What did Thatcher say, and when?

By Channel 4 News

Updated on 04 October 2006

FactCheck scours the archives to put that soundbite in context.

The Claim
"I am not prepared ever to go on with tax reductions if it meant unsound finance."
Margaret Thatcher, as quoted by George Osborne, Conservative party conference, 3 October 2006.

Background
Spats over taxation have rumbled throughout the Tories' annual conference this year. The party has voted in favour of a document, Built to Last, which promises to put "economic stability and fiscal responsibility ahead of promises to cut taxes".

This is much to the chagrin of some members of the party, who want to make more vote-winning hay out of promises to decrease the tax burden.

In a speech to the Tory conference, shadow chancellor George Osborne talked about lower taxes but made no promises, summoning instead the ghosts of Conservatives past to support his case.

Stability, he said, was as important to the Tories today as it had been to former shadow chancellor Geoffrey Howe in 1978. Conquering inflation had been Howe's top priority, and would be Osborne's too.

On tax cuts, he quoted Margaret Thatcher, who, he said, was right to say that tax reductions should not come before sound finance.

But what do the Iron Lady's words mean, both now and then?

Analysis
Thatcher uttered the sentence in January 1983, during an interview with London Weekend Television's Weekend World.

The transcript of the interview is littered with reminders of how time has passed. Greenham Common. The Deutschmark. The need to maintain a strong nuclear deterrent against the Soviet Union.

Thatcher was still in her first term of office and had yet to call a general election. High inflation was being brought under control, although unemployment was rising steeply.

What about taxes? Thatcher makes the quoted statement in relation to a question on tax rises - the interviewer, Brian Walden, puts it to her that, despite promising substantial tax cuts before general elections, the tax burden has actually risen from 36 to 39.5 per cent.

Thatcher replies that her opponents are taking into account both direct and indirect taxes. "I prefer the indirect taxes," she said, "as you know we swung from a certain amount of direct to indirect tax for very well-defined reasons at the time."

Under the Tories, the proportion of taxation did shift slightly towards indirect taxation, most significantly an increase in VAT. Under Labour, it has shifted slightly back in favour of direct taxation, such as income tax and national insurance.

Let's look again at Osborne's speech. Straight after quoting Thatcher, he attacks the "secret, underhand, stealthy taxation of the British public that has been the hallmark of this chancellor."

Stealth taxes could be taken to mean the likes of pension credits and other "hidden" taxes that the public don't understand rather than simply being the same as indirect taxes, such as VAT and fuel duty. Still, it would seem that, in fact, Thatcher back then was being criticised for the same kind of crime - sneaking taxation past the public - of which Osborne today accuses Brown. Perhaps some things never change.

Contd.

What about public spending? Straight after her reference to "unsound finance", Thatcher's next sentence would surprise those who remember her as the spending-slashing enemy of the state. "We had to spend, we had to spend quite heavily," she said. "I've not been prepared to borrow more than I think is wise, so we haven't been able to do as much as we would wish."

How much did the Tories spend? As a percentage of GDP, public spending was 45 per cent in 1979-80; 47.5 per cent in 1980-1981; and 48.4 per cent in 1981-82. It hovered around the 48-49 per cent mark until 1985-86, when it dropped to 45.9 per cent and continued to fall .

Today, however, it is a comparatively low 42.4 per cent - low, by the standards of 1983, that is, though higher than the 39 per cent when Labour came to power in 1997-98.

What about her - and Howe's - desire for stability? The economy inherited by the Tories in 1979 was much less stable than that inherited by Labour in 1997.

In 1978, conquering inflation was an understandable priority for Howe. Inflation stood at 8.3 per cent in 1978 and 13.4 per cent in 1979. Although it increased towards the end of the nineties, by 1983 it had almost halved from 8.6 per cent in 1982 to 4.6 per cent in 1983. Today, however, it is a far more stable around 2.5 per cent. Should it really be such a high priority today for Osborne as it was for Howe in 1978? Despite a slight recent rise, it seems hard to believe.

Verdict
Brownie points to George Osbourne's researchers for unearthing a Margaret Thatcher soundbite that seems to back his cautious approach to tax cutting. It's a dangerous game, however. It wouldn't be difficult to produce many moreThatcherite words promising to "roll back the frontiers of the state".

And, of course, the Thatcher of 1983 was not the slasher of spending she became in her second and third terms - as our public spending figures above demonstrate.

In the absence of any substantive tax policies, we have to take the Tories' word for the soundness of their future management. Perhaps it's appropriate, then, that the statement by Thatcher which Osborne has chosen to use as his evidence for the Tories economic capabilities is just as vague as the Tories' current tax plans.

Sources
George Osborne, speech to conference, 3 October 2006
TV Interview for London Weekend Television Weekend World, 16 January 1983
Inflation 2004 - 2006, Office of National Statistics
A Survey of Public Spending in the UK (PDF), Institute of Fiscal Studies, updated September 2004
Consumer Price Inflation since 1750, Office of National Statistics
Treasury public finances databank, HM Treasury
Conservative election manifesto 1983

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