The Thatcher Legacy: Lessons for the future of the UK economy

Abstract:

In the next decade, the UK faces major structural changes. The drive to reach Net Zero in greenhouse gas emissions by 2050, with a major interim decarbonisation target of 2035, requires a huge transition in energy generation and use. The UK’s departure from the EU requires shifts in trading and migration patterns. The shocks of the Covid pandemic and of Russia’s war with Ukraine are amongst the most disruptive that have ever struck the UK. The 1980s were the last decade when the UK went through structural changes as far-reaching. It is therefore timely to examine the 1980s and try to draw lessons.

Furthermore, a number of the problems the UK faces are themselves a legacy of the economic and political choices made in the 1980s. While path dependence is important, new paths can also be set with fresh thinking but that requires us to understand how we are arrived at our current position.

Section 2 examines the major shocks and global trends experienced in the 1980s and the challenging legacy the UK inherited from the 1970s. Global trends include trade and financial globalisation; the rise of Asian exporters; new technologies and the shift to services; the interest rate shock of the early 1980s resulting from US fiscal and monetary policy; global disinflation and another oil price shock.

Section 3 turns to key aspects of economic policies pursued by the Thatcher governments, examining macroeconomic policy, financial deregulation, labour market and industrial relations reforms, and policies on education and skills, on European integration and on housing.

Section 4 concentrates on different aspects of economic performance including macro and financial stability, unemployment, productivity growth, investment and trade. Consequences for income growth and the structure of employment and inequality between people and places are then examined.

Section 5 examines the long legacy of the 1980s. One of the most profound of these concerns the push for a ‘property-owning democracy’ and how links between finance, housing, instability, and property tax have contributed to low saving and investment rates and impeded productivity growth. Entrenched regional and wage inequality is another long-term legacy. More positively the shift towards high employment levels can be linked to the flexible labour market reforms of that era. And the benefits of the expansion of higher education are another beneficial feature but this must be weighed against the relative neglect of other skills training which was a feature of the 1980s.

Finally, Section 6 draws lesson for the future to help the UK address inherited problems and the coming structural changes.

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