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19 March 2024updated 20 Mar 2024 3:57pm

Labour’s Thatcherite revolution

Invoking Thatcher’s economic model does not mean that Rachel Reeves is capitulating to it.

By Phil Tinline

Few Prime Ministers produce such strong feelings that their passing provokes some people to celebrate. When Margaret Thatcher died in 2013, much praise for a transformative national leader followed, but so did an attempt to push a version of the Wizard of Oz song ‘Ding Dong! The Witch Is Dead’ to the top of the charts. (It made number two.) In the Times, the journalist Caitlin Moran wrote that “all the cheap, unworthy, yet ultimately heartfelt jubilation” was an expression of “the simple astonishment and relief” of people who felt they had “survived something”.

So, when news broke on 18 March that the shadow chancellor Rachel Reeves was to make a speech – the annual Mais Lecture to City executives, no less – promising to be as radical as Thatcher, it was no surprise that cries of outrage followed. Reeves appeared to be planning to say that Thatcher had delivered a “decade of national renewal”. Momentum tweeted that “This is a Labour Leadership out of touch with the labour movement and Labour values. We want to overturn Thatcher’s disastrous settlement, not recreate it.” Richard Leonard MSP, the former leader of Scottish Labour wrote:

In the 1980s manufacturing was butchered, factory after factory closed, privatisation was let rip, unemployment rocketed, profits boomed, the wage share fell, the rich got richer, and inequality soared.

No rewriting of history.

Thatcher didn’t renew the economy, she broke it.

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A Labour spokesperson stressed that this was not what the shadow chancellor was going to be saying at all. And indeed, when Reeves stood up to speak, she denounced Thatcher’s second chancellor Nigel Lawson as “wrong”. She asserted that the result of his policies was “unprecedented surge in inequality” which is still with us, “leaving enduring social and economic costs and hollowing out our industrial strength”.

Why return to this controversial subject, if only to veer away again? The key lies in the previous decade that Reeves invoked: the 1970s, the period against which Thatcher was reacting. The Shadow Chancellor argued that the 1970s was a time, like our own, that was marked by political and ideological “flux”, in which “a new political consensus has yet to cohere”. The post-war consensus had been built on co-operation between government, business and unions, with the aim of maintaining full employment while restraining pay demands. Under the pressure of high inflation and increasing strike action, this arrangement broke down. The images associated with this moment – candlelit homes, binbag mountains, hospital pickets – haunted our politics for decades. In response, Thatcher constructed a new economic settlement: one which distributed economic power very differently.

In her lecture, Reeves declared that she too wants to “fashion a new economic settlement”. But even if she wanted to, it self-evidently could not be the same as the one Thatcher built. That one is no longer new; it has been us with for over 40 years. More importantly, it may have once been the cure for “British decline” but, in an economy that has never fully recovered from the 2008 Financial crash, it now looks like part of the cause. Hence Reeves’ insistence that “What we are facing today is decline of a materially different sort”. It is telling that she also pointed not just to the 1970s, but to an earlier decade of flux and crisis, the unemployment-ravaged 1930s, and to the warnings of the Austrian thinker Karl Polanyi, a refugee from Nazism. Polanyi counselled that market economies that leave large swathes of the population behind can “provoke powerful political counter-movements of both left and right”.

The settlement that Reeves says she wants to build has more in common with what emerged after the Second World War than with Thatcher’s neoliberal project in the 1980s. Much as Reeves stresses that she doesn’t want to return to 1970s-style industrial policy, she does want to go back to “active government” that will “drive innovation” and “mobilise investment” to foster growth. She told the gathered bankers that she wants the new settlement to draw “on evolutions in economic thought”. But where 1970s economists embraced the ideas of Friedrich Hayek, another emigré Austrian, they have been moving in the other direction since the crash.

Reeves is not alone in Labour in detecting useful lessons in the 1970s for ways to escape today’s flux and crisis and establish a new settlement. As I reported in the New Statesman last September, young Labour advisers have been studying how the Thatcherites managed to entrench a radical new narrative of what had gone wrong over the last 15 years, identifying who – and what ideas – were to blame, and what had to change. Mathew Lawrence is executive director of the think tank Common Wealth; when I spoke to him in 2022, he underlined how he respected the way that the Thatcherite pioneer John Redwood had managed to transform privatisation from a 1970s heresy to a 1980s orthodoxy. Lawrence aspires to help achieve something similarly radical, but in the other direction; Common Wealth’s work has contributed to Labour’s plans for a publicly-owned clean energy generation company, ‘Great British Energy’.

Invoking the Thatcherite settlement does not mean that Reeves is capitulating to it: she is setting herself, and a possible new Labour government, a stern test. Reeves told her audience of financiers that it was vital not just to point out the failings of the current model, but “to confront their underlying institutional, cultural and political causes”. She identified political instability and a “rushed and ill-conceived Brexit deal”, and pointed to the impact of climate change and geopolitical tensions, criticising the way globalisation had disempowered people. Reeves regretted the “festering gap” New Labour had left between “large parts of our country and Westminster politics”.

But, as Thatcher mercilessly identified, one of the underlying political causes of a broken political settlement is a concentration of power that will not relinquish its vested interests, even when the model that supported them is falling apart. Unlike Thatcher, Reeves is striking a consensual tone before the new consensus is established. She and her colleagues aspire to build a lasting political settlement that puts the economic security of ordinary working people first. The question is whether they will first have to confront today’s vested interests – perhaps even those present at her lecture – with something of Thatcher’s steel.

[See also: Rachel Reeves buries New Labour economics]

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