Margaret Thatcher: the economic legacy

Baroness Thatcher wasn’t a great fan of statistics. She tended to treat them with the same kind of disdain she usually reserved for economists, who spent most of her time in office telling her she was wrong. So it is probably fair to say she wouldn’t much have liked an economic assessment of her time in office to begin with a few of the choicest stats from her time in office. However, here are a few that do at least tell some of the story of a remarkable 11 years in British history:

Transforming Britain from a high-spending high-taxing economy into a leaner one

- When Margaret Thatcher became Prime Minister in 1979 the top rate of tax was 83%; by the time she left it was 40%.

- Under her aegis government spending dropped from 42.7% of GDP to 39.2% of GDP (though it actually rose for much of the 80s, and health spending never really fell).

The blunt economic data are more equivocal

- Average earnings increased by 181% during her time in office, compared to a 63% increase in the following 11 years.

- However, unemployment was actually higher when she left office than when she arrived at Downing St (9.5% in November 1990, compared with 5.3% in 1979.

- But since 1980 GDP per capita has increased more in Britain than in the US, Germany or France, according to figures from the LSE’s Growth Commission.

gdppercapita

The social story similarly so:

- Home ownership flourished under Thatcher: the total number of Britons who owned their own property rose by around 2.5m and kept rising.

housingUK

- Although overall earnings in Britain rose during her Prime Ministership, the gap between rich and poor widened. When Thatcher came into office in ‘79 the top 1% of Britons were earning abt 6% of total UK income. By 1990 they were earning 10%, according to figures from the OECD.

Inequality – top 1% income share 1910-2008

Inequality – top 1% income share 1910-2008

However, what the statistics don’t show you is the extent to which the economy we are living in today is very much a Thatcherite one.

Britain’s industries are more privatised across-the-board than in pretty much any other developed economy, including the United States. Britain is not in the euro (Thatcher was one of the biggest opponents of joining) and still has its annual rebate from the European Union. Following the “Big Bang” reforms in the City during her tenancy, the financial sector has become more and more important to the UK economy. In her time in office the percentage of Britons working in the financial sector jumped from 3% to 4%; the size of the banking sector (measured in terms of the total sector’s assets) rose above 100% of GDP for the first time; it would go on to above 500% of GDP before the crisis.

And if you’re after one substantive example of the legacy of Baroness Thatcher, you need look no further than the way the labour market has behaved since the crisis and the recession.

Unemployment is the dog that hasn’t barked in this slump. Despite this being the deepest and longest-lasting depression on modern record, the unemployment rate has peaked at no higher than 8.4%, compared with peaks of well over 11% during the recessions of the early 1980s. To a large extent this owes itself to the supply-side reforms imposed by the Thatcher government – the declawing of the unions, the stripping-back of employment regulations, controls on pay.

The reality is that Britons have accepted unprecedented real pay cuts in exchange for keeping their jobs. If you’re after modern-day evidence of supply-side reforms in action, there it is. Like it or not, it is hard to imagine anything like this happening in the Britain of 1979.