This post by @Ramanan_V prompted me to seek out Nicholas Kaldor’s “The Economic Consequences of Mrs Thatcher”. Kaldor was an eminent Cambridge economist and member of House of Lords at the time when Margaret Thatcher came to power in 1979, and this short book is a collection of speeches made during the first four years of Thatcher’s time as PM.
In ’79 when Thatcher rose to power, the UK economy was in trouble, with rampant inflation and low growth with rising unemployment. In the months preceding the ’79 election, Britain had experienced its “Winter of Discontent”. In his first budget in June 1979 Thatcher’s Chancellor, Geoffrey Howe increased VAT to 15%, reduced the top rate of income tax from 83% to 60% and announced reductions in public spending.
While there were many differences in both economic environment and policy between Thatcher’s early years and today, from Kaldor’s speeches, we can draw some interesting parallels between the justifications made for government budgetary decisions made then, and the justifications for austerity being made today. Here are a few examples from Thatcher’s first year in office.
On the incoming Conservative Government (13.6.79, p12):
“…up to now Conservative Governments in this country were predominantly pragmatist… This time it is different. This time we have a right-wing Government with a strong ideological commitment which is something new in this country…”
The new Thatcher broke with the post-war consensus and steered a different course, one which was continued through the Major, Blair and Brown years and a course which the present Government is now trying to accelerate before it’s too late.
On the tax changes in Howe’s ’79 Budget (19.6.79 p19):
“In this Budget the tax remission to a millionaire or to a man with £50,000 a year, is well over £6,000 a year – enough to allow him to get a second Rolls-Royce. Lord Boyd-Carter says that all this is small beer: a small price to pay for the enormous advantages which efficient entrepreneurship and risk-taking can bring us…
In 1979, the Tories cut the basic rate of tax slightly, while at the same time increasing VAT (on many items from 8% to 15%) and significantly cutting income tax for the highest earners. Sound familiar?
On ‘Squeezing the Poor’ (19.6.79 p21):
“The two main contentions of the Chancellor, that the economy must be ‘squeezed’ in order to get rid of inflation and that top people must be better off in order to induce them to work harder and become richer, in themselves imply that some people must be worse off. These people must be the poor people.
[The poor economic forecasts] will not reflect ‘a shortage in demand’ but a ‘growing series of failures on the supply side of the economy’.
Today we have tax cuts for the rich and bedroom taxes and real terms cuts to benefits and wages for everyone else, while poor growth is blamed on ‘the world economy’ and talk of the need for labour market reforms. The similarities to ’79 are unmistakable.
Here’s, Kaldor on ‘The Momentum of Decline’ (19.6.79 p23):
“These policies (in response to inflation in the 1920s) led to the unprecedented crisis of capitalism in the early 1930s, to Hitler and to the Second World War. We can only hope that on this occasion the outcome will not be so tragic. But the tone of the Chancellor’s speech was strongly reminiscent of what was said by Dr Bruning, by Herbert Hoover and by Philip Snowden in his Budget speech. There is one common theme in all those speeches: we must first suffer agony to be able to make a clean start.”
A bit dramatic perhaps, but the idea that austerity is something we must endure in order to renew our economy prevails.
Finally, here Kaldor on ‘An impotent government’ (7.11.79 p38):
“As far as output, employment and economic growth is concerned, the [Comprehensive Spending Review of its time] adopts a wholly fatalistic attitude. All it says is that ‘the prospects are poor… both in this country and the rest of the world’. This reminds me of a statement attributed to Neville Chamberlain during the Great Depression that the government is no more capable of regulating the general demand for labour than it is of regulating the weather. After a long circle, we now seem to have returned to the same point.”
This is very reminiscent of the current Government’s desire to blame all ills on the Eurozone and to stand idle while unemployment remains high, incomes stagnate and the housing crisis worsens.
The point of quoting the above then is to demonstrate that we’ve been here before (and not so long ago). The likely effects were predicted before the policies were implemented (as with Cameron and Osborne’s austerity). While in Thatcher’s time, the result was three million unemployed and the destruction of British industry, today, unemployment has not gone so high, but only because now we have zero-hour contracts, part time work and working tax credit-supported self-employment instead. The long-term impacts though could be equally as damaging.