At the end of the 1970s Britain had a mixed economy, with many public sector industries that had remained under state ownership since their privitisation by the labour government of 1945. These industries were very unpopular with the general public, as they were perceived as being inefficient, wasteful, and a constant and continual drain on public resources. The Conservative government of 1979 started a program of transferring and selling these industries to the private sector. The intention of this program was to reduce government intervention in businesses and encourage a free market. This was continued and extended during the subsequent Conservative governments of 1983 and 1987. By 1991 two thirds of public industries had been transferred to the private sector, including British Airways, British Telecom, British petroleum, British Gas and the Electricity Companies to name just a few. Privitisation sales generated nearly £20 000 million in extra revenue during Mrs. Thatcher’s duration as Prime Minister.
The Conservative party wanted to shift the emphasis from state dependency to individual initiative and one policy that they introduced to encourage this was the ‘right to buy’ council homes in the 1980 Housing Act. Sitting tenants were able to purchase their own homes at advantageous terms. Substantial discounts on market values were offered, depending on how long a tenancy agreement had been held. By 1988 over two million people had accepted this offer and had become homeowners. Further legislative measures in the Housing and Planning Act of 1986 allowed councils to transfer their properties to housing associations and the Housing Act of 1988 allowed tenants to opt out of local authority control and choose or form their own housing associations. The sale of council houses accounted for 43 percent of privitisation proceeds.
Public spending rose from £77 billion in 1979 to £132 billion in 1985 because of the high costs of unemployment and the increase in the number of pensions payable, due to an ageing population. Britain was also creating a dependency culture that had developed because the welfare state provided adequately for those in need. This encouraged other people to put themselves in the position of needing help, for example unmarried teenage mothers were given priority on council housing waiting lists, and this encouraged other teenagers to become pregnant. The conservatives believed that the welfare state was too costly and that it was necessary to cut costs by improving efficiency, encouraging private housing, healthcare and education, restricting increases in pensions and child benefit, and imposing stiffer criteria for those claiming benefits. Despite all these measures spending on social security rose by almost two fifths in real terms during the 1980s.
Another problem for the government was controlling the public expenditure of local government, which amounted to between a fifth and a quarter of all public spending. Many local councils were run by the Labour party and some, including the Greater London Council run by Ken Livingstone, were spending thousands of pounds of ratepayers’ money to special interest groups. Ken Livingstone made it his personal contribution in trying to bring about the collapse of monetarism. During his time in power he spent nine billion pounds, an increase of 170%, recipients included a ‘rainbow coalition’ of blacks, feminists, gays, homeless and one-parent families. Mrs Thatcher was forced to change the method of allocating grants in an attempt to control local spending and keep rate increases to a minimum. When this policy failed Margaret Thatcher promised to abolish the GLC and the metropolitan councils and introduce government controls that would give them the powers to enforce reductions in spending. This allowed the government to set rate limits and sixteen Lobour councils were rate-capped. By March 1985 nearly all of these councils gave in, and adopted a legal budget, only Lambeth and Liverpool remained firm, but they were forced to conform after a court ruling favoured the government.
Although education remained under state control the Thatcher governments made several changes to encourage greater parental choice and involvement in their children’s education. In the 1980 Education Act a small number of children were given the chance to attend private schools under the Assisted Places Scheme. The 1986 Education Act insisted that all state schools had a board of governors that included parents. The 1988 Education Reform Act gave schools the opportunity to opt out of local authority control and become grant- maintained; this enabled them to take control of their own finances and decide how the money was spent, effectively becoming a business. The government thought that by giving parents the right to choose where to send their children to school, the standards in poor performing schools would improve so as to attract more pupils. These policies often led to parents being disappointed as popular schools became oversubscribed and it was the schools that could choose its pupils not the other way round.
In 1987-88 the government passed the Great Educational Reform Bill, this forced teachers to follow a centrally imposed national curriculum. It was introduced in all primary and secondary schools and ensured that teachers gave priority to the three core subjects, English, maths and science, with seven other core subjects studied. National testing was carried out at the age of seven, eleven, fourteen, and sixteen. The results of these tests enabled Government inspectors to make direct comparisons between schools and parents were able to find out how their children’s school or prospected school was performing.
The National Health Service also remained under state control but a new principal of ‘Working for Patients’ was applied to create patient choice. GPs were able to become fund-holders and buy health care treatment for their patients’ at hospitals chosen by their patients. In reality though it was the doctors and not the patients that made these decisions. Hospitals also had the option of becoming self-governing NHS trust hospitals. The huge cost of the NHS remained an issue and the Conservative government abandoned free eye tests, increased dental charges, and prescription charges increased ten fold between 1979-89. Spending on the National Health Service as a proportion of GDP continued to rise during the 1980s.
As public spending rose the burden of taxation on the working population rose. In 1955 an average wage earner with two children paid just 3.3 percent in direct taxation but by the mid 1970s this figure had risen to 25 percent. Average take home pay after tax in the mid 1970s fell for the first time since 1945. When Margaret Thatcher came to power she was determined to reverse this trend and by cutting both the standard and higher rates of income tax. In the government’s first budget top rate income tax was reduced from 83 percent to 60 percent and the basic rate from 33 percent to 30 percent. However indirect tax in the form of Value Added Tax was raised from the split rates of 8 and 12.5 percent to a standard rate of 15 percent. The conservatives continued to cut direct taxation in subsequent budgets but because they raised National Insurance contributions as well as V.A.T. the overall tax burden on individuals rose. These policies affected the poorest in the country far more than the prosperous; with the poorest 10 percent of families being 14 percent worse off in 1990 than they had been in 1979. Indirect taxes and flat rate taxes favoured the wealthy and inequality increased, as did the divide between the prosperous south and the rest of the country .
The trade unions were a source of great concern to the Conservative government of 1979. Their immense power and control over their members, over fifty percent of the workforce, contributed to twenty nine million days of work being lost through strikes in 1979. This undisputed and excessive bargaining power enabled them to restrict productivity and obtain high wage increases, which forced up the prices of goods, and therefore inflation, and restricted the role of the free market in economic decisions. The position held by trade unions was seen by many as playing a significant detrimental role in Britain’s economy. The unions were able to force pay increases above the agreed wage constraints by calling a strike. The Conservative Party set about restricting trade union power through legislation under the Employment Act. In 1980 a law was passed which ‘curbed picketing and use of the closed shop’, further legislation was passed in 1982, 1988 and 1990 that made trade unions liable for their members actions during strikes, ensured secret ballots were held for elections and eventually abolished closed shops. As union powers began to subside so did their membership, which fell by over four million between 1979-1993 and by the end of this period amounted to only 31 percent of the employed workforce.
Both the Labour and Conservative parties of 1979 were aware of the need for a change in policies, because of the decline of British industries and the ‘stagflation’ that existed. Denis Healey’s Labour government of 1974-79 abandoned its commitment to full employment and shifted towards controlling inflation. They also introduced controls on public spending by setting cash limits on each program. Although the adoption of these monetarist policies were seen as only temporary it is difficult to judge whether they would have continued if the Labour party had been elected to government in 1979. Therefore some of the policies put into effect by the Conservative government may have been identical under a Labour government. However the Labour party were in favour of further nationalisation and state control of industry, together with import and exchange controls.
The Conservative Party in the 1980s changed the role of the state by reducing their role in industry through the privatisation of nationalised industries. The role of local councils was greatly reduced as many services were put out to tender, council housing were either sold or transferred to housing trusts and schools and hospitals were given greater control and became directly answerable to the government. The National Health Service, Social Security, and Education remained predominately under the government’s control. Britain retained a mixed economy with essential public services remaining under central governments control, although it shifted towards a capitalist society with more industries being held in the private sector. Giving individuals more choice and freedom proved almost impossible the shift from direct to indirect tax only made the poor become poorer. The ‘right to buy’ council homes has now been withdrawn and parents right to choose a school for their children is almost non-existent. Mrs Thatcher did reduce union powers, put greater emphasis on free market competition, cut back public spending and minimized state control and intervention. But overall she changed people’s attitudes, far more than she changed the role of the state, encouraging self-help, self-belief and because she encouraged people to look after themselves and their families, and not to rely on the state selfish behaviour.