What were Thatcher's economic policies?

Margaret Thatcher's governments dropped the post-war habit of agreeing pay limits with the unions and used high interest rates to bring inflation down. They also curbed union power, sold state industries and council homes, and shifted tax from income to spending.

Why the post-war approach had failed

From 1945 every government put full employment first and tried to hold prices down by agreeing pay limits with union leaders. In the 1970s prices and unemployment rose together, and inflation reached 24.2% in 1975. When the unions rejected a 5% limit in 1978, strikes spread through the public services, and 1979 lost 29.5 million working days, the most since 1926.

How the government fought inflation

Within six months of the May 1979 election the Bank of England's rate stood at 17%. Dearer borrowing made households and firms spend less, and with fewer sales firms cut output and staff. The lost output and jobs were the mechanism of the policy. Factories suffered most: by early 1981 manufacturing had lost 17.4% of its 1979 output, partly because a pound pushed up by North Sea oil and high interest rates made exports dearer.

Unemployment reached 12.5% in January 1982. Inflation fell to 3.4% by 1986, and factory output recovered by 1988, but about 1.8 million factory jobs were gone for good.

Unions, privatisation and Right to Buy

A run of laws let unions be sued over strikes and, from 1984, required a secret ballot first. The miners struck for a year against pit closures, but power stations ran on stockpiled coal and oil, and the miners went back with no deal. Days lost to strikes fell to 1.9 million by 1990.

The state sold its industries, starting the big sales with British Telecom in 1984, partly so these firms could borrow without adding to government debt. Shareholders rose from 3 million to 8 million, and new regulators capped prices where no rival existed. Council tenants gained a legal right to purchase the homes they rented, with a discount, and home ownership rose from 55% in 1979 to 72% by 2001, though the sold homes were not replaced.

Where the decade ended

Lifting the limits on lending led households to save less and borrow more, much of it for houses. The boom pushed inflation back up, and interest rates hit 15% in October 1989. In September 1990, two months before Thatcher left office, prices were rising at 10.9%, slightly faster than in May 1979. Income tax rates fell sharply, but VAT and other taxes rose by more, so tax took 36.6% of national income in 1990-91 against 33.8% in 1978-79.