Rolling Back the State? Fiscal Squeeze, Thatcher-Style

This chapter describes two fiscal squeezes under the Conservative majority-party governments led by Margaret Thatcher in the 1980s. The first comprised a hard post-election squeeze on revenue in the middle of a major recession and mass unemployment, beginning with an abrupt hike in VAT rates in 1979 and severe tax rises in the 1981 budget. The second comprised a strategy of holding down spending increases that led to public expenditure falling relative to GDP (but not in constant price terms) over an extended period as recession was followed by economic recovery from 1983. These periods of squeeze took place in an era of deep polarization between the two main parties and bitter industrial unrest and were fuelled to a considerable extent by sharply increasing North Sea oil revenue and widespread asset sales in the form of privatization of state-owned enterprises that counted as negative expenditure.