ESSAY - “Mrs Thatcher’s time as prime minister from 1979 to 1990 saw an ‘economic miracle’ take place in Britain.”

Note: these are essays written by me and have not been marked, so may contain mistakes. Please use for revision purposes only :) 

“Mrs Thatcher’s time as prime minister from 1979 to 1990 saw an ‘economic miracle’ take place in Britain.” Assess the validity of this view. (45 marks)

Margaret Thatcher set herself the daunting task of reversing Britain’s long term economic decline when she arrived at Downing Street in May 1979. Whether she achieved this has been much debated among historians. She did, it is true, stimulate industrial productivity, dramatically reduce inflation and bring an end to Britain’s “sick man of Europe” reputation. Yet an “economic miracle” implies progress in all aspects of the economy; Mrs Thatcher however left 3.4 million people unemployed with her monetarist policies, squandered national assets and damaged politics in the process. From this, it may be more accurate to say that her “economic miracle” was a total myth.

Mrs Thatcher undoubtedly knew where she stood with regards to economic policies. She relished in telling others where she stood too, particularly with monetarism. Her belief that controlling money supply would automatically lead to low inflation was absolute. In her defence, her goal was eventually achieved. Inflation dropped from 19% in 1979 to 5% by 1988, a feat that her predecessors failed to accomplish. Her supporters would claim that Thatcher was anticipating the drastic decline in employment as it was “a necessary evil in the course for good.” They also argued that Britain had no need of so many industrial workers. As further evidence of this point, productivity in industry actually rose 4.2% each year which was the highest growth rate in British industrial history and was also some way ahead of Britain’s European partners. This clearly demonstrated Thatcher’s economic success.

However, with riots erupting in inner cities as millions of people left unemployed, no one can doubt how highly unpopular the policy was among the public. The number of workers in industry was cut by more than half, from 9 million to 4 million. The fact that monetarism was effectively abandoned by the mid-1980s proved that Thatcher herself perhaps realised that the consequences of monetarism outweighed her successes; therefore an economic miracle was not achieved.

In addition, Mrs Thatcher’s belief in encouraging competition was almost religious in intensity and highly influenced her economic policies. She reduced income tax to increase the incentive to work hard as the money earned would now go straight into people’s pockets. Indeed, the amount of people that were self-employed reached over 3 million by 1989 which was more than double than that of 1979. Wages rose a gargantuan 26% in the 18 years that Mrs Thatcher was in government, an achievement that was considerably more advanced compared to France and the USA. This, coupled with deregulation of schools and hospitals, meant that Thatcher’s plan to promote competition and reduce people’s reliance on the government was a success and one of the government’s proudest boasts.

Nevertheless, the overall tax bill for ordinary people was not greatly altered. As income tax decreased, indirect tax increased such as National insurance contribution and VAT. Thus, the total percentage of gross income taxed for people on average earnings decreased only 3.6% which was not as significant as originally thought, and so some people believe the economic miracle to be nothing more than a myth.

Moreover, Thatcher enthusiasts would gush over her success at privatisation which resulted in huge sums of money gained for the country. A number of industries were privatised including British Steel and the water industry under the reasoning that privatisation was “fundamental to improving Britain’s economic performance.” Some would even applaud Mrs Thatcher for selling national assets such as the North Sea Oil. She even offered to sell council houses to not only give people motivation to join the property owning democracy, but also to reduce the amount of money provided by the government to fund council houses. In this way, Thatcher was killing two birds with one stone – as government expenditure fell, their income rose from selling the companies and houses. In Thatcher’s eyes, there was no better deal. 

Yet, privatisation may have been necessary as it essentially funded her government. Thatcher sold the North Sea Oil with the assumption that world oil prices had entered a period of long term decline. In reality, the North Sea Oil brought billions of pounds into the Treasury. Critics accuse Mrs Thatcher’s government of squandering a national asset for short term gain as the revenue from oil would have supported Britain comfortably for many years to come. Instead, Britain narrowly escaped bankruptcy. Since income tax was cut and profits from the North Sea Oil now halted, the remaining finances would not have been efficient enough to run a government. Had Mrs Thatcher not sold off other government run enterprises, Britain most certainly would have been left on the path of bankruptcy; therefore she did not achieve an economic miracle since privatisation was the only sensible course of action left to save Britain from economic ruin.

Furthermore Mrs Thatcher’s idea of allowing free reign on London’s stock market in 1986 turned out to be ingenious. Prior to this, London was failing to compete with foreign banking. After what became known as the “Big Bang,” London prospered immensely, to the point that it took over New York as a financial centre. Not only that, but Mrs Thatcher fulfilled her ambition on enhancing people’s incentive to earn more money as ordinary people rushed at the chance of owning shares and making a large amount of money very rapidly. This “economic miracle” was undeniably a true statement to describe this particular event as the Big Bang had put London back on the map financially and improved the country’s economy at the same time.

On the other hand, with two recessions in 11 years, one can hardly say that Margaret Thatcher achieved an “economic miracle.” The balance in payments deficit had reached a staggering 22 billion pounds by the end of her career as Prime Minister as more people were borrowing money but spending it on foreign goods. This shows that regardless of the increase in domestic industrial productivity, Margaret Thatcher failed to restore Britain’s prosperity and, in its place, left the country in a larger mess than it was previously.

Therefore to conclude, opinions on whether Margaret Thatcher achieved an “economic miracle” can be divided into two extremes. Some wholeheartedly exclaim Thatcher to be the saviour of Britain as the British became a hardworking, productive nation that was finally on equal footing with the rest of Europe and the world. Detractors would vehemently oppose this with the argument that her policies only achieved to make the rich wealthier and the poor more deprived. Since an “economic miracle” requires advancement in all parts of the country’s economy, it is safe to say that despite some economic triumphs, Mrs Thatcher achieving an “economic miracle” was highly exaggerated.