Was Britain really Thatcherised?

In an obvious sense Britain is indeed a Thatcherised country. In the 1980s and early 1990s its economy was transformed from perhaps the most state-controlled in the West to one of the least. As well, British society underwent its biggest upheaval since the Industrial Revolution. The traditional working class was dissolved by the demise of heavy industry, the defeat of militant trade unionism, the rise of the service economy, and the spread of home ownership to a majority of households via financial deregulation and the sale of a million state-owned houses. Britain became the 'property-owning democracy' that the Conservative Party had long aspired to create.

Yet in 2011 public spending in Britain is consuming more than half the national income (up from less than 40 per cent in the 1990s) and employing around a quarter of the workforce; and nearly a third of households derive all or most of their income from welfare benefits. This makes nonsense of the anti-capitalist rhetoric that treats Britain as a beacon of the global 'neoliberal hegemony'. But by the same token Britain is equally far removed from Margaret Thatcher's rhetoric about self-reliance; and the extremely high levels of private debt and rapidly rising national debt mock her appeal to thrift. Britain has never been more welfarist or more profligate – and in that sense less 'Thatcherite' – than it is today.

Radical reform of the welfare state eluded the governments of Margaret Thatcher, who was preoccupied with national economic revival. The Conservative governments that succeeded her in the 1990s opportunistically tried to claim credit for the steadily increasing welfare spend. After their electoral defeat in 1997, the Conservatives discovered that while the public was fully aware that Conservative governments had kept up welfare spending, they believed that the Conservatives didn't really want to do it, and so punished them. The long-term effect of that discovery has been the 'modernisation' of the Conservatives under their leader, David Cameron, who has persuaded many Britons (though not quite enough to win the 2010 election outright) that today's Conservatives really, truly love public spending. He therefore presents his government's present programme of spending cuts as an unfortunate necessity, not as a principled shift towards limited government.

Opinion polls suggest that disillusionment with the public sector peaked in the late 1970s; this was the tide of opinion that brought Thatcher to power in 1979. But by the mid-1980s the polls were showing majorities favouring increased public spending and willing to pay higher taxes to finance it. In reality the people were ambivalent about tax; the Labour Party, which lost the 1992 election largely because it promised to raise taxes, won in 1997 after Tony Blair, its new leader, promised not to increase the moderate income tax rates introduced by Thatcher. But a majority in all income groups supported higher public spending; there was no constituency for smaller government. The Labour Party under Tony Blair and Gordon Brown duly obliged, and kept increasing spending (and borrowing) until it lost office in 2010, leaving Britain on the verge of national bankruptcy. (One is reminded of H. L. Mencken's definition of democracy: 'the theory that the common people know what they want, and deserve to get it good and hard.')The Conservatives supported these spending increases until shortly before the election, and committed themselves to actual spending cuts only after the election.

The paradox of the Thatcherite era is that whereas Margaret Thatcher thought her economic reforms were reviving Victorian values, in reality British society was rapidly abandoning those values: 'permissiveness' was eclipsing 'responsibility' on all fronts. Hence the public's growing irritation with Thatcher's rhetoric about self-help and 'saving for a rainy day', which sounded so out of tune with the increasingly fashionable idea of 'entitlement'. The people attribute their prosperity to the market economy; but, at least until very recently, they have viewed public spending not as a threat to that prosperity but rather as a convenient and reassuring way of consuming much of it. A moderate tax burden is thus interpreted not as a reward for fiscal prudence but as evidence of general prosperity and therefore of scope for more public spending. This effect is enhanced when governments supplement tax revenues by borrowing, since budget deficits lower the current tax cost of public spending at the expense of future generations of taxpayers.

The British public does not favour more public spending in every direction; they want unemployment benefits to be made conditional on willingness to seek and undertake work. But it is their settled view that the state should finance free and universal education and health care, and a universal basic retirement pension. As the population ages, health care and pension costs (and interest on the growing national debt) are set to rise to impossible levels, eventually necessitating cuts going far beyond the Cameron government's current programme.

Britain was thus not fully Thatcherised; but now that the welfare state has exceeded its sustainable limits, it will have to be. The only permanent way out of the present impasse is to reduce public spending by opening the provision of public services to systematic competition from the private and voluntary sectors, and to cut taxes in order to promote economic growth and help restore the habit of individual long-term saving. The present political class – which the British people believe to consist mainly of overpaid mediocrities at best and white-collar criminals at worst – is neither up for it nor up to it; they are waiting for the present crisis to pass so that they can get back to the congenial business of taxing and redistributing, which is what they went into politics to do. But those times are not coming back. Margaret Thatcher succeeded in liberalising Britain's economy largely because the benefits of her policies came through quickly and enabled her to win two more elections. The politicians who preside over the necessary weaning of the British public off debt and welfare will find that only the most radical approach to reform offers them a similar chance.