Thatcher and Lawson have a strategy – where are Hunt and Sunak? | Larry Elliott

For good or ill, the modern British economy was forged in the 1980s. The deregulated labor market, the dominance of the City, the north-south divide, privatized public utilities, high levels of private debt, chronic trade deficits and the key role played by the housing market are the legacies of the decade when Margaret Thatcher the prime minister.

It is perhaps appropriate, then, that Jeremy Hunt honors his 80s Fall statement with frequent name checking of Nigel Lawson, Thatcher’s chancellor for six years after 1983.

Hunt has only been chancellor for five minutes and it is too early to judge him, let alone whether he will match his predecessor for importance. He will be relieved that the autumn statement received a better reception from the financial markets than Kwasi Kwarteng’s mini-budget (a low bar to clear, really) and Hunt can claim some credit for a series of measures to limit the damage to the economy when it was particularly weak .

There has been a lot of focus on the 7% cumulative drop in living standards over the 2022-23-2023-24 financial years predicted by the Office for Budget Responsibility, and rightly so. If the forecast is correct, nothing will be comparable since modern records began.

However, the early recessions of the 1980s and 1990s were more brutal, as now all people had their spending power hit while in previous downturns, the pain was concentrated among those who lost their jobs. Unemployment is set to rise over the next 18 months but nowhere near the double-digit levels seen in most of the 1980s and again in the early 1990s. Britain still bears the scars of the mass unemployment of that era.

But while Hunt has a plan for the short term – embrace the closed market, postpone most austerity until after the next election – it is not immediately clear that he and Rishi Sunak have a plan for the long term, let alone a vision for the kind of Britain they want to see. Sunak and Hunt have a blueprint to reduce the deficit but it goes a little further than that. A senior Labor MP aptly summed up the state of government when he said Britain now has two chancellors but no prime minister.

For example, the decision to extend the vehicle excise tax to electric car owners in 2025. Incentives are important, and one of the incentives to change from gasoline or diesel cars is not having to pay road tax. Demand for electric vehicles – given the squeeze on household budgets – is unlikely to be very strong for the next year or so, but people may start thinking about the switch when the economy starts to pick up in 2024 and 2025.

To be sure, the loss of fuel duty when all cars are electric is a huge headache for the Treasury, which stands to lose £30bn a year in revenue by 2040 in some estimates. But the long term solution is street priceNot a cash grab that will slow up the transition needed for a cleaner vehicle.

There are many accusations that can be thrown at Thatcher and Lawson, but lack of planning is not one of them. Their strategy was to deregulate and allow market forces to operate freely. That includes reducing the power of unions and selling off state-owned industries. Lawson was keen not only on cutting taxes but on creating a simple tax system.

Finally he blew up the economy with an incredible boom-bust that led to a prolonged period of 15% interest rates, record home repossessions and 3 million people on the dole. But as John Muellbauer and David Soskice note in one new essay, the experiment of the 1980s changed Britain profoundly. “The 1980s was a very important and divisive decade, which changed the reality on the ground and changed the political economy of the country in a way that we are still living,” he said.

One of the hallmarks of that era was the symbiotic relationship between housing policy and financial deregulation. Banks that are freed from their lending limits are only willing to provide mortgages to those who want to buy council houses at a discount under the right-to-buy laws. The supply of new homes is falling sharply as the stock of social property is not being replenished. Rising house prices in the more prosperous part of the country limited labor mobility. Britain has a new economic model but it is inherently unstable, inherently unproductive and inherently unfair.

As Muellbauer and Soskice pointed out, it was in the 1980s that the idea became embedded in the British middle-class culture that housing wealth, ramped up through high levels of borrowing, could act as a cash machine.

This is more than a history lesson. There are similarities between the current crisis and the state of Britain when Thatcher arrived in Downing Street in 1979: high inflation caused by persistent supply-side shocks, and pessimism that long-standing economic weakness will be overcome.

The model Thatcher created collapsed in the global financial crisis of 2008-09 and there was no one to take its place. The conservative government since 2010 has talked about its mission to save the economy and raise rates, but has promised more than it has delivered.

Only twice since the second world war – the government of Clement Attlee-led in 1945 and Thatcher in 1979 – has an administration come to power in Britain and plans for fundamental change stuck to it. For the rest of the time, the tendency has been to screw up and hope for the best. Hunt and Sunak seem to be part of that tradition.

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