David Willetts is President of the Resolution Foundation and served as an official in the Treasury from 1978-1984.
The portrait of Margaret Thatcher may no longer hang over one of the rooms in No 10 she used for meetings (and long, fraught speech-writing sessions). But her presence still looms large over the Conservative leadership contest.
It is entirely understandable that the Party’s greatest peacetime leader of the last century should be such a talisman with the potential to help show Conservatives a route out of the current mess.
But to do that Conservatives need to escape the attempt to use interpretations of her, to kill debate, setting out ever narrower conditions of what it is to be a true Conservative. Instead, the Party could have a lively open argument about what Thatcherism means and what might make it relevant today.
And where better to conduct that than in the pages of ConservativeHome, under its excellent new editor? So here goes.
First, one of the key challenges facing Britain in 1979 was how to stabilise the public finances and at the same time raise the growth rate. Boosting growth was not to be done by the temporary sugar rush of budget deficits: instead, it had to be done by deep economic reforms.
Raising the growth rate of a mature modern democracy is not easy – all the groups who benefit from subsidies and subtle government protections organise to stop change, reinforced by allies who just want a quiet life.
The Thatcherite solution was to open up key markets to boost competitive pressures on businesses, so they performed better and consumers benefitted. That meant labour market reform and a weakening of the power of the trade unions.
It also meant similar treatment for the City with the ‘Big Bang’ opening up financial markets and putting pressure on old City institutions, many of which did not survive as independent companies. The radical medicine was applied to Tory as well as to Labour vested interests. Privatisation opened up the nationalised industries.
Another great Thatcherite project, the European Single Market, was key to opening up markets for goods and services – with rules to stop national governments subsidising their domestic favourites.
The commentators on these pages who complain of the lack of radicalism of recent Conservative Governments appear to ignore pulling the UK out of the EU and shrinking by 90 per cent the effective size of our barrier-free markets for services and labour – was the most dramatic change in Britain’s economic settlement for forty years.
A precondition for the success of all these controversial reforms to boost growth was stabilising the public finances. The problem of the budget deficit had been made worse by the Conservative decision during the Election campaign to accept expensive pay increases for many public sector workers proposed by an independent review, the Clegg awards.
It was thought politically impossible to do anything else. I was a Treasury official at the time and remember the frisson on the day the news of Geoffrey Howe’s expensive pledge came through – the new Conservative Government increased taxes straightaway.
There was also a quick first round of public expenditure cuts within months of taking office. This was then followed up with a longer-term public spending settlement. The biggest single savings were in benefits to pensioners with the ending of the link to earnings and a link solely to prices.
The incoming Thatcher government could therefore be accused of cutting benefits to pensioners in order to fund public sector pay increases. Key to Thatcherism was to boost the incomes of people in work and cut public spending on pensioners.
All this was seen as not just a matter of hard economics but also the right thing to do. Thatcher’s stern Methodism was very different from Ronald Reagan’s sunny Californian optimism: that governments could borrow the money as “something would turn up.”
She saw it as ultimately a moral argument that it was wrong to live beyond one’s means. Balancing the books was more important than cutting taxes.
Would any Tory leadership candidate dare say that today?