many claims and hypotheses have been formulated in an attempt to explain the development of London as an international financial centre following the end of the Second World War.
The onset of this transformation can be attributed to the development of the Eurocurrency and Eurobond markets in London between the late 1950s and early 1960s. Others accredit Wall Street and especially the year 1975, when the New York Stock Exchange, strongly influenced by the Securities and Exchange Commission, abolished fixed commission rates, which led to an international change in the way stock exchanges operated. 1979, the year that Thatcher removed exchange controls, is also regarded by many commentators as a key event in the City of London’s history, as it opened the city to international competition[79].
However, the event referenced as the ‘Big Bang’ in 1986, when radical changes were imposed on the London Stock Exchange at the behest of Thatcher’s government, “retains its significance as a Tipping Point”[80] in reinstating the city to its role as one of the leading global financial hubs and increasing competition. With the international growth of markets for trading stocks, bonds and their derivatives, the productivity of the British financial services industry grew substantially in the 1980s, in contrast to that of the overall economy[81]. Additionally, there was a surge in trade that led to an average weekly volume exceeding 7.4 billion pounds, a significant increase from the 4.5 billion pounds per week prior to ‘Big Bang’[82].
3.3 Deindustrialisation
While deindustrialisation, “a trend decline in industrial output and/or employment as a share of all economic activity”[83], was faced by nearly all Western European countries after 1950, the pace and extent of it was especially noteworthy in Britain in the 1970s and more so in the 1980s. Preceding the 1979 general election, many Labour politicians spoke against deindustrialisation, calling for its reversal in Britain. In the 1970s, when worries about deindustrialisation picked up, the discussion was focused primarily on economic growth, concentrating on the economic effects of sluggish industrial growth on the balance of payments and inflation, rather than its impact on the labour market and employment in industrial jobs. Even Thatcher herself commented on the state of industrialisation in Britain during the winning election campaign of 1979 in the West Midlands, an area pivotal for her appeal to voters from the working class[84], when she stated that “’…without the wind of change the Conservatives offer, there can be no hope of halting Britain’s industrial decline.’”[85].
In the years following Thatcher’s election victory in 1979 though, industrial profit and employment substantially dropped. From 1979 to 1981, manufacturing employment decreased by 17% and output by 20%. A major reason for this was the large increase in monetary value of the pound by an inflation adjusted rate of 45% between early 1979 and January of 1981, resulting mainly from Thatcher’s tight monetary policies, although her and her government rebuffed this idea. This appreciation reduced competitiveness and demand for industrial products, driving down the volume of exports, while imports were significantly cheaper[86]. This was what made “almost all of British industry unprofitable in 1980/81”[87]. Furthermore, as a result of the government’s resolve to cut spending on subsidies and “reduce government intervention in industry”[88], many industrial companies were forced to close. This sector had previously received the most overt subsidies, a consequence of numerous years during which past administrations aimed to promote the revitalisation of industry[89].
In this period, many industrial companies were experiencing severe losses, leading to increasing hostility by the Confederation of British Industry (CBI) towards the government, even while the former simultaneously supported government policy of reducing public expenditure in order to gain tax relief for industry and lower interest rates. As a result of the 1981 budget, which led to a declining exchange rate, pressure on industry was reduced, however, substantial areas of Britain’s industry were irrecoverably damaged[90]. When it came to the decline in industrial employment, the government defended itself by largely blaming workers and unions and asserting that “the underlying problem was too high wages, too high benefit levels, and inefficiency”[91].
3.4 Increase in Unemployment
While Thatcher successfully drove down inflation during her premiership, it is well attested that unemployment rose rapidly under her leadership, reaching levels unforeseen in Britain and peaking at over three million in 1984. When Thatcher took office in May of 1979, around 1.2 million people, or 5.1% of workers, were unemployed, a figure that had doubled by 1981[92]. In the years following, the unemployment rate continued rising steadily, reaching 11.9% in April of 1984. This figure remained in double digits from 1981 to 1987, a full six years, until it started to decline again and dropped to 6.9% in 1989. When Thatcher was ousted from office in September of 1990, the unemployment rate had settled at 7.5%[93].
As previously mentioned, this rise in unemployment was especially pronounced in the manufacturing sector. In the late 1960s, 30% of overall employment was accounted for by employment in manufacturing. However, during the recession of 1980, this percentage drastically declined and continued to fall[94]. Symptomatic of the drop in industrial employment was the closure of uneconomic coal mines, which substantially accelerated in the mid-1980s, leading to 200,000 miners, almost 90% of the industry’s workforce, losing their jobs[95].
Thatcher’s privatisation measures had an additional profound impact on Britain’s labour market. The percentage of those employed in previously nationalised industries decreased from 9% to less than 2%[96], since private companies often aimed to increase efficiency, improve competitiveness and reduce costs to maximise profits.
Conclusion
Margaret Thatcher fundamentally rejected the consensus with which Britain had been governed in the decades following the end of the Second World War and subsequently brought revolutionary change to the United Kingdom as Prime Minister, especially in economic management. She turned to pro-market, liberal and monetary policies in order to fight rising inflation and pursue her and her party’s socio-economic aims.
While many of Thatcher’s policies resuscitated the declining economy of Britain following the crisis years of the 1970s and an initial recession in 1980, they also had indelible effects on the economy and population. Her privatisation measures, for example, provided much revenue for the government and helped reduce public debt, however, they also led to increased unemployment in newly privatised industries. A further factor which facilitated and accelerated the alarming growth of unemployment was pervasive deindustrialisation, stemming from the appreciation of the pound, which was a result of Thatcher’s monetary policies. The extensive deindustrialisation of Britain in the 1980s is still felt today with a split between the industrialised North and more service and financial industries based economy of the South of England.
Her deregulation and reformation of the financial industry in turn increased productivity in the British financial services industry and placed London on the map as an international financial centre. Thatcher also oversaw a massive increase in property ownership, key to which was her Right to Buy scheme. Her aim of significantly reducing an inflation rate which had reached 24% preceding her premiership was fulfilled, as she left office with inflation down to 8%. Thatcher was overwhelmingly concerned with the rate of inflation and largely overlooked the unemployment crisis during her premiership, in contrast to the post-war Labour government, who were intent on full employment measures, which had been successful.
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[1] “The Beveridge Report and the foundations of the Welfare State,” The National Archives, uploaded December 7, 2017, https://blog.nationalarchives.gov.uk/beveridge-report-foundations-welfare-state/ (accessed August 20, 2023).
[2] Dennis Kavanagh, “Thatcherism and the End of the Post-War Consensus,” BBC, March 3, 2011, https://www.bbc.co.uk/history/british/modern/thatcherism_01.shtml (accessed September 3, 2023).
[3] The National Archives, “The Beveridge Report and the foundations of the Welfare State.”
[4] Timothy J. Hatton, and George R. Boyer, “Unemployment and the UK labour market before, during and after the Golden Age,” European Review of Economic History 9, no. 1 (April 2005): 35-38, https://doi.org/10.1017/S1361491604001376.
[5] “What Is Stagflation, What Causes It, and Why Is It Bad?,” Investopedia, accessed October 15, 2023, https://www.investopedia.com/terms/s/stagflation.asp.
[6] Gwyn Bevan, How Did Britain Come to This? A century of systemic failures of governance (London: LSE Press, 2023), 92, https://doi.org/10.31389/lsepress.hdbLicense:CC.
[7] “laissez-faire,” Britannica, accessed October 16, 2023, https://www.britannica.com/money/topic/laissez-faire.
[8] Roger E. Backhouse, “The Macroeconomics of Margaret Thatcher,” Journal of the History of Economic Thought 24, no. 3 (September 2002): 316-317, https://doi.org/10.1080/104277102200004767.
[9] ibid., 317.
[10] ibid.
[11] “U.K. Inflation Rate 1960-2023,” Macrotrends, accessed October 29, 2023, https://www.macrotrends.net/countries/GBR/united-kingdom/inflation-rate-cpi.
[12] Backhouse, “The Macroeconomics of Margaret Thatcher,” 317.
[13] “1978-1979: Winter of discontent,” Libcom.org, uploaded January 24, 2007, https://libcom.org/article/1978-1979-winter-discontent (accessed November 10, 2023).
[14] Margaret Thatcher, The Downing Street Years (London: HarperCollins Publishers, 1993), 11.
[15] ibid., 6.
[16] ibid.
[17] Reuben Kelf-Cohen, and Tito Ballarino, “Nationalisation in Great Britain/ Le Nazionalizzazioni in Gran Bretagna,” Il Politico 25, no. 2 (1960): 317, https://www.jstor.org/stable/43205175.
[18] Andrew Gamble, “Privatization, Thatcherism, and the British State,” Journal of Law and Society 16, no. 1 (1988): 2, https://doi.org/10.2307/1409974.
[19] “Conservative General Election Manifesto 1979,” Margaret Thatcher Foundation, accessed August 12, 2023, https://www.margaretthatcher.org/document/110858.
[20] ibid.
[21] ibid.
[22] Chris Rhodes, David Hough, and Louise Butcher, “Privatisation,” House of Commons Library, Research Paper 14/61 (November 2014): 2, https://researchbriefings.files.parliament.uk/documents/RP14-61/RP14-61.pdf.
[23] Richard Stevens, “The Evolution of Privatisation as an Electoral Policy, c. 1970-90,” Contemporary British History 18, no. 2 (2004): 59, https://doi.org/10.1080/1361946042000227733.
[24] Gamble, “Privatization, Thatcherism, and the British State,” 9.
[25] Rhodes, Hough, and Butcher, “Privatisation,” 2.
[26] ibid., 2-3.
[27] “Privatising the UK’s nationalised industries in the 1980s,” Centre for Public Impact, uploaded April 11, 2016, https://www.centreforpublicimpact.org/case-study/privatisation-uk-companies-1970s (accessed August 8, 2023).
[28] “Exchange Controls: Meaning & How Companies Get Around Them,” Investopedia, accessed December 14, 2023, https://www.investopedia.com/terms/e/exchangecontrol.asp#:~:text=Exchange%20controls%20are%20government%2Dimposed,can%20create%20exchange%20rate%20volatility.
[29] “The political roots of capital mobility: reassessing Britain’s abolition of exchange controls,” LSE, uploaded April 18, 2019, https://blogs.lse.ac.uk/politicsandpolicy/exchange-controls-abolition/ (accessed December 25, 2023).
[30] ibid.
[31] Backhouse, “The Macroeconomics of Margaret Thatcher,” 319
[32] ibid.
[33] Thatcher, The Downing Street Years, 44.
[34] Philip Booth, “Thatcher: the Myth of Deregulation,” Institute of Economic Affairs, Discussion Paper no. 60 (May 2015): 13-20, https://iea.org.uk/wp-content/uploads/2016/07/DP_Thatcher-the%20myth%20of%20deregulation_web_May.pdf.
[35] Christoph Bellringer, and Ranald Michie, “Big Bang in the City of London: an intentional revolution or an accident?,” Financial History Review 21, no. 2 (2014): https://doi.org/10.1017/S0968565014000092.
[36] “”Big Bang” Deregulation Bolsters London’s Position as Global Finance Center,” Goldman Sachs, accessed November 3, 2023, https://www.goldmansachs.com/our-firm/history/moments/1986-big-bang.html.
[37] Bellringer, and Michie, “Big Bang in the City of London: an intentional revolution or an accident?,” 112-117.
[38] Booth, “Thatcher: the Myth of Deregulation,” 22.
[39] “Securities and Investment Board,” Oxford Reference, accessed January 4, 2024, https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100451754.
[40] Bellringer, and Michie, “Big Bang in the City of London: an intentional revolution or an accident?,” 117.
[41] Booth, “Thatcher: the Myth of Deregulation,” 22.
[42] ibid.
[43] ibid., 23.
[44] Bellringer, and Michie, “Big Bang in the City of London: an intentional revolution or an accident?,” 117.
[45] Macrotrends, “U.K. Inflation Rate 1960-2023.”
[46] Margaret Thatcher Foundation, “Conservative General Election Manifesto 1979.”
[47] Thatcher, The Downing Street Years, 41.
[48] Kent Matthews et al., “Mrs Thatcher’s Economic Policies 1979-1987,” Economic Policy 2, no. 5 (October 1987): 61, https://doi.org/10.2307/1344621.
[49] “What Is M3? Definition, Liquidity, Disuse, and M Classifications,” Investopedia, accessed October 5, 2023, https://www.investopedia.com/terms/m/m3.asp.
[50] ibid.
[51] ibid.
[52] ibid.
[53] Matthews et al., “Mrs Thatcher’s Economic Policies 1979-87,” 61.
[54] Backhouse, “The Macroeconomics of Margaret Thatcher,” 319.
[55] Matthews et al., “Mrs Thatcher’s Economic Policies 1979-87,” 62.
[56] Backhouse, “The Macroeconomics of Margaret Thatcher,” 321.
[57] ibid.
[58] ibid., 323.
[59] Thatcher, The Downing Street Years, 122.
[60] Matthews et al., “Mrs Thatcher’s Economic Policies 1979-87,” 61-63.
[61] Willem H. Buiter, and Marcus H. Miller, “Changing the Rules: Economic Consequences of the Thatcher Regime,” Brookings Papers on Economic Activity 1983, no. 2 (1983): 331, https://doi.org/10.2307/2534293.
[62] ibid., 332.
[63] Backhouse, “The Macroeconomics of Margaret Thatcher,” 321-325.
[64] ibid., 322.
[65] ibid., 322.
[66] Matthews et al., “Mrs Thatcher’s Economic Policies 1979-87,” 64.
[67] Backhouse, “The Macroeconomics of Margaret Thatcher,” 322.
[68] ibid., 322-323.
[69] ibid., 322.
[70] Macrotrends, “U.K. Inflation Rate 1960-2023.”
[71] Mark Boléat, “The Politics of Home Ownership,” in Directions in Housing Policy: Towards Sustainable Housing Policies for the UK, ed. Peter Williams (London: Peter Chapman Publishing Ltd, 1997), 54-56, https://www.boleat.com/materials/politics_home_ownership.pdf.
[72] Margaret Thatcher Foundation, “Conservative General Election Manifesto 1979.”
[73] Mark Boléat, “The Politics of Home Ownership,” 56.
[74] Dawn Foster, “Right to buy: a history of Margaret Thatcher’s controversial policy,” The Guardian, December 7, 2015, https://www.theguardian.com/housing-network/2015/dec/07/housing-right-to-buy-margaret-thatcher-data (accessed December 10, 2023).
[75] “Speech to Conservative Party Conference,” Margaret Thatcher Foundation, accessed December 11, 2023, https://www.margaretthatcher.org/document/106498.
[76] Andy Beckett, “The right to buy: the housing crisis that Thatcher built,” The Guardian, August 26, 2013, https://www.theguardian.com/society/2015/aug/26/right-to-buy-margaret-thatcher-david-cameron-housing-crisis (accessed December 25, 2023).
[77] ibid.
[78] Boléat, “The Politics of Home Ownership,” 57.
[79] Bellringer, and Michie, “Big Bang in the City of London: an intentional revolution or an accident?,” 112-113.
[80] ibid., 113.
[81] ibid.
[82] Jamie Robertson, “How the Big Bang changed the City of London for ever,” BBC, October 27, 2016, https://www.bbc.com/news/business-37751599 (accessed January 4, 2024).
[83] Jim Tomlinson, “Deindustrialisation and ‘Thatcherism’: moral economy and unintended consequences,” Contemporary British History 35, no. 4 (August 2021): 622, https://doi.org/10.1080/13619462.2021.1972416.
[84] ibid., 621-625.
[85] ibid., 625.
[86] ibid., 627-629.
[87] ibid., 628.
[88] Margaret Thatcher Foundation, “Conservative General Election Manifesto 1979.”
[89] Tomlinson, “Deindustrialisation and ‘Thatcherism’: moral economy and unintended consequences,” 631.
[90] ibid., 628-629.
[91] ibid., 629.
[92] Buiter, and Miller, “Changing the Rules: Economic Consequences of the Thatcher Regime,” 336.
[93] “Unemployment rate (aged 16 and over, seasonally adjusted): %,” Office for National Statistics, accessed January 9, 2024, https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms.
[94] Christina Beatty, and Steve Fothergill, “The Long Shadow of Job Loss: Britain’s Older Industrial Towns in the 21st Century,” Frontiers in Sociology 5 (2020): 2, https://doi.org/10.3389/fsoc.2020.00054.
[95] Juan-Pablo Rud et al., “Job Displacement Costs of Phasing Out Coal,” Institute of Labor Economics, Discussion Paper no. 15581 (September 2022): 2, https://docs.iza.org/dp15581.pdf.
[96] “The Thatcher privatisation legacy: not quite what she planned?,” Oxera, accessed January 9, 2024, https://www.oxera.com/wp-content/uploads/2018/03/The-Thatcher-privatisation-legacy_1-1.pdf.
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