I
To the casual voter, political products look very similar. Unfortunately, this is virtually inevitable as they are being formulated to deal with the same problems … Imagine a motor car. It requires fuel, it has brakes, instruments and a steering wheel for control. All political parties are vying to drive the same car. Their differing destinations will result from, and on, the tuning of the engine, the fuel they use, the route they choose, whether they can stick to it, the personality and determination of the driver and the way he drives … That destination is a different kind of society. But … [t]he car always looks the same to all but those who work in the pits. Differentiation cannot be observed at the level of policy by the casual voter. Differentiation has to be obtained at the level of ideology – the normative view of society.Footnote 1
Defining ‘Thatcherism’ – its nature and its components; its relation to neo-liberalism and traditional Toryism – is problematic. At the heart of the difficulty lies the tension between traditional, conservative values and neo-liberal free markets. Daniel Bell identified the conflict between ‘asceticism and acquisitiveness’ as one of the key ‘cultural contradictions of capitalism’, and many commentators, from some Tories themselves, to libertarian free-marketeers and academic analysts, have agreed.Footnote 2 The New Left painted Thatcherism as an unholy alliance of neo-liberal economics with resurgent Conservative rhetoric in a power-grabbing project with hegemonic pretensions. Political scientist Jim Bulpitt argued that monetarism was a mere secondary instrument in power-hungry Thatcherite ‘statecraft’.Footnote 3 These studies have fostered a pervasive sense that Thatcherism cannot add up to a coherent and consistent ideology. Some historians have, therefore, analysed it in the context of the abiding Conservative impetus for power. This perspective sees Thatcherism as moulded by the economic pressures, political manoeuvres, and electoral imperatives of its time, and hears its distinctive rhetoric as a stitch-up of incompatible policies and platitudes designed to appeal to the rich, to ‘middle England’, and to ‘Essex man’. Hence Richard Vinen's recent study of Thatcher's Britain focuses on the contingent and ‘événementiel’.Footnote 4
Close analysis of events is certainly important; but ideology needs to be taken seriously. I use the term not in the pejorative sense bestowed on it by ‘wet’ Tory opponents like Ian Gilmour, but in the Freedenite sense of ideologies as ‘flexible intellectual frameworks that aggregate and prioritise a number of political concepts’, both rational and non-rational. As Freeden has urged, ideologies need ‘interpreting and decoding’, to ‘reconstruct and amplify’ the unarticulated.Footnote 5 Because economic policy was central to Thatcherite propaganda, much analysis has focused on monetarism and supply-side economics. I re-evaluate Thatcherism by looking instead at social policy and social doctrine, taking as a case-study the tax/benefit system. This article does not consider the other key thrust of Thatcherite social policy: the attempt to create a ‘property-owning democracy’. Matthew Francis has examined the policies adopted by Thatcherites to promote wider property-ownership – the ‘right to buy’ council houses and privatization – arguing that they lay in an evolving Conservative tradition, but that Thatcherite choices were profoundly influenced by neo-liberal discourses current in the 1970s and 1980s.Footnote 6 The present article examines a less-studied aspect of social policy. It falls into three parts: in the first I examine the policy prescriptions of key neo-liberal thinkers and think-tanks.Footnote 7 In the second, I look at the development of Thatcherite policy on poverty in opposition. Historians who have relied primarily on the vague 1979 manifesto as evidence have suggested that Thatcher had pseudo-radical rhetoric but few real plans on entering office.Footnote 8 In fact, a distinctive set of policies was fleshed out in opposition. The key shift was from paternalistic, state-centred policies to a radical scepticism about the virtues the state can inculcate. Thatcherites absorbed the analysis of some neo-liberal thinkers (particularly Friedrich von Hayek), paying less attention to others whose work did not fit their vision of social policy (like Milton Friedman, who was so influential on monetary theory). In the third section I examine the individualistic and moralistic ideology that underpinned the shift from paternalism to small-statism. Thatcherite individualism differed subtly but importantly from the economistic individualism of the neo-liberal thinkers. And it is the precise contours of this individualism which allowed Thatcher and her allies to reject paternalism, and reconcile a free economy and traditional values.
II
Ben Jackson has shown that at the genesis of neo-liberalism in the 1930s and 1940s, many thinkers wanted a strong state as well as a free economy, because they were concerned to show that they had learned the lessons of the failures of capitalism in the hungry thirties.Footnote 9 But when Hayek wrote The road to serfdom, uppermost in his mind was not the great depression, but Nazi Germany.Footnote 10 Hayek stressed that minimal government would ensure the highest level of liberty, or ‘toleration’. Big, socialist government reduces each citizen to (quoting Tocqueville) ‘a mere agent, a mere number’. Socialist governments see themselves as directing an enterprise, but the goal – the ‘common good’ – is ill-defined. It is as if a group of people have agreed to take a journey together without having decided where they want to go. To ensure there are no disputes over the destination, socialist governments have to impose on society, via fascistic methods of propaganda, a ‘Weltanschauung’, a set of values which can mediate between such pressures as ‘more milk for children’ or ‘better wages for agricultural workers’.Footnote 11
By 1960, the enterprise of socialist governments seemed to have changed from ‘doctrinaire socialism’ to a woolly egalitarianism, so that ‘the greatest danger to liberty’ now appeared to Hayek to come from ‘the efficient expert administrators exclusively concerned with what they see as the public good’.Footnote 12 But political limits on individual freedom were still the principal target of Hayek's analysis. It is interesting to note the similarities with Michael Oakeshott's argument that a polity should be only a ‘civil association’, concerned with setting a framework of order, not an ‘enterprise association’, concerned with goals like ‘the award of recognition or advantage in the pursuit of individual or corporate purposes or … ushering in the new Jerusalem’.Footnote 13 Hannah Arendt, also writing in the shadow of Nazism, harboured similar fears of an intolerant ‘mass society’, which prioritizes abundance over freedom.Footnote 14 Anti-statism resonated across the political right in the decades after the Second World War, though the planners seemed to have the upper hand.
Despite his anti-statism, Hayek saw a role for an ‘extensive system of social services’.Footnote 15 Welfare needed to be generous enough to equip people with the material resources and psychological security to strive to better themselves. The propensity for people to do so was something Hayek took for granted: his conception of human nature was highly individualistic, and his view of human incentives was rational and economistic. Hayek thought ‘government may, usefully and without doing any harm, assist or even lead’ in welfare provision.Footnote 16 But his profound fear of government coercion of individuals and seizure of national resources meant that Hayek argued that government should only provide basic welfare: provision above the minimum should be left to ‘competitive and voluntary efforts’.Footnote 17
Like Hayek, Milton Friedman assigned an important role to social security, and endorsed government provision of welfare. For Friedman, the basic reason to alleviate hardship was that poverty has negative externalities (what he called ‘the neighbourhood effect’). Poverty may cause crime, vandalism, and other material problems, and it pains most people to see their fellow citizens in need. Private, charitable provision of welfare was the ideal, but whereas in small communities, public pressure could ensure the rich contribute to charity, ‘[i]n the large impersonal communities that are increasingly coming to dominate our society, it is much more difficult for it to do so’.Footnote 18 So governments needed to intervene to ensure that all contribute to the welfare from which all benefit. Because the market was the most efficient method of allocating goods, and because he thought that people were driven by the profit motive above all, Friedman prescribed a particular form of social security which would best maintain the free functioning of the market and personal effort. He called it ‘negative income tax’. It worked as follows: an income line is set, somewhere under the average income for the nation; those above the line pay tax; if a person's income falls below the line, it is topped up by a benefit payment of some proportion of the difference between their income and the set line, avoiding a disincentivizing high marginal tax rate.Footnote 19
In 1963–4, British economist Dennis Lees visited the University of Chicago and met Friedman.Footnote 20 He brought back the ‘negative income tax’ model, setting out a scheme for Britain in a 1967 article. Lees set the ideal income line for a household at the level of their collective tax allowances, and the rate of the negative tax payment at 50 per cent. For example, a family with three children and a net (earned) income of £400 would have total tax allowances (personal and child tax allowances, plus the two-ninths earned income allowance) of £773. Their actual income is thus £373 below their ideal income line; they would receive a payment of 50 per cent of this (£187), bringing their total income to £587.Footnote 21 Three years later, the Institute for Economic Affairs (IEA), the independent neo-liberal think-tank founded in 1955 on the advice of Hayek, convened a group of economists, political scientists, and a social scientist, Barbara Shenfield, to compare the Friedman/Lees model with three other forms of ‘reverse income tax’. Their starting assumption was that the income of the poor should be raised to an adequate minimum – not a bare minimum, but a level appropriate to British society in the 1970s – which they took as supplementary benefit levels, with long-term additions and occasional payments. The authors, like Friedman, thought that the provision of a basic standard of welfare was vital to ‘[secure] the “external” benefits to the community at large’. Society and the economy would benefit if all were equipped to contribute to the best of their ability.Footnote 22
The authors considered first a ‘social dividend’ system, as proposed by Liberal (latterly Conservative) politician Lady Rhys-Williams in 1943, and taken up in a recent pamphlet from the left-leaning think-tank Political and Economic Planning (PEP). In this system, the state pays a prescribed minimum income (the social dividend) to all families regardless of income. Income tax is levied on all private income, at a rate of 32·5 per cent, so that the net benefit of the social dividend decreases as income rises. The social dividend for a family with two children – based on supplementary benefits plus rent allowance – was £731. Such a family with a private income of £500 would pay £162·50 tax, and then have the social dividend added, making an end income of £1,086·50 – raising them well above the minimum income line. The ‘break-even’ point, where a family's final income is the same as their private income, comes at £2,249 – just over three times the minimum income level. Even in a modified version which levied extra taxes to reduce the benefit to families who were not in poverty to start with, a large ‘spill-over’ still existed. This would mean a high tax burden, which, the authors felt, was ‘likely to weaken incentives among the general body of taxpayers’. For this reason, these schemes were ruled out.Footnote 23
Next, the authors examined a Friedmanite system. This worked just as Dennis Lees's scheme, but the income line was set at supplementary benefit levels (instead of at the level of tax allowances). Negative tax was paid at 50 per cent. A family with two children and an income of £500 would have it topped up by 50 per cent of £231, to £615·50. This was the cheapest system, but it was cheap because it did not raise the incomes of the poor to the minimum level, and for this reason, it was summarily dismissed.Footnote 24
Finally, the authors considered a minimum income guarantee, where the state tops up the income of all those below the minimum prescribed line to that level. This was less costly, as it was entirely selective, and it eradicated poverty. All families with two children who had an income of less than £731 would have it topped up to that level. The authors were relatively unconcerned about the 100 per cent marginal tax rate on those receiving income support:
The depressing effects of poverty may themselves be more important than the marginal rate of tax, and relief from the struggle to make ends meet may have a stronger effect in encouraging self-reliance and the will to independence than that of the high marginal tax rate in the opposite direction. The people concerned are mainly old and either unoccupied or in part-time employment and the disincentive effect will apply only to those whose earnings potential does not substantially exceed the poverty-line minimum income … the potential loss of work effort due to a high marginal tax effect on people with the lowest incomes is likely to be small.Footnote 25
More importantly, lower taxes would be imposed on the majority as the scheme was cheap. The authors concluded that a minimum income guarantee ‘may be the most advantageous form’ of reverse income tax (though they were alive to possible dangers).Footnote 26 They insisted that a safety-net for the poor was vital: poverty sapped the potential strength of poor citizens, and the government must therefore stamp it out. But equally important to the IEA were incentivizing tax breaks for the majority, and an increase in private, competitive provision of health, education, and insurance-based social security for those at mid- and upper-income levels. Competition would bring with it efficiency and greater choice. The IEA thus echoed Hayek's enthusiasm for private welfare in this and many other publications from the late 1950s onwards.Footnote 27
The slightly different justifications for state welfare offered by these neo-liberal writers, and the varying policies they endorsed, demonstrate a common set of preoccupations which justifies the common label. The comparison between the IEA's and PEP's treatment of the ‘social dividend’ scheme is instructive. PEP emphasized the ‘social’ nature of wealth, and might even have been happy to see a large ‘spill-over’ of benefits: by tying in a large body of affluent and middle-class beneficiaries, welfare schemes are rendered less politically vulnerable. The IEA authors, by contrast, emphasized the individual, and the disincentive effects of high taxation. They agreed with Friedman that crushing poverty could itself be more of a depressing factor than monetary disincentives. And like Hayek, they wanted those on higher incomes to choose private welfare, removing state monopolies. But the policy they endorsed – the minimum income guarantee – was not one which would gain traction with Thatcherites. The variety of theories about state welfare and policies on offer demonstrates that there was flexibility within the neo-liberal project to emphasize different ends and to choose different means.
III
As suggested by the interest of both PEP and the IEA, wholesale change in the tax/benefit system was attractive to both ends of the political spectrum in the late 1960s and 1970s, and reverse income taxes looked like the frontrunners. Left and right were driven by different motives. Their differences stemmed from each party's historic position on selectivity and universality. Labour had built its identity around the Attlee government's universal, ‘cradle to grave’ welfare, which tended to stabilize incomes over an individual's lifetime, and which, along with full employment, also had a small redistributive effect on society as a whole. The Tories had developed an alternative model which favoured a smaller state, selective benefits, and greater choice in self-provisioning for the better off.Footnote 28 But both were under threat from the 1960s onwards. Universality looked wasteful, particularly as economic growth faltered. The ‘poverty lobby’, centred on organizations like the Child Poverty Action Group (CPAG), rediscovered poverty in the midst of the welfare state in the mid-1960s, focusing attention particularly on the plight of low-income working families.Footnote 29 And it was found that the middle classes benefited disproportionately from the welfare state, particularly from free healthcare and education, as well as from loopholes in the tax/benefit system.Footnote 30 But selectivity too seemed problematic: means-testing was unpleasantly associated with the Poor Law and the ‘hungry thirties’; and there was a new focus in the 1970s on the ‘poverty trap’, the term coined by Frank Field and David Piachaud to describe the powerful disincentives created by the reduction or withdrawal of whole groups of linked means-tested benefits as income increased.Footnote 31 Both main parties were attracted to the idea of a unified tax/benefit system which could evade the problems of means-testing and universality, and tackle the issues of the working as well as the non-working poor in one fell swoop. British policy-makers were aware of similar trends across the Atlantic: proposals for guaranteed income schemes along the lines of a social dividend or Friedmanite negative income tax came from President Nixon (the Family Assistance Plan), 1972 Democratic presidential candidate George McGovern (the Demogrant), and President Carter (the Program for Better Jobs and Income), though ultimately all faltered faced with the entrenched distinction in American minds between the deserving and undeserving poor.Footnote 32
Edward Heath's Conservative party developed a tax credit scheme during the detailed policy-making process undertaken in opposition, set out in a 1972 Green Paper. This planned to replace tax allowances, as well as some benefits, most significantly family allowances, with tax credits. They would cover those with income over £8 a week from a job, National Insurance or pension entitlements. Those within the scheme would have a credit calculated: £4 for a single person, £6 for a ‘married man’, £2 for a child. They would inform their employer, or the body paying their pension or insurance payments, and this body or employer, in making the payment, would deduct tax at the rate of 30 per cent, then offset against this the credit. If the amount of the credit exceeded the amount of tax, the excess would be paid to the individual. A man earning £9·60 a week (about £500 a year) would pay £2·88 tax; if he was married with two children, he would receive a £10 credit, giving a final income of £16·72 (or £869·44 a year). The scheme would help pensioners and tackle poverty among working families, without using the hated means-test. But it would still target payments at those in need. By working through the tax system, the stigma of state payments would be lessened. The system was simpler, easier to understand, and automatic. It would not have problems with take-up. It would bring short-term benefits from National Insurance within the tax system. And it would remove the anomaly that those with low incomes were unable to take full advantage of their tax allowances. But the scheme was never intended to offer ‘a complete solution’: supplementary benefit (means-tested) would remain.Footnote 33 Nevertheless, in 1974 Geoffrey Howe called Heath's tax credit scheme the greatest step forward in welfare provision since Beveridge. Howe still felt, on the cusp of Thatcherism, as he had in 1961, that a tax credit system was the best form of welfare as it made all payments selective, while tempering the harshness of the means-test.Footnote 34
Practical constraints meant Heath was unable to implement his scheme (always presented as a long-term goal), but under Wilson and then Callaghan, Barbara Castle led the charge for child benefit, the first step in a gradual move towards a Heath-style tax credit system. Due largely to the poverty lobby, child benefits were introduced even after Callaghan sacked Castle (though the benefit was set at a low level). They were to be followed up – in theory – by a move to pensioner credits, and then a full system of tax credits once powerful enough computing systems were in place. Heath's plans had faltered, but his technocratic, managerialist solution seemed to be surviving even after he was ejected as prime minister in 1974 and then as leader of the Conservative party in 1975.
Given this political context, in the early years of Thatcher's leadership the party had little choice but to say that it remained ‘committed to the evolution of a satisfactory Tax Credit scheme’.Footnote 35 Thatcher and her key supporters, men like Keith Joseph and Alfred Sherman (Thatcher's speechwriting guru at the Centre for Policy Studies (CPS)), were initially enthusiastic about tax credits.Footnote 36 They thought they could even save money, ‘if no attempt were made to improve the general standard of living’, though like Heath, they soon realized that it would be electoral suicide to make large groups of people worse off.Footnote 37
However, even in 1976, the ‘band of romantics about tax credits’ was ‘dwindling’, and by 1977, Thatcherites had turned against tax credits.Footnote 38 Such schemes were now seen as an engine to transfer more and more national income into the hands of bureaucrats. This argument owed little to monetarist theory and more to a Hayekian fear of the state. Such fears were fuelled in the 1970s by the public choice theory developed at the Virginia school of political economy, another strand of American free-market thought imported into Britain in the 1970s by the IEA, among others.Footnote 39 Noel Thompson has described in detail the profound attack on the Keynesian settlement made by the public choice school's analysis of the power-grabbing pretentions of managerialist civil servants. The critique was even more damaging as it chimed with home-grown denunciations of over-mighty bureaucratic lethargy which came from across the political spectrum in the 1960s and 1970s (the image of a mindlessly obstructive, establishment-run bureaucracy presented in Yes, Minister in the 1980s drew inspiration from, among other things, the diaries of Richard Crossman and Barbara Castle).Footnote 40 The fear was that, regardless of the level tax credits were set at, a unified tax/benefit system arrogated control of the flow of national resources in the hands of the bureaucracy; and that from there it was a slippery slope, for self-interested civil servants and pressure groups would progressively enlarge the scope of the welfare system. An ex-civil servant advised of his fear ‘that Tax Credits might fall into the hands of the “Welfare Staters”’.Footnote 41 Ralph Howell, a backbencher particularly exercised by the topic of taxation and benefits, sat on several of the relevant committees in opposition, arguing that tax credits ‘enshrined high income tax levels and low tax thresholds’.Footnote 42 This transferred power to bureaucrats, and disincentivized citizens, creating a ‘tread-mill society’.Footnote 43 Late in 1978, Joseph summarized Thatcher's objections to tax credits: ‘reinforcement of the “transfer machine” … further socialization of income … further entrenchment of expectations and the removal of the motive to personal thrift’. Tax credits were no longer a serious option in the foreseeable future.Footnote 44 Thatcher declared she would ‘fight like a tiger’ against any Labour plans to introduce pensioner credits.Footnote 45
Nevertheless, tax credits lived on in a strange half-life throughout Thatcher's opposition period. Patrick Jenkin, who took over the Department for Health and Social Security brief in late 1975, still believed that with a Heathite tax credit system, ‘we can look forward to ending the “Two Nations” of which Disraeli spoke so powerfully a century ago’.Footnote 46 Because of the devolved nature of the policy-making process (developed in conscious contrast to Heath's detailed, centralist programme), Jenkin had considerable latitude to pursue tax credits, and was aided by particular officials at the Conservative Research Department (CRD), whose ‘crusading zeal’ in favour of child benefit and tax credits Nigel Lawson challenged angrily in 1978.Footnote 47 But Jenkin became aware that ‘[m]any voices in the Shadow Cabinet had been raised against Tax Credits’.Footnote 48 Unable to hammer out any agreement (or, indeed, to force Thatcher's hand as he did when he got Howe's agreement to pledge publicly to meet Labour's planned increases in NHS spending), plans to present the country with a document on The right approach to social policy had to be dropped. ‘[W]ith the doubts now hanging over tax credits’, rued Jenkin, ‘I do not believe that we could usefully publish anything.’Footnote 49 Nevertheless, to drop tax credits from the manifesto would expose the party, as one MP put it, ‘terribly to parody’.Footnote 50 Gordon Reece, Thatcher's influential publicity adviser, also urged her to maintain the continuity of appearance.Footnote 51 So the 1979 manifesto equivocated, claiming that the party ‘will wish’ to move towards tax credits, but that ‘progress will be very difficult in the next few years, both for reasons of cost and because of technical problems involved in the switch to computers’. (Chris Mockler, the chief CRD crusader in favour of tax credits, had pointed out during the manifesto drafting process that it was not entirely true to claim that the implementation of a tax credit system was impossible for technical reasons, and demanded the language be toned down.)Footnote 52 Norman Fowler (new secretary of state for social services) equivocated in the same manner in the run-up to the 1983 election, claiming the party was ‘still interested’ but was grappling with the cost.Footnote 53 But in fact, tax credits had been written off at least five years previously. Nicholas Timmins identified continuity in tax credits as a ‘policy goal’ for Thatcherites; but this was just PR.Footnote 54 Nigel Lawson foreclosed the possibility of any unified tax-benefit system after the 1983 election when, as chancellor, he refused to allow Fowler to consider taxation in his review of the social services. In his memoir, Lawson explained that he saw a ‘philosophical difference between tax and social security’. Any ‘basic income’ or ‘social dividend’ scheme would saddle a ‘large part of the population’ with disincentivizing high taxation, and blur the ‘important distinction between what individuals earn by their own efforts and what they receive from the State’.Footnote 55
As we have seen, Thatcherites thought tax credits nationalized income and reduced incentives to work. Taxpayers were overburdened and infantilized by the nanny state which took with one hand and gave back with the other. Disincentives hit the rich (the brain drain), but were perhaps worst for the poor. The problem was that, as Peter Cropper, CRD officer and founder member of the Conservative free-market philosophy group Longbow, put it: ‘the nation has willed the level of unemployment and supplementary benefits up to a level which is dangerously close to (or in some cases actually above) the remuneration available at work’.Footnote 56 Ralph Howell coined the term ‘won't work’ to describe the problem. It had two elements: because of the loophole which left short-term sickness or unemployment benefits untaxed, some workers might choose periods of idleness which left them actually in profit; others would not take a job which offered them little or no material advantage over unemployment, and would live entirely on benefits. To tackle the first problem, short-term benefits must be taxed. To tackle the second, income differentials between the employed and unemployed must be increased.Footnote 57
Cropper argued that the best way to increase differentials was ‘[s]traight cuts in direct taxation’.Footnote 58 ‘Won't work’ was given a higher priority than the ‘poverty trap’, meaning that the removal of the means-test, while still desirable, was no longer so important, and finding tax cuts was the principal goal.Footnote 59 This was the conclusion of the Fentiman Road meetings in the summer of 1978; and it was endorsed by Keith Joseph and his economic advisers at the end of the year: ‘all our spare revenue resources should go into tax reliefs as a means of economic rejuvenation’.Footnote 60 The belief that cutting tax rates would bolster ‘economic rejuvenation’ found ample support in the work of supply-sider Arthur Laffer. He was best-known for his ‘Laffer curve’, sketched on a napkin in a Washington restaurant in 1974, which claimed that there is a point above which, as tax rates are increased, tax revenues begin to decrease. He argued that the US and many other Western nations were in this ‘prohibitive’ region, and that tax cuts would have wide-ranging effects, from drawing more capital into the economy, to reducing unemployment and tackling the ‘poverty trap’ inflicted by high marginal tax rates.Footnote 61 Growth would create more government revenue in the future, and more prosperity to be shared out. The implication was that all would be winners, including the poor. Thatcher knew of Laffer's economic arguments, but though she believed Laffer's ‘basic theory is right within limits’, she said she ‘daren't use it’.Footnote 62 In presenting tax cuts to the electorate, it was more prudent to refer to intuitive, homely explanations, and to concrete examples of low taxation, high economic growth, and low unemployment under Tory governments from 1951 to 1964, or on the continent, than to an American academic theory.Footnote 63 Laffer's theory also focused on macro-economic efficiency, leaving out the moral argument for tax cuts that was so enticing to Thatcherites.
Though Thatcherites were aware of the electoral problems with reducing benefits, Nigel Lawson, for one, was not theoretically opposed to reducing benefits rather than cutting taxes on earnings. The new econometric history of the late 1970s, which blamed government relief programmes for high unemployment during the 1930s, gave Lawson evidence to support his argument that ‘a reduction in unemployment pay would actually reduce unemployment’. But he knew it would be unacceptable to the country and many in the party.Footnote 64 In the long run, proper tax and benefit uprating policies should ‘ensure that the gap between unemployment benefit and average industrial earnings steadily widens’.Footnote 65 Taxes must be lowered, and benefits and taxes must both be uprated by the same measure of inflation, to ensure that benefits did not creep up on earnings (as was the case in the mid-1970s, because benefits were uprated in line with prices or incomes, whichever was higher).Footnote 66 These twin policies were relentlessly pursued by the Thatcherites once in power. Nigel Lawson made a start in 1977 by supporting the Rooker-Wise amendment, which automatically uprated personal tax allowances in line with the retail price index.Footnote 67
Thatcher's opposition period also saw concerted efforts to develop a plan to tax short-term benefits, despite formidable administrative problems, and the fact that ‘about half the unemployed drawing benefit’ – that is, all those who had no income other than supplementary benefit – ‘would be completely untouched’.Footnote 68 The CRD considered Beveridge's original system, which meant everyone required an individual tax return at the end of the year. Improved administrative systems now made this possible as it had not been in the late 1940s. But the CRD rejected this option, as the long time lag meant, they felt, that there would be little impact on the ‘why work?’ problem.Footnote 69 The moral concern over ‘why work?’ was driving policy.
Plans to tax benefits and reduce income tax were not merely a play for the hearts (and votes) of the middle classes and affluent workers. They stemmed partly from a suspicion of the nationalization of income, as well as from the monetarist imperative to reduce the Public Sector Borrowing Requirement (PSBR). But underlying the policies on poverty and social security was a moral imperative: Thatcherites thought their plans would make the tax/benefit system fair, re-incentivize British citizens and re-energize the British economy. While the policy development process had links to neo-liberal theories and think-tanks, and echoed some of their catch-phrases, Thatcherites had slightly different aims, and so favoured different policies. Whereas the IEA authors were willing to admit that poverty could be a depressing force, Thatcherites thought that the poor needed to pull themselves up out of poverty, and that given the right incentives (often punitive ones), they would do so. The roots of Thatcher's moralistic view of poverty and human nature lay not in pure neo-liberal theorizing, but in conceptualizations of society and human nature rooted in Thatcher's formative years. It is to these that I now turn.
IV
In 1961, one IEA author noted that ‘few modern students of the so-called social sciences go back to first beginnings. Partly it may be that our romantic, irrational, emotional age does not want to seem like that of the great rationalists in the Enlightenment, who insisted on going back to the “noble savage”.’Footnote 70 But Thatcherites did sometimes go back to the origins of society. Thatcher, it appears, agreed with a correspondent who wrote, ‘[t]he truth is, as all the sages and philosophers of history have agreed, that man is basically selfish’.Footnote 71 Thatcherites, as Alfred Sherman wrote, ‘simply recognise the force of self-interest in human affairs, particularly economic affairs. We neither praise it nor denigrate it.’Footnote 72 Self-interest was, in fact, the original basis for collective living: ‘All men are possessed of evil or anti-social instincts … It was to restrain such instincts, and to provide channels for goodwill, that public order in the community came into being. Its origins lie in the impulses of the individual.’Footnote 73 Sherman argued that self-interest is not base selfishness because people are embedded in families and communities. Families were the key: he pointed out that when Thatcherites talked of the individual, what they meant was ‘the family’.Footnote 74 Hence Thatcher's famous, ‘who is society? There is no such thing! There are individual men and women and there are families.’Footnote 75 Individuals working in the interests of their family would produce a prosperous but also a moral society.
Thatcherites were confident in the 1970s that the institution of the family remained in good health. In this belief, Thatcher was bolstered by a list of sociological works supplied by the House of Commons Library for use in the preparation of a speech to the National Council for Women. As the research officer put it, current sociology suggested that the family was stronger than ever in the modern world.Footnote 76 But the origins of these views on human nature and the family can be traced back further, to Thatcher's generation and her Methodist upbringing. Robert Moore's investigation of Methodism in a Durham mining community in the mid-1970s described the stubbornness of Methodist individualism among those whose religious foundations were laid in the pre-war period: ‘[m]en and women steeped in a religion based on the notion of individual salvation, personal responsibility and self-help do not seem to accept even mildly collectivist ideas very readily’. They expressed ‘deep misgivings about the Welfare State’, referring to people who ‘won't work’ and to their own efforts to overcome economic hardship.Footnote 77 Thatcher called frequently on all these tropes in her rhetoric. This instinctive reliance on beliefs moulded by Christianity is interesting in light of Callum Brown's thesis that ‘discursive Christianity’ faltered in Britain in the swinging sixties.Footnote 78 Though to offer a conclusion about the vitality or otherwise of discursive Christianity in the 1970s is far outside the scope of this article, it is interesting to note that Thatcher felt such currents were alive and well: ‘I still believe that the majority of English parents want their children to be brought up in what is essentially the same religious heritage as was handed to me. To most ordinary people, heaven and hell, right and wrong, good and bad, matter.’Footnote 79
Thatcherites, then, conceived of human nature as self-interested, but not entirely individualistic, for people were embedded in families and communities. But we must delve a little deeper into Thatcherite understandings of the societal influences on behaviour, in particular, how they thought structure and culture were related. It is generally assumed that Thatcherites emphasized culture in explanations of poverty. It is also often implied that cultural and structural explanations of poverty are mutually exclusive. Left-wing critiques of cultural explanations of poverty – going back at least to American sociologist/psychologist William Ryan's critique of the 1965 Moynihan report (to which I will return shortly) – have suggested that to focus on culture effaces the iniquitous effects of structural inequality, discrimination, and disadvantage.Footnote 80 But in the 1970s, Thatcherites assigned a key role to structure: they assumed that economic and legal frameworks had a long-term, formative effect on culture. Socialist structures, particularly the punitive taxation and dependency-inducing benefit systems, had undermined ‘Victorian virtues’ like thrift and hard work, according to Thatcher (hence ‘won't work’). Union wage-claims replaced individual effort. Asked by the Church of England to make child benefit a priority, Thatcher commented that ‘the larger the child benefit, the more people look to the State to support the children for whom they are responsible and whom they brought into the world’.Footnote 81 Socialism had thus caused economic, but also moral decline. Reversing this moral decline lay at the heart of Thatcherism. As Thatcher put it in 1976, the main issue was not material but ‘moral … where the State is too powerful, efficiency suffers and morality is threatened’.Footnote 82 Sherman echoed her in arguing for the ‘social market economy, not primarily on economic grounds, but on moral grounds, because it entail[s] the widest spread of responsibility. It has also proved economically most beneficial, but that is an added bonus’.Footnote 83 Milton Friedman too had argued that the production of wealth was a ‘desirable by-product’, not the ‘main justification’ of a free market. For him, the main issue was freedom.Footnote 84 For Thatcherites the main issue was morality and responsibility. They echoed the rhetoric, but subtly altered the emphasis.
Thatcherites also echoed Friedman's analysis of poverty and charity. They often cited the example of Victorian capitalists passing factory acts and founding charitable institutions – used by Friedman in Capitalism and freedom, and in shorter articles which Thatcherites culled for ideas.Footnote 85 Sherman cited Disraeli and the Earl of Shaftesbury; Thatcher referred to Victorian capitalist-philanthropists, as well as to her own Methodist, small-capitalist upbringing.Footnote 86 But neither Friedman's analysis of negative externalities, nor of social change, figured in the Thatcherite story, which still insisted personal provision and private charity were superior to state provision. Thatcher favoured the Good Samaritan, and the moral she drew from the biblical story was that you had to be well-off to be able to give.Footnote 87 The idea that poverty itself might sap the vigorous virtues did not play a large role in the Thatcherite analysis; nor did the idea that society might have changed radically since the days of Victorian charity, rendering private philanthropy inadequate.
Though structure had a role to play, culture lay at the heart of Thatcherite explanations of poverty. This is clearest in Keith Joseph's ‘cycles of deprivation’ theory, which held that inadequately parented children become inadequate parents, living irresponsible, chaotic, and unproductive lives.Footnote 88 Sherman wrote similarly about ‘the moral inadequacies which often underlie poverty and what is wrongly called “deprivation”’.Footnote 89 Thatcherites saw a culture of deprivation or poverty as the reason that the poor were poor. This culture led them to have poor housing, poor health, disorganized lives, low incomes, and irresponsible spending patterns. What defined them as poor was their culture, not their low incomes – which were an outcome of that culture; this model of poverty turned on its head the Labour/poverty lobby definition which said that the poor were poor because they had low incomes, and the solution was to give them access to more resources. There is clearly a tension between the Thatcherites’ cultural explanation (and definition) of poverty, and the insistence that people are rational economic beings, who will work if working brings proper monetary gains. The economistic, rational conception of human nature and motivation had clear roots in neo-liberal writing. The cultural explanation had parallels with American debates in the 1960s and 1970s. But its deepest roots lay in British discourses.
Thatcherite descriptions of poor people's culture often suggested that the poor had ‘the shortest time-horizons and the least self-discipline’, compared with the middle classes’ ‘further time-horizon’ and ‘willingness to defer gratification’.Footnote 90 Such statements lay in a long, home-grown tradition, going back to the Edwardian middle-class philanthropists and proto-social workers studied by Ross McKibbin.Footnote 91 They also breathed new life into the division of poverty into ‘primary’ and ‘secondary’ (the latter the result of improvident spending), a division which entered public discourse via Rowntree's famous studies of York.Footnote 92 J. H. Veit-Wilson has shown that Rowntree in fact adhered to a relative definition of poverty, not an absolute one; but that this had been neglected by most people since, including Peter Townsend of the CPAG in his arguments for a relative conception of poverty.Footnote 93 The classification of the poor as ‘fit’ and ‘unfit’, respectable and hopeless, can be traced back to Charles Booth's surveys of the London poor in the 1880s, and to debates in the National Association for the Promotion of Social Science in the late 1860s,Footnote 94 and Booth and other discussants were merely reinforcing the dominant prejudices of their age, which were no doubt bound up with the Protestant ethic of capitalism.
If the poor were defined as those who had a ‘culture of poverty’, the middle class should also properly be seen as a cultural group sharing a ‘value-system’.Footnote 95 Ferdynand Zweig, the Thatcherites’ most favoured sociologist in the 1970s, followed Weber and Tawney in calling it the ‘Protestant ethic’.Footnote 96 Thatcher called it ‘Victorian virtues’ (though ‘Victorian values’ circulated most widely).Footnote 97 Economist and Sunday Telegraph journalist Patrick Hutber, in a staunch defence of the middle class, debated its definition. He was
tempted to say that a member of the middle classes is like an elephant – one knows it when one sees it. That, of course, is not good enough, which is why I would suggest an alternative definition, that of motivation. If a single word has to be found to sum up the characteristic middle class virtues, middle class aspirations and middle class attitudes, I would choose a relatively old-fashioned one: thrift.Footnote 98
Thatcherites thought this ‘value-system’ had flourished in the economic and legal framework of competitive capitalism: ‘[h]istorically, bourgeois values have rested on personal economic independence’; but they were not a function just of ‘income but of class status and traditions’.Footnote 99 The way to solve poverty was to extend the bourgeois value-system downwards. This prompted Thatcherite interest in ‘embourgeoisement’.
The debate over whether affluent workers were becoming middle class (and Tory) had convulsed the left throughout the 1960s; but it had been put to sleep for them by the 1969 magnum opus, The affluent worker in the class structure, which dismissed ‘embourgeoisement’.Footnote 100 Zweig, though a marginal figure in the British sociological establishment (and originally a refugee from Poland), kept the theory alive, using data from the Affluent worker study to argue for embourgeoisement, ignoring the fact that the authors of that study had used the very same data to argue Zweig's theory was wrong.Footnote 101 To Thatcherites, embourgeoisement promised the rejuvenation of Britain: Joseph called it ‘the objective for our lifetime’.Footnote 102 It was clear that a minority would remain unreachable, but Thatcher hoped, along with Hutber, for the ‘embourgeoisement of the majority of the population’.Footnote 103 To achieve widespread embourgeoisement, first, the economic and legal framework that ensured ‘incentives for success and penalties for failure’ must be re-established, and second, ‘charismatic leaders and political parties’ should ‘promote a new ethos, an heir to Protestant ethics’; ’ values and life-styles generated by the tone-giving classes in society’ must be ‘internalised by all’.Footnote 104 Structure was subordinated to culture, but still played a significant part in the Thatcherite analysis.
But there was another battle to be fought. Thatcherites feared, as right-wing journalist Edward Pearce put it, that for the ‘Guardian-reading lobby … 30 years of a strong state has undermined private values, and individual qualities’.Footnote 105 This was de-bourgeoisement. Inflation, the welfare state (the ‘Father Christmas State’ as Zweig called it), middle-class trade unionism and consumerism all created dependency, expectations, ‘militancy, solidarity, put-your-claim-in-and-spend-what-you-have-while-you-have-it’, and ‘“me-too”ism’ as Joseph warned.Footnote 106 This explains why Thatcherites celebrated ‘middle-class’ values, but simultaneously denigrated establishment elements of the middle class – those who would be eulogized by Noel Annan in Our age, the big-staters and paternalists.Footnote 107 The re-establishment of an economic and legal framework, and a cultural ethos which rewarded proper bourgeois behaviour was vital to ensure that middle-class corruption was reversed, as well as to convert workers. This dual impetus drove the approach to social security established in opposition. It meant Thatcherites opposed both selective and universal benefits, and focused relentlessly on reducing the tax burden for the majority. It drove the obsession with increasing in-work and out-of-work differentials, and rationalizing the tax/benefit system, particularly the comparatively small anomaly of untaxed short-term benefits. The crusade to save the soul of the middle class drove the abolition in 1980 of the earnings-related supplement for unemployment and sickness benefit introduced in 1966.Footnote 108 It lay behind the whole ethos of Thatcherite social security: ‘death by a thousand cuts’.Footnote 109 The aim was not to abolish the welfare state, but to make it irrelevant to those on middle and high incomes; to push them towards market-based provision (as Hayek and the IEA advocated). As Nicholas Timmins astutely pointed out, Thatcher was so successful that many in these groups overestimated the scale of the attack, so that when he set out in 1993 to write his history of the welfare state, many people ‘joked that I had better be quick about it before the thing disappeared’.Footnote 110 The contention that Thatcher failed to achieve her mission to destroy the welfare state starts from a false premise. The argument that Thatcher entered power in 1979 with little developed policy or ideology is also incorrect. Most of the changes to income support enacted after 1979 had been discussed, and often fleshed out, in opposition, and they stemmed from a distinctive vision of society and poverty.
Thatcherite conceptions of the individual and society drew on personal sources – Thatcher's generational experiences and her Methodist upbringing – and were bolstered by sociologists like Zweig. Thatcher's suspicion of the state chimed with Virginia school thinking, but more profoundly with Hayek's analysis, as channelled through Churchill. Thatcher absorbed The road to serfdom early in her political formation, when in 1945 Churchill made it a centrepiece of his election campaign.Footnote 111 Thatcher idolized Churchill, and she and her team frequently turned back to ‘Winston’ for inspiration.Footnote 112 In the 1970s, Thatcher displayed a Hayekian fear of socialist structures, and a Churchillian faith in the people: ‘what did Winston Churchill say?’ she asked. ‘He said, I do trust the British people, if they are given the incentive, they will respond, they will be responsible.’Footnote 113 She was confident that the ‘vigorous virtues’ of family-centred individualism would reassert themselves once socialism was smashed; that the culture of ‘dependency’ was a by-product of socialist interventionism.
This optimism declined during the 1980s as the dismantling of socialist structures did not bring about the expected moral rejuvenation. Thatcher came to focus more heavily on the intractability of culture, and to blame the affluence and permissiveness of the 1960s, and particularly the Wilson government. Mark Jarvis has suggested that these strands of Thatcherite rhetoric were present from 1975, but in fact they only really surfaced in 1982, becoming dominant in the later 1980s.Footnote 114 Thatcher's growing pessimism culminated in her emphasis, in her autobiography, on the importance of the church in supporting traditional values, and her embrace of American analyses of the ‘culture of poverty’.Footnote 115 The phrase ‘culture of poverty’ had roots in interwar African-American and urban sociology, but was made famous by left-wing anthropologist Oscar Lewis in the mid-1950s. His liberal ideas, however, were ‘easily appropriated by conservatives in search of a modern label for the undeserving poor’.Footnote 116 From the 1960s, two types of theory of the ‘culture of poverty’ came into conflict in America. One theory held that poor people had an entrenched, pathological culture of poverty, and were in need of individual interventions. William Ryan suggested this appealed to many self-identifying liberals and humanitarian conservatives. Both groups wanted to help the poor, but, at the same time, did not want to alter radically the structures of a society which served them well; hence the focus on individual interventions. Ryan saw D. P. Moynihan's 1965 report, The Negro family: the case for national action, as emblematic of this sort of theory of the ‘culture of poverty’ (though later commentators have stressed that Moynihan did identify external ‘social factors and economic conditions’ as the cause of family instability and of poverty).Footnote 117 The other interpretation of the ‘culture of poverty’, pioneered by sociologists like Herbert Gans, saw it as an adaptation to the structural situation the poor found themselves in, endowing it with greater dignity and legitimacy.Footnote 118 This interpretation suggested that the structural factors needed tackling.
John Welshman has argued that in the early 1970s Keith Joseph was stimulated by British debates about the ‘problem family … family planning and deprivation’ to work on his theory of ‘cycles of deprivation’; American debates were not influential.Footnote 119 Joseph may well have been aware of the US debates; he had, after all, a voracious academic mind (he won an All Souls Prize Fellowship), and when he first publicly outlined his theory of ‘cycles of deprivation’ in 1972, he organized a three-day seminar at All Souls, and the text went through eleven drafts. But the four key pieces of research he cited were British, and though he referred to one American work, it was far from a statement of the conservative American theory of the ‘culture of poverty’; rather it was a critique of American (and English) individualism, in favour of Soviet child-rearing.Footnote 120 Joseph and other Thatcherites started to engage with American theories of the ‘culture of poverty’ in the latter half of the 1970s, as part of the re-evaluation of Conservatism begun when Joseph negotiated from Heath a roving brief to re-examine policy in the summer of 1974. Joseph encouraged a self-conscious engagement with foreign sources of intellectual inspiration, particularly with iconoclastic American thinkers – Friedman and Hayek were, of course, the best known. In 1976, Joseph urged Chris Patten, director of the CRD, to read Edward Banfield's update to The unheavenly city, which created a ‘storm of criticism’, but which was of ‘great value’. This work set out to turn American urban studies upside down. Banfield began by dividing the population into four classes – upper, middle, working, and lower – based on their possession of time-horizons of decreasing length, ‘learned in childhood and passed on as a kind of collective heritage’. While the first three classes were all ‘normal’, the lower class's present-centred attitude was pathological.Footnote 121 Thatcher met Patrick Moynihan in early 1979 and they apparently had an ‘enlightening’ conversation about welfare, particularly the greater quantity of charity in the Victorian period.Footnote 122 Engagements such as these reinforced Thatcherites’ theories about poverty, time-horizons, and charity. In the 1990s, Thatcher noted that conservative thinkers like Michael Novak and Charles Murray had ‘reinforced’ her views.Footnote 123 She was increasingly comfortable with conservative American theories about intractable cultures of poverty as the optimism of the 1970s faltered. Thatcher's confidence in the 1970s that cultures of poverty would change if problematic structures (i.e. socialist structures) were removed was closer in some ways to the liberal American theorists (like Herbert Gans) – but the latter wanted to eradicate structural (classed) inequality, a project which would have horrified Thatcher.
The Hayekian roots of Thatcherite analyses of socialism are important for a proper understanding of the relationship of Thatcherism to ‘One Nation’ Conservatism. In the 1970s and 1980s, ‘wet’ Tories like Gilmour seized the ‘One Nation’ label and made it their own, associating it with paternalism and an extensive welfare state.Footnote 124 Stephen Evans has recently argued that we need to re-assess the relationship of Thatcherism and the ‘One Nation’ tradition. He suggests that Thatcher appropriated One Nation rhetoric as it ‘allowed [her] to speak to her party in an idiom they could understand and therefore support’, but focused on the patriotic themes of Disraelian One Nation Conservatism, rather than the paternalistic strands emphasized by the ‘middle way’.Footnote 125 In fact, drawing on Hayek, Thatcher re-worked the concept of the ‘Two Nations’ far more powerfully than Evans suggests. She claimed that ‘[n]owadays there really is no primary poverty left in this country’: hence there were no ‘two nations’ in Disraeli's sense.Footnote 126 The egalitarian socialist machine was the new danger to social intercourse. The two nations were no longer poor and rich; rather, socialism had ironically created not a classless society, not one nation, but ‘the most stratified of all societies, divided into two classes: the powerful and the powerless; the party-bureaucratic elite and the manipulated masses’.Footnote 127 Politicians and bureaucrats treated the second nation like ‘numbers in a State computer’.Footnote 128 The echo of Tocqueville via Hayek – and Churchill – is easily audible. The radical updating of the ‘two nations’ meant that when Patrick Jenkin said in 1976 that with tax credits, ‘we can look forward to ending the “Two Nations” of which Disraeli spoke’, he was using a language fundamentally at odds with Thatcherite understanding of the ‘two nations’. To them, tax credits meant socializing even more national income, placing it in the control of the ‘efficient expert administrators’, which, to Thatcherites, appeared to reinforce the new ‘two nations’ which socialism had created. Competition, choice, low taxes, and self-provisioning were designed to combat the socialism thought to be dividing Britain and dragging the country down.
Thatcherism was a coherent ideology: it was driven by a vision of moral rejuvenation which involved appropriating monetarist economics but dismissing Milton Friedman's negative income tax. In developing and presenting their project, Thatcherites drew on a range of home-grown traditions and discourses, plundering neo-liberalism when it suited them. Hayek's early intervention in 1944 was particularly influential. But neo-liberalism was a complex and diverse phenomenon, as suggested by the discussion of the different social policies endorsed by Hayek, Friedman, and the IEA. This could be a source of strength for the flexible Thatcherites: in their ideology and rhetoric, they easily fused and fudged elements of Hayek's 1944 fear of ‘hot socialism’ with his later stress on the tyranny of the bureaucrat and the social administrator. Replacing socialist government with the free market would do away with this creeping tyranny. Proper economic and legal structures would allow people to exercise the virtues they naturally inclined towards, creating prosperity and morality. In this way, the supposed tension between competitive markets and traditional morals was resolved, at least to Thatcherites’ own satisfaction.
