Learn › Economic history › Thatcher's Economic Policy
Thatcher's Economic Policy
Five steps, about eight minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Step 1 of 5
The government had raised interest rates to bring prices down. Higher interest rates make people and firms borrow and spend less. Firms sold less first, and prices fell later.
The question
Between 1979 and 1981 British factories lost about a sixth of everything they made. By 1988 their output was back to its 1979 level, nine years after the fall began.
What you'll be able to answer
Thatcher's Economic Policy · this module is lit
The jobs did not come back. Manufacturing employed 6.7 million people in 1979 and 4.9 million in 1990. Many of the local council areas that lost that work still have lower employment and lower pay four decades on.
This module covers which factories closed and where. It also covers what the government did in 1986, when three million people were claiming unemployment benefit.
Take a guess
Factory output fell for two years from the middle of 1979. When were factories first making more than in 1979 again?
Factories close quickly and open again slowly, if they open again at all.
British factories lost about a sixth of their between the middle of 1979 and the start of 1981.
The hit some parts of the economy much harder than others. It hit the firms that made things hardest, however well they were run. Buyers could put off buying their goods, and many of the goods were sold abroad, where a stronger pound made them more expensive.
A rise in interest rates hurts a factory in two ways. First, borrowing costs more, so firms put off orders for machines and buildings. Second, savers abroad buy pounds to earn the higher interest. When more people want pounds, each pound is worth more. A foreign buyer then pays more of their own money for the same British product. A shop or an office sells mostly to people in Britain, so it feels only the first effect. A firm selling abroad feels both.
In the last three months of 1981, factories made fourteen per cent less than their average for 1979. The sixth is measured from the middle of 1979, and this figure from the average for the whole year.
Source: ONS, index of production, manufacturing, chained volume measure (K22A)
For scaleThe fall itself took two years, from the middle of 1979 to the start of 1981. The climb back to the 1979 level took longer than the fall.
Take a guess
What has happened since to pay in the districts that lost the most factory jobs?
Twelve council districts lost the largest share of their jobs between 1981 and 1991. A council district is one local council area, about the size of a town. The jobs these districts lost were not only factory jobs.
The loss was counted for each district. A national figure would average the places that did well with the places that did badly, and hide the difference.
The count covered every job of every kind in those twelve districts, over the ten years from 1981.
The districts that lost the most factory jobs still have lower pay today. So part of the cost of the losses was that these places stayed worse off.
For scaleBritain is also split into larger regions. Over the same ten years, the gap in output per person between the best-off and worst-off regions roughly doubled.
In January 1982 passed three million. Britain had last seen a figure that high in the 1930s.
There are two ways to count people out of work. One is a survey that asks people whether they are looking for work, whether or not they get any benefit. The other counts the people receiving one particular benefit. The second is cheap, because the government already has the list. But that count also changes whenever the rules on who can claim change.
Three million was the figure published at the time. Counted with one fixed set of rules for every year, January 1982 had 2.4 million claiming benefit. That fixed count does not reach three million until 1986. The two figures differ because the rules on who could claim kept changing.
Those out of work for more than a year numbered 1.6 million in January 1982, against 0.6 million three years earlier.
Three million people were out of work in January 1982. What share of everyone in work or looking for work was that?
For scaleIn 1979, when the government took office, the share out of work had been 5.4%.
It is January 1986. More people are drawing unemployment benefit than at any time since the Second World War.
Many of them have been out of work for over a year, in towns where the firm that employed them will not open again.
Those out of work for over a year had gone from 0.6 million in 1979 to 1.6 million in 1982.
The Community Programme has paid for temporary work since October 1982. The Youth Training Scheme has trained 16 and 17 year olds leaving school since September 1983.
You are the government. Three million people are drawing unemployment benefit, most of them where the factories were. What do you do?
Anyone out of work for over a year was called in from July 1986 and asked what they had done to find work. Anybody who did not come, or could not answer, could have their benefit stopped. The training schemes carried on beside it.
What followedThe number drawing unemployment benefit fell from 3.09 million in July 1986 to 1.74 million three years later. Over the same years the number drawing sickness and disability benefits rose.
People still argue about whether calling people in caused that fall. There are two explanations, and both accept the same figures.
One reading One reading is that the stricter conditions caused the fall. The conditions on unemployment benefit were tightened through the second half of the 1980s. As the count fell, claims for sickness and disability benefits rose, so some people may have moved from one benefit to the other.
The other reading The other reading is that the economy was growing strongly by 1987, and the count would have fallen anyway.
Take a guess
Factory jobs were lost from 1979 to 1983 and from 1983 to 1990. Which of the two periods lost more?
A tie counts as correct either way.
Manufacturing employed 6.7 million people in 1979 and 4.9 million in 1990, while its output came back.
Output is how much factories make, and employment is how many people work in them. In these years output came back while employment kept falling.
Factories open at the end of the decade made more than the factories of 1979 had made, with far fewer people. Job losses did not stop when the recession did.
The output came back and the jobs did not, and many of the districts that lost them still have lower pay today.
For scaleOutput over the same eleven years finished slightly higher than it started.
Thatcher's Economic Policy
Can you answer each one now? Tap to check.
Why did the recession fall hardest on factories?
Did factory output and factory jobs come back?
Why did the loss matter so much for particular places?
Can you remember each figure? Tap to check.
How long factory took to get back to its 1979 level
Council districts that lost more than a fifth of all their jobs, 1981 to 1991
Out of work in January 1982, as a share of the workforce
What was done about long-term in July 1986
Factory jobs lost between 1979 and 1990, and how many went by 1983
You met three terms in this module
, ,
Output was back by 1988, but 1.8 million factory jobs were not. Many council districts that lost them still have lower pay today.
[1] What the factories made: ONS series K22A, index of production, manufacturing, chained volume measure. 1979 Q2 = 50.6, the trough 1981 Q1 = 41.8, a fall of 17.4%. The first quarter back above the 1979 level is 1988 Q1 at 51.2; 1987 Q4 reached 50.2 and fell short. Annual: 1979 = 49.3, 1981 = 42.3, 1988 = 52.4.
[2] Factory jobs: ONS series JWR7, workforce jobs, manufacturing, United Kingdom. 6,704,000 in 1979, 5,175,000 in 1983, 4,925,000 in 1990. The difference between 1979 and 1990 is 1.78 million jobs, and between 1979 and 1983 alone it is 1.53 million.
[3] People claiming: ONS series BCJD, claimant count, United Kingdom, seasonally adjusted. 2,402,800 in January 1982, when the headline figure was three million. The count passes three million in 1986 and peaks at 3,090,000 in July 1986. It then falls: 2,764,000 in July 1987, 2,214,400 in July 1988, 1,743,000 in July 1989.
[4] Out of work: ONS series MGSX, unemployment rate, aged 16 and over, seasonally adjusted. 5.4% in 1979, 11.8% in 1984, 7.1% in 1990, as annual averages. The monthly peak is 11.9% in March 1984, on the same series. The ONS measure is used throughout the modules in preference to the count of people claiming benefit, which was redefined repeatedly during the 1980s.
[5] The winter it passed three million: Bank of England Quarterly Bulletin, March 1982, economic commentary. The total of unemployed exceeded three million, 12.5% of the labour force, for the first time in January. Manufacturing production in the fourth quarter was 14% below the 1979 average. Those out of work for more than a year numbered 1.6 million in January, against 0.6 million three years earlier.
[6] Why there are two figures: House of Commons Library, A tale of two unemployment statistics. The claimant count does not set out to measure unemployment. It counts people receiving a particular benefit, so a change in who qualifies moves the count without anybody's working life changing.
[7] What was tried: House of Commons Library, Employment and Training Schemes for the Unemployed, Research Paper 95/51. The Community Programme from October 1982, up to a year of temporary work on projects of benefit to the community. The Youth Training Scheme from September 1983, for school leavers of 16 and 17. Restart from a pilot in January 1986 and nationally from July 1986, a compulsory counselling interview at the Jobcentre for those out of work a long time. Employment Training from September 1988.
[8] Where the losses fell: Resolution Foundation, The Thatcher legacy. In twelve local authorities more than a fifth of all jobs were lost between 1981 and 1991. The spread of output per head across regions roughly doubled over the same period. Manufacturing employment fell 22% between the second quarter of 1979 and the end of 1983.
[9] Where the claims went: Office for Budget Responsibility, the working-age health-related welfare system. The tightening of the conditions attached to unemployment benefit in the second half of the 1980s was followed by a fall in the claimant count and a rise in claims for health-related benefits at the same time.
[10] What was left behind: Institute for Fiscal Studies, Catching up or falling behind. Many places are still living with the legacy of the industrial closures of this period, in employment rates and in earnings, four decades on.
[11] The decade in outline: House of Lords Library, The UK economy in the 1980s. 1.5 million manufacturing jobs were lost between 1979 and 1983 alone. High interest rates strengthened the pound, which made life harder for the firms selling abroad.
[12] The episode chart: ONS series K22A, index of production, manufacturing, chained volume measure, quarterly. Open Government Licence v3.0. Retrieved 30 September 2026. In the current vintage the last quarter of 1982 sits a fraction below the first quarter of 1981; the module's account of the bottom follows the figures of the time.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
Games · Learn · Atlas · Read · Feedback · Privacy · Contact