Margaret Thatcher had to create economic policies very quickly when she came to office, as the yearly Budget was due; this explains why her policies were short-term. For example, direct taxation, such as income tax was reduced which automatically favoured the electorate who had welcomed Thatcher into power. However, although the cuts were for all sectors of society, it is perceived that the policy was much more in favour of the ‘big cats’ of society. Conversely, by autumn of 1979, the government faced a shortage of income because of the income tax reductions, and an increase in expenditure because of public sector strikes, and so Thatcher announced a cut of £680 million in government benefits, and warned her electorate that there would be no further tax reductions. These tax reductions tied in with the conservatives microeconomic policies in which the government would seek to develop an ‘enterprise culture’. However, going back to the earlier quote by Nigel Lawson, their main objective was the reduction of inflation. The statistics of the time show that this was in fact achieved, however, at the expense of economic growth and unemployment.
Statistics show that between 1979-1985, the growth of output of the economy (GDP) – the principle indicator of economic performance was slow, 1% per annum and unemployment rose by 2 million (as shown in the below table 1.1).
Table 1.1. The economic record
PERIOD OF THATCHER’S MONETARIST EXPERIMENT
1979 1985 CHANGE
OUTPUT
INDEX OF GDP (% P.A) 100 106 +1.0
RETAIL PRICES (% CHANGE FROM PREVIOUS YEAR) 13 5 -8
UNEMPLOYMENT 1.2 3.2 +2
The main achievement however, realised from the table was the reduction of the rate of inflation from 13 to 5 per cent. These statistics can be compared for example with figures in the Keynesian Period 1960-73. The data in this period shows a growth of 3.1 of output of the economy and a slight increase in unemployment. With regards to inflation, however, the Thatcher period performed better. Overall, therefore, compared with the Keynesian period, Mrs Thatcher’s economic record is rather dismal. In defence of her record, however, Thatcher’s supporters can argue that many countries had a poor economic record between 1979-85; Britain’s failure to manage growth, slow inflation and a high level of unemployment was not unique.
Another key aspect of Thatcherite economy, other than low taxation, was the determination to privatise nationalised industries to further reduce government expenditure. Did privatisation amount to a revolution? According to J. Foreman-Peck, it was ‘the most radical restructuring of British industry at least since 1951’. Privatisation was not a focus of the government (only received 4 paragraphs in the 1979 manifesto). The first of Mrs Thatcher’s governments concentrated more on monetarism and the reduction of the public sector borrowing requirements (PSBR), privatisation playing a subordinate role. None the less it was privatisation that became ‘the flagship of conservatism’. The government sold its share of British Aerospace, Britoil and British Gas for example, which meant that the government no longer had to subsidise these companies. Therefore, more money was able to be invested into the welfare state and so despite her harsh economic policies, more money was put into the public sector. ‘By 1983 there were 45,000 more nurses, 6,500 doctors and 9,400 more policemen’. The welfare state was an area Mrs Thatcher wanted to pull people away from but due to the growth of unemployment and poverty, expenditure on welfare services did increase.
The measures to change the economy, to reverse nationalisation, and to pull back the scope of the welfare state could not have been introduced without a concerted campaign against the trade unions. She began with the Employment Acts of 1980 and 1982. Between them, these banned secondary picketing, limited the closed shops and imposed penalties for unofficial strikes. The Trade Union Act (1984) imposed secret ballots before strike action could be taken, while the Employment Acts of 1988 and 1990 enforced the use of ballots in the election of trade union officials and gave members rights of redress against their union. The government’s objectives were clear, although too ruthless to be publicly exposed. Unless it could limit the powers of the trade union movement, the government would not succeed in the rest of its policies. The imposition of the free market through monetarism required a compliant labour force, not one that would resort to industrial action in defence of established procedures. Wages had to reflect more accurately their market value, which again meant that the shadow of strike action had to be removed from wage negotiations. Privatisation could not be considered as long as the public-sector trade unions retained the power to take on the government. A national, or general, strike was not inconceivable. Finally, the government’s campaign for efficiency in the public sector meant slimming down the National Health Service and the Civil Service, objectives that would certainly have provoked major action in the 1960s and 1970s.
Considering the wave upon wave of trade union action in the 1970s, it may seem surprising that Mrs Thatcher was able to introduce and then enforce her policies in the 1980s. There are three main reasons for her success. One was that the state of the economy drove unemployment up very sharply so that it reached a peak of over 3 million in 1985. This compared with an average of 1.4 million when Callaghan was prime minister and half a million under Heath. The Conservatives undoubtedly used the shadow of unemployment to make the workforce place a higher value on their jobs and to reduce their willingness to risk losing them as a result of militant trade union action. The second reason was the sheer determination of the government not to give way. In this respect, Mrs Thatcher possessed a ruthlessness lacked by any of her predecessors. She took tactical advantage of the 1984 miners’ strike. An overall scheme had already been drawn up to take on and defeat the miners, widely seen as the most militant of the trade unions, as the first step in taming the rest.
James Callaghan’s experiences at the hands of the International Monetary Fund in 1976 and over the issue of ‘ungovernability’ through the 1978-79 ‘winter of discontent’ show how strong was the strain which union demands were exerting on the old framework. Her shear disbelief in the merits of mere consensus pushed her towards a completely new approach of economic policies once in charge. In brief, the conservatives claimed that freedom works, and that the economy would perform well only if controls were lifted, incentives restored and the power of trade unions reduced.
Her approach has been most successful in two broad areas. Mrs Thatcher had managed to reduce the state of inflation to a level approaching that of other leading economies. She had also made significant progress in her project of ‘popular capitalism’ and growing home ownership (boosted particularly by council house sales). Wider patterns of shareholding (especially as an effect of privatisation and state-run industry), and enlargement in the numbers of small business and of self-employed were also a success. On the other hand, however, her government failed to achieve its aim of cutting public spending. Unemployment too rose by late 1986 to around 3 million. In analysing a number of areas within her economic policies, it is evident that one can take a balanced view of both the achievements and failures during Mrs Thatcher’s seven and a half years in power.
Bibliography:
Andrew Heywood, An Introduction to Political Theory 2nd Ed, (1999)
Alan Sked and Chris Cook, Post War Britain: A Political History 1945-1995, (1990)
David Childs, Britain since 1939: Progress and Decline, (1979)
Jones et all, Politics UK, (1998)
Floud and McCloskey, The Economic History of Britain since 1700 2nd Ed,UK, (1994)
Eric Evans, Thatcher and Thatcherism, (1997)
Word Count: 1575
Nigel Lawson ‘The British Experiment’ in The Fifth Mais Lecture, June 1984, London, p.2.
Economic Trends Annual Supplement (1986)
Peck in Aspects of British Political History 1914-1995, p235
Steven Lee, Aspects of British Political History 1914-1995, p236
David Childs, Britain since 1939: Progress and Decline, p.153.