Between 1945 and 1979, reducing unemployment remained one of the most crucial macroeconomic objectives of 20th century British fiscal policy. Keynesian economic policy was particularly influential in the period with both Labour and Conservative governments choosing to increase government spending as a part of demand-side strategy, all in the name of battling unemployment, stimulating growth in the economy and nationalising the commanding heights of industries.
However in 1979 when Conservative opposition leader, Margaret Thatcher took to 10 Downing Street as Prime Minister, the trend of Keynesianism in British fiscal policy was swiftly abandoned. It is safe to say that Thatcher’s shift back to embracing traditionally Conservative lassiez-faire policy, divided opinion. For many, her policies served as a ray of golden sunlight, with the “Right To Buy” scheme of the eighties allowing over half of renting council-house tenants to become first-time homeowners and the deregulation of the private sector allowing for many British workers to own shares in the very companies they were employed by. For others, Thatcher stuck true to her nickname the “Iron Lady” with her tenure often associated with high prices in the housing market and many critics are now sceptical of Thatcher’s dream of a “share-owning democracy”.
The Housing Act of 1980, which passed during Thatcher’s first government, allowed for 2.5 million council-property tenants to purchase homes at a discount on the market price. Tenants of council flats for at least three years could now purchase flats at a 44% discount with a 33% discount for tenants of council houses. The policy gained popularity and became widely known as the “Right to Buy”, reflected in a popular Thatcher slogan of the 1980s: “Everyone a homeowner”. The Act further incentivised buyers by also offering 100% mortgages guaranteed by local authorities which increased home buying (see Figure 1) in 1981, with 66,321 council homes bought under the scheme and 174,697 council properties purchased in 1982. The effect? British neighbourhoods began to dramatically shift as lower-income earners were able for the first time to become homeowners transforming Britain’s middle class. The policy continued to have success even after Thatcher’s resignation in 1990 and by 1997 it is estimated that over 1,700,000 homes had been sold and purchased under the scheme. Thatcher’s policy also inspired her Conservative contemporaries with Philip Hammond (Chancellor of the Exchequer in 2018 under May) who set up a similar purchasing scheme in the Midlands which resulted in the purchasing of 1,892 homes from their local authorities.
However, there were indeed some faults with the policy. By 2013, council properties were being sold for up to 5 times the prices they were originally purchased at under “Right-to-Buy” making homeownership an unaffordable aspiration for many lower-income earners. By the fourth quarter of 1998, there was a reported 30% inflation in the UK housing market. This was caused in part by the Lawson Boom (named after then-chancellor Nigel Lawson) which saw the reduction of taxes and interest rates which resulted in prospective home-buyers with more disposable income and less incentive to save their money in banks. The increase of demanders within the market led to a further increase in house prices. Furthermore, Thatcher’s policy also coincided with a reduction in social housing building projects at historically low figures (see Figure 2). For example, there were just under 2,000,000 new units built in 1981 following the launch of “Right to Buy” which was the lowest yearly amount of new dwellings built in 40 years. The inelastic supply of housing within the market led to increased rent for remaining renters of council properties. By 1991 rent costs on average, had increased by 55% and were on par with average national earnings particularly affecting those who lived in major UK cities such as London.
Thatcher’s tenure is also linked with the deregulation of the private sector. Between 1989-1990, many previously nationalised companies became privatized such as British Gas and Rolls-Royce in 1986. Deregulation meant that these previously government-controlled companies were in the hands of shareholders. Through the deregulation process, the government priced shares cheaply so that they were affordable to average Britain. Thatcher’s dream? A “share-owning democracy” in which workers would be able to own a part of the firm for which they worked. Hypothetically, workers would be able to share in the profits of the firms through dividend payments, incentivising working-class Britain to acquire stock market portfolios. However, in reality, by 1985, only 20% of shares were owned by individuals whilst the rest were bought by private investors.
Furthermore, in 1983 Thatcher’s government deregulated city banks within the financial sector in the city of London. This led to London becoming a hotspot in the global financial market by 1985. Growth within the sector led to an increase in job openings, facilitating the migration of young workers to the capital in search of employment. However, whilst the capital profited, the economic divide between the North and South of the country grew more stark given that the growth in the financial sector happened simultaneously as the coal and manufacturing industries declined.
Upon assuming office in 1979, Thatcher’s dream was to fast-track social mobility and improve the distribution of wealth as a champion of economic liberalism. By the end of her tenure, her policies had divided the electorate. On one hand, she created a new generation of first-time homeowners and through deregulation spearheaded a boom in the financial sector. On the other hand, Thatcher, for many, stands as a symbol of geographical inequality and soaring prices within the housing market.