Labour’s parallels with Thatcher may be more than just rhetoric

This article is an on-site version of our Inside Politics newsletter. Subscribers can sign up here to get the newsletter delivered every weekday. If you’re not a subscriber, you can still receive the newsletter free for 30 days

Good morning. I’m standing in for Stephen today while he’s away.

Inside Politics is edited by Georgina Quach. Read the previous edition of the newsletter here. Please send gossip, thoughts and feedback to insidepolitics@ft.com

Cuts from the same cloth?

The first time Keir Starmer invoked former prime minister Margaret Thatcher it set the cat among the pigeons.

It was December 2023 and the Labour leader praised the former Conservative leader for effecting “meaningful change”. Writing in the Sunday Telegraph — where else — he said Grantham’s most famous daughter had “set loose our natural entrepreneurialism”.

It was a bid to win over traditional Conservative voters, or at least make them relaxed enough about a Labour government to vote for a smaller rival. And of course it prompted a backlash from some on the left wing of British politics, which was what Starmer wanted. Job done.

This is why when the prime minister last week compared his government to Thatcher’s — pledging to chop “thickets of red tape” — it prompted a big shrug.

But there are some ways in which this government is taking inspiration from the Iron Lady at a less superficial level.

Some Labour insiders look back at how Thatcher imposed a huge national insurance increase at the start of her premiership (yes, you heard that right) and see some promising parallels.

First, some history.

Many latter-day Thatcherites remember her not only as the most headstrong prime minister of our times but as a ruthless cutter of both regulations and taxation. The latter is a selective memory.

When Kwasi Kwarteng unveiled his experimental mini-Budget in September 2022 he sought to make parallels with Tory chancellors of the 1980s. He channelled Thatcher’s determination to cut taxes as justification for abolishing the top 45p rate and cutting the basic rate to 19p.

Kwarteng’s Budget was not a superlative triumph. It led to his sacking and Liz Truss’s forced removal from Number 10 and the most shortlived administration in modern history.

Thatcher is remembered for cutting taxes because she took an axe to income tax, which is — of course — the most high-profile of all the levies.

She chopped the top income tax rate from 83 per cent to 60 per cent in her first Budget while reducing basic rate income tax from 33 per cent to 30 per cent. In 1988 the basic rate fell further to 25 per cent and the top rate to 40 per cent.

So far, so good, if you’re into tax cuts.

But but but but but.

Thatcher’s government also lifted other taxes at the same time to offset the income tax cuts and ensure they were not inflationary. She whacked up the rate of VAT from 8 per cent to 15 per cent in the 1979 Budget. Over the next few years she lifted the national insurance rate from 6 per cent to 9 per cent.

Dan Neidle, from Tax Policy Associates, put it like this in a recent blog: “Taxes went up a lot, then down a fair bit, but not as much as they went up.” He argued that the Thatcher tax increases were an intentional policy-driven rise rather than a “mere incident of GDP contraction”, saying:

Three drivers for the big tax increase over 1979-82: VAT rising from 10 per cent to 15 per cent, the North Sea oil boom, and the increase in employer NICs. Income tax was certainly cut but that was initially more than overcome by the increase in VAT.

The North Sea oil point is an important one. For the first half of the 1980s there was a chunky surge in tax receipts from the oil and gas industry, as this chart shows.

That clouds direct comparisons with today.

Yet Neidle says the overall Thatcher tax increase was almost exactly the same amount as the overall Blair/Brown rise from 1997 to 2010.

For those of us not around at the time (I was in preschool) it’s fascinating to look at the charts.

This one shows that tax as a share of GDP was 30.7 per cent in 1979, rising to 36.7 per cent in 1982 before dropping for most of the subsequent years. But in 1990 — as a tearful Thatcher was driven from Downing Street — it was still higher than at the start of her Tory government.

And yet, in some right-wing accounts of the period, the increases in VAT and NICs are virtually ignored.

Behold this classic example, where the author claims: “A year before the 1979 election, the Iron Lady told businesses that tax cuts were vital to a healthy economy — and, once in Downing Street, she delivered on that strategy.”

Neidle says — with dry understatement — that this is only true if you “look at income tax and ignore everything else”.

The tax rises didn’t make Maggie popular. Far from it. Check out this incredible poll giving Labour a lead of 24 percentage points in December 1980.

Arguably she was saved at the ballot box only by the success of her Falklands gamble and the Labour split that created the SDP.

But she was able to revive the Tories’ (net) popularity as the 1980s progressed. She introduced Right to Buy to enable tenants of council houses to buy their homes at a discount to their market value, depending on how many years they have lived in the property. Then there was her deregulatory drive, her formidable self-belief and, yes, those later tax cuts.

In the collective memory, Thatcher’s radical supply-side reforms seem to have masked those early tax rises.

It’s in that context that Labour folk would like people to see Rachel Reeves’ emphasis on the growth agenda, in particular her no-holds-barred assault on “blockers” standing in the way of new homes and green energy projects.

The chancellor’s allies see land (rather than organised labour in the 1980s) as the major supply barrier in the economy.

And they believe that Boris Johnson recognised this but couldn’t get his planning reforms past his MPs in the shires.

(Just as Labour’s Barbara Castle wanted to cut the power of the trade unions in 1969 but Harold Wilson was too timid to pursue her “In Place of Strife” white paper).

By contrast, this lot are intensely relaxed about leaving a trail of mangled bats and newts, unhappy locals and raging environmentalists in their wake as they take an axe to planning restrictions.

Spencer Livermore, a Treasury minister, briefed lobbyists on Friday about Reeves’ strategy for growth, with one priority being “dismantling the barriers to growth” on planning, regulation, trade and pensions reform. March’s planning bill will set out some of the specifics, including making it harder for protesters to do multiple judicial reviews.

So, possibly, there are parallels between now and the early 1980s. It’s an interesting theory, and worthy of consideration.

Obviously it overlooks some of the savage headwinds facing Starmer’s government, from potential US tariffs to Britain’s enduring productivity headache and huge debt pile.

(By the late 1980s the Tories were running a budget surplus.)

And the employment bill currently going through parliament would give Thatcher palpitations, given it will cost business £5bn a year and make it much easier for unions to go on strike: even if some of the reforms are merely turning the clock back to before 2010.

But I’d be interested in your thoughts.

Now try this

One of the perks of turning 50 last month was a pile of high-end gifts befitting the funeral of my youth. One old friend dispatched from Wales a set of four piano music books covering Fleetwood Mac, Radiohead, Simon & Garfunkel and Tom Petty. That’ll keep me busy until the onset of spring.