The Iron Lady

trends – globalisation and computerisation – and an irresistible transformation of economic attitudes and behaviour, which long outlasted Mrs Thatcher and carried on vertiginously until it suddenly collapsed in the ‘credit crunch’ of 2008.

The sale of council houses was a specifically British social revolution which reflected the national obsession with home-ownership. From a mixture of prejudice and principle Mrs Thatcher believed that public-sector housing should really be abolished. She was convinced that council estates were breeding grounds of socialism, dependency, vandalism and crime. She had no interest in trying to improve them because she believed in principle that housing was not a commodity which the Government ought to provide, except for special categories like the elderly and disabled. In her memoirs she wrote unambiguously that the state should withdraw from the building and management of housing ‘just as far and as fast as possible’.³³ She could not, when in office, act on this principle as decisively as she might have wished; but she certainly did everything she could to shrink the public sector and very little to help those compelled by circumstances to live in it.

Mrs Thatcher thought the sale of council houses an unalloyed good, both social and economic. She made a point of attending the handover of the millionth house to be sold. By the time she fell in 1990, the number sold was up to nearly 1.5 million, and the total proceeds had accrued ?28 billion to the Treasury, which counted them – ‘duplicitously’, in Simon Jenkins’ view³⁴ – against public spending. Spread over eleven years, this was the biggest privatisation of them all, bigger than British Telecom, British Gas and electricity put together. But the blessings were not so unmixed as she believed.

For one thing, some of those families who were persuaded to buy their houses, particularly towards the end of the decade, tempted by the easy mortgages on offer from banks falling over themselves to lend, soon found themselves, when inflation rose and the recession of the early 1990s bit, committed to payments they could not keep up. As prices fell back to more realistic levels, many found that their houses were worth less than their mortgages – the phenomenon of ‘negative equity’. Many bright dreams of ownership ended in the nightmare of repossession five years later.

Second, it was naturally the best and most desirable houses that were sold – very few flats – and the more prosperous and upwardly mobile tenants who bought them, leaving the less salubrious high-rise estates to become sinks for the unemployed and problem families. The effect of Mrs Thatcher’s sell-off was to leave the social mix narrower than before, with a much higher proportion of tenants dependent on benefit. Her belief that there were no good estates was therefore self-fulfilling.

Third, the non-replacement of the houses sold and the consequent decline in the stock of council housing, combined with the late 1980s explosion in house prices in the private sector, at a time when there were still nearly three million unemployed, left an absolute shortage of affordable housing and led by the end of the decade to the shocking appearance of a tribe of homeless people sleeping on the streets of London and other major cities. This was the most serious negative consequence of a popular policy to which Mrs Thatcher resolutely closed her eyes.

The family silver

The second ‘crusade’ of popular capitalism was privatisation. It had, of course, been under way, from cautious beginnings, since 1979. But it only really took off as a rolling process in Mrs Thatcher’s second term, when it quite suddenly became the Government’s ‘big idea’, the central pillar of Thatcherism, both the symbolic embodiment and the practical realisation of the reversal of socialism which she had been talking about since 1975. Now, starting with British Telecom, the Government moved on to the major state-owned corporations which had supplied the nation’s essential services since 1945, services which only a few years earlier no one but a few free-market fanatics had imagined could be run by anyone but the state: the telephone system, gas and electricity, the national airline, the airports, even water supply. The expectation was successfully created that, as Nigel Lawson had asserted in 1981, ‘No industry should remain under State ownership unless there is a positive and overwhelming case for doing so.’³⁵ A momentum was established which led on – after Mrs Thatcher’s own fall – even to the two great behemoths of the public sector, coal mining and the railways. This was a huge and unexpected transformation of the economic landscape. Each successive privatisation was fought tooth and nail by both opposition parties, by the unions and most of those who worked in the affected industries, and opposed by the public as a whole, as measured by opinion polls. But each was accepted once it had happened, even by the Labour party, as an irreversible fait accompli. More than that, the privatisation process itself, to ministers’ amazement, actually generated a wave of popular excitement, fanned by an enthusiastic press. The key was the sale of shares, at knockdown prices, directly to the public.

Suddenly, John Redwood, then head of the Downing Street Policy Unit, recalled, the issue was not ‘will the public buy it?’ but ‘how can we do it technically?’³⁶ Lawson remembers a dinner with merchant bankers, all of whom – with one exception – ‘roundly declared that the privatisation [of BT] was impossible: the capital market simply was not large enough to absorb it’.³⁷ The answer was to by-pass the bankers and sell the shares direct to the public by mail order, television and newspaper advertisements. Mrs Thatcher ‘became excited by the possibilities’ and gave Redwood the backing he needed to convince the Treasury and the City.³⁸

The response exceeded all expectations: two million people applied for a prospectus, and when the first instalment went on sale in November 1984, the offer was four times oversubscribed. More than a million small investors applied for shares, including 95 per cent of BT employees, defying the advice of their union; most of these had never owned shares before, but the sale was weighted to favour those who applied for the smallest number. The price was kept deliberately low – 130 pence – for political reasons, since from the Government’s point of view the sale simply had to succeed. The result was a bonanza for the lucky applicants; the price rose 90 per cent on the opening day, as many buyers sold on immediately. The second instalment in June 1985 was similarly oversubscribed. In the end the sale – of just 51 per cent of the company at this stage, in three instalments over eighteen months – raised nearly ?4 billion. The company’s profits jumped spectacularly and by the end of 1985 the share price – for those buyers who had retained them – stood at 192 pence.³⁹

Immediately the success of the BT sale became clear, Mrs Thatcher was impatient to repeat it.⁴⁰ The obvious next candidate was British Gas. ‘For sheer size, prodigality of advertising, and the opportunity to involve small punters and large investing institutions alike in the calculation of a quick profit’, the Annual Register wrote, ‘the launch of British Gas in the private sector made history.’⁴¹ With the whole City now keen to get a share of the action, Rothschilds won a ‘beauty contest’ to handle the sale; four and a half million rushed to buy the shares. Once again they were deliberately undervalued and once again they were hugely oversubscribed: on the first day of trading the price leapt by 50 per cent. Labour furiously condemned the Government’s cynical underpricing of a national asset in order to bribe the public with their own money: in his first front-bench job as a Treasury spokesman Tony Blair alleged that the sell- off would cost the taxpayer ?20 – 30 per household.⁴² But the Government had achieved its aim of making shareholding popular as never before.

The third high-profile privatisation of the second term – though in revenue terms much smaller than British Telecom and British Gas – was British Airways, which had been successfully brought into profit by one of Mrs Thatcher’s favourite businessmen, Sir John King, and was sold off in February 1987. ‘The World’s Favourite Airline’ was now a successful international leader which investors were keen to buy into; this time the shares were eleven times over subscribed, and the price jumped 82 per cent on the opening day. Just before the election another glamorous name, Rolls-Royce – controversially nationalised by the Heath Government in 1971 – was also returned to the private sector. The only hiccup in this stage of the programme came with Britoil, which was floated in 1985 just when the oil price was falling. Millions of shares were not taken up; but the loss was the underwriters’, not the Government’s, and the political embarrassment at least did something to counter the charge that the share price of the assets sold was always set too low.

With the success of privatisation Mrs Thatcher had stumbled on an ongoing narrative which gave a central theme to her Government, and she was keen to keep the momentum going. British Steel, drastically slimmed down and restored to profitability by Ian MacGregor, was already well down the road. The 1987 Tory manifesto