‘What if?” books are all the rage. Virtual historians tell us what would have happened if Hitler had won the Battle of Britain, or Kennedy had not been shot in Dallas. The latest contribution to this series surfaced in The Guardianrecently, when Simon Heffer mused on the subject of ”what if” the IRA had murdered Margaret Thatcher in the Brighton bomb of 1984.
Heffer is an unabashed Thatcherite, so it came as little surprise that he concluded that the transformation of Britain being wrought by the Iron Lady would have been stopped in its tracks had the terrorists achieved their aim. The United Kingdom would, he argues, have remained a ”highly taxed, inefficient country, like modern France, Germany or Japan, inadequately using its human and capital resources”, had a truncated Thatcher premiership led to the succession of Michael Heseltine.
The idea that the 1980s was a golden age is widespread among Thatcherites, for whom it was all downhill after what they see as the Hezza-inspired regicide. Perhaps more interesting, however, is how all shades of political opinion have been coloured by the belief that Britain received a necessary if brutal corrective between May 1979 and November 1990, which saved it from terminal decline.
Hard evidence to support this thesis is somewhat less bountiful than Thatcher’s fan club would care to admit. There was no increase in the economy’s trend rate of growth, nor — despite the rapid contraction of manufacturing employment — was the productivity gap with Germany and France closed.
The conduct of macroeconomic policy was poor, with an unsustainable boom sandwiched between two thick doorsteps of recession. Only in 1992, when Thatcher had been toppled and John Major’s government had been forced to change tack following the debacle of Black Wednesday, did the economy gain some much-needed stability.
After experimenting with curbs on the money supply, public borrowing and the exchange rate as ways of keeping inflation under control, the government eventually decided it might be better to target inflation directly.
This policy has been remarkably successful, according to a paper given by Professor Christopher Martin of Brunel University to the Royal Economic Society annual conference. Inflation, he says, has remained within one percentage point of its target and the resulting stability has created an extra 500 000 jobs.
What really changed in the 1980s was not so much the growth of the economy but how the fruits of that growth were shared out. A graph from Britain’s Institute for Fiscal Studies (IFS) illustrates what happened to incomes after tax between 1979 and 1990. It shows that the higher your income, the better you did under Thatcher, with the richest 1% securing the heftiest increases, the second-largest increases going to the next richest, and so on.
”Almost without exception, over the period 1979 to 1990, the higher the income, the greater is income growth,” the IFS said. The period 1984 to 1990, when the top rate of income tax was cut from 60% to 40% and the basic rate reduced from 30% to 25%, saw an even more pronounced pattern.
Sliced another way, the poorest 20% saw incomes grow by a nugatory 0,4% a year in the 1980s, while the richest fifth enjoyed rises of 3,8% a year.
After two decades in the 1960s and 1970s during which the gap between rich and poor remained almost constant, the 1980s saw a marked change towards a far less equal Britain. Disraeli had warned of ”two nations” in his novel Sybil, and for the first 30 or more years after World War II, policy was intended to make Britain less polarised.
The approach changed under Thatcher, with the theory that increasing incentives for risk-takers would enrich the whole nation. Those running companies wholly approved of this policy, even when, as was usually the case, they were not risk-takers; this was hardly surprising, given they were the main beneficiaries.
One argument is that the shake-out of industry in the 1980s was inevitable. The disciplines of a more globalised economy meant there was pressure to switch the focus of the economy away from low-cost manufacturing and into services.
As a result, the poorly skilled and less well-educated were vulnerable. But even if this was right, the proper policy response would have been a concerted effort to re-skill, re- educate and re-train, using the money spent on tax cuts and on financing mass unemployment on investment in human and physical capital. Instead, the poor were abandoned.
Even by the early 1990s, the shortcomings of this strategy were starkly evident.
It was there in the run-down estates, it was there in the crime, in the higher levels of sickness, joblessness and illiteracy. As Steve Nickell of the Bank of England’s monetary policy committee put it in his presidential address to the Royal Economic Society, poverty is not just about money: ”Almost anything bad you can think of, poor people have more of it. More illness, more accidents, more crime, fewer opportunities for their children and the most fantastically expensive credit.”
Thatcher’s legacy was that the five giants identified by Britain’s social security champion William Beveridge — idleness, ignorance, disease, want and squalor — reappeared in pockets across the country. The stains were deep and have proved mightily difficult to shift.
One example of this is provided by another paper to the society’s conference, from Steve Machin of University College London and Sandra McNally of the London School of Economics.
Their research found that the introduction of the literacy hour in 1998 led to a substantial improvement in reading for 11-year-olds, especially among boys, and has proved remarkably cost-effective. The findings also indicate that the improvement has stalled since 2000, suggesting there may be more deep-seated reasons for underachievement that cannot be solved simply through better educational policies in schools.
The other line on the graph shows what has happened to incomes under Labour. If the richest 15% and the poorest 15% are stripped out, the picture is of mild redistribution, with the less well-off enjoying bigger percentage increases than those higher up the scale. At the top and bottom, however, it is a different story. The richest have not done so well as under Thatcher, but have still seen real incomes rise by more than 4% a year, while the poorest have seen the smallest increases.
The widely different outcomes at the extremes of the income distribution explain why inequality was slightly higher after five years of Labour than it was in 1997, although there would have been an even bigger problem without Gordon Brown’s tax credits.
Subsequent budgets — the effects of which are not captured by the IFS data — have seen even more redistribution, but clearly there is still a long way to go.
One virtual historian, Paul Richards, has mused on what might have happened if Jim Callaghan had fought and won an election in October 1978 rather than delayed until May 1979.
His conclusion? ”Backed by the increased revenues from oil and gas production in the North Sea, the UK not only weathered the global recession of the early 1980s with the ‘new deal’ programme for the unemployed, skills training and investment in the computer industry, but also became the only developed country to increase spending on health and education as a proportion of gross domestic product.”
That, pretty much, is what Labour is trying to do now. It’s quite valid to assert that progress is not fast enough. What’s not valid is to parrot the argument that there’s no real difference between what’s happening now and Thatcherism. That’s codswallop, and dangerously cynical codswallop at that. It takes much longer to reverse out of a blind alley than it does to drive full speed into one. — Â