How the Ownership Revolution Saved Britain

The Thatcher government’s reforms saved Britain from economic disaster.

by John Redwood MP

This article first appeared on The American Conservative, August 24, 2023

Conservatism is an engaging mix of freedoms. It combines the pursuit of prosperity with respect for the past. It is laced with personal responsibility and belief in family and nation. No successful Conservative government has held Britain up on the road to change and progress. They have embraced new technology and movements for change, while helping the institutions to evolve to embrace those innovations.

Conservatives saw the potential of free trade, came to see the importance of votes for everyone, accepted and developed the welfare state as social attitudes created movements for change. Conservatives saw the power of the railway, the steam age, the petrol engine, aviation, computing, and the worldwide web and did much to promote them.

Conservatives champion the freedom to think and speak as we will, to form our own associations, and enjoy the goods and services of a relatively free and competitive market. These are set in a framework of strong law and order, bound by the social ties of family and country.

When I went to Downing Street to advise Margaret Thatcher in 1983, we were conscious of how much damage socialism had done to individuals and the country. Income tax rates up to 83 percent for work income and 98 percent for savings sapped enterprise and led to a brain drain as talent left the country. A huge, bloated state provided poor services at large cost, burdening the treasury and future taxpayers with enormous debts. Large nationalized monopolies charged customers too much for too little choice, threatened employees with redundancy and burdened taxpayers with large losses. The state owned too much, and people owned too little. The more the state subsidized, taxed, and regulated, the worse our economic performance became. The state overreached and people were belittled and bossed. The poverty of this approach during the 1970s was captured by the Labour government’s need to borrow from abroad and implement emergency spending cuts as the economy buckled under the weight of an overreaching public sector.

The core of the problem was economic. The failure to grow, innovate, and retain home-reared talent and ideas left a large state unable to afford a strong defense. The Labour government of the 1970s argued over where power should lie between the parts of the Union, losing referenda on devolution of government to both Scotland and Wales. It lost control of inflation, presided over a recession, and humiliated the nation by seeking a bailout from the IMF, an organization primed to help poorer countries.

The Conservative answer had to be change. We needed to release the talent of the nation, offer more freedoms, rebuild the U.K.’s reputation at home and abroad. I took to Margaret Thatcher the overarching idea of encouraging everyone to become an owner. She was well advanced with promoting home ownership through tax breaks and public housing sales. I helped her add the offer of shares in nationalized businesses to the many, employee ownership, employee buyout of state assets, personal ownership of pension savings, more self-employment, and more opportunity to create and build small businesses. Wider ownership opened up many more opportunities for many more people. The aim was to enfranchise the many in the economic life of the nation by becoming owners.

Central to the whole vision was the sale of around 10 percent of the wealth of the country from nationalized to private ownership. Breaking open state monopolies would lead to improved service, more choice, and more investment. The proceeds of the sales would finance the stronger defense and better funded welfare we needed.

We adopted a range of approaches to privatizations. National Freight was sold as an employee and management buyout. Lorry drivers and managers got together to own the firm. Attitudes changed with the change of ownership. There developed a can-do approach, a wish to fix the trucks, maximize their workloads and serve customers better. The business became very successful. Shares in British Petroleum were sold on the Stock Exchange as it was already a private sector group with a large private shareholders list. Large utilities including British Telecom, British Gas, and the nation's electric-power grid were recreated as private sector companies, with competition and regulation to get them to serve people better at competitive prices. Their shares were offered for sale to the public, the institutions, and the employees. Employees could buy on favored terms. Mass ownership of shares was advanced substantially by these offers.

The businesses were most transformed by competition. Telecoms leapt ahead. The monopoly nationalized supplier had previously rationed the availability of lines. It allowed a narrow range of rented equipment, mainly phones, to be connected. It ordered an old fashioned electro-mechanical switching system that other telephone companies in the world did not want buy, while the U.S. was pressing on with electronic equipment. The U.K. was about ten years behind the U.S. but caught up very quickly on privatization.

The electricity industry had been investing in large coal generating plants that only converted about 32 percent of the coal energy into electrical power. Following privatization, the industry switched to combined cycle gas power stations with around 55 percent thermal efficiency. The dash for gas was cleaner and cheaper, lowering power costs and air pollution at the same time.

Privatization of telecoms made the U.K.’s “Big Bang” revolution possible. The flood of new capital and large trading firms into London needed access to much more and better telecom capacity, which the newly privatized industry was able to provide freed of Treasury capital investment controls.

Increasing self-employment and small business was also an important part of the revolution.  Taxes were reduced to more competitive levels. Individuals were offered tax incentives to venture their capital and to build their businesses. Some regulatory burdens were streamlined. The VAT sales tax threshold was put up to the maximum the European Union allowed, so the self-employed could avoid early ensnarement in the costs and complexities of VAT. There were attempts to break up large public sector contracts to allow more small business access to such opportunities.

Reform of pensions and savings followed so people could identify with the wealth they were building for retirement. Self-invested individual pension accounts became available instead of having to save through a large employer scheme.

Policies were put in place to promote growth and better paid jobs in a range of run down areas from the East London Docklands to inner city areas across the country. Run down and closed down commercial and industrial uses were replaced by new buildings. The state intervened to kick start the process. Urban Development Corporations with powers and money to assemble and clean sites attracted large sums of private capital to build new commercial and residential districts. Canary Wharf, a whole new exciting business district, emerged from the empty docks and wastelands of east London.

Today Conservatism can benefit from the lessons learned during the Thatcher revolution. Conservatism works best when it trusts people more and offers choice. Monopoly industries run by the state offer poor value and often end with rationing, insufficient investment, and customer dissatisfaction. Free-to-user public services are popular, but they too need choice and competing suppliers to help them deliver the capacity and the quality people expect.

Conservatives believe in a strong state to do those things that only the state can do. People look to government for wise laws and fair and firm enforcement. They want a strong and effective defense for the country. The best way to live in peace is to be well-prepared for hostile actions by others, who will be deterred by effective defense and government resolve.

There should be clear and good laws, but not an excess of law. Conservatives should not believe in laws to bind government, or treaties that transfer government decisions on domestic matters to international fora and courts. The government has no need to legislate to hit certain targets. It should state a target and show by words and deeds how it plans to get there. It will be judged by results. It should not use legislation to give emphasis to what should be just a press release or statement of policy. Government policy statements are taken seriously if the government is firm of purpose and has a reasonable record of delivery. Making targets or policies a legal obligation can involve the courts in what should be the business of government alone.

Government should avoid unnecessary regulation and interference in the lives of people and the work of companies. It is no business of the government how I heat my home or get about. Of course, the safety of others and the avoidance of harms are important matters requiring national laws and standards, but this should not lead on to telling people what they can buy or instructing business on what they should make and offer for sale. It is free enterprise, competition, and choice that have powered most of the great improvements made in products and services over the last century. There is no need for government to legislate in detail on how to make a car or a heating system, or to ban ones it does not like. All should be subject to the same safety and environmental laws.

There are dangers in imposing too many taxes and too many complex rules for each tax levied. They get in the way of enterprise and freedom. High corporate taxes drive investment to other countries. The Republic of Ireland, with a corporation tax rate of just 12.5 percent, collects four times as much business tax per head as the U.K. manages with a tax rate double the Irish level. High capital gains taxes deter people from selling properties and financial assets they no longer need or like, standing in the way of better allocation of capital and real estate. High income taxes deter extra work and effort, encourage able people to leave the country, and impede the growth of family wealth and financial resilience. High taxes make welfare dependents of the many and tax exiles of the rich.

Conservatives believe in freedom and enterprise, choice and opportunity. We believe in helping people to live fulfilling lives, recognizing and releasing the talents and energy within. We reject the gloom of the left who think people and the world have to be controlled by governments to avoid disaster. We do not want to live in a pocket-money society where most things belong to and much income is taken by the state, leaving people with what remains after the large demands of governments have been satisfied. We know from experience that well-intentioned government policies so often backfire. Rent controls to help tenants lead directly to a shortage of property. Subsidies to help investment lead to high taxes on business to deter it. State bans on products and services lead to an exodus of talent and activity to more permissive jurisdictions. Government going into business areas for itself usually leads to losses and more public debt. 

Conservatives back and trust people. Socialists back government to control people. Conservatives like roundabouts where traffic flows because individual drivers make good decisions. Socialists like traffic lights so government controls you and often makes you wait.

This article is part of the “American System” series edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors.

Rt. Hon. Sir John Redwood is the Conservative Member of Parliament for Wokingham, a former Secretary of State for Wales, and a fellow of All Souls College Oxford.