1

Ghost Town: Economic, Industrial and Social Policies

of the Thatcher Government

‘Put simply, people were becoming more expensive,

yet producing no more.’1

Geoffrey Howe, Conflict of Loyalty, 1995.

In June 1981 the haunting theme of Ghost Town by Ska band

The Specials resonated with many people, especially teenagers.

The song described Britain in decline; with deprivation,

violence and no prospects of employment, young people

perceived themselves on the fringes of society. The tune was a

hit during a summer of rioting in London, Birmingham, Bristol

and Liverpool, with police having running battles with the

rioters to regain law and order.2 Ghost Town, was perhaps, a

realistic impression of how some young people saw the Britain

they were living in. They observed the Conservative government

1 Geoffrey Howe, Conflict of Loyalty, (London: Macmillan, 1995), pp. 199-200.2 It was later concluded that institutional racism by the Metropolitan Police was the main cause of the Brixton Riots. See Lord Scarman, The Scarman Report: The Brixton Disorders 10-12 April 1981, (London: Penguin Books Ltd, 1982).

2

to be, ‘…leaving the youth on the shelf.’3 It was not only the

disaffected youth who were suffering, but ordinary hard

working people who lost their jobs in a declining British

economy. The new Conservative government had already begun to

act to get Britain out of deterioration and back to a

prosperous nation, both materially and financially. Yet this

was not happening fast enough for the people who had been

directly affected by the recession.

Here we discuss the context in which the social and

economic fortunes of Britain changed during the Thatcher

government from 1979 to 1990. Firstly, we shall examine the

effects of unemployment, how the government wanted to keep

spending down on the welfare state and the relationship

between inflation and unemployment. Secondly, how the budget

of 1980 changed the tax system in favour of a more direct

taxation on people and how the new policy of Enterprise Zones

was designed to create jobs. Thirdly, to help with the

reduction of the deficit and government spending, the

implementation of privatisation on nationalised industries.

Fourthly, how British manufacturing was affected by recession,

3 Jerry Dammers, Ghost Town, June 1981, http://www.thespecials.com/music/view/36 [accessed 16/9/2013].

3

how trade was affected and specific examples of changes in the

sector. Finally, how trade union power was changed by the

Thatcher government. The 1980s was a time of massive change

for Britain, both politically and in ordinary people’s lives.

By contextualising some of the major economic and social

changes during the Thatcher government, it is possible to

determine how these factors impacted on society and more

specifically manufacturing.

Arguably, the decline of Britain’s economic fortunes

began to snowball in 1976. A fall in the pound meant the

Labour government asked for a loan from the International

Monetary Fund (IMF) of £2.3bn.4 This was granted on the

condition of severe public spending cuts, but inflation was at

16.5 per cent.5 These public sector cuts triggered a round of

strikes over pay by unions involving 7,411,000 people from

1976-1979,6 from state owned industries and public services.

These strikes had a big impact on Britain; petrol tanker and

lorry drivers strike meant petrol and food shortages; hospital

4 Ollie Stone-Lee, ‘1975 economic fears are laid bare’, bbc.co.uk, http://news.bbc.co.uk/1/hi/uk_politics/4553464.stm [accessed 7/10/2013].5 ‘Historical UK Inflation Rates (CPI)’, whatsthecost.com, http://www.whatsthecost.com/historic.cpi.aspx [accessed 7/10/2013].6 Robert Taylor, The Trade Union Question in British Politics: Government and Unions since 1945, (Oxford: Blackwell Publishers, 1983) p.380.

4

staff picketed culminating in them turning away ambulances and

the dustmen strike meant piles of rubbish in the streets.

These continuous strike actions by different industries led to

a disgruntled British electorate; by January 1979 eighty four

per cent believing unions were too powerful.7 After the winter

of discontent 1978/79, confidence in Labour Prime Minister

James Callaghan was at an all-time low. On 28 March 1979,

leader of the opposition Margaret Thatcher brought to the

House of Commons a vote of ‘no confidence.’ Callaghan lost the

vote which led to a general election being called. On 4 May

1979 the Conservatives won the election by a small majority of

43 seats.8 However, Britain was still reeling from the previous

Labour government policy implementation. Thatcher inherited

interest rates of twelve per cent,9 inflation rates of ten per

cent10 and unemployment of 1,296,000 people.11 The new

Conservative government would have to bring under control

inflation, interest rates and cut public spending in order to7 Taylor, The Trade Union Question in British Politics, p.370.8 ‘1979: Election victory for Margaret Thatcher’, bbc.co.uk, http://news.bbc.co.uk/onthisday/hi/dates/stories/may/4/newsid_2503000/2503195.stm [accessed 7/10/2013].9 ‘United Kingdom Interest Rates’, Trading Economics, http://www.tradingeconomics.com/united-kingdom/interest-rate [accessed 7/10/2013].10 ‘Inflation Great Britain 1979’, inflation.eu, http://www.inflation.eu/inflation-rates/great-britain/historic-inflation/cpi-inflation-great-britain-1979.aspx [accessed 7/10/2013.11 Taylor, The Trade Union Question in British Politics, p.379.

5

reduce the borrowing of the previous government. It was

therefore likely that more strikes and increased unemployment

were going to occur, before Britain’s economy could improve.

To enable the Thatcher government to bring the economy into

recovery, a new economic policy was devised.

Thatcher’s main belief was in the economic theory devised

by economist Milton Friedman known as monetarism. The theory

centred on the only role the government should play in the

economy was stabilising the currency. Prices of commodities

and production should be left to the market and thus not come

under governmental control. This then made it possible to

reduce state intervention and encourage growth of business; it

is this theory upon which the new Conservative government

based its first budget. Thatcher states she was encouraging

governmental policies that would bring financial stability; to

give business and individual’s financial confidence in

Britain.12 These principles would play a fundamental role in

shaping Thatcher’s economic policies, especially in her first

administration. However, some of these policies would have a

negative effect on business and manufacturing.

12 Margaret Thatcher, The Downing Street Years (London: HarperCollinsPublishers, 1995), p.97.

6

The manufacturing process consists of turning raw

materials or components into a product or specification of a

consumer. This is done by either machines or a workforce aided

by mechanical apparatus, usually on a large scale in

factories. As processes in British manufacturing became more

efficient through mechanisation and technological

improvements, a smaller workforce was needed to operate or

maintain production. The manufacturing sector shrunk during

Thatcher’s time as Prime Minister. In 1979 7,107,000 people

were employed in manufacturing, this would fall to 4,994,000

by 1990,13 a difference of 29.7 per cent. This change meant a

large proportion of the manufacturing workforce would become

unemployed during the 1980s.

Unemployment was a big problem for the Thatcher

government, with two million jobs in manufacturing being lost

from 1979 to 1983.14 By the second administration of the

Thatcher government unemployment in Britain had reached 3.3

million,15 over twelve per cent of the working population in

13 Sid Kessler & Fred Bayliss, Contemporary British Industrial Relations, Third Edition, (Basingstoke: Macmillan Press Ltd, 1998), p.45.14 Howe, Conflict of Loyalty, p285.15 Taylor, The Trade Union Question in British Politics, p.379.

7

Britain as a whole.16 However, this figure was distorted by the

high employment rate in the South East of England; those

counties north of the Watford gap suffered from higher

unemployment above the national average. The West Midlands

unemployment rate was slightly higher than the British average

with 12.8 per cent. In the north of England, Cumbria,

Northumberland and Durham, unemployment was 15.4 per cent and

in Northern Ireland this figure was 17.9 per cent.17

Controversially, the way in which unemployment figures

were calculated changed over the Thatcher government. Previous

to the Thatcher government, figures for unemployment had shown

all those who were registered as unemployed. In 1983 figures

were adjusted to only show those people who were unemployed

and claiming benefit, so this change in statistic would show

unemployment was lower than the true figure.18 This was not the

only time the way in which unemployment was calculated

changed; figures were adjusted thirty one times over the

Thatcher administration to show unemployment was lower than in

16 Andy McSmith, No Such Thing As Society: A History of Britian in the 1980s, (London: Constable & Robinson Ltd, 2010), p.27.17 Arthur Marwick, British Society Since 1945, (London: Penguin Books Ltd, 1996), p.p.292-306.18 Norman Tebbit, Upwardly Mobile, (London: Macdonald & Co Ltd, 1989), p.243.

8

reality.19 It is therefore likely that the true figure of

unemployed people was significantly higher than the government

stated. Yet, even with the changes in unemployment statistics,

the amount the Thatcher government was spending on the welfare

state was increasing.

The initial government spending on welfare had increased

by thirty two per cent in social security payments alone from

1979-1981.20 At the beginning of the Thatcher administration

there were criticisms, especially from economists, who

commented that the welfare state, '...took a disproportionate

share of resources and thus crowded out economic investment in

more productive areas.'21 Ministers believed too much of

governmental spending went on the welfare bill. However it was

difficult for the government to decrease spending in some

areas of social welfare. Due to the high unemployment rate,

social security claimants had increased significantly and

needed a large administration to operate. This put a strain on

public spending by the government, but there were also

19 Eric J. Evans, Thatcher and Thatcherism Third Edition, (Abingdon: Routledge, 2013), p.31.20 Marwick, British Society Since 1945, p.357.21 Derek Fraser, The Evolution of the British Welfare State: A History of Social Policy since the Industrial Revolution, (Baisingstoke: Palgrave Macmillan, 2009), p.305.

9

problems with procedures which were contributing to the high

cost of the welfare state.

The system had been slow to react to the social changes

within society. 'The Beveridge idea of a uniform society based

on traditional family structure was no longer applicable.'22

The family consisting of Mother, Father and children was not

the only family unit; single parents, women working part time

and people living in social housing were all contributing to

the large welfare bill. These changes meant some people, who

were on means-tested benefits, were financially better off

than if they were in a job. Fraud in the welfare system also

increased, as some people worked and claimed benefits at the

same time.23 Thatcher said of the welfare system she inherited,

'...[it] encouraged illegitimacy, facilitated the breakdown of

families, and replaced incentives favouring work and self-

reliance with perverse encouragement for idleness.'24 All of

these contributory factors meant the welfare bill increased by

58.8 per cent from 1979 to 1988.25 This meant the government

needed some new ideas for the reduction of social benefits.

22 Fraser, The Evolution of the British Welfare State, p.306.23 Fraser, The Evolution of the British Welfare State, p.305.24 Thatcher, The Downing Street Years, p.8.25 Marwick, British Society Since 1945, p.357.

10

Chancellor of the Exchequer, Geoffrey Howe, had suggested

changes to state pensions; he proposed payments should not be

increased in line with inflation.26 This proposal would not be

possible, as the Conservatives in their 1979 manifesto had

pledged; ‘We will honour the increases in retirement pensions

which were promised just before the election.’27 However, some

changes to benefits were announced in the 1980 budget; earning

related supplements to unemployment and sickness benefit were

abolished and most benefits became taxable. These

modifications were not enacted until the Social Security and

Housing Benefit Act 1982.28 Although the Thatcher government

wanted to reduce the welfare state, it was not going to be

possible, as twenty five per cent of total public spending was

on social security.29 The perception within government was that

welfare spending was too much, but some parts of the cabinet

were concerned how changes in payments would be perceived.

The Thatcher governmental approach, in her first

administration, appeared to take an unsympathetic view of

unemployment. By the 1983 election campaign the Conservatives

26 Jim Prior, A Balance Of Power, (London: Hamish Hamilton Ltd, 1986), p.130.27 Conservative General Election Manifesto 1979, Margaret Thatcher Foundation, http://www.margaretthatcher.org/document/110858 [accessed 9/10/2013].28 Fraser, The Evolution of the British Welfare State, p.308.29 Thatcher, The Downing Street Years, p.127.

11

suggested that it was not the economic policies of government

that were causing unemployment; it was excessive manpower,

inefficient practices and a world recession.30 This view was

not shared in Thatcher’s own cabinet, Secretary of state for

Employment, Jim Prior, commented on how the Thatcher

administration would be perceived on social policy,

‘…in the future people would look back and wonder what on

earth we thought we were up to, cutting public spending

with 2.4 million unemployed and our infrastructure and

industrial base crying out for modernisation.’31

Prior believed to cut public spending when the country was in

an economic down turn, would stop investment in industry and

the creation of jobs. The perception in cabinet changed when

the new Secretary of state for Employment, Norman Tebbit,

announced a programme to create a Youth Training Scheme (YTS)

for all sixteen year olds by the autumn of 1983.32 This could

imply that the government we trying to be proactive in their

approach to bringing unemployment down, especially for young

30 Thatcher, The Downing Street Years, p.292.31 Prior, A Balance Of Power, p.131.32 Tebbit, Upwardly Mobile, p.239.

12

people. However it could be considered Thatcher wanted

unemployment to continue to help control economic factors.33

Another argument to consider is Thatcher was using

unemployment as a

way of controlling

economic

factors’.34

Figure 1: A graph to show

Inflation Rate compared to

Unemployment Rate between 1979-199035

When figures were compared, the rate of inflation did decrease

as unemployment rose, most notably in 1983. Inflation had

fallen to 4.6 per cent, yet unemployment had risen to 3.2

million people out of work and claiming benefit. Milton

Friedman, the inspiration for Thatcher’s monetarism policy,

33 See Milton Friedman, ‘Nobel Lecture: Inflation and Unemployment’, Journal of Political Economy, Vol. 85, No. 3 (Jun., 1977), pp. 451-472.34 See Geoffrey Garrett, ‘The Political Consequences of Thatcherism’, PoliticalBehaviour, Vol. 14, No. 4 (Dec., 1992), pp. 361-382.35 Figures taken from ‘Historical UK Inflation Rates (CPI)’, whatsthecost.com,http://www.whatsthecost.com/historic.cpi.aspx [accessed 16/9/2013] and Taylor, The Trade Union Question in British Politics, p.379.

02468

101214161820

Inflaion Rate (%)Unemployment Rate (Millions)

13

stated, ‘…there is no stable trade-off between inflation and

unemployment…’36 It was difficult to keep both inflation and

unemployment low, there had to be a compromise in policy.

Comparatively, if the government had continued with its

overall economic strategy of using unemployment rate as a

lever, inflation may have been as high as 15.2 per cent by

1989.37 Although it could be considered Thatcher was using

unemployment as a way of lowering inflation, it is perhaps

more likely to have been an unintended consequence of policy

rather than a specific aim of government.

Unemployment during the Thatcher administration was a

problem both financially and socially. The government wanted

to lower the welfare bill to keep government spending down,

but at the same time the economic climate meant jobs,

especially in manufacturing, had decreased. Measures were

taken to lower the cost of welfare through budgets and

training, but it was perhaps the economy on which the

government focused. Although there are some discussions that

centre on unemployment rates were kept deliberately high to

36 Milton Friedman, ‘Nobel Lecture: Inflation and Unemployment’, Journal of Political Economy, Vol. 85, No. 3 (Jun., 1977), pp. 451-472, p.458.37 R. Layard and S. Nickell, ‘The Thatcher Miracle?’, The American Economic Review, Vol. 79, No. 2, (May, 1989), pp.215-219, p.215.

14

control inflation, this is perhaps more of a result of

economic factors rather than a deliberate act by government.

It is these economic factors that will now be discussed.

The British economy was in a severe recession when the

Conservative government came to power. Unemployment was

rising, inflation was high and high interest rates were

preventing a recovery (see figure 2). This coupled with the rising

public sector costs, meant the government needed to increase

the amount it borrowed; this is known as Public Sector

Borrowing Requirement (PSBR). The PSBR was increased by the

government at a time when they were looking to reduce public

spending. Although Howe, had introduced an emergency budget

after the general election in July 1979, it was the second

Budget of 1980 where he made a real impact to change economic

fortunes. Thatcher described the 1980 Budget as a ‘budget for

business.’38 Arguably, the 1980 budget for those on middle

incomes had a positive effect, but for those on social

security, smaller incomes or in financial difficulties

problems were not going to subside.

38 Thatcher, The Downing Street Years, p.95.

15

Although most of society had been affected by the

recession beginning in 1979, it was the unemployed and working

classes who had been the victims of the recession. The

Thatcher government inherited a high unemployment rate, as

previously discussed, the north of England being particularly

hit hard with 10.4 per cent of males out of work.39 As

Britain’s industrial base collapsed this not only created

unemployment, but made those still working in industry fearful

for their jobs. Those on benefits or low wages were hit with a

cost of living rise as inflation was so high. In 1985 the

Archbishop of Canterbury commissioned a report, which showed

how in inner-city areas homelessness and child poverty was on

the increase due to changes in benefit support. They also

blamed the reduction in funding from government to local

councils for these difficulties.40 It was not only the lower

classes in society that were suffering difficulties; the

middle class home owners had to contend with high interest

rates on their mortgages (see figure 2). Arguably, the high

interest rates had a positive effect on the savings of the

upper classes. This division of effects from recession in

39 Marwick, British Society Since 1945, p.199.40 McSmith, No Such Thing As Society, p.233.

16

British society were changed as Conservative economic policy

began to be devised and implemented.

A reduction in tax had been in the Conservative’s 1979

manifesto, as the Thatcher government wanted to, ‘reward hard

work, responsibility and success.’41 The higher income tax rate

was reduced by Howe from eighty three pence in the pound to

just sixty pence. For lower income tax rate payers the rate

was lowered form thirty three pence in the pound to thirty

pence. This reduction however needed to be paid for, so an

increase in Value Added Tax (VAT) from eight per cent on most

goods was almost doubled to fifteen per cent. This then meant

a faired tax system; moving away from taxing the person’s

income, to taxing all sections of society through goods

brought. VAT was not the only increase in the budget;

prescription charges, school meals and council house rents

were also increased. As previously mentioned, local councils

also suffered from budget cuts with reductions in the regional

aid budget and local authority grants. Universities were also

hit with a reduction in student places and an increase in fees

41 ‘Conservative General Election Manifesto 1979’, Margaret Thatcher Foundation, (April 11 1979), http://www.margaretthatcher.org/document/110858 [accessed 1/9/2013].

17

for overseas students.42 The 1980 Budget introduced savings of

over £900 million;43 it was likely that these implementations

alone would hit the lower income families the hardest.

The dual nature of British society was evident, as in a

survey in 1984 suggested 52.9 per cent of people described

themselves as being in the working class bracket.44 The rise in

VAT meant that the whole of society was now paying tax for the

goods they brought; however for those on a lower income or

benefits this made a difference to the weekly budget. Lower

working class families were also hit by the increase in

prescription charges, school meals and council house rents.

Middle income families would have benefited from the three

pence reduction in income tax, but this would have been

cancelled out by the high interest rates in mortgage payments.

The higher rate earners benefited from twenty three pence in

the pound reduction in their income tax bill and were likely

to have also profited from the high interest rates on their

savings. Arguably the 1980 budget was a positive one for those

who were middle and upper class, but the working classes and

42 Andrew Gamble, The Free Economy and the Strong State: The Politics of Thatcherism, Second Edition, (Basingstoke: Macmillan Press Ltd, 1994), p.115.43 Thatcher, The Downing Street Years, p.55.44 Marwick, British Society Since 1945, p.329.

18

those who were unemployed it would have made the household

income shrink. However, there was also the announcement of a

new policy that could bring prosperity to areas of high

unemployment and regenerate former industrial land.

Enterprise Zones were areas of around five hundred acres,

of former industrial sites, which would come under direct

control from the government for redevelopment. Where the

factories and industrial buildings had once stood, new purpose

built offices with computer amenities were erected. These

areas included the Isle of Dogs in London and Merry Hill in

Dudley, West Midlands. Tax exemptions and grants were given to

developments of industrial or commercial nature. As planning

for these developments were direct from government, it was

possible to bypass Labour run local authority planning

regulations. The idea of these zones was to create jobs in

areas which desperately needed them. Thatcher commented of the

policy, 'The idea was Geoffrey's own brainchild,'45 however

Howe described the policy as a ‘hobby-horse,’46 meaning

retrospectively he felt Enterprise Zones were not a success

and did not go anywhere.

45 Thatcher, The Downing Street Years, p.95.46 Howe, Conflict of Loyalty, p.174.

19

This policy could be perceived as interventionism, which

was the opposite of the free market economy of monetarism the

Thatcher government believed in. However, these Enterprise

Zones were part of the government’s encouragement of private

investment and eventually reduce government intervention. In

order to create a stable economy with low inflation rates,

free enterprise investment was needed by private companies. By

creating areas where the red tape associated with setting up

businesses was removed; this encouraged private investment and

eventually would release the pressure on government spending

in these former industrial sites. These areas badly needed

investment and if this could be encouraged to come from the

private sector, the government could be seen as encouraging

free markets. However, the jobs created in Enterprise Zones

were in different industries to those that had been lost.

Enterprise Zones established new jobs for a different

workforce from that of the factories they replaced. Clydebank,

Salford/Trafford, Tyneside and Swansea had all seen the main

industries of the area decline, yet these new Enterprise Zones

had new opportunities in the rapidly expanding service and

retail sectors. These computer based jobs did not draw from

20

the unemployed, but from the part-time married women section

of society.47 As the industries of Britain changed into

banking, insurance and call centres; these offices would be

situated in Enterprise Zones, with lower rents and tax free

incentives. This meant the areas in which the old factories

were located were saturated with unemployed skilled workers.48

It could perhaps be the case the Enterprise Zones were not the

massive success, as it was hoped. The zones created 58,000

jobs in the first years of the policy; however forty per cent

of businesses located in these zones had relocated from nearby

locations to benefit from the tax implications.49 These

measures did perhaps stimulate the new economy of technology,

yet it still meant the manufacturing sector was suffering from

lack of investment and jobs.

Arguably, Howe's first budget stayed true to the

monetarist principles of the Thatcher government; by cutting

top and middle rate of income tax the laissez fair could begin

to be achieved. Although the tax cuts were designed to kick-

47 Richard Vinen, Thatcher’s Britain: The Politics and Social Upheaval of the Thatcher Era (Simon & Schuster UK Ltd, 2009), p.12548 Michael Jacobs, ‘Margaret Thatcher and the Inner Cities’, Economic and Political Weekly, Vol. 23, No. 38 (Sep. 17, 1988), pp. 1942-1944, p.1942.49 Dmitry Sivaev, ‘Enterprise Zones: the forgotten legacy of Lady Thatcher’,centreforcities.org http://www.centreforcities.org/blog/2013/04/22/enterprise-zones-the-forgotten-legacy-of-lady-thatcher/ [accessed 10/9/2013].

21

start the economy into growth, rising VAT and other public

essentials did not help interest or inflation rates. The

introduction of new policies designed to stimulate the

economy, such as Enterprise Zones, created jobs but not in the

manufacturing sector where the land for development

originated. The types of jobs created in these areas were

mainly in the retail and computer based administration sector.

This meant jobs were not being created in production, leaving

the skilled manufacturing workforce in these areas still

unemployed. Enterprise Zones did regenerate factories by

building new fit for purpose buildings for these new office

based jobs. Yet one change in policy would cut government

spending, improve the financial situation and made

nationalised industries more efficient.

Privatisation, another key part of Thatcher’s economic

strategy, was the policy of selling stakes in state owned

industries in the form of shares. This policy could allow much

needed investment in these inefficient nationalised industries

and turned companies over to majority private ownership. It

also allowed members of the public to become shareholders in

companies for the first time. The governments’ justification

22

for privatisation was to increase revenue and efficiency in

these public owned industries, whiles boosting ‘popular

capitalism.’50 For the workers in these nationalised companies,

it meant they could own shares in the company in which they

worked. For the government, as part of their initiative to

roll back the state, the policy could reduce state ownership

and expenditure of the government. During the first Thatcher

administration, the government had sold some of its stakes in

companies including; British Petroleum, Cable and Wireless,

British Aerospace and British Sugar Corporation. The receipts

annually from these sales was just under half a billion

pounds.51

However, this important revenue for the government was

not popular with everyone within the Palace of Westminster.

The Labour Party had threatened to renationalise industries,

without compensation, should they win the next election in

1983. Even in the House of Lords, former Conservative Prime

Minister Harold Macmillan now Earl of Stockton commented he

felt the policy was, 'selling off the family silver.'52

50 Gamble, The Free Economy and the Strong State, p.125.51 Vinen, Thatcher’s Britain, p.197.52 Nicholas Comfort, The Slow Death of British Industry: A sixty-year suicide 1952-2012, (London: Biteback Publishing Limited, 2012), p.124.

23

Potentially though this policy would be popular with some

parts of the general public and for the workers within these

industries, who could become shareholders for the first time.

After the Conservatives won the general election of 1983,

the roll out of further privatisation of national industries

increased significantly. Rolls-Royce, British Airways and

British Airports Authority53 were all privatised along with the

continuation of selling government held shares in previously

mentioned industries. Arguably, the most popular shares to go

on sale were British Telecom (BT) and British Gas, both of

which had a huge advertising campaign on television and in the

press. BT raised £3,916 million in its sale in December 1984,54

and British Gas shares in 1986 raised £5.4 billion for the

government.55 This can illustrate how popular privatisation was

with the general public.

As well as extending ownership of shares in national

industries, another of the government’s goals for

privatisation was to use the revenue from sales of shares to

53 Marwick, British Society Since 1945, p.407.54 ‘Privatisation’, BT Archives Information, P.4, http://www.btplc.com/thegroup/btshistory/privatisationinfosheetissue2.pdf [accessed 15/10/2013].55 Andrew Marr, A History of Modern Britain (London: Macmillian, 2009) [Kindle Edition]. location 8178 of 13621.

24

reduce the PSBR.56 There were some side effects to

privatisation for industries still owned by the government. As

the energy suppliers became private companies this had a

direct impact to costing for the manufacturing industry. As

the government was no longer part of the procurement

negotiations, energy bills for companies increased

significantly.57 Privatisation did raise revenue for the

government and made members of the public shareholders in

companies. Yet this was not the only way in which the

government was decreasing intervention in people’s lives.

It was not just shareholders that profited from the

shrinking of the state; working people were also given the

opportunity to buy their own homes. The ‘Right to buy’ scheme

was a policy which allowed council house tenants to buy their

homes from the council, should they fit certain criteria. This

policy was popular with tenants, as 40.8 per cent of people

who were buying local authority properties were from the

‘working class.' Not only that, 25.2 per cent of these new

home owners held shares in privatised industries.58 This policy

56 Andrew Gamble, ‘Privatization, Thatcherism, and the British State’, Journal of Law and Society, Vol. 16, No. 1, Thatcher's Law (Spring, 1988), pp. 1-20, p.12.57 Comfort, The Slow Death of British Industry, p.124.58 Garrett, ‘The Political Consequences of Thatcherism’, p.369.

25

not only helped to decrease public expenditure, it also

decreased interference by government in the state, another

part of the monetarism theory.

Privatisation was arguably a popular policy in government

and with the general public. Privatisation helped to reduce

government expenditure and involvement in the state, while

increasing public ownership of national industries. Many of

the workers in these industries also became shareholders and

also found they now had the right to buy their local authority

property. By rolling back the state in people’s lives the

government increased governmental revenue and was able to

lower public borrowing. However, private companies and in

particular manufacturing industries were finding their

revenues being reduced.

Britain had been the ‘workshop of the world;’ where

buying British had meant getting a quality well-made product

that would last a lifetime. But by May 1979 Britain’s

industrial past was now in serious decline. In the first term

of the Conservative government, two million jobs had been lost

26

in manufacturing59 and output had fallen by fourteen per cent.60

Contrastingly, average earnings in the sector had risen by

twenty per cent, yet production had decreased.61 Britain had

become an expensive place to manufacture; it was costing more

to produce less.

The British car industry is an example of how British

manufacturing was an expensive place to make products. The

decline in fortunes had begun in the 1970s where state owned

British Leyland (BL) had been blighted by strikes and

excessive wage demands. In 1977 BL’s exports to Europe had

been 179,000, yet by 1984 this had dropped to 70,000.62 British

ship building, which had once been a world leader, was also

suffering. With only nine million tonnes of shipping being

ordered worldwide, only two per cent of these orders were in

British ship yards. However, not all British manufacturing was

in decline during the Thatcher government. Privatisation had

improved some previously state owned companies, as British

Aerospace began to thrive from the extra investment. British

steel was also thriving as British projects like the Humber

59 Howe, Conflict of Loyalty, p.285.60 Sid Kessler & Fred Bayliss, Contemporary British Industrial Relations, Third Edition, (Basingstoke: Macmillan Press Ltd, 1998), p.39.61 Kessler & Bayliss, Contemporary British Industrial Relations, p.40.62 Comfort, The Slow Death of British Industry, p.116-117.

27

Bridge, Canary Wharf and North Sea oil rigs increased; so much

so as the company made a pre-tax profit of £733 million in

1989/90.63 In the private sector JCB had become a world leader

in heavy machinery in the construction industry.64 British

manufacturing had become a mixed picture of degeneration and

improved success, but was government economic policy helping?

The economic policies of the Thatcher government were

designed to drive business, and help industries to increase

production for a global market. Britain had produced twenty

per cent of the worlds manufactured goods in 1955; by 1988 it

had fallen to seven per cent. Ship building, electrical

engineering and textile industries had 'completely collapsed'

by 1988.65 The traditional industrial produce of Britain had

initially been affected by the high value of the pound, which

made exports less competitive in overseas markets. In Britain

tax incentives of carrying excess inventories were abolished;

this coupled with high interest and inflation rates meant

companies’ profits were shrinking. The business models of

companies had to change; companies dispensed of excess stock

63 ‘History of British Steel’, TATA Steel, http://www.tatasteeleurope.com/file_source/StaticFiles/Corporate/History_BS.pdf [accessed 22/10/2013].64 Comfort, The Slow Death of British Industry, p.131-140.65 Jacobs, ‘Margaret Thatcher and the Inner Cities’, p. 1942.

28

and increased efficiency to boost revenue,66 which was what

Thatcher had wanted.

Trade between countries and continents had also become

expensive due to currency. The pound had become so strong over

the first Thatcher administration, from 1979 to 1983, it had

become difficult to trade; on average the US dollar was 2.06,

Deutsche mark was 4.25 and the yen was 465.17 to the pound.67

This high value in the pound was contrary to the monetarist

theory of stabilising currency. However, as the world

recession recovered, by the second administration it become

easier for British companies to trade abroad as the pound

became more competitive. From 1983 to 1987, on average, the

dollar at 1.45, the mark at 3.51 and the yen at 293.38,68 meant

trade between Britain and these countries could become more

positive.

66 David Hale, ‘Thatcher and Reagan: Different Roads to Recession’, Financial Analysts Journal, Vol. 37, No. 6 (Nov. - Dec., 1981), pp. 61-68+70-71, p.65.67 ‘Historical Rates’, fxtop.com, http://fxtop.com/en/historical-exchange-rates.php?A=1&C1=GBP&C2=DEM&YA=1&DD1=04&MM1=03&YYYY1=1979&B=1&P=&I=1&DD2=30&MM2=11&YYYY2=1990&btnOK=Go%21 [accessed 18/10/2013].68 ‘Historical Rates’, fxtop.com, http://fxtop.com/en/historical-exchange-rates.php?A=1&C1=GBP&C2=DEM&YA=1&DD1=04&MM1=03&YYYY1=1979&B=1&P=&I=1&DD2=30&MM2=11&YYYY2=1990&btnOK=Go%21 [accessed 22/10/2013].

29

These economic factors, arguably, were not invigorating

business or encouraging expansion. However, Thatcher was

convinced her policies were stimulating the economy and growth

of business. By 1982 an economic upturn had improved for some

financial areas for the government and business. Inflation had

shrunk to 8.6 per cent from its height of eighteen per cent in

198069 and interest rates had decreased by 3.6 per cent.70 (see

figure 2).

Figure 2. A graph to

compare inflation and

interest rates from 1979

to 1990.71

69 ‘Historical UK Inflation Rates (CPI)’, whatsthecost.com, http://www.whatsthecost.com/historic.cpi.aspx [accessed 16/9/2013].70 ‘Statistical Interactive Database - official Bank Rate history’, bankofengland.co.uk, http://www.bankofengland.co.uk/boeapps/iadb/repo.asp [accessed 12/10/2013].71 Figures taken from ‘Historical UK Inflation Rates (CPI)’, whatsthecost.com,http://www.whatsthecost.com/historic.cpi.aspx [accessed 16/9/2013] & ‘Statistical Interactive Database - official Bank Rate history’, bankofengland.co.uk, http://www.bankofengland.co.uk/boeapps/iadb/repo.asp [accessed 12/10/2013].

1979

1981

1983

1985

1987

1989

02468101214161820

Inflation Rate %Interest Rates %

30

The improvement in some areas of the British economy may have

contributed to the re-election of Thatcher in 1983 and led to

some commentators stating Britain was booming. By 1985,

Thatcher was of the belief that the creation of more products

and services was the key to growth. She stated, '...we are

producing more goods than ever before, with fewer people

employed.'72 She believed companies had improved efficiency

within production and had employed fewer people to achieve

this. This productivity had contributed to the rise in

unemployment and impacted on those companies who were slow to

change to more efficient methods.

Arguably Thatcher did not want production of goods to

decline in Britain. She stated 'We need a well-serviced

economy, which buys British- because British is best.' She

continued, 'This government is backing business with a dynamic

policy for enterprise.'73 The help for business from the

government was perhaps not as forth coming or as quickly as

industry would have liked. The slow restructuring of British

industry meant consumers were buying more imported electronic

72 Charles Reiss,‘Thatcher on Thatcherism – six years on’, Western Evening Herold, 17 April 1985, p.8.73 Ian Dale,ed., Margaret Thatcher: In Her Own Words (Biteback Publishing Ltd, 2010), p.232.

31

goods such as; videos, compact disc players and microwaves

from the far east. In 1983 Britain imported more goods than it

exported for the first time since the industrial revolution.74

This is known as a balance of trade deficit, Britain was

importing more than it was exporting. Exports became less

competitive, whereas imports had become cheaper. To enabled

British manufactures to remain competitive, businesses could

not increase prices on their own goods.75 Encouraging the

buying of British goods was what the government had wanted,

but this was too expensive to do for the average consumer.

Britain had become an expensive place to manufacture, as

wages and cost of production had increased. The sector had

been affected not only by high interest and inflation rates,

but imports had become cheaper affecting the balance of

payments. In some areas of manufacturing, efficiencies had

been achieved in production making items more competitive, but

this did not help the job losses in the sector. Governmental

economic policy had in some areas stimulated business, but the

lowering interest and inflation rates had come too late for

74 Michael Jacobs, ‘Margaret Thatcher's Economic Jackpot Miracle or Myth?’, Economic and Political Weekly, Vol. 23, No. 30 (Jul. 23, 1988), pp. 1520-1522, p.1521.75 Hale, ‘Thatcher and Reagan: Different Roads to Recession’, p.64.

32

some industries. This impact meant severe job losses in

manufacturing could not be prevented. Controversially,

Thatcher did try to blame unemployment on Trade Unions and

their attempt to slow progress.

When Thatcher came to power she inherited a unionised

workforce in the industries, which were powerful and crippling

British economy. Thatcher stated, 'The unions had priced many

of their members out of jobs by demanding excessive wages for

insufficient output, so making British goods uncompetitive.’

Thatcher was determined to blame the unions for any problems

with production, as she was under the impression that

unemployment could be blamed on the trade unions.76 Potentially

unemployment was a major factor in the deterioration of union

power; as the fear of unemployment was a deterrent against

strikes, as members were fearful of job losses.77 However, the

number of strikes rose in early 1980s, with 5,018,000 workers

being involved in 5594 strikes between 1980 and 1983. This

could be compared to 298,000 workers involved in 630 strikes

by 1990.78 Arguably, the miners in 1984 were not deterred from

76 Thatcher, The Downing Street Years, p272.77 Robert Blake, The Conservative Party from Peel to Thatcher, (London: Fontana Paperbacks, 1985), p.345-350.78 Taylor, The Trade Union Question in British Politics, p.276.

33

striking by the high unemployment rate, but it may have

discouraged other industries, such as the steel workers, not

to strike in sympathy.79 Another factor to consider is a

decrease in union membership from 13,498,000 in 1979 to

9,947,000 in 1990,80 a fall of 26.3 per cent. However, this may

have been caused by redundancy and subsequent unemployment of

members.81 The Conservative government, in particular Thatcher,

still perceived the unions as powerful and wanted to make

changes to law supress their power.

The first steps to limit union power were made by the

government in their second year in office with Employment Act

1980. Amongst other changes, this act limited picketing to own

place of work; a closed shop was only valid if eighty per cent

of members’ wished it and workers would get legal help if they

were expelled from a union for not joining a closed shop.82

These changes were designed to limit sympathy strikes and

closed shops within a work place. This ‘step by step’ approach

used by employment secretary Jim Prior was a slower route to

reform than that used by the previous Conservative government

79 Vinen, Thatcher’s Britain, p.121.80 Taylor, The Trade Union Question in British Politics, p.382.81 Garrett, ‘The Political Consequences of Thatcherism’, p.367.82 Taylor, The Trade Union Question in British Politics, p.321.

34

in the 1970s.83 Howe in the 1980 budget also reformed benefits;

as strikers would receive a reduction of £12 per week while on

strike.84 These first reforms meant further changes in law were

possible by the Thatcher government.

The Employment Act 1982 addressed the legalities of

actions within a union. It removed the immunity of unions to

be sued and made officials liable for damages for unauthorised

action. Closed shops were again targeted; with legal immunity

lost for unions trying to force a union-labour-only contract

within a company, and out-lawed trade union only contracts.85

The reforms continued with the Trade Union Act 1984, which

centred on the importance of holding secret ballots on

decisions for its members. Secret ballots had to be held for

leaders and committees at least every five years. Strike

action and political affiliations could also only be decided

upon through secret ballots.86 Thatcher stated, 'Trade

unionists are jumping at the opportunity, which the ballot box

now gives them, to decide "who rules" in their union.'87 She

believed that Trade Union reforms were welcomed by members.

83 Comfort, The Slow Death of British Industry, p.118.84 Howe, Conflict of Loyalty, p.173.85 Taylor, The Trade Union Question in British Politics, p.322.86 Taylor, The Trade Union Question in British Politics, pp.322-323.87 Dale, ed., Margaret Thatcher: In Her Own Words, p.229.

35

There had been a drop in union membership by 17.9 per cent by

1984,88 but this may have been caused by unemployment rather

than government reform. However, laws to continue to control

the unions continued in the third term of the Thatcher

government.

Over the next two years acts would try to close any

loopholes that existed in the trade union reform already

implemented. The Employment Act 1988 dealt directly with

strike action. Union members were to have postal votes on

elections for strike action and no strike could be called

without a secret ballot. Significantly, even in a majority

supported action, union members would not be disciplined if

they crossed picket-lines to work.89 These changes could enable

workers not to succumb to pressure by union officials to vote

for a strike; workers could continue working to prevent loss

of earnings, without fear of reprimand. By the Employment Act

1990 trade union power had been severely reduced, as no longer

could employment be refused on the grounds of trade union

membership. Unofficial strikes were the responsibility of

union officials and meant they could be sued; also these

88 Taylor, The Trade Union Question in British Politics, p.382.89 Taylor, The Trade Union Question in British Politics, p.323-324.

36

strikers could be dismissed. Finally all forms of secondary

action were made illegal.90 These final acts completed

Thatcher’s policies to reform and reduce trade union power.

The ability to call strike action to prevent productivity was

severely reduced, ‘These reductions in trade union power,…were

crucial to a properly functioning labour market,…’91 Thatcher

considered these reforms had been vital in reducing

unemployment and increasing productivity. These reforms by the

Conservatives would mean trade unions no longer had the power

they once had in pay negotiations.

To supress union power had been an objective of the

Thatcher government. The ‘step by step’ approach to union

reform was arguably a successful way to introduce change in

union power. By giving workers secret ballots and the ability

to cross picket lines without fear of retribution, meant

members were under less pressure to conform to union

instruction. By 1990 reforms were complete as it was no longer

compulsory to join a union as part of employment. The ambition

of Thatcher to tame trade unions had been successful, as no

90 Taylor, The Trade Union Question in British Politics, p.324.91 Thatcher, The Downing Street Years, p.669.

37

longer would manufacturing production be plagued by

instantaneous stoppages and walkouts.

In conclusion, the Ghost Town The Specials had talked of

did exist for some sections of society. The economic policies

and monetarist principles of the Thatcher government tried to

stimulate Britain out of recession, but had severe

consequences for sections within British communities.

Unemployment, especially in the industrial north of Britain,

had been significantly rising during the first eight years of

the Thatcher government. Some aspects of economic policy did

create jobs, but these were not in the manufacturing sector.

The industrial jobs that had been lost in the car and ship

building industries had not been replaced after the collapse

of manufacturing. Thatcher had blamed the unions for the job

losses, due to their excessive wage demands; but it is more

likely to have been the loss of manufacturing which

contributed highly to unemployment. With a frame of reference

to some of the significant economic, industrial and social

changes during the Thatcher government, it is possible to

establish which elements had ramifications on policy and the

British people.

38