Thatcherism shows where Britain went wrong – and how it can go right

It is a hundred years since Margaret Thatcher was born. Fifty years since she took over the Conservative Party. Thirty-four years since she was forced from office. Today’s voters are Thatcher’s grandchildren – even great-grandchildren. So why do we still care?

The last couple of weeks have seen a parade of Thatcher-philia. At Conservative Party Conference there were Thatcher portraits, a Thatcher mosaic, even an exhibition of her dresses. There have been cardboard cutouts, a gala dinner at the Guildhall in her honour, even an AI Thatcher-bot. No wonder William Atkinson of The Spectator thinks it’s long past time for the party to move on.

As Director of the Centre for Policy Studies – the think tank she co-founded with Keith Joseph and others – I’m contractually obliged to defend the Iron Lady. But the more you study the comparisons between her era and ours, the more instructive the comparisons become. Indeed, the failures of the Starmer government – and the Conservative governments before it – have not just highlighted Britain’s descent into stasis and sclerosis, but the need for the kind of project of renewal that Thatcher represented.

The numbers are stark. The UK’s tax burden is at a record high. State spending has soared, equating to almost 45 per cent of GDP. The number of civil servants, having fallen sharply under the Coalition, has climbed back to 551,000 (who spend on average only 2.2 days in the office). The deficit has averaged 5.6 per cent of GDP since 2010, and the national debt stood at 101 per cent of GDP in 2024-5, up from 76 per cent of GDP in 2010-11. The welfare bill has increased to over £300 billion, and 9.1 million working age adults are economically inactive.

Living standards have stagnated, with both real GDP and real wages rising by roughly 6 per cent between 2010 and 2023. The number of people aged 20-34 still living with their parents has risen from 2.9 million to 3.6 million. Over 127,000 migrants have crossed the Channel on small boats. Net legal migration peaked at an incredible 906,000 between June 2022 and June 2023.

One of Thatcher’s most famous quotes was also one of the simplest: ‘I can’t bear Britain in decline. I just can’t.’ Today, it is clear even to the blindest that Britain is back on the path of decline.

To rescue Britain, we do need to look back to Thatcher – because our core problem today is the same one she diagnosed: namely that the state has grown large and the people have grown too small.

Looking back, the most striking contrast between Thatcher and her successors is not just that she believed in individual and economic liberty, or strong defence, or British greatness. It is that she believed, full stop.

But she did not just believe. She proclaimed.

As I argue in a new essay for the CPS, what is most striking now about Thatcher’s speeches and interviews is the willingness, sentence by sentence, to make arguments from principle – even if those principles might not be popular with her listeners. Take her set-piece interrogation by Sir Robin Day for the BBC, in the days before the 1987 election.

‘Let me tell you what it stands for,’ she tells Day, when asked to define Thatcherism. ‘It stands for sound finance and government running the affairs of the nation in a sound financial way. It stands for honest money – not inflation. It stands for living within your means. It stands for incentives, because we know full well that the growth, the economic strength of the nation, comes from the efforts of its people. Its people need incentives to work as hard as they possibly can…

‘It stands for something else. It stands for the wider and wider spread of ownership of property, of houses, of shares, of savings. It stands for being strong in defence – a reliable ally and a trusted friend. People call those things Thatcherism; they are, in fact, fundamental common sense and having faith in the enterprise and abilities of the people. It was my task to try to release those. They were always there; they have always been there in the British people. But they couldn’t flourish under socialism. They have now been released. That’s all that Thatcherism is.’

Here it is, in miniature: an entire political philosophy. At the core of which is, ultimately, a single proposition: that ‘having faith in the enterprise and abilities of the people’ is just ‘fundamental common sense’.

What, by contrast, were her more recent successors attempting to deliver, or argue for? What was their fundamental philosophy? Who, or what, were they for? Often, it seemed as if the answer was arrived at via focus group.

The Tories, and the country, were trapped in a depressing cycle. Politicians, especially on the right, lost the habit of making arguments from principle. The public stopped hearing such arguments. Then politicians would complain that they wanted to do the right thing, but there was no constituency for it.

Thatcher knew the importance of having principles, acting upon them and arguing for them. That may be harder in today’s attention-starved environment. But it is utterly essential. One of the great reasons for the success of Nigel Farage – and, though I hate to say it, Jeremy Corbyn – is that he and they very obviously believe in things.

This matters both electorally and practically. In practical terms, recent governments – and the current government – have shown that if you spend an entire parliamentary term trying your very best not to upset the voters, you will reach the end of it without having done much of anything to help them. Whitehall functions best when it knows instinctively what the leader wants, and that bad things await if they fail to deliver.

But it also matters politically. We are in an age when no party – especially not the traditional ones – can assume the goodwill of the voters. The combined vote share for the two main parties has fallen from 97 per cent in 1951 to just 57 per cent in 2024. Voters are choosing parties as consumers: they are looking for outfits that share their personal values, and will deliver the kind of society they want to see. Which means you have to have values to share.

One of the many reasons why the Conservative party’s membership has collapsed along with its vote share, while Reform’s has surged, is that Reform has a clear, consistent and compelling set of beliefs. The Conservatives, on the other hand, have persistently failed – almost refused – to explain to potential members what Conservatism actually is, and why should find it a compelling enough creed to spend their lives delivering leaflets on its behalf.

Having a coherent and attractive philosophy, in other words, is not just a prerequisite for effective government. It is a requirement for political survival.

But of course, those beliefs must be of the right kind. As mentioned above, Jeremy Corbyn is a man of deep beliefs. But had he won power, those beliefs would have done incalculable damage to the country.

Thatcher is often accused of having created a selfish society. But what she was really trying to create was a responsible society. One in which the individuals and families whom she defined as ‘society’ acted responsibly, yes. But above all, one in which the state did so as well.

Indeed, there is a quote from 1976 which sums up her approach perfectly: ‘If the problem is you’re borrowing too much, that arises because you’re spending too much. If you’re spending too much, you must reduce your spending.’

Today’s problems are not those of the Thatcher era. For obvious reasons, she had an awful lot to say about curbing inflation and fixing unproductive industry, and rather less to say about reversing the consequences of uncontrolled mass migration. But Thatcher’s guiding philosophy – that Thatcherism ‘stands for incentives’ – remains relevant. Why? Because the reason the state has grown, and growth has evaporated, is that that is where incentives have led us.

Take the triple lock. It is an awful policy, not just because it gives more money to pensioners in a way that is guaranteed to become more and more exorbitantly expensive, but because there is no realistic way to get rid of it.

Compare and contrast with an episode from the Thatcher years. The Labour government in the 1960s had set up a private final-salary pension scheme called SERPS. The problem was that the state did not take enough off higher earners to cover what it had promised them. Thatcher, unusually, was nervous about closing the scheme (albeit only to new members), asking her policy staff – led by John Redwood – why she should take a politically painful decision whose benefits would only be felt decades down the line. The argument that persuaded her was simple: it was the right thing to do.

The Thatcher government was not faultless. There are plenty of examples of areas where it, too, ducked the hard decisions, or made bad ones. But it tried – arguably more than any before or since – to do the right thing by the country, and in particular to take a necessarily radical approach on what they saw as the great problems of the age.

What would a similar Thatcherite agenda look like today? It would need a leader driven by the right philosophy, and unapologetic about explaining and evangelising for it – though perhaps using rather different communication tools from those of the Thatcher era.

But a single leader is not enough. Especially since no one can rely today on having a length of tenure to match Thatcher, or even Cameron.

To fix Britain, we do not just need the right policies – or a thorough overhaul of Whitehall, or of the legal blockages on housebuilding, border control and so much more, though we very obviously need those things. We need to think about responsibility, and incentives.

Our core fiscal problem, apart from the lack of growth, is that five of the six largest line items in the national budget – the NHS, pensioner benefits, working-age benefits, debt interest and defence – are growing more quickly than the economy. So, to paraphrase Tony Blair, we need to be tough on spending, but tougher on the causes of spending.

That means we need policies that are the opposite of the triple lock. Policies that embed the right incentives – ideally with a minimum of up-front pain, but with benefits that compound over time.

There has been much talk since Brexit of ‘Singapore-on-Thames’. Yet arguably the real secret to Singapore’s growth is not that it has a small or effective state, but that it has a responsible state. It goes to extraordinary lengths to incentivise its citizens to behave responsibly, not least via mandatory contributions to the Central Provident Fund, which supports people to save for housing, medical bills, disability provision, pensions, education and insurance. But it also forces the state to act responsibly.

Singapore does not mess around with ever-changing fiscal rules, which always push the day of reckoning to the future. It does not mortgage the future to pay for the present. Instead, each government must balance the budget over its parliamentary term. It cannot borrow to fund its operating expenses. And save in extraordinary circumstances, it cannot draw upon the surpluses accrued by previous governments.

What would an agenda for responsibility in Britain look like? It would mean tackling the fundamental drivers of rising spending. Abandoning or ameliorating the triple lock. Retooling the welfare system so that, if you are able to work, it is always more rewarding to do so than to sit at home.

But it also means doing more within the welfare system to recognise contribution: public attitudes to the fairness of Britain’s welfare system have been soured above all by a sense that it has completely broken the link between effort and reward, between doing the right thing and being rewarded for it.

But there is much more we can, and probably will have to do.. We need to re-embed the fundamental connection between what the state can afford and what it is spending. This could be done by pegging particular benefits to a given share of GDP. Or dividing the money available to spend on them by the number of people claiming.

On tax, an agenda built around incentives and responsibility would mean prioritising reforms that incentivise people to work more, and reward them for doing so, rather than seeing them run headlong into the ‘Manhattan skyline’ of sky-high marginal rates and abrupt benefit withdrawal.

A responsibility agenda would very certainly include tackling the housing crisis via large-scale housebuilding, and stripping away stamp duty. But it would also include systems that incentivise local councils to approve housing rather than block it; systems of compensation for infrastructure that do the same for those living nearby; and embracing ‘street votes’ and other ways to let people say yes to housing rather than no.

We should permit, and encourage, those working in the public sector to swap unaffordable final sector pensions for salary rises right now. We should cut back the insane amount of regulation and administration that afflicts small businesses as they grow. Given the high number of university courses that produce no benefit for their students, and land the state with billions of losses in debt defaults, we should align incentives by making universities responsible for the lending issued in their name.

We need to incentivise people in the private sector to make profits – because it is from profit that we get investment, from investment that we get growth, and growth that we all get to lead better lives. And we need to embed incentives within government, where is every incentive to regulate and mandate, and almost none to hold back.

It is easy to see how thinking in terms of incentives – thinking as I believe Thatcher would have – leads to a host of conclusions about how to run government differently, and better. On the NHS, for example, the responsibility agenda should definitely include incentivising people to pay for health insurance, rather than taxing it.

But on the principle of incentivising people to act responsibly, we can be more ambitious. We could, like Singapore, move to a system which actually encourages people to behave responsibly. What if we turned National Insurance into a genuine system of insurance, restoring the link between contribution and reward? Like the Singaporean system, it could act as a pot of savings to be used to pay for the essential or desirable things in life – a deposit on the first home, health insurance, retraining, even university degrees – before being redeployed at the end of life to cover insurance and care costs.

This is currently a distant dream. For starters, it would involve a very large amount of money being redeployed from the state’s immediate needs to its citizens’ future benefit. Yet in the long run, it is one of the few conceivable pathways to reducing the inexorable rise in state spending, since it would see the welfare state once more acting as a safety net in time of need rather than trying, and inevitably failing, to cover every need.

Thatcher warned that the great temptation in politics was to ‘lose sight of the eternal truths and choose the popular, quick fix’. That is certainly a temptation to which Britain has often succumbed. But if there is anything we can learn from Thatcher, it is that Britain’s decline is not inevitable. It was, she said, by implementing the policies worked out by Keith Joseph and the CPS that she and her allies had ‘gradually restored the confidence and reputation of our country’. By rebuilding a responsible state, we can do so again.

This is an edited version of an essay published by the Centre for Policy Studies. The full version is available here