Thatcherism and British living standards

The purpose of a think tank – the clue is in the name – is to think big and holistically. When others talk about the colour of the curtains, we are supposed to be talking about the architecture of the building, and how it fits into the city map as a whole.

But this time, let’s do the opposite for once. In the coverage of Margaret Thatcher’s economic legacy, there is no shortage of broad-brush statements. Supporters claim that she cured the sick man of Europe, reversing a decade-long trend of economic decline. Opponents claim that she destroyed the country’s healthy industrial base, and replaced it with a low-wage service economy. The coal mines went, and the call centres came. But be that as it may – what does it mean on the ground? What did ‘Thatcherism’ mean for the millions who were neither coal miners nor ‘fat cats’?

The easiest indicator to look at is median incomes in today’s prices. The good thing about the median is that it is not affected by the top end of the distribution (aka the fat cats). In 1979, median incomes were just under two thirds of the present level. After a sharp decline in the recession years, they expanded throughout the rest of the decade. When Margaret Thatcher left Downing Street, median incomes were 26% higher than when she had arrived. From then on, though, they stagnated for several years in a row, returning to growth only in 1995.

Figure 1: Annual median incomes of a two-adult household

  

-based on IFS data

As a more tangible measure, we can also look at figures on the distribution of consumer durables. In 1980, the UK still had the kind of consumption profile that we would nowadays associate with a middle-income country. 6 out of 10 households had central heating, about the same proportion had a car, 7 out of 10 had a telephone, and 8 out of 10 had a washing machine. In short, ownership of these goods was widespread, but far from universal. The following years saw substantial increases. Homeownership in particular increased a lot, even though that is a special case: the ratio of house prices to incomes actually increased, but the subsidised sale of council houses still made homeownership viable for many.

Figure 2: Ownership rates of consumer durables

  

-based on data from the ONS Living Cost and Food Survey

Budget profiles are also a sensible complementary measure. In the late 1970s, an average British family still had to reserve 53% of its household budget for food, housing, clothing and fuel. That share fell to 48% in 1990, and 44% in 1997, leaving more room for expenditure on conveniences, leisure and comfort. It is not a picture without blemishes: housing costs came to occupy a bigger share, which would increase even more in the years to come. But spending on non-housing necessities clearly fell. Budget profiles are, of course, very crude measures, which miss developments such as quality changes within these categories.

Figure 3: Composition of average family budgets

  

-based on data from the ONS Living Cost and Food Survey

So while the fat cats thrived, on the whole, the lot of most ordinary families also improved. Thatcherism worked. Shame it was not taken much further.

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