By Peter Hoskin
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This is the third part
of a week-long series looking at ‘The Wrong Right’; the barriers to the
Conservatives winning a majority at the next election. Yesterday, Tim
Montgomerie wrote about how the Tories might
properly reach out to working class voters. Tomorrow, Tim will also investigate attitudes towards
the State.

The 1980s loom like shoulder pads over the
conservative movement today. Ask folk on the Right who their favourite Prime
Minister is, and there’s a decent chance that they’ll respond Margaret Thatcher.
Inquire about their favourite US President, and it’s just as likely that they’ll
say Ronald Reagan. And who can blame them? Both Lady Thatcher and President
Reagan were leaders who seemed big even against the colossal events that were
going on around them. They made quite a mark.

But there has also been a tendency on the Right to
misremember the Thatcher and Reagan years, or to only remember certain aspects
of them. I recently wrote an article about this, concentrating on
Margaret Thatcher. The truth about her premiership is that it’s a good deal
more nuanced, rounded and surprising than popular history would have you
believe. There were her “boys” in the Falklands, yes, but there were also
defence cuts. There was her struggle against the unions, but she had also been a
union member herself. And so on and so on.

In this spirit, it’s worth dwelling on what can be
one of the most surprising elements of the Thatcher and Reagan era: their
efforts to cut back the State. If you thought that both leaders were merciless
and relentless in their use of the axe, then there might be cause for you to
reassess that belief. Let’s start with Baroness Thatcher…   

Thatcher and the State


As it happens, I also wrote about this recently.
There’s my chart-heavy post comparing the public finances
under Thatcher and under the Coalition, and there’s another on civil service numbers. In
which case, I hope you don’t mind if I just pull out some of the most striking
numbers from those posts, and leave you to click on the links if you’d like

  • Public spending in real terms (i.e.
    accounting for inflation) rose in every year of the Thatcher Governments, except
    for just two. In today’s money, spending stood at £320 billion when Baroness
    Thatcher took office, and £376 billion when she left, rising by an average of
    1.4 per cent each year. This compares with spending reductions in every year of
    the Coalition, which is expected to cut by an average of 1.5 per cent each
  • Spending on the health service rose by around 30 per cent across the
    Thatcher years.
  • According to a recent report from
    Oxford University, the administrative costs of central government actually rose
    by 20 per cent under the Thatcher governments. New Labour managed a 5 per cent
    increase. The Coalition is aiming for a 34 per cent cut.
  • Margaret Thatcher ran a structural deficit, measured as a percentage of
    GDP, in all but three years of her premiership — and one of those three years
    involved a “surplus” of 0 per cent. These years of surplus came towards the
    beginning of the Thatcher era, thanks to the 1981 Budget’s remarkable programme
    to reduce the 4 per cent deficit inherited from James Callaghan. But the
    deficit generally rose from 1983 onwards, such that it stood at 2.6 per cent of
    GDP by the end of the decade.

I haven’t,
however, written about Ronald Reagan on ConservativeHome before now, so the
next section will contain a couple of charts…

Reagan and the State


In his first inaugural address, Ronald Reagan
took time to attack the fiscal trends that preceded him. “But great as our tax burden is, it has not kept pace with public
spending,” he said.
“For decades, we have piled deficit upon deficit, mortgaging our
future and our children's future for the temporary convenience of the present.”

President Reagan’s proposed solution was, more or
less, to “starve the beast” — to use tax cuts to limit government spending. As
he put it in another address in 1981, “we can lecture our children
about extravagance until we run out of voice and breath. Or we can cure their
extravagance by simply reducing their allowance.”

So how did he do? Judging by this graph, not very well.
It shows — in real terms — the outlays, tax receipts and deficits of federal
government (i.e. that part of government that the President technically has
control over; spending is also controlled at state and local levels) during the
Reagan years. Turns out that all three increased:

Reagan graph 1

Indeed, as Steven F. Hayward argued in a
though-provoking article last year — entitled “Modernizing conservatism”
President Reagan’s early eagerness to “starve the beast” by cutting tax rates
may have been self-defeating in a wider context:

“The de facto starve-the-beast strategy was the great cop out of the
Reagan years. By assuming that restricting revenues would eventually compel
reductions in the size of government, the Reagan administration was able to
justify avoiding any serious attempt to reform entitlement programs. Beyond a
few very minor trims, every trial balloon of deeper entitlement reform was
swiftly routed and withdrawn. It is uncomfortable but necessary for
conservatives to acknowledge that Reagan's disinclination to attack
entitlements was one reason for his popularity — after an initial flurry, he
did not seriously attack the welfare state.”

The upshot, of course, of spending continuing to
outpace tax revenues was “deficit upon deficit,” to use Reagan’s own words. I
used the method outlined by Forbes’s James K. Glassman here to produce the table below.
It shows that the average annual deficit, as a percentage of GDP, was higher
under Reagan than it was under Jimmy Carter, George H.W. Bush, Bill Clinton and
George W. Bush. Of the past six Presidents, only Barack Obama tops it:

Reagan table

Which should suffice to make the point, but here’s
another graph for the pile; this one showing the number of federal employees
over the Reagan years:

Reagan graph 2

Why does
this matter?

The above isn’t intended to be a complete
picture of the Thatcher and Reagan governments, nor is it meant to disparage
what was achieved by both. As Andrew Lilico points out in an excellent Policy Exchange pamphlet,
the Thatcher years can be seen as ones of extraordinary fiscal restraint when
placed in a historical context. And as for Reagan’s fiscal policy, it remains true
that his tax cuts helped clear the way for the economic growth that was seen subsequently.

But how often does the Right admit that Lady
Thatcher only cut overall spending in two years of her premiership? Or that
Ronald Reagan fought, as he did, for increases in the US foreign aid
budget, above those recommend by Congress? Or that, on many measures, George
Osborne fiscal plans are more radical than what was achieved in the Eighties (although, admittedly, they are yet to be achieved themseves)?

And the problem is, this skews the current debate. False memories and and forceful rhetoric don't help to cut the deficit. It takes much more than that, as my colleague Paul Goodman will make clear on Friday.

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