‘The Lady Is Not Returning’ – Examining the Thatcher Legacy

On this week’s show James Butler and Aaron Bastani discuss the legacy of the recently deceased former Prime Minister Margaret Thatcher.


By any measure Margaret Thatcher’s premiership (1979-90) was a disaster. While her record on poverty, unemployment, child poverty, income inequality and other social indicators was dreadful, even by those metrics by which she asked her tenure be measured her government failed miserably. In her first two years in office the economy shrunk by 5%. Primarily as a consequence of this Thatcher’s ‘job approval’ rating fell to 23 per cent by December 1980, lower than was then recorded for any previous Prime Minister. Growth in her first term 1979-83 was 0%

During her time in office Britain’s problem of running major trade deficits was temporarily assuaged by the arrival of North Sea Oil supplies onto the market. It was the 90% tax from these supplies which was used as a short-term funding source to balance current account spending and pay the costs of ‘reform’ (Marr, A. History of Modern Britain, 2007). During her premiership law and order spending increased by 55% while housing spending decreased by 67%.

Housing equity withdrawal was the primary base for much of the consumption seen during the Thatcher years, particularly during the ‘Lawson Boom’ of 86-88. As Olly Huitson writes,

“Another of Thatcher’s magic potions was ‘home equity withdrawal’ or remortgaging – drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering104% of GDP growth. To a significant extent, Thatcher grew the economy by unleashing easy credit, asset inflation (including house prices) and equity draw downs – ‘wealth creation’ indeed.”

Huitson writes that this ‘growth strategy’ was imitated by Tony Blair later on,

‘The story of Blair’s New Labour is eerily familiar. Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate. But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period. “We have abolished boom and bust” became the Global Financial Crisis.’

The role of housing equity withdrawal as a source of growth, both during the Thatcher years and after can not be understated. Indeed it has been claimed elsewhere that without it the UK and the US would have seen 0% growth from 2001-2008 – a lost decade then, before the one that is so infrequently admitted to by commentators and policy-makers as starting with the Global Financial Crisis of 2008 (although this prognosis, we claim, is itself rather optimistic).


So what happened to the proceeds from North Sea Oil and public asset privatisations? As Huitson writes elsewhere

“Easy come, easy go – it was spent. Contrast this to both the Gulf states and the Nordic countries, who invested the proceeds of their natural resources to provide ongoing national income, and one of the defining features of Thatcherism is revealed. On top of the oil revenue binge, many vast state-owned industries were also sold off at knock-down prices. Highlighting her economic extremism, these included natural monopolies like gas, water and electricity; the toll booth economy – which would reach its zenith with Major’s privatisation of the trains – was core Thatcherism. As Tom Mills notes, “These privatisations proved to be hugely profitable for the City of London and represented a massive transfer of wealth from public to private hands”. This wasn’t so much flogging the family silver as flogging the family home and renting it back – a process continued under Blair. Under the sweeping liberalisation she instigated, Britain now owns very little and we instead pay firms – often based overseas – for the privilege of using our own airports and water supplies, to name but two examples.”

While many are keen to correctly point to Gordon Brown’s incompetence at selling a large portion of the UK’s gold reserves at very low prices at the end of the 1990’s these same people, in the main, tend to see no problem in the infinitely more profligate and abhorrent way in which UK oil reserves (it was the only OECD country during the 1980s that was a net-energy exporter) and public assets were dealt with under Thatcher.


In her first budget Thatcher slashed income taxes but in order to pay for the revenue loss she simaltaenously  increased the Value Added Tax from 8% to 15%. As Bruce Bartlett, a former policy adviser to Reagan and George H. W. Bush, notes, taxes as a share of the economy actually increased under Thatcher – the only difference being they were increasingly indirect forms of non-income based taxation.

The defining characteristic of the Thatcher regime was profound economic mismanagement as much as any flagrant and perfidious disdain for the working class. This is evident from the massive inflation peaks in the early and late 1980s to the deliberate neglect of British manufacturing, the ever widening trade deficits; and the fact that her government ran constant budget deficits in all but two of the years for which she was Prime Minister (in fact the 1988 and 1989 budget surpluses are the only Tory budget surpluses recorded since 1973).


Geoffrey Howe abolished Britain’s exchange controls in 1979, allowing more capital to be invested in foreign markets, and the Big Bang of 1986 removed many restrictions on the London Stock Exchange. The Thatcher government encouraged growth in the finance and service sectors to compensate for Britain’s ailing manufacturing industry. These changes lay many of the foundations for the specificities of the UK’s experience of the 2008 GFC and beyond.


While preaching a gospel of self-reliance one of the legacies of the Thatcher years was the formation of a huge rentier class in the UK which found its configuration in the selling off of social housing, changes in housing benefit, and the purposeful (and still ongoing) inflation of the housing bubble. Offering just one example by way of a single borough in London we now know that one-third of all houses sold under right-to-buy  are now owned by private landlords according to the GMB.

When Thatcher entered office 13% of the UK lived below the poverty line (60% of median income) this figure was 22.2% when she left office in 1990.


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