Throughout the 1970s, the economic situation in Britain lurched from one disaster to another, starting with the 1973 oil crisis and continuing throughout the decade, resulting in stagnant economic growth, falling employment levels and rising inflation. The circumstances of this ‘stagflation’, as it became known, created the conditions in which the post-war consensus on economic demand management was seriously questioned as a viable economic strategy. As the Labour government floundered in their attempts to get to grips with the malaise, the Conservatives, in opposition, had begun laying the foundations for an alternative approach to the economy based on the economic theory of monetarism17 (Payne 2012). Following widespread strike action by public
sector workers at the end of 1978, infamously known as ‘the winter of discontent’, the Conservatives were able to make political capital by framing the events as the outcome of “an overextended, overloaded and ungovernable state” (Hay 1996: 255). It was under these conditions that the Conservatives entered government in 1979 on the back of a seemingly cogent and resonant critique of the crisis and a plan to restore economic stability.
5.2.1 A new beginning?
The Conservatives 1979 election victory was driven by an overriding focus on the endemic inflation that had engulfed the UK economy throughout the 1970s. From the moment they entered office, the Conservatives made bringing inflation under control their primary objective, and remained committed to this priority throughout the 1980s. The intensity of this preoccupation was emphasised with apocalyptic forebodings of how inflation posed a threat to the “social fabric of a nation” (The Conservative Party 1987) and even to “democracy itself” (Thatcher, 9 October 1987), while governments that ignored this threat were “politically immoral” (The Conservative Party 1987). Underlining the inflation
17 For a more detailed discussion of the decline of Keynesian demand management and the shift
to neoliberalism, which characterised the Conservatives economic strategy throughout the 1980s, see Section 2.1.
targeting zeal, Margaret Thatcher (Prime Minister, 1979-90) described it as an “insidious evil”, stating:
“In terms of national economics, I should also refer to what I believe is an evil, namely sustained inflation. For over thirty years the value of our currency has been eroding. It is an insidious evil because its effects are slow to be seen and relatively painless in the short run. Yet it has a morally debilitating influence on all aspects of our national life [...] It is, in my view, a moral issue not just an economic one” (Thatcher, 4 March 1981).
Furthermore, the political rhetoric of the Conservatives also sought to frame the effects of inflation in closer proximity to peoples’ everyday lives, most notably by drawing associations with the high rates of unemployment of the 1970s and 80s. This personal approach also highlighted how inflation ultimately devalued peoples’ savings, thereby undermining personal thrift and encouraging debt in the process (Thatcher, 10 October 1986). As such, the Conservatives in government placed inflation at the forefront of their economic strategy, both as a public issue and as personal troubles for the general population. As Margaret Thatcher asserted:
“Inflation destroys nations and societies as surely as invading armies do. Inflation is the parent of unemployment. It is the unseen robber of those who have saved. No policy which puts at risk the defeat of inflation – however great its short-term attraction - can be right” (Thatcher, 10 October 1980).
While the need to tackle high levels of inflation was hardly a new development for a British government, the Conservatives identification of the causal factors and the methods proposed to address them signalled a break from the prevailing postwar orthodoxy. As such, the problem of inflation became an indictment of the entire postwar system of economic demand management. The role of government borrowing and spending to promote economic growth was presented as the fundamental source of inflation in the economy (The Conservative Party 1979). Moreover, the confluence of government spending and rising inflation was seen to be exacerbated by the demands of trade unions,
who, by calling for increases in wage levels to keep up with rising prices, were contributing to the problem of inflation (Thatcher, 16 October 1981). In the run- up to the 1979 general election, the Conservatives identified five core tasks to address Britain’s economic failings; the first of which proposed:
“To restore the health of our economic and social life, by controlling inflation and striking a fair balance between the rights and duties of the trade union movement” (The Conservative Party, 1979).
Here, the trade union movement is implicated as an attributable cause of inflation and, by extension, of the ‘unhealthy’ state of economic and social life. The Conservatives continued their invective against public spending and trade unions throughout their time in government. Their critique relied on providing a resonant narrative of events proposing a commensurate link between these causal factors and the stagflation of the 1970s. Illustrating this connection, Margaret Thatcher propounded:
“The people, as earners and consumers, had rumbled what the Government was doing to their money. They knew the Government was creating inflation and they took that into account in their wage demands. So all the extra money went into wages and prices and not into more jobs” (Thatcher, 16 October 1981).
By successfully framing the economic struggles against inflation and unemployment to such a degree, the Conservatives established a legitimizing foundation on which the corrective measures that would follow could proceed.
The Conservatives actively addressed the causes outlined above with swingeing cuts in public spending and the reform of trade union legislation. However, their underlying approach to controlling inflation was based on the economic theory of monetarism. Within this theory, it is believed that inflation can be prevented by controlling the growth of the money supply. It is therefore the role of government to set strict targets for the growth of the money supply and exercise discipline in restraining any monetary expansion beyond those targets (Smith 1987: 4).
While previous government attempts to control the money supply had focused on the control of bank lending and regulating consumer credit, the Conservatives saw these measures as contributing to Britain’s economic malaise. Their antipathy towards such forms of government intervention was unequivocal; stating in their 1979 general election manifesto: “All the controls have achieved is a loss of jobs and a reduction in consumer choice” (The Conservative Party, 1979). Government controls, in this light, were seen to stifle competition, innovation and dynamism in the economy. With their strategy of ‘deregulation’18, the Conservatives aimed to “get the government off people’s
backs” (Lawson 1992: 625) by freeing capital markets in order to promote competition in the banking and finance sectors.
As the Conservatives battled with fluctuating inflation levels throughout the 1980s, they faced repeated calls from political opponents to reintroduce controls, which, time after time, they rejected out of hand. Geoffrey Howe (Chancellor of the Exchequer, 1979-83), in response to these calls, outlined the reasons for their aversion thusly:
“Many people have expressed surprise at the fact that I did not take direct action to control specifically consumer credit lending [...] First, consumer credit is a relatively small proportion of the total [...] of lending by all banks [...] Secondly, consumer credit lending has not been growing significantly faster than other forms of lending [...] Thirdly, direct intervention in the working of any market will inevitably mean distortions as ways are found around the controls. If I acted to tighten hire-purchase controls or restrict credit card lending, there might be temporary impact, but there are many other channels for credit to consumers and after a while there might be little continuing effect. Uncomfortable though it is, the way to reduce demand for credit is by means of interest rates. They bite equally on all forms of credit, including consumer credit” (HC Deb, 1979, 794 col. 1308).
These sentiments were echoed by Nigel Lawson (Chancellor of the Exchequer, 1983-89) who, equally dismissive of their use, likened credit controls to
“mythical golf clubs” (Lawson 1992: 852); an allusion to the perceived lack of controls at his disposal. Furthermore, the abolition of exchange controls, one of the first acts of financial deregulation, had rendered any form of direct national controls on credit ineffective (Lawson 1992: 627). As a consequence, the Conservatives sole instrument for controlling the growth of the money supply, and therefore inflation, was through setting interest rates. In summarising their overall approach to inflation, the 1987 Conservative Party general election manifesto outlined the main features of their strategy accordingly:
“Our success in the battle against inflation has been the key to Britain’s economic revival. It required firm control of public expenditure, a substantial reduction in government borrowing, curbing the growth of money in circulation, maintaining financial discipline, stimulating competition and moderating trade union power” (The Conservative Party 1987).
While previous government approaches to tackling rising inflation had involved imposing direct controls on the economy, including credit controls, the Conservatives framing of the 1970s crisis diverged significantly. Not only did the Conservatives eschew the use of direct controls, their diagnostic framing of the crisis implicated government intervention as the root cause of the economic malaise. From this standpoint, government spending and borrowing fuelled the inflation of the 1970s, which was exacerbated further by wage demands from trade unions. In bolstering support for this narrative, the Conservatives core method of appeal was through pathos; projecting ominous scenarios of the threat of inflation to induce fear. Such fear was given greater emphasis by connecting the threat of inflation at the national level to more personal concerns of employment and savings. The Conservative’s prognostic framing of the measures to tackle inflation included reducing government spending and borrowing, reforming trade unions and, more importantly, a broader agenda of ‘deregulation’. Although direct controls were explicitly ruled out, particularly in relation to credit, it was envisioned that adjusting bank-lending rates, in combination with the other measures taken, would successfully bring inflation under control. By the time of the 1987 general election, the Conservatives were
complacent enough to revel in the success of this strategy, although it would prove to be short-lived.
5.2.2 A property-owning democracy
In framing their account of the economic troubles of the 1970s, the Conservatives analysis of inflation was that it had undermined peoples’ confidence in the economy (Thatcher, 14 October 1988), as well as undermining more ‘traditional virtues’ of enterprise, industriousness and thrift (Thatcher, 4 March 1981). Furthermore, the level of government intervention during this period was presented as an unbalancing of society “in favour of the State at the expense of individual freedom [and] with the threat to freedom there has been a feeling of helplessness” (The Conservative Party 1979). The Conservatives approach to ‘salvaging the economy’, as they saw it, was to restore self- confidence by promoting a society based on the values of ‘the family’, ‘freedom’, ‘independence’, ‘individual responsibility’ and ‘self-reliance’ (The Conservative Party 1983; The Conservative Party 1987; Thatcher, 4 March 1981). Such values were represented as both desirable and inherent character traits of the British people in general. In this context, the Conservatives proposed to “work with the grain of human nature” (The Conservative Party 1979), or framed those values as part of a restoration of a collective national heritage by proclaiming: “our history is the story of a free people” (The Conservative Party 1983); and, “the British instinct is for choice and independence” (The Conservative Party 1987).
The Conservatives plan for reinvigorating the economy and creating a free and independent society was to widen access to property-ownership across the whole of the population, of which “the basic foundation of it is the family home” (The Conservative Party 1983). As Margaret Thatcher put forth:
“Our concern is to create a property owning democracy and it is therefore a very human concern. It is a very natural desire of Conservatives that every family should have a stake in society and that the privilege of a family home should not be restricted to the few” (Thatcher, 16 October 1981).
It was proposed that encouraging homeownership would increase personal freedom and provide people with the economic independence, self-reliance and security to take responsibility for their own decisions (The Conservative Party 1987). Mortgage-lending had received a boost through the ‘deregulation’ of the banking and financial sectors, which stimulated competition between banks and building societies leading to greater access to and availability of mortgages. These measures were further supported by government policies extending mortgage interest relief for home-buyers. However, it was the government’s decision to promote the sale of council housing stock to sitting tenants through the ‘right-to-buy’ scheme that was to have the most significant and far-reaching affect on promoting homeownership.
On the one hand, the sale of council houses to encourage homeownership was justified on purely financial grounds. It was claimed that substantial savings could be made to the taxpayer due to estimations that subsidising new council homes would cost three times as much as providing mortgage interest relief to homebuyers (The Conservative Party 1979). On the other hand, the sale of council housing stock was also framed as a means to promote social mobility by “returning power to the people” (Thatcher, 10 October 1986). In this context, council tenants were to be seen as ‘trapped’ in social housing and at the mercy of council landlords; as Margaret Thatcher expounded:
“Councils, particularly Socialist councils, have clung to the role of the landlord. They love it, because it gives them so much power. So, more than two million families have seen themselves paying rent forever. Petty rules aid restrictions and bring enforced dependence. These are the marks of this last vestige of feudalism in Britain” (Thatcher, 16 October 1981).
By offering people the opportunity to purchase their own property, the Conservatives aimed to “free tenants from their dependence on council landlords” (Thatcher, 9 October 1987). The promotion of homeownership, as represented as an assertion of freedom and independence, was based more on ideological and social considerations rather than economic ones. For the Conservatives:
“home-owners are more independent, they develop a more independent outlook [and] in this way the scope of individual responsibility is widened, the family is strengthened, and voluntary bodies flourish. State power is checked and opportunities are spread throughout society” (The Conservative Party 1987).
These measures largely contributed to a surge in the proportion of homeowners in the UK throughout the 1980s, increasing from 55 per cent in 1979 to 68 per cent in 1991 (Malpass and Murie 1994: 105). However, the increased demand in the housing market also led to a boom in house prices, which more than doubled over the same period, resulting in wider impacts on inflation and interest rates.
Along with their diagnostic framing that cast government intervention in the economy as a root cause of the 1970s crisis, the Conservatives sought to stress the impact that it had at an individual level. Going beyond mere economic concerns, the framing of the crisis as the outcome of an overbearing state was also put forward as a cause of the decline in what the Conservatives termed ‘traditional virtues’. It followed that, in their prognostic framing of what became ‘salvaging the economy’, the Conservatives would restore these virtues, with appeals to pathos in the form of responding to threats to ‘the family’, ‘self- reliance’, ‘independence’ and ‘freedom’. Further narrative fidelity was provided by linking such virtues with a sense of national identity. The Conservatives strategy for engineering this great restoration of values was to create a ‘property-owning democracy’, citing the ‘family home’ as the basic foundation of ‘independence’.
The measures taken to promote mass homeownership were twofold. First, the liberalisation of financial services and banking had increased opportunities for mortgage borrowing that had hitherto been restricted due to the monopoly of building societies. Second, and more importantly, the sale of council housing to tenants at discounted rates under the ‘right-to-buy’ scheme made the prospect of homeownership more affordable for first-time buyers. In accordance with their prognostic framing of homeownership, the Conservatives sought to
emphasise its benefits with appeals to pathos through the nomination and predication of ‘homeowners’, who were labelled as ‘free’ and ‘independent’. Conversely, the antithesis of such ‘homeowners’ were ‘council tenants’ who, by comparison, were represented as being ‘trapped’ and subjected to the ‘enforced dependence’ of ‘Socialist councils’. The growth of homeownership rates throughout the 1980s indicated a certain degree of success in the Conservatives strategy. However, their prognostic narrative of homeownership, as the restoration of traditional values, ignored the financial incentives and implications to homeowners that eventually came to prominence with the ensuing boom in the housing market.
5.2.3 Contradictions, boom and bust
The Conservatives promotion of homeownership represented a contradiction with regards to their primary objective of tackling inflation through interest rates. While they acknowledged that high mortgage interest rates were a deterrent for people who wanted to buy their own home, it was predicted that “our plans for cutting government spending and borrowing will lower them” (The Conservative Party 1979). Despite such optimistic forecasts, interest rates were consistently in double figures throughout the 1980s, as inflation targets were repeatedly exceeded even with the cuts to government spending. At the same time, homeownership continued to flourish in spite of the high interest rates.
The reason for this inconsistency of rising homeownership while interest rates remained high was attributed to the policy of ‘mortgage interest relief’ on the first £25,000 borrowed on a principal residence (Howe 1995; Lawson 1992). Against the wishes of the then Chancellor, Geoffrey Howe, mortgage interest relief was increased to £30,000 in the 1983 Budget, despite Margaret Thatcher’s preference to extend it further. Mortgage interest relief remained a continued source of contention between the Prime Minister and consecutive Chancellors during the 1980s. For Geoffrey Howe, it represented:
“a glaring anomaly: distorting the housing market […] and, moreover, unjustly favouring the better off in the south rather than the north. Even so, Margaret [Thatcher] had long wanted it to be extended because it was of special value to ‘our people’” (Howe 1995: 280).
His successor as Chancellor, Nigel Lawson, even made an unsuccessful attempt to revoke mortgage interest relief altogether because it acted as “an incentive to borrow” (Lawson 1992: 365).
It was the ‘populist instincts’ of the Prime Minister Margaret Thatcher that meant she was to remain steadfast in promoting homeownership at any cost. As Nigel Lawson recalls, such commitment demonstrated:
“Margaret’s [Thatcher] devotion to the cause of the home-buyer, irrespective of the economic consequences; and, as a result, her antipathy to high interest rates. Her detestation of inflation was genuine enough; but while willing the end, she was repeatedly reluctant to embrace the means” (Lawson 1992: 11).
In the 1988 Budget, the system of mortgage interest relief was reformed to close a significant loophole that had allowed cohabiting unmarried couples to claim double the amount of interest relief than married couples. However, the