Thatcherism is the big Tory scam that still distorts our politics | Aditya Chakarabortty

The Iron Lady actually grew the state and put up taxes. But in her time, as today, high earners won and the poor lost out

Among the public services performed by journalism is alerting readers to scams, and the newspapers are currently full of them. When HMRC rings up, threatening a court case unless you press 1 on your keypad, slam down the phone. Texts from Royal Mail asking for money are about as kosher as marketing from Charles Ponzi. And if an email arrives from someone purporting to be from the sainted Martin Lewis, gushing over some new platform for trading bitcoin, it’s a hoax.

Politics is also rife with scams ­– except that you can’t depend on these being exposed by the press. The biggest and most pernicious whopper doing the rounds today is about Boris’s Big State. It runs thus: the prime minister is an utterly alien breed of Tory. He loves public spending and big government, those things abhorred by Conservatives ever since Margaret Thatcher took charge of the party five decades ago and made it her central mission to roll back the state. The Iron Lady’s legacy is endangered by the blond Nero.

Versions of this story can be spotted everywhere. In the Spectator, headlines warn that “the big state is back”. Telegraph columnist Fraser Nelson balks at “the rise of big-state Conservatism”. There is even panic around the Downing Street cabinet table, with David Frost – he of the ever-unravelling Brexit deal – huffing and puffing against “the intellectual fallacy” of a big state. And when Boris Johnson takes on Rishi Sunak over this autumn’s spending review, it will inevitably be painted as Big State v Small State: the most electorally successful Conservative since Thatcher battling one of her true believers.

Take all that seriously, and I can offer you London Bridge at a very reasonable price.

What’s wrong with this picture isn’t how it depicts Johnson, who clearly enjoys spending more on rail lines, tunnels, and anything else that demands a hard hat and a camera crew. No, the real misrepresentation is of Thatcher and what she actually did. This is greater than a run-of-the-mill falsehood. It is an out-and-out con: a lie used to swindle the public out of both money and options.

True enough, Thatcher wore her anti-state feelings on her sleeve. One of the very first white papers published by her government in 1979 claimed public spending lay “at the heart of Britain’s economic difficulties”. It wasn’t just a financial crusade – it was a moral one. Government was Nanny, and taxes reduced individual freedom.

And yet, over the course of her 11 years in power, neither the tax taken by the government nor the amount it spent actually fell. Thatcher’s enemy may have been supposedly big government, but under her it got even bigger.

Let’s start with taxes, because if there’s one thing everyone knows about Mrs T it is that she cut them. Except she didn’t. Although she grabbed front pages for slashing income-tax rates, especially for top earners, she also jacked up national insurance contributions, and VAT for shoppers. The result is freshly laid out in a paper in the Cambridge Journal of Economics (CJE), which states: “The total value of central government receipts was 30.4% of GDP in 1979; by 1990, this proportion had risen to 30.9%.” Taxes actually went up under Thatcher, and the increase fell hardest on the less well-off.

On public spending, reputation again doesn’t fit the record. Over her first four years in No 10, only a few programmes got cut, most notably foreign aid, even while she shovelled cash into domestic policing and an overseas war. Far from being the opposite of Johnson, Thatcher’s combination of free economy and strong state is not so far from his own instincts. The overall result, noted by Kevin Albertson and Paul Stepney in the CJE, is that after inflation, “total managed expenditure rose by 7.7% from 1979 to 1990”. Even flogging off BT and British Gas and all the other national utilities, and shifting those running costs and wage bills into the private sector, couldn’t stem the rise.

Measured against national income, public spending did fall in the late 1980s, writes historian Jim Tomlinson, “as the economy recovered from the slump at the beginning of the decade”. But, he notes, “When the economy returned to recession in the early 1990s [under John Major], the ratio again rose.” However large Thatcher’s boasts, and whatever the propaganda in the Spectator and the Telegraph, no miracles were worked here: there was no great lasting shift.

Thatcher did not roll back the state. Instead, she changed whom it serves and what it can do, in ways that still shape our world. Under her, high earners won big and finance became the UK’s boss industry. At the same time, the state began using tens of billions in public money to pay for Thatcherism’s consequences.

The biggest of all her privatisations was of public housing, with at least 1.5m council homes eventually sold off at a vast discount, costing the public about £200bn in today’s money. Couple that with the scrapping of rent controls, and fairly soon the bill for housing benefit exploded, with the state paying landlords to house tenants. Similarly, breaking unions and driving down wages meant taxpayers subsidising low-paid work through benefits. Under Thatcher, that was family credit; today it is universal credit.

These weren’t screw-ups, but a deliberate and profound transfer of money and power to the already well-off. Thatcher’s most notable achievement was how she normalised this, “persuading the public to change economic expectations and assumptions”, as the political scientist Ivor Crewe wrote soon after her 1987 landslide.

Those same expectations and assumptions course through this summer’s debate over Johnson’s thinking. Those warnings about a big state, predicated on a lie about Thatcher’s rollback, are ministers and commentators effectively policing the prime minister. The belief that income tax rates can never go up was hardwired into politics by Thatcher and her chancellor Nigel Lawson, and has effectively removed the possibility of proper funding for both the NHS and social care. The sense that the state is always failing has been repurposed to justify everything from academy schools to Downing Street’s cronies getting billions in Covid contracts.

This is what a 50-year scam looks like. The pandemic and its aftermath means Johnson will inevitably run a bigger state than either Thatcher or David Cameron, but he will do so within limits effectively set by her. His government will give taxpayer money to civil engineering firms and property developers, while ensuring that free school meals and an uplift to universal credit are deemed unaffordable.

Most newspapers will urge him to spend less, to shrink the state. But the rest of us shouldn’t focus on whether the state will shrink – because, just as under Thatcher, it won’t really. Instead we should ask for whom the state will shrink – and who is in line for an almighty payout.

• Aditya Chakrabortty is a Guardian columnist

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Aditya Chakrabortty

The GuardianTramp

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