Thatcher changed all of this. Her policies were painful – shutting down unsustainable firms and improving productivity levels led to a surge in unemployment, which has remained with us ever since, though jobless rates went up internationally and any government would eventually have had to axe loss-making industries.
Ultimately, however, her supply-side reforms paved the way for our economic rebirth. She slashed the top rate of tax from 98 per cent on investment income and 83 per cent on labour income to just 40 per cent; she sold off dozens of state firms; she tackled inflation, albeit at the cost of an unavoidable recession. She shifted the burden of taxation from income to consumption, eventually defeated the unions, smashing closed shops and restrictive practices.
The cultural revolution during her time in office mirrored the economic revolution. When she arrived in office, 67 per cent of the country belonged to the C2DE economic class – the so-called working class – but when she left office that had fallen to just 51 per cent and has continued to collapse, according to Ipsos Mori. Aspiration was unleashed.
She swept away many of the old class barriers and her cabinet was open to all the talents, regardless of background and religions; home ownership increased substantially and sustainably, helped by the massive sell-off of council homes to their owners at a discount.
The City was transformed, with the Big Bang, an inflow of foreign capital and talent and the rise of upwardly mobile, hard-working and high rolling yuppie; the hugely significant Canary Wharf project was kicked-started; and the privatisations of the commanding heights of the economy ushered in an age of mass share ownership, turning the City from quaint backwater to global powerhouse.
She enjoyed her share of good fortune, as well as some bad luck. North Sea oil poured in; however, this sent the pound shooting up, a development which helped hurt manufacturers. Thatcher’s astonishingly firm handling of the Falklands crisis rescued her premiership and gave her enough time to see the recovery through. The Labour party embrace of an extreme ideology and poor leaders, and the rise the new social democratic party, which split the left-wing vote, was another great boon. But the horrors of IRA terrorism were a nightmare and the Conservative party suffered many horrendous murders. As luck had it, Thatcher was in power at the same time as her kindred spirit Ronald Reagan; the two fought communism together.
Thatcherism worked. Take one (of course imperfect) measure: ONS figures suggest the economy grew by 3.03 per cent a year in the 1950s, 3.18 per cent a year in the 1960s, 2.07 per cent in the 1970s, accelerating back to 3.09 per cent in the 1980s under Thatcher, before expanding by 2.77 per cent in the 1990s (when her legacy largely remained) and by 1.77 per cent in the 2000s.
The report of the LSE growth commission is emphatic: by the late 1970s, the UK had been left behind, with US GDP per capita 40 per cent higher than Britain’s and the top European economies 10-15 per cent ahead. By 2007, however, UK GDP per capita had overtaken France’s and Germany’s and reduced significantly the gap with the US, a position which hasn’t really changed since, despite the US and Germany’s better performance over the past couple of years.
The first Thatcher years were marred by a terrible recession, which reduced the average growth rate of the 1980s quite substantially, even accounting for the unsustainable, cheap money-fuelled growth towards the end. This also helps to explain why her cuts to the public sector as a share of GDP look relatively modest. But spending actually shot up in the early 1980s as a result of the recession, so the decline from peak to trough was much more impressive.
But while Thatcher saved Britain, she also made mistakes. All came from her turning her back on her core principles. When she was education secretary, she implemented disastrous anti-Grammar school policies. She was wrong to sign the Single European Act. She regretted this deeply subsequently. She was wrong to allow herself to be convinced to join the European exchange rate mechanism; together with a poor monetary policy by chancellor Lord Lawson, who allowed the broad money supply to rocket, this led to a boom in the late 1980s and another recession. The poll tax meant huge tax hikes on the many, and was thus rightly rejected by an angry public.
For all of those errors, she was a superb Prime Minister, the best peacetime leader of the twentieth century. She and Winston Churchill were the only two truly great PMs of the last hundred years; Churchill saved the UK in wartime and Thatcher saved Britain from economic and cultural catastrophe. May she rest in peace.