You are viewing a free preview of this lesson.
Subscribe to unlock all 10 lessons in this course and every other course on LearningBro.
Margaret Thatcher's election on 3 May 1979 is conventionally treated as a watershed in post-war British history, and it opens Part Two of the depth study ("The Impact of Thatcherism and Beyond, 1979–2007"). She came to power apparently committed to a programme that repudiated the post-war consensus: monetarism would replace Keynesian demand management as the route to controlling inflation; market forces and privatisation would roll back state intervention; individual responsibility and enterprise would replace collective provision. Yet her first term was, for most of its length, a story of crisis and unpopularity — a savage recession, unemployment exploding past three million, inner-city riots, and a Prime Minister who by late 1981 was the most unpopular in the history of polling. That she not only survived but triumphed owed almost everything to two things: her own refusal to retreat ("the lady's not for turning"), and the political transformation wrought by victory in the Falklands War of 1982.
This term is therefore a study in how a radical project survived its own near-failure. The economic strategy inflicted enormous short-term pain whose necessity is fiercely contested; the Falklands then delivered the authority and popularity that the economy alone could never have provided, converting a beleaguered government into the dominant force of the 1980s.
Key Question: How far was the survival and eventual triumph of Thatcher's first government the result of its economic strategy, and how far of the Falklands War — and was the recession of 1979–81 a necessary price of reform or an avoidable disaster?
Key Definition: Monetarism — the doctrine, associated with Milton Friedman, that inflation is caused above all by excessive growth in the money supply and can be cured only by controlling it (through interest rates and limits on borrowing), even at the cost of higher unemployment. It marked a deliberate break with the post-war Keynesian priority of using fiscal policy to maintain full employment.
This lesson opens Part Two of Paper 2, Option 2S — The Making of Modern Britain, 1951–2007. As a depth study, examiners reward precise command of the economic chronology (Howe's budgets, the MTFS, the unemployment figures) and of the Falklands campaign, analysed through second-order concepts rather than narrated.
| Key Fact | Detail |
|---|---|
| Background | Born Margaret Roberts in Grantham (1925), daughter of Alfred Roberts, a grocer, Methodist lay preacher and local alderman whose self-reliant, thrifty values she invoked all her life; grammar school, then chemistry and later law at Oxford; MP for Finchley from 1959; Education Secretary under Heath (1970–74) |
| Ideological influences | Friedrich Hayek (The Road to Serfdom, 1944); Milton Friedman's monetarism; above all Sir Keith Joseph, her intellectual mentor, who founded the Centre for Policy Studies with her in 1974; and the free-market think-tank the Institute of Economic Affairs |
| Leadership | Defeated Heath for the Conservative leadership in February 1975 — the first woman to lead a major British party — partly as a vehicle for backbench discontent with the Heath U-turn |
| Principle | Detail |
|---|---|
| Monetarism | Controlling the money supply, not fiscal fine-tuning, was the key to defeating inflation — the overriding economic priority |
| Reduced state intervention | The state should withdraw from owning industry, providing housing and managing the economy wherever possible, freeing enterprise |
| Sound money | Reduced public borrowing, balanced budgets and low inflation, even at the cost of unemployment |
| Individual responsibility | A moral emphasis on self-reliance, the family and enterprise over collective provision — later crystallised in her remark that "there is no such thing as society" (1987), which she meant as a call to personal responsibility rather than the rejection of community her critics heard |
| Strong defence and nation | Firm commitment to NATO, the nuclear deterrent and resistance to Soviet expansion — the "Iron Lady" (a Soviet epithet she embraced) |
A vital qualification, which strong answers deploy, is that Thatcher's practice was always more cautious and pragmatic than her rhetoric. In the first term she did not dismantle the welfare state, dared not yet confront the miners, and accepted much of the inherited settlement; the radicalism of privatisation and union reform came largely in the second and third terms. The gap between Thatcherite rhetoric and Thatcherite practice is one of the central analytical themes of the whole period.
| Budget | Key Measures |
|---|---|
| 1979 | Cut the top rate of income tax from 83% to 60% and the basic rate from 33% to 30%; nearly doubled VAT to a single rate of 15% (stoking short-term inflation); began raising interest rates and tightening money |
| 1980 | The Medium Term Financial Strategy (MTFS) — published targets for steadily reducing the growth of the money supply (measured by Sterling M3) and the Public Sector Borrowing Requirement (PSBR) over several years, intended to squeeze inflation out of the system |
| 1981 | The most controversial budget of the era: it raised taxes by about £4 billion (roughly 2% of GDP) in the depths of recession, defying conventional Keynesian wisdom that demanded reflation. 364 economists wrote to The Times denouncing the policy; Thatcher and Howe held firm, and the budget became a defining symbol of the government's resolve |
| Indicator | Data |
|---|---|
| Unemployment | Rose from about 1.3 million (around 5%) in May 1979 to over 3 million (around 12%) by 1982 — the highest since the 1930s — and stayed above 3 million until 1986. The human and regional concentration of the misery (the industrial North, Scotland, Wales) was acute |
| Manufacturing | Manufacturing output fell by roughly 15% between 1979 and 1981 — a brutal deindustrialising shock that hollowed out entire communities; the high pound (boosted by North Sea oil and high interest rates) priced exports out of world markets |
| Inflation | Rose first (to around 22% in 1980, partly from the VAT rise) but then fell steadily to under 5% by 1983 — the strategy's central claimed success |
| Interest rates | The Minimum Lending Rate hit 17% in late 1979 — punishing for mortgage-holders and business |
| Location | Detail |
|---|---|
| Brixton (April 1981) | Days of rioting triggered by the heavy "Swamp 81" stop-and-search operation. The subsequent Scarman Report identified racial disadvantage, unemployment and insensitive policing as underlying causes |
| Toxteth, Liverpool (July 1981) | Severe rioting in which CS gas was used on the British mainland for the first time; extensive destruction |
| Moss Side (Manchester) and elsewhere | Further disturbances across several English cities, widely linked to youth unemployment and urban deprivation |
The riots posed a direct challenge to the government's economic strategy, appearing to many to be the social wages of mass unemployment. The Cabinet "wets" (the One-Nation critics such as Jim Prior and Ian Gilmour) pressed for a change of course; Michael Heseltine's mission to Liverpool ("It Took a Riot," his confidential memorandum) urged urban regeneration. That Thatcher nonetheless held to the line is central to the drama of the first term.
The deeper social significance of the 1979–81 recession was the entrenchment of a stark regional and class divide — the idea of "two nations," a prosperous, service-oriented and increasingly Conservative South set against a deindustrialising, high-unemployment North, Scotland and Wales where the loss of mining, steel, shipbuilding and heavy manufacturing tore the heart out of long-established communities. Whole towns dependent on a single works or pit faced not a cyclical downturn but the permanent disappearance of their economic reason for being, and the resulting unemployment was generational and structural rather than temporary. Critics charged that the government was content to write off such communities as the unavoidable casualties of "restructuring," and the bitterness of the period — captured in the popular culture of the early 1980s, from the music of bands like UB40 to dramas such as Boys from the Blackstuff (1982) — fed a sense of national division that would deepen during the miners' strike. A strong answer recognises that the recession's aggregate statistics (falling inflation, recovering output by 1983) coexisted with a distributional catastrophe whose human and political consequences shaped the rest of the decade.
Historiographical anchor. Nigel Lawson (her Chancellor from 1983) later conceded that monetarism was flawed in execution — the chosen aggregate, Sterling M3, proved almost impossible to control — while defending its underlying logic. William Keegan (Mrs Thatcher's Economic Experiment, 1984) delivered a withering contemporary verdict, arguing the government had inflicted an unnecessary recession through ideological rigidity. Charles Moore (Margaret Thatcher: The Authorised Biography, vol. 1, 2013) defends the necessity of the 1979–81 adjustment as the painful foundation of later recovery. The debate over whether the recession was a necessary purge or an avoidable catastrophe is the heart of the economic historiography.
| Fact | Detail |
|---|---|
| The Islands | A British Crown Colony in the South Atlantic, some 8,000 miles from Britain, with around 1,800 inhabitants of British descent who wished to remain British |
| Argentine claim | Argentina (which calls them Las Malvinas) had long claimed sovereignty. The military junta under General Leopoldo Galtieri, facing domestic crisis, gambled that an invasion would rally Argentines and that Britain would not fight |
| Signals of weakness | The 1981 Nott defence review had proposed withdrawing the Antarctic patrol vessel HMS Endurance — read in Buenos Aires as evidence of waning British resolve |
| Date | Event |
|---|---|
| 2 April 1982 | Argentine forces invaded and occupied the Falklands; the Foreign Secretary, Lord Carrington, resigned three days later, taking responsibility for the diplomatic failure |
| 5 April | A Royal Navy task force sailed from Portsmouth — an extraordinary feat of improvisation at such distance |
| 2 May | The Argentine cruiser General Belgrano was sunk by the submarine HMS Conqueror, with the loss of 323 lives — controversially, outside the declared Total Exclusion Zone |
| 4 May | HMS Sheffield was destroyed by an Exocet missile (20 dead) — the first British warship lost in action since 1945 |
| 21 May | British troops landed at San Carlos Water on East Falkland |
| 28–29 May | At Goose Green, 2 Para — its commander, Lt-Col 'H' Jones, killed and awarded a posthumous Victoria Cross — defeated a larger Argentine force |
| 14 June | Argentine forces in Port Stanley surrendered. British dead numbered 255; Argentine dead around 649 |
| Factor | Detail |
|---|---|
| Poll ratings | Conservative support, mired around 27–30% amid the recession in late 1981, surged past 40% by mid-1982 in the wake of victory |
| Image | Thatcher was now cast as a resolute war leader embodying national revival and pride — a vivid contrast to the drift and humiliation (Suez, the IMF) of the recent past |
| 1983 election | Thatcher won a landslide on 9 June 1983, a Commons majority of 144 (397 seats to Labour's 209). Labour, led by Michael Foot on a left-wing manifesto ("the longest suicide note in history") and split by the breakaway SDP, slumped to 27.6%, its lowest share since 1918; the SDP–Liberal Alliance won 25.4% of the vote but, under first-past-the-post, only 23 seats |
Historiographical anchor. Lawrence Freedman (The Official History of the Falklands Campaign, 2005) concluded that the junta was not seriously interested in a negotiated settlement and that military action was ultimately unavoidable. Critics such as Tam Dalyell alleged that the sinking of the Belgrano was a calculated act to wreck a Peruvian peace initiative. Historians also debate how decisive the "Falklands Factor" was for 1983: the recovering economy, the divided opposition and the SDP split all contributed, so the war's electoral effect, though real, should not be treated as the sole cause of the landslide.
The first term cannot be understood without the internal Conservative battle between the "wets" and the "dries." The wets — the One-Nation Tories who inherited the Macmillan–Heath tradition, including Jim Prior, Ian Gilmour, Peter Walker and Francis Pym — were alarmed by the social cost of monetarism and pressed for reflation and a softer line on unemployment and the unions. The dries — Geoffrey Howe, Keith Joseph, John Nott and, increasingly, the rising Nigel Lawson and Norman Tebbit — backed the radical course. In her early Cabinet Thatcher was, paradoxically, in a minority among her own senior colleagues, and much of the first term was a struggle to assert control over a doubting party.
Subscribe to continue reading
Get full access to this lesson and all 10 lessons in this course.