Margaret Thatcher's legacy: Spilt milk, New Labour, and the Big Bang - she changed everything

The Iron Lady’s legacy has defined the last quarter century. Our experts assess her impact

JANUARY 2007: Thatcher with Tony Blair for a 25th anniversary (PA)

Baroness Thatcher came to power determined to curb the trade unions after the strike epidemic of the 1970s, and to reduce government subsidies to industry.

The steel industry was the first to be affected, after Ian MacGregor, a partner in a New York merchant bank, had been coaxed over to take charge. Steelworks that were not profitable, or not profitable enough, were ruthlessly closed down. In the steel town of Consett, County Durham, unemployment reached 50 per cent. Mr MacGregor was next delegated to perform the same surgery on the mines, where there was determined resistance from the Nation Union of Mineworkers (NUM), led by Arthur Scargill. Prior the 1984-85 miners’ strike, the Tories had passed a succession of laws which in effect made it illegal to call a strike without a ballot, or to organise mass pickets.

Mr Scargill defied the law, which led to the NUM being heavily fined and his assets sequestered. After the defeat of the year-long strike came the pit closures that cut Britain’s mining industry to almost nothing.

The same treatment was dealt out in 1983 to the print union, the National Graphical Association (NGA), when it tried to use mass pickets to force Eddie Shah’s Stockport Messenger Group of local newspapers to accept union-approved staffing levels at a new printing plant in Warrington.

The combination of high unemployment, changes in the law and tough action all but crippled the union movement.

Labour - her greatest victory: when Tony Blair embraced her vision

When Margaret Thatcher was asked what she regarded as her greatest achievement, she is said to have replied: “New Labour”.

Baroness Thatcher defeated Labour at three general elections and forced the party to drag itself into the modern world by supporting market forces; privatisation; reform of employment laws to reduce the power of the trade unions; lower taxation for individuals and business; an independent nuclear deterrent; a “special relationship” with America; public services geared more to consumers than producers and the sale of council houses to their tenants.

Tony Blair and Gordon Brown, the two principal architects of New Labour, were dubbed “sons of Thatcher” for embracing her free-market reforms. Labour’s conversion was epitomised by Mr Brown. In 1989, as a rising Labour star, he wrote a book called Where there is greed... Margaret Thatcher and the Betrayal of Britain’s Future. It was dedicated to his Dunfermline East constituents who, he said, “have more reason than most to look forward to the end of the Thatcher era.” Yet after becoming Prime Minister in 2007, Mr Brown inviting her to Downing Street and Chequers as he tried to bolster his own credentials as leader of the nation.

After the 1978-79 Winter of Discontent, the voters might not have trusted Labour to run the country again unless Lady Thatcher had diluted the unions’ power. She forced them to hold ballots before strikes; opened them up to claims for damages if they took illegal industrial action and curbed the closed shop (which required workers to join a union). As shadow Employment Secretary, Mr Blair took on the unions and Labour left by accepting the key Thatcher reforms. On becoming Labour leader in 1994, he announced plans to ditch Clause IV of the party’s constitution, its commitment to old-style public ownership, a change which mirrored the Thatcher privatisation programme.

Mr Blair deliberately copied the style of Lady Thatcher. He was determined to project a tough image to the public and to impose his will on his party and, when in power, on his Cabinet. Neither leader wanted to “waste time” on internal arguments. Both had a small trusted circle of people who were “one of us”.

Lord Mandelson, another founder of New Labour, told The Independent: “Labour went through a near-death experience in the 1980s. We turned ourselves round but the effect of Margaret Thatcher was to remind the Labour Party that it had to listen to the public and not just its activist base in order to be re-elected. In particular, we had to speak to the aspirational working class to whom Lady Thatcher appealed and who we had to win back.”

The former Cabinet minister admitted Labour would never have been able to reform employment laws or privatise utilities because of opposition from the trade unions. But because the Thatcher Government had made the changes, he said, Labour could decide not to reverse them.

Lord Mandelson said: “Perhaps Lady Thatcher’s biggest effect on Labour’s thinking was her creation of a more globalised Britain. The biggest symbol of this was the City ‘big bang’ – the radical changes in financial services and markets – which required better regulation when Labour returned in 1997. It is still arguable today whether Lady Thatcher went too far – including in her hostility to manufacturing that accompanied her favouring of finance. But undoubtedly the process of ‘opening up’ the UK economy to the global economy drove a lot of our growth in subsequent decades.”

The Economy: Her Big Bang boosted the power of finance

George Osborne yesterday described Baroness Thatcher as “our generation’s inspiration”.

The Chancellor certainly seems to have been inspired by her radical 1981 Budget. The former Prime Minister defied the Keynesian conventional economic wisdom, slashing public expenditure and raising taxes in a recession in order to bring down public borrowing and inflation. The economy began to grow almost straight away, although unemployment carried on rising, peaking at more than three million.

The total burden of taxation did not shift much in the Thatcher era, hovering around 40 per cent of GDP. But personal taxes did come down.

During her time in office the top rate of income tax fell from 83 per cent to 40 per cent and the basic rate was reduced from 33 per cent to 25 per cent.

Lady Thatcher did succeed in bringing down inflation from its ruinous highs of 22 per cent in 1980 to a low of 4.2 per cent in 1987, despite abandoning command-and-control incomes policies and pay deals with the unions.

Inflation had risen to 10 per cent by the time she left office thanks to a housing boom her policies had helped to stoke.

Perhaps Lady Thatcher’s most enduring economic legacy was the deregulation of the City of London in 1986, known as the Big Bang.

This resulted in an explosion of speculation as the old institutional divisions between stock buyers and stock sellers were torn down.

As the UK’s manufacturing base contracted, the economy became increasingly dominated by the power of finance.

Housing: 'Right to Buy' raised billions and won support

Baroness Thatcher was determined to preside over an increase in the number of homeowners, believing that there were too many council tenants. During the 1970s, many tenants had wanted to buy their homes, but councils resisted because they had an obligation to house the homeless.

Lady Thatcher and her Environment Secretary, Michael Heseltine, legislated to compel councils to sell at a cut price to any tenant wanting to buy, and banned them from using the proceeds to build new homes. All of it went into reducing their debts.

More than 1.25 million tenants took advantage of the “Right to Buy” scheme, which raised £18bn and converted thousands of Labour voters into Conservatives – though as council-housing stock shrank, homeless beggars appeared on the streets for the first time in 30 years.

In 1979, there were also strict rules covering banks and building societies that stood in the way of first-time buyers.

Banks did not offer mortgages, and building societies were not allowed to hold savings accounts or borrow on the money markets.

The Thatcher government lifted these restrictions, allowing building societies to convert into banks, and banks to become mortgage lenders.

This set off a boom in house-buying which suddenly crashed in 1989, as families were plunged into negative equity.

Europe: Simmering distrust had little long-term impact

No other post-war Prime Minister looked across the Channel with such an air of simmering distrust.

The one positive thing that can be said about Baroness Thatcher’s attitude to the European Union is that she never considered pulling out, as Ukip would have us do.

She put her signature on the Single European Act in 1986, which created the single market and reduced the number of issues on which the UK or any other member could wield a veto.

But from the beginning of her premiership, she shocked other European leaders with her handbag-swinging negotiating style.

This paid dividends at first, when she secured a reduction in the UK contribution to the EU budget.

The battle which contributed to her undoing was over the Exchange Rate Mechanism, precursor of the single currency, which tied the value of sterling to the German mark and other currencies.

Her vehement opposition triggered the resignations of her Chancellor, Nigel Lawson, and former chancellor, Sir Geoffrey Howe.

Mr Howe accused her in his resignation speech of believing that Europe was “positively teeming with ill-intentioned people”.

In the long run, her attitude had curiously little impact on Britain’s position within the EU, but created a lasting open wound in the Conservative Party, which has not properly healed even now.

Schools: She gave power to schools (after taking their milk)

Throughout her political career she was dogged by the epithet “Margaret Thatcher – Milk Snatcher”, a result of her decision while Education Secretary to axe free school milk for 7-to-11-year-olds. She was moved to write in her autobiography: “I learned a valuable lesson – I had incurred the maximum of political odium for the minimum of political benefit.”

As Prime Minister, though, she was responsible for many of the reforms now being built upon by the current Education Secretary, Michael Gove. Her Great Education Reform Bill – or “Gerbil” – was responsible for setting up the Office for Standards in Education (Ofsted) and a regular cycle of school inspections, allowing schools to opt out of local education authority control and manage their own budgets.

She could, however, be pragmatic. She retreated on plans to introduce student loans in the face of massive opposition from students, and middle-class Tory voters, in the early 1980s – although it was only a delay in their introduction. A surprising fact to emerge from her reign as Education Secretary was that she was responsible for the closure of more grammar schools than any other Education Secretary before or since.

Local Government: Unpopular ‘poll tax’ led to her downfall

Baroness Thatcher was no great believer in local democracy, despite being an alderman’s daughter. The biggest single transfer of power from local government to the centre in modern times was when she abolished the business rate, which used to be paid directly to local councils but since 1990 has gone to the Treasury. Her government was also the first to use the law to restrict council spending. Councillors in Liverpool and Lambeth who refused to comply were disqualified and personally surcharged.

Finally, Lady Thatcher decided to go for what seemed like the ultimate weapon. The Conservative manifesto for the 1987 general election included a promise to abolish the rates outright and introduce a new “community charge” tax, dubbed by opponents the “poll tax”. As councils set their poll-tax rates, there were disturbances across the country, culminating in a major riot in central London in May 1990. This contributed more than any other domestic policy to Lady Thatcher’s downfall that year.

Health: Competition changed the NHS forever

It is often said the current NHS reforms are the biggest in its history. In terms of scale that may be true, but in terms of their direction of travel, that was set 25 years ago, announced by Baroness Thatcher on the BBC Panorama programme in 1988. The trigger was a crisis at Birmingham Children’s hospital where heart operations had been postponed for lack of funding, putting young lives at risk. The NHS had lurched from crisis to crisis during the 1980s and the Government had once more been forced to seek an extra £100m from the Treasury to bale it out. Patience was wearing thin, and the Tory party was growing restive.

The review ushered in the NHS internal market, the mechanism that introduced what many in the health service still revile: competition. Health authorities ceased to run hospitals but instead “purchased” care from hospitals who had to compete with others. Every development since has been a refinement of this market structure. Has it improved the NHS? The service is better today than it has ever been, with shorter waiting-lists, better access and higher standards of care than at any point in the last 60 years. But many would say that has been achieved in spite of, not because of, constant reform.

Further reading:

Obituary: Margaret Thatcher, Britain's first and only female prime minister

Margaret Thatcher: Round-up of today's full coverage