April 9, 2013, 2:12am
THATCHER staked out a business policy drastically different to any of her post-war predecessors. Despite 17 years of conservative rule between 1951 and 1974 the government was still controlling BP, British Steel, Jaguar, Cable and Wireless, BT, British Gas, and British Airways. Thatcher sold these industries off, in many cases creating long-surviving successful firms in competitive markets – though in a few cases these merely went from public monopoly into a regulated, private monopoly. She cut large firm corporation tax from 50 per cent to 35 per cent and small firm corporation tax from 30 per cent to 25 per cent.
Perhaps more importantly, her governments decisively shifted the climate of opinion towards the view that making money is not only morally and socially acceptable – but a signal of personal and economic success. Business went from being seen as a corporatist partner to a force for change that could shake up the economy from the periphery. An army of new entrepreneurs rose up, led by Sir Richard Branson.
THE IRON Lady’s education policy fit with her liberal economic policies and conservative social outlook. She allowed universities to charge foreign students fees from 1981, and from 1986 brought in closer analysis of where research funding was going. However, she also provoked universities’ ire by cutting their funding, causing a rift with her alma mater Oxford University, which refused to award her an honorary degree, having awarded one to every other post-war old Oxonian Prime Minister. She had arguably an even greater impact on secondary education, where her minister Kenneth Baker introduced the national curriculum, league tables and Sats, giving heads and governors more control of budgets and decisions, to invigorate parental choice and school competition.
THATCHER’S governments held a middle ground on Europe, as she favoured close co-operation with neighbouring countries but also took a firm line on British spending and on handing too much control over to Brussels. Thatcher originally backed Britain’s member ship of the European Economic Community in 1975 and pushed hard to get the single market established. She also favoured the expansion of the union into eastern Europe. But she is also remembered for saying “no, no, no” to the idea of a European superstate, arguing national parliaments should hold most of the power, and her increasing EU-scepticism. She negotiated Britain’s valuable rebate from the EU budget. And she opposed the reunification of Germany, fearing the consequences of tying a rich economy to a poor one. More recently she appeared prescient as to the fate of the Eurozone, foreseeing “the impossibility of a single currency” as it would benefit Germany at an intolerable cost to weaker economies.
THE DEREGULATION of finance in the 1980s broke old monopolies, created competition and opened the door to the City becoming a powerhouse behind much of Britain’s economic growth. Enormous growth in the City and a new era of expansion in global banking left a lasting mark on London, breathing new life into an industry that had been increasingly focussed in New York, as well as leading to the development of a second physical financial centre in Canary Wharf. New rules came in in October 1986, changing the London Stock Exchange from open outcry to electronic trading, scrapping fixed commissions and removing the legal distinction between stockjobbers and stockbrokers. And along with her chancellor Nigel Lawson, Thatcher removed barriers to entry for global banks, letting them set up new HQs and offices in London. By the end of her premiership, four per cent of British workers were employed in financial services, a testament both to the huge growth she unleashed and to the ending of the unmeritocratic old boys’ club she feared had held back the sector previously.
MARGARET Thatcher is remembered around the world – particularly in the US and in former Soviet satellite states – for teaming up with Ronald Reagan to bring down communism and end the Cold War. Her unbending approach led to her nickname the Iron Lady. In 1976 she argued “the Russians are bent on world domination,” leading Soviet paper the Red Star to give her the label which she adopted as a compliment. After taking a tough line with the USSR in her early years she supported Mikhail Gorbachev as a reformer, helping to warm relations between the two superpowers and bring the Cold War to an end. Gorbachev went on to lead the breakup of the Soviet Union. Its states and satellites’ moved to adopt democracy and free market economics, to varying degrees. The ties she built with the US endure. “As an unapologetic supporter of our transatlantic alliance, she knew that with strength and resolve we could win the cold war and extend freedom's promise,” said President Obama. Gorbachev called her “a great politician” and said she will “go down in our memory and history.”
THOUGH Thatcher is famous as a tax-cutting Prime Minister, the total tax burden actually increased significantly over her reign from 33.1 per cent of GDP to 35.4 per cent of GDP, according to Institute of Fiscal Studies (IFS) figures. However, this overall rise hides a radical restructuring of the tax burden away from income and towards consumption. When the Iron Lady came to power, the effective top tax rate was 98 per cent – 83 per cent with a 15 percentage point surcharge for so-called unearned income. She cut the top rate to 60 per cent in 1979 and to 40 per cent in 1988. And she chopped the basic rate from 33p in the pound to 30p, then 29p, then 27p, then finally 25p. The main rate of corporation tax came down from 50 per cent to 35 per cent and the small business rate was cut from 30 per cent to 25 per cent. But she counteracted this by dramatically raising VAT from eight to 15 per cent, a tax hike that drew ire even from supporters like Arthur Laffer – who invented the Laffer curve, which shows how tax cuts may raise revenues.
THATCHERITE economic policy combined monetarism with privatisation and labour market reform. Monetarism arose as a response to the stagflation of the 1970s – the theory that it was not a lack of wage restraint, but excessively rapid growth in the money supply that was causing the dramatic price hikes. But the focus on the money supply dimmed after 1982, and the high interest rates needed to cut inflation clashed with the Thatcherite goal of home ownership – financed by mortgages. Housing loans rose tenfold to £63bn from 1978 to 1988. On the other hand, the commitment to lifting state control of industry only increased, with Thatcher privatising BT, British Gas, British Airways, Rolls Royce and many more. And Thatcher radically altered the labour market – 29m days were lost to strikes in 1979, versus 761,000 in 1991, while the density of unions in the workforce slumped from 57 per cent to 42 per cent.
TERRORISTS from the Provisional Irish Republican Army (IRA) tried to murder Margaret Thatcher at the Conservative party conference in Brighton in 1984. The attack killed five others and injured 31 more. The Prime Minister gave her conference speech the next day as planned. “This attack has failed. All attempts to destroy democracy by terrorism will fail,” she said. A staunch unionist, Thatcher rejected any calls to reach a settlement with the IRA. Crises throughout her time in office included a series of hunger strikes by imprisoned republican paramilitaries, as well as bombings which killed leading figures including the Queen’s uncle Lord Mountbatten and Thatcher’s close political ally Airey Neave. However she did grant one concession, allowing the government in Dublin some say in Northern Irish affairs by signing the Anglo-Irish Agreement in 1985.
THE FALKLANDS War reinforced the Iron Lady’s steely image and created a lasting global legacy. In April 1982 Argentina’s military government, headed by General Galtieri, invaded the Islands in the South Atlantic and overwhelmed the garrison of Royal Marines. Against expectations Prime Minister Thatcher sent a task force of 28,000 service personnel 8,000 miles to take back the Islands. “When you stop a dictator there are always risks, but there are great risks in not stopping a dictator,” she said. On 14 June Argentinean forces surrendered, after the deaths of 655 Argentinean and 255 British troops, and three Islanders. “We have a newfound confidence – born in the economic battles at home and tested and found true 8,000 miles away,” Thatcher said of the victory. Thirty years on President Christina Fernandez de Kirchner wants new talks over sovereignty. But in a referendum last month 99.8 per cent voted to remain British.
WHERE her predecessor as conservative leader and Prime Minister, Ted Heath, had failed, Margaret Thatcher was able to fight the powerful miners’ union and win, forever shifting the balance of political power. In 1974, a National Union of Mineworkers (NUM) strike was widely believed to have brought down Heath’s government in that February’s election, after his government implemented the three-day week in response to fuel shortages. Thatcher was determined not to lose to the NUM – and its firebrand leader Arthur Scargill – and carefully bided her time. When threatening to close 23 pits in 1981 brought strike threats, she backed down. Only when she had built up enough coal reserves, developed various backup plans, won an extra election, and brought various miners on-side did she feel comfortable closing 20 of the nationalised mines. After a year long strike the NUM eventually gave in completely.