FFor good or bad, the modern British economy was shaped in the 1980s. The unregulated labor market, city dominance, north-south divide, privatized public utilities, high levels of personal debt, chronic trade deficits and the major role played by the housing market all inherited the decade when Margaret Thatcher He was prime minister.
Perhaps it was fitting, then, that Jeremy Hunt pay homage to the ’80s Autumn statement With frequent checks of the name Nigel Lawson, Thatcher’s adviser for six years after 1983.
Hunt has only been a councilor for five minutes, and so it is too early to pass judgment on him, let alone whether he will match his predecessor in importance. He’d be relieved that Autumn’s manifesto received a better reception from the financial markets than Quasi Quarting’s mini-budget (minimum removal, admittedly) and Hunt could claim some credit for his action sequences for limiting damage to the economy when it’s particularly vulnerable.
There has been a lot of focus on the cumulative 7% decline in living standards in fiscal years 2022-23 and 2023-24 that the Office for Budget Responsibility has projected, and rightly so. If the predictions are correct, there is nothing to compare since modern records began.
It could be argued, though, that the recessions of the early 1980s and 1990s were more brutal, because today everyone is hurting their purchasing power whereas in earlier recessions the pain was centered among those who lost their jobs. Unemployment rates are set to rise over the next 18 months, but will not come close to the double-dozen levels seen in most of the 1980s and again in the early 1990s. Britain still bears the scars of the mass unemployment of that period.
But while Hunt had a plan in the short term – to embrace the markets, and put off most austerity until after the next election – it is not immediately clear that he and Rishi Sunak have a plan in the long term, let alone see the kind of Britain they want to see. Sunak and Hunt have a deficit reduction scheme, but it doesn’t go a little further. A senior Labor MP aptly summed up the state of government when he said that Britain currently has two chancellors but no prime minister.
An example is the decision to extend the motor vehicle tax levy to owners of electric cars in 2025. Incentives are important, and one of the incentives to switch from petrol or diesel cars is not paying road tax. Demand for electric vehicles – given the strain on household budgets – is unlikely to be particularly strong for the next year or so, but people may start to consider making the switch as the economy begins to pick up in 2024 and 2025.
The loss of fuel surcharges when all cars are electric is undoubtedly a huge headache for the Treasury, which will lose £30 billion in revenue a year by 2040 according to some estimates. But the solution is long term Road pricingnot the cash grabs that would slow the necessary transition to cleaner cars.
There are many accusations that Thatcher and Lawson can be leveled at, but not having a plan is not one of them. Their strategy was to liberalize regulation and allow market forces to operate freely. It involved reducing the power of trade unions and selling off state-owned industries. Not only was Lawson anxious to cut taxes, but he was anxious to simplify the tax system.
In the end, he blew up the economy with an extraordinary boom that led to a long period of 15% interest rates, record home repossessions, and 3 million people on handouts. But as John Muhlbauer and David Suskicchi note in A New articleThe experience of the 1980s profoundly changed Britain. “The 1980s was a deeply momentous and divisive decade that changed the facts on the ground and changed the country’s political economy in ways we still live with,” they say.
A feature of this period was the symbiotic relationship between housing policy and fiscal deregulation. Banks deregulated on their loans were all too willing to offer mortgages to those keen to buy council houses at a discount under the Right to Buy Act. The supply of new homes has fallen sharply because the stock of community-owned properties has not been replenished. Rising housing prices in the more prosperous parts of the country limited labor mobility. Britain had a new economic model, but it was inherently unstable, unproductive, and inherently unfair.
As Mullbauer and Suskes point out, in the 1980s the idea became so embedded in British middle-class culture that housing wealth, amassed through high levels of borrowing, could act as a monetary machine.
This is more than just a history lesson. There are parallels between the current crisis and the case of Britain when Thatcher arrived in Downing Street in 1979: high inflation triggered by frequent supply-side shocks, and a sense of pessimism that chronic economic weaknesses would ever be addressed.
The model created by Thatcher collapsed in the global financial crisis of 2008-2009 and nothing has replaced it. Conservative governments since 2010 have spoken of their mission to green the economy and raise its level, but they promised more than they delivered.
Only twice since the Second World War – the government led by Clement Attlee in 1945 and Thatcher in 1979 – has an administration come to power in Britain with a plan of radical change and stuck with it. For the rest of the time, the trend was to flop and hope for the best. Hunt and Sunak seem to be well-established part of this tradition.