The Daily Hatch

Domestic Policy

Monetarism underpinned all Margaret Thatcher’s policies. The beliefs were clear and are still what a free country needs to prosper. The aims were clear: to reduce the power of government, to reduce taxation and thereby promote private enterprise and individual rights, to give incentives to businessmen and encourage competition. Margaret Thatcher believed that these aims would produce economic and fiscal benefits for the people and enable her to use the political process to further the free society in all its aspects.

The economic lessons of these beliefs are going to be dealt with by Antonio Martino. In this he is fortunate, for monetarism and the free market are what most excited Margaret Thatcher. Suffice for me to say that what Thatcher pledged in her manifestos was delivered. She used simple imagery that everyone could understand. She was the grocer’s daughter, the housekeeper of the nation who would balance the budget and the nation would only spend what it could afford.

It was only after 1987 when Chancellor Lawson shadowed the deutsche mark and Britain entered the ERM that the Conservatives learnt you cannot buck the market. The price was failure in 1997. But it is important to remember that at no point did the public lose faith in the free market which Margaret Thatcher did so much to encourage. The opposition have adopted this policy, and the last election was fought partly on the basis of who could best implement that policy — a key part of Thatcher’s legacy.

The monetary reforms of Margaret Thatcher were paralleled by moves to curb the power of the trade unions in Britain. Just as the Conservative Party already had taken up free market ideas in its manifesto for the 1970 election, so the intention to work with the trade unions was not entirely new. The Labour Party under Harold Wilson had introduced legislation “in place of strife,” and when it failed, the floodgates of intransigence were opened.

Callaghan (himself a trade unionist) had tried to build a social contract between the Labour government and the trade unions. When consensus patently failed, in the winter of discontent of 1979, it left the field open for Margaret Thatcher. The time was ripe, but she made the difference. She had a will of iron and stood firm against a barrage of strikes and intimidation, until between 1982 and 1988 the unions were brought step by step within the law. After the final confrontation with the steel and coal industries, the proper balance between employer and workforce was restored. Men no longer had to join a trade union, and this, combined with the program of privatizing nationalized industries, resulted in a reduction of union membership from 13 million in 1979 to 8 million in 1996.

The defeat of the trade unions, together with privatization, represented one of Margaret Thatcher’s greatest successes. The effect was to bring large sections of the working class within the Conservative fold. She had extended to them what had been regarded as middle-class ideals and had, through privatization, created popular capitalism and the beginnings of a shareholding democracy.

When Margaret Thatcher took office, there were 3 million private shareholders; when she left, there were almost 11 and a half million. The tabloid newspapers latched onto this and joined their broadsheet cousins in publishing alongside the racing columns share market information and news. The popularity of privatization increased as each industry was floated on the stock exchange. When the gas industry was launched, the shares were oversubscribed by 500 percent.

Working people were given a further stake in society by the sale of locally subsidized housing, in which many of them lived. They were sold to tenants at knockdown prices, and between 1979 and 1989 owner occupation increased from 55 to 63 percent. Despite the setback of the recession of the early 1990s, the ambition of most of the electorate remained to own their own home.

As Margaret Thatcher drew the wider electorate into her beliefs, it should be remembered that she had originally had to fight all the way within her own party. Unlike an American President, who takes with him his whole machine, Margaret Thatcher was an outsider who inherited a Cabinet and party machine, both of which were consensual in attitude. This applied even more so to the civil service, which for 15 of the previous 19 years had been under socialist direction.

She used similar tactics to turn round all three to her way of thinking. She bypassed them until she had the members she wanted. She used subcommittees instead of full Cabinet to ensure her policies. She used outside think tanks: the Institute of Economic Affairs, which had given her the early tutelage in monetarism, and the Centre for Policy Studies, founded by her guru, Sir Keith Joseph. Like Heritage in America, they created the intellectual ideas for she and her followers to implement. She brought in outside advisers: academics like Alan Walters and Terry Burns and successful businessmen like Sir John Hoskins (computer magnate), Derek Rayner (M&S), and Sir Robin Ibbs.

The need to cut bureaucracy and public spending was tackled from the outset, and between 1979 and 1987 the number of civil servants was reduced by 22.5 percent (732,000 to 567,000). The truly radical changes were introduced between 1987 to 1990, inspired by Sir Robin Ibbs. Only a small core of advisers was to be retained to run government machinery, and most civil servants would work for new executive agencies, attached to ministries. Precise targets were to be set and held to. Although the reforms were properly effected after Margaret Thatcher had left office, she had changed the culture of the machinery of government.

It was more difficult to bring about cost cutting and reform in local government and the welfare services of health, social security, and education. The welfare needs were seen by the electorate as free and of right. It is difficult to take a bone away from a dog, and the early years of her premiership were taken up by more pressing matters.

Cost-cutting measures were undertaken in all the services, but despite cash limits being imposed, overall spending rose. (For example, in health, from 1980 to 1987 it increased by 60 percent). In education, my voucher scheme was turned down by
Cabinet, and only minor changes were introduced.

In local government, cost cutting had perverse repercussions. The spendthrift city authorities controlled by the extreme left were rate-capped and the worst of them all, the Greater London Council, abolished. Unfortunately, it allowed Councillors to blame government for shortfall in services and increased centralized control, which reduced freedom.

Margaret Thatcher’s populist instinct had made her more cautious in these areas, but after the election success of 1987, when she saw her monetary policies threatened by runaway costs, she introduced dramatic reform in all these areas. Again they were not properly implemented until she had been forced from office.

The changes that had been undertaken were to prove part of her undoing. The poll tax, which was an individual tax which replaced a property tax, was so unpopular it had to be withdrawn. The health and social security changes frightened the electorate and led to the debacle of 1997. In education, the setting up of grant-maintained schools to bring power and responsibility to individual schools as against the local authority was overturned by the present government.

There is a lesson in all this: Always tackle the controversial or unpopular measures at the beginning of an administration. Margaret Thatcher thought she was doing this after her great election success in 1987. She could not have foreseen she would have been forced out of office in three years. It was not that the ideas were wrong; the think tanks had provided mechanisms to introduce market principles. In these areas, however, only a few politicians had been willing to preach their virtues. Their time is yet to come, the message must still be reiterated.