Premiership of Margaret Thatcher

Deflationary strategy

Under the Thatcher government, the taming of inflation displaced high employment as the primary policy objective.

As a monetarist, Thatcher started out in her economic policy by increasing interest rates to slow the growth of the money supply and thus lower inflation. She had a preference for indirect taxation over taxes on income, and value-added tax (VAT) was raised sharply to 15%, with a resultant actual short-term rise in inflation. The fiscal and monetary squeeze, combined with the North Sea oil effect, appreciated the real exchange rate. These moves hit businesses – especially the manufacturing sector – and unemployment exceeded 2 million by the autumn of 1980, up from 1.5 million at the time of Thatcher's election just over a year earlier.

Former Prime Minister Edward Heath, who was also Thatcher's predecessor as party leader, was one of the fiercest critics of Thatcher's economic policies, although his verbal attacks on her policies were often seen as a sign of his anger at her for ousting him from the party leadership in 1975.

Political commentators harked back to the Heath Government's "U-turn" and speculated that Thatcher would follow suit, but she repudiated this approach at the 1980 Conservative Party conference, telling the party: "To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady's not for turning". That she meant what she said was confirmed in the 1981 budget, when, despite concerns expressed in an open letter from 364 leading economists, taxes were increased in the middle of a recession, leading to newspaper headlines the following morning of "Howe it Hurts", a reference to the Chancellor Geoffrey Howe.

Unemployment

In 1981, as unemployment soared (exceeding 2.5 million by the summer and heading towards 3 million before Christmas) and the government's popularity plunged, the party chairman, Lord Thorneycroft, and two cabinet ministers, Lord Carrington and Humphrey Atkins, confronted the Prime Minister and suggested she should resign; according to her adviser, Tim Bell, "Margaret just told them to go away". Thatcher's key ally in the party was Home Secretary, and later Deputy Prime Minister, William Whitelaw. His moral authority and support allowed her to resist the internal threat from the Heathite wets.

After the Brixton riot in West London in April 1981, Employment Secretary Norman Tebbit, responding to a suggestion that rioting was caused by unemployment, observed that the unemployment of the 1930s was far worse than that of the 1980s – and that his father's generation never reacted by rioting. "I grew up in the 1930s with an unemployed father", Tebbit said. "He did not riot. He got on his bike and looked for work, and he went on looking until he found it."

Over two million manufacturing jobs were ultimately lost in the recession of 1979–81. This labour-shedding helped firms deal with long-standing X-inefficiency from over-manning, enabling the British economy to catch up to the productivity levels of other advanced capitalist countries.

The link between the money supply and inflation was proven accurate and by January 1982, the inflation rate had dropped back to 8.6% from earlier highs of 18%. Interest rates were then allowed to fall. Unemployment continued to rise, passing 3 million by January 1982 and remaining this high until early 1987. However, Tebbit later suggested that, due to the high number of people claiming unemployment benefit while working, unemployment never reached three million.

By 1983, manufacturing output had dropped by 30% from 1978, although economic growth had been re-established the previous year. The productivity turnaround from labour-shedding proved to be a one-off, and was not matched by growth in output. The industrial base was so reduced that thereafter the balance of payments in manufactured goods was in deficit. In 1983 Chancellor of the Exchequer Nigel Lawson told the House of Lords Select Committee on Overseas Trade:

There is no adamantine law that says we have to produce as much in the way of manufactures as we consume. If it does turn out that we are relatively more efficient in world terms at providing services than at producing goods, then our national interest lies in a surplus on services and a deficit on goods.

Defence spending

In her first six months as Prime Minister, Thatcher repeatedly prioritised defence spending over economic policy and financial control. However in 1980, she reverses this priority and tried to cut the defence budget. The 1981 Defence Review by John Nott, the defence minister, dramatically cut the capabilities of the Royal Navy's surface fleet. She replaced Francis Pym as Defence Secretary because he wanted more funding. The cuts were cancelled when the ships destined for cuts proved essential in the Falklands War.

Housing and urban enterprise

One of Thatcher's largest and most successful policies assisted council house tenants in public housing to purchase their flats at favourable rates. The "Right to Buy" had emerged in the late 1940s but was too great a challenge to the post-war consensus to win Conservative endorsement. Thatcher from her earliest days in politics favoured the idea because it would lead to a "property-owning democracy". Some local Conservative-run councils enacted profitable local sales schemes during the late 1960s. By the 1970s, the working class had ample incomes to afford ownership, and eagerly adopted Thatcher's invitation to purchase their homes at a sizeable discount. The new owners were more likely to vote Conservative, as Thatcher had hoped.

To deal with economic stagnation in the inner city, the government innovated with "enterprise zones" starting in 1981; the idea began in Britain and was adopted by the United States and some EU countries. It targets designated small, economically depressed neighbourhoods and makes them exempt from some regulations and taxes. The goal is to attract private capital and new business activity that will bring jobs and progress to declining areas. Important projects included the London Docklands, Salford and Gateshead.

Iranian embassy siege

Thatcher's determination to face down political violence was first demonstrated during the 1980 siege of the Iranian embassy in Princes Gate, London, when for the first time in 70 years the armed forces were authorised to use lethal force on the British mainland. 26 hostages were held by six gunmen for six days in May, until the siege came to a dramatic end with a successful raid by SAS commandos. Later that day, Thatcher went to congratulate the SAS men involved and sat among them watching a re-run of the attack'. The breaking of the siege by the SAS was later celebrated by the public as one of television's greatest moments.

The decisiveness – christened the "resolute approach" by the Prime Minister herself – became Thatcher's trademark, and a source of her popularity. In the words of one historian: "The mood reflected Mrs Thatcher's Iron Lady stance, her proclaimed intention of laying the 'Suez Syndrome' to rest and again projecting Britain as a great power. Celebration of the SAS was a key component in the popular militarism of the 1980s, fuelled by the continuing "war" against international terrorism and by the Falklands conflict and Gulf War. The storming of the Iranian Embassy had shown that Britain could meet terror with counter-terror: Mrs Thatcher's black-clad "terminators" would protect us".

Commenting on the SAS's action, Social Services Secretary Norman Fowler agreed: "Mrs Thatcher attracted public support because she seemed to be taking action which the public overwhelmingly thought was right but never thought any government would have the nerve to carry out".

Northern Ireland

In May 1980, one day before Thatcher was due to meet the Irish Taoiseach, Charles Haughey, to discuss Northern Ireland, she announced in Parliament that "the future of the constitutional affairs of Northern Ireland is a matter for the people of Northern Ireland, this government, this parliament, and no-one else".

In 1981, a number of Provisional Irish Republican Army (IRA) and Irish National Liberation Army prisoners in Northern Ireland's Maze Prison (also known in Northern Ireland as 'Long Kesh', its previous official name) went on hunger strike to regain the status of political prisoners, which had been revoked five years earlier under the preceding Labour government. Bobby Sands, the first of the strikers, was elected as a Member of Parliament for the constituency of Fermanagh and South Tyrone a few weeks before he died of starvation. Thatcher refused to countenance a return to political status for republican prisoners, famously declaring "Crime is crime is crime; it is not political". After nine more men had died, most rights were restored to paramilitary prisoners, but official recognition of their political status was not granted. Thatcher later asserted, "The outcome was a significant defeat for the IRA".

Thatcher also continued the policy of 'Ulsterisation' of the previous Labour government and its Secretary of State for Northern Ireland, Roy Mason, believing that the Unionists of Northern Ireland should be at the forefront in combating Irish republicanism. This meant relieving the burden on the mainstream British Army and elevating the role of the Ulster Defence Regiment and the Royal Ulster Constabulary.

Afghanistan and Poland

When the Soviets invaded Afghanistan in December 1979, Thatcher saw it as a typical example of relentless Communist imperialism. However the foreign ministry said the Kremlin was desperately trying to save its failing ally there. Thatcher supported the American plan to boycott the Moscow Olympics, as did Parliament. However the athletes disagreed – they went to Moscow anyway.

The Polish crisis of 1980 and 1981 involved large-scale anti-Communist protests in the heartland of Soviet-controlled Eastern Europe. Thatcher recognised That Soviet hegemony was vulnerable in Poland and offered public support for Lech Wałęsa and his Solidarity labour union, in close co-operation with the United States and Pope John Paul II (a long-time leader of Polish Catholicism).

Falklands War

On 2 April 1982, a ruling military junta in Argentina invaded the Falkland Islands and South Georgia, a British Crown colony that Britain had always ruled but which Argentina had claimed. Thatcher had not previously shown concern for the islands, and had proposed large-scale cuts to her naval forces. Thatcher listened primarily to Admiral Henry Leach, the First Sea Lord, to Admiral Sir Terence Lewin the Chief of the Defense Staff. She immediately decided to expel the invaders. She replaced foreign minister Peter Carrington with Francis Pym and rounded up diplomatic support. The United Nations Security Council denounced Argentina's aggression, and France and other allies provided diplomatic and military support. In the United States, Reagan was supportive, but he also launched diplomatic initiatives to resolve the crisis without a war. In three days Thatcher assembled and sent a naval task force to take back control. In the six weeks it took to arrive she engaged in diplomatic efforts moderated by US Secretary of State Al Haig, but Argentina rejected all compromise proposals. Public opinion, and both major parties, backed Thatcher's aggressive response. The task force sank an Argentine cruiser, forcing the Argentine Navy back to its home harbours. However, it had to deal with a nearby land-based Argentine Air Force, using primarily helicopters and Harriers. Argentine forces surrendered on 14 June; the operation was hailed as a great triumph, with only 258 British casualties. Victory brought a wave of patriotic enthusiasm and guaranteed Thatcher's re-election, with one poll showing that 84% of the electorate approved of the Prime Minister's handling of the crisis.

1983 general election

The 'Falklands Factor', along with the resumption of economic growth by the end of 1982, bolstered the government's popularity and led to Thatcher's victory in the most decisive landslide since 1945.

The Labour Party at this time had split, and there was a new challenge in the SDP–Liberal Alliance, formed by an electoral pact between the Social Democratic Party and the Liberal Party. However, this grouping failed to make its intended breakthrough, despite briefly holding an opinion poll lead.

In the June 1983 general election, the Conservatives won 42.4% of the vote, the Labour Party 27.6% and the Alliance 25.4% of the vote. Though the gap between Labour and the Alliance was narrow in terms of votes, the Alliance vote was scattered and they won only a fraction of the seats that Labour held, with its concentrated base.

The Conservatives' share of the vote fell slightly (1.5%) since 1979. Labour's vote had fallen by far more (9.3%) and the Conservatives now had an overall majority of 144 MPs.

Strikes: Miners and newspapers

Thatcher was committed to reducing the power of the trade unions but, unlike the Heath government, adopted a strategy of incremental change rather than a single Act. Several unions launched strikes in response, but these actions eventually collapsed. Gradually, Thatcher's reforms reduced the power and influence of the unions. The changes were chiefly focused upon preventing the recurrence of the large-scale industrial actions of the 1970s, but were also intended to ensure that the consequences for the participants would be severe if any future action was taken. The reforms were also aimed, Thatcher claimed, to democratise the unions, and return power to the members. The most significant measures were to make secondary industrial action illegal, to force union leadership to first win a ballot of the union membership before calling a strike, and to abolish the closed shop. Further laws banned workplace ballots and imposed postal ballots.

Coal miners were highly militant and had defeated Prime Minister Heath. Thatcher expexcted a major confrontation, planned ahead for one, and avoided trouble before she was ready. In the end the [[UK miners' strike (1984–85)}miners' strike of 1984–85]] proved a decisive victory for her--one that permanently discouraged militant trade unionists. The National Coal Board received the largest amount of public subsidies going to any nationalised industry: by 1984 the annual cost to taxpayers of uneconomic pits had reached £1 billion. The year-long confrontation over strikes carried out from April 1984 by the National Union of Mineworkers (NUM), in opposition to proposals to close a large number of unprofitable mines, proved a decisive victory for Thatcher. The government had made preparations to counter a strike by the NUM long in advance by building up coal stocks, keeping many miners at work, and co-ordinating police action to stop massive picketing. Her policies defeated the NUM strategy of causing severe cuts in the electricity supply – the legacy of the industrial disputes of 1972 – would not be repeated.

The images of crowds of militant miners attempting to prevent other miners from working proved a shock even to some supporters of the strikes. The NUM never held a strike vote, which allowed many miners to keep working and prevented other unions from supporting the strike. The mounting desperation and poverty of the striking families led to divisions within the regional NUM branches, and a breakaway union, the Union of Democratic Mineworkers (UDM), was soon formed. More and more frustrated miners, resigned to the impending failure of the strike and worn down by months of protests, began to defy the union's rulings, starting splinter groups and advising workers that returning to work was the only viable option.

The miners' strike lasted a full year before the NUM leadership conceded without a deal. Conservative governments proceeded to close all but 15 of the country's pits, with the remaining 15 being sold off and privatised in 1994. Private companies have since then acquired licences to open new pits and open-cast sites, with the majority of the original mines destroyed and the land redeveloped.

The defeat of the miners' strike led to a long period of demoralisation in the whole of the trade union movement. Nigel Lawson, then Chancellor of the Exchequer, later recalled:

The 51-week miners' strike of 1984–85 was followed a year later by the 54-week Wapping dispute" launched by newspaper printers in London. It resulted in a second major defeat for unions and another victory for Thatcher's union policies, especially her assurance that the police would defend the plants against pickets trying to shut them down. The target was Britain's largest privately owned newspaper empire, News International (parent of The Times and News of the World and others, all owned by Rupert Murdoch). He wanted to introduce technological innovations that would put 90% of the old-fashioned typesetters out of work. The company offered redundancy payments of £2,000 to £30,000 to each printer to quit their old jobs. The union rejected the offer and on 24 January 1986 its 6,000 members at Murdoch's papers went on strike. Meanwhile, News International had built and clandestinely equipped a new printing plant in the London district of Wapping. The principal print unions – the National Graphical Association (NGA), the Society of Graphical and Allied Trades (SOGAT 82) and the Amalgamated Union of Engineering Workers (AUEW) – ran closed shops: only union members could be hired at the old Fleet Street plants; most were sons of members. However the new plant in Wapping did not have a closed shop contract. The company activated its new plant with the assistance of another union the Electrical, Electronic, Telecommunications and Plumbing Union (EETPU). Most journalists (members of the National Union of Journalists) moved to Wapping and NUJ Chapels continued to operate. However the NUJ urged them not to work there; the "refuseniks" refused to go to Wapping. Enough printers did come – 670 in all – to produce the same number of papers that it took 6,800 men to print at the old shop. The efficiency was obvious and frightened the union into holding out an entire year. Thousands of union pickets tried to block shipments out of the plant; they injured 574 policemen. There were 1,500 arrests. They pickets failed. The union tried an illegal secondary boycott and was fined in court, losing all its assets which had been used for pensions. In the next two years Britain's national newspapers opened new plants and abandoned Fleet Street, adopting the new technology with far fewer employees. They had even more reason to support Thatcherism.

Privatisation

Thatcher's political and economic philosophy emphasised reduced state intervention, free markets, and entrepreneurialism. Since gaining power, she had experimented in selling off a small nationalised company, the National Freight Company, to its workers, with a surprisingly positive response. One critic on the left described privatisation as 'the biggest electoral bribe in history'. After the 1983 election, the Government became bolder and, starting with British Telecom, sold off most of the large utilities which had been in public ownership since the late 1940s. Many people took advantage of share offers, although many sold their shares immediately for a quick profit and therefore the proportion of shares held by individuals rather than institutions did not increase. The policy of privatisation, while anathema to many on the left, has become synonymous with Thatcherism and was also followed by Tony Blair's government. Wider share-ownership and council house sales became known as "popular capitalism" to its supporters (a term coined by John Redwood).

Domestic criticism

In February 1985, in what was generally viewed as a significant snub from the centre of the British establishment, the University of Oxford voted to refuse Thatcher an honorary degree in protest against her cuts in funding for higher education. This award had previously been given to all prime ministers since the Second World War. Although the government's counter-claim of increased expenditure was also challenged, the decision of the Oxford dons was widely condemned as 'petty and vindictive'. The chancellor of the university, former prime minister Harold Macmillan (now Lord Stockton), noted that the decision represented a break with tradition, and predicted that the snub would rebound on the university.

In December 1985 Thatcher was criticised from another former Tory bastion when the Church of England report Faith in the City blamed decay of the inner cities on the government's financial stringency and called for a redistribution of wealth. However the government had already introduced special employment and training measures, and ministers dismissed the report as 'muddle-headed' and uncosted. The breach with the Church and its liberal bishops remained unhealed until William Hague called for renewed co-operation in 1998.

Soon after, Thatcher suffered her government's only defeat in the House of Commons, with the failure of the Shops Bill 1986. The bill, which would have legalised Sunday shopping, was defeated by a Christian right backbench rebellion, with 72 Conservatives voting against the government bill. As well as Thatcher's only defeat, it was the last occasion on which a government bill fell at second reading. The defeat was immediately overshadowed by the US intervention in Libya.

Westland affair

Thatcher's preference for defence ties with the United States was demonstrated in the Westland affair when she acted with colleagues to allow the helicopter manufacturer Westland, a vital defence contractor, to refuse to link with the Italian firm Agusta in order for it to link with the management's preferred option, Sikorsky Aircraft Corporation of the United States. Defence Secretary Michael Heseltine, who had pushed the Agusta deal, resigned in protest after this, and remained an influential critic and potential leadership challenger. He would eventually prove instrumental in Thatcher's fall in 1990.

Local government

In April 1986 the Thatcher government, enacting a policy set out in its 1983 manifesto, abolished the Greater London Council (GLC) and six top-tier Metropolitan County Councils (MCCs): Greater Manchester, Merseyside (including Liverpool), South Yorkshire (including Sheffield), Tyne and Wear (including Newcastle and Sunderland), West Midlands (including Birmingham and Coventry), and West Yorkshire (including Leeds).

The GLC was the biggest council in Europe; under the leadership of the Labour socialist Ken Livingstone it had doubled its spending in three years, and Thatcher insisted on its abolition as an efficiency measure, transferring most duties to the boroughs, with veto power over major building, engineering and maintenance projects being given to the environment secretary. The government also argued that the transfer of power to local councils would increase electoral accountability.

Critics contended that 'the excesses of a few "loony left" councils helped Mrs Thatcher to launch a party-political assault', as all the eliminated councils were controlled by the Labour Party, favoured higher local government taxes and public spending, and were vocal centres of opposition to her government. The GLC also warned that the break-up of the county councils would lead to the creation of 'endless joint committees and over 60 quangos'.

Several of the councils including the GLC had however rendered themselves vulnerable by committing scarce public funds to controversial causes such as Babies Against the Bomb, the Antiracist Year, and lesbian mothers seeking custody of their children; the Save the GLC campaign itself was estimated to have cost ratepayers £10 million, climaxing in a final defiant week of festivities that cost ratepayers £500,000.

Economic boom of 1984–88

During the 1980s there was a great improvement in the United Kingdom's productivity growth relative to other advanced capitalist countries. Nigel Lawson, Chancellor of the Exchequer, identified inflation as "the judge and jury of a government's record", but while the country also improved its OECD inflation ranking from fifteenth in 1979 to tenth in the so-called 'Lawson Boom' year of 1987, when inflation had fallen to 4.2%, in the decade as a whole the country still had the second highest inflation rate of the G7 countries.

Unemployment had peaked at nearly 3,300,000 in 1984, but had fallen below 3,000,000 by June 1987, in early 1989 it fell below 2,000,000 and by December 1989 it stood at just over 1,600,000.

The United Kingdom's growth rate was more impressive, ranking first in the OECD-16 in 1987, a statistical achievement that the Thatcher government exploited to the full in the general election campaign of that year. However, the balance of payments record had deteriorated, fairing even worse than those of non-oil-exporting countries, and there was a decline in the country's relative standing in terms of unemployment. The resulting welfare payments meant that, even though the Thatcher government in 1979 had taken the view that "public expenditure is at the heart of Britain's present economic difficulties", it was not until the boom year of 1987 that the expenditure ratio fell below the 1979 level, and for most of the 1980s the average tax take was actually higher than in 1979.

Brighton bombing

On the early morning of 12 October 1984, the day before her 59th birthday, Thatcher escaped injury in the Brighton hotel bombing during the Conservative Party Conference when her hotel room was bombed by the Provisional Irish Republican Army. Five people died in the attack, including Roberta Wakeham, wife of the government's Chief Whip John Wakeham, and Conservative MP Sir Anthony Berry. A prominent member of the Cabinet, Norman Tebbit, was injured, and his wife Margaret was left paralysed. Thatcher herself escaped assassination by sheer luck. She insisted that the conference open on time the next day and made her speech as planned in defiance of the bombers, a gesture which won widespread approval across the political spectrum.

Anglo-Irish Agreement

On 15 November 1985, Thatcher signed the Hillsborough Anglo-Irish Agreement with Irish Taoiseach Garret FitzGerald, the first time a British government gave the Republic of Ireland a say (albeit advisory) in the governance of Northern Ireland. The agreement was greeted with fury by Northern Irish unionists. The Ulster Unionists and Democratic Unionists made an electoral pact and on 23 January 1986, staged an ad-hoc referendum by resigning their seats and contesting the subsequent by-elections, losing only one, to the nationalist Social Democratic and Labour Party (SDLP). However, unlike the Sunningdale Agreement of 1974, they found they could not bring the agreement down by a general strike. This was another effect of the changed balance of power in industrial relations.

Cold War

In the Cold War, Thatcher supported US President Ronald Reagan's policies of rollback against the Soviets, which envisioned the end of Communism in Europe (which happened in 1989–91). This contrasted with the policy of détente (or "live and let live") which the West had pursued during the 1970s. In a decision that came under heavy attack from the Labour Party, American forces were permitted by Thatcher to station nuclear cruise missiles at British bases, arousing mass protests by the Campaign for Nuclear Disarmament. A critical factor was Thatcher's idea that Mikhail Gorbachev was the key to the solution. She convinced Reagan that he was "a man we can do business with. " This was a start of a move by the West to force a dismantling of Soviet control over Eastern Europe, which Gorbachev realised was necessary if he was to reform the decrepit Soviet economy. Thatcher outlasted the Cold War, which ended in 1989, and those who share her views on it credit her with a part in the West's victory, by both the deterrence and détente postures. The West won the Cold War 'without firing a shot', Thatcher boasted, because the Kremlin would not risk confrontation with NATO's superior forces

Thatcher played a major role as a broker between Reagan and Gorbachev in 1985–87, with the successful negotiation of the Intermediate-Range Nuclear Forces Treaty (INF). The INF Treaty of December 1987, signed by Reagan and Gorbachev, eliminated all nuclear and conventional missiles, as well as their launchers, with ranges of 500–1,000 kilometres (310–620 mi) (short-range) and 1,000–5,500 kilometres (620–3,420 mi) (intermediate-range). The treaty did not cover sea-launched missiles of the sort Britain possessed. By May 1991, after on-site investigations by both sides, 2700 missiles had been destroyed.

Bombing of Libya

In the aftermath of a series of terrorist attacks on US military personnel in Europe, which were believed to have been executed at Colonel Gaddafi's command, President Reagan decided to carry out a bombing raid on Libya. Both France and Spain refused to allow US aircraft to fly over their territory for the raid. Thatcher herself had earlier expressed opposition to "retaliatory strikes that are against international law" and had not followed the US in an embargo of Libyan oil. However Thatcher felt that as the US had given support to Britain during the Falklands and that America was a major ally against a possible Soviet attack in Western Europe, she felt obliged to allow US aircraft to use bases situated in Britain. Later that year in America, President Reagan persuaded Congress to approve of an extradition treaty which closed a legal loophole by which IRA members and Volunteers escaped extradition by claiming their killings were political acts. This had been previously opposed by Irish-Americans for years but was passed after Reagan used Thatcher's support in the Libyan raid as a reason to pass it.

US invasion of Grenada, 1983

Grenada was a former colony and current independent Commonwealth nation under the Queen. The British government exercised no authority there and did not object when Maurice Bishop took control in a coup in 1979. The small Caribbean island had been ruled by Bishop, a radical Marxist with close ties to Cuba. In October 1983 he was overthrown by dissident Marxists, and killed. This alarmed other small countries in the region who had a regional defence organisation, the Organisation of Eastern Caribbean States (OECS) which formally asked the United States for help in removing the new regime. Reagan promptly agreed, and almost overnight ordered a major invasion of Grenada. He notified Thatcher a few hours before the invasion, but he did not ask her consent. She was privately highly annoyed, but in cabinet and in Parliament she announced that Britain supported the Americans, saying "We stand by the United States". When it became clear that the American rollback of the upstart Communist regime had been a striking success, Thatcher "came to feel that she had been wrong to oppose it".

Apartheid in South Africa

The Thatcher government resisted international pressure to impose economic sanctions on South Africa, where the United Kingdom was the biggest foreign investor and principal trading partner. This meant that the status quo remained the same, and British companies continued to operate in South Africa, although other European countries continued trading to a lesser degree. According to Geoffrey Howe, one of her closest allies, Thatcher regarded the ANC, which fought to end apartheid, as a "typical terrorist organisation", as late as 1987.

At the end of March 1984, four South Africans were arrested in Coventry, remanded in custody, and charged with contravening the UN arms embargo, which prohibited exports to South Africa of military equipment. Thatcher took a personal interest in the Coventry Four, and 10 Downing Street requested daily summaries of the case from the prosecuting authority, HM Customs and Excise. Within a month, the Coventry Four had been freed from jail and allowed to travel to South Africa, on condition that they return to England for their trial later that year. However, in August 1984, South African foreign minister Pik Botha decided not to allow the Coventry Four to return to stand trial, forfeiting £200,000 bail money put up by the South African embassy in London.

In April 1984, Thatcher sent senior British diplomat, Sir John Leahy, to negotiate the release of 16 Britons who had been taken hostage by the Angolan rebel leader, Jonas Savimbi. At the time, Savimbi's UNITA guerrilla movement was financed and supported militarily by the apartheid regime of South Africa. On 26 April 1984 Leahy succeeded in securing the release of the British hostages at the UNITA base in Jamba, Cuando Cubango, Angola.

In June 1984, Thatcher received a visit from P. W. Botha, the first South African premier to come to Britain since his nation had left the Commonwealth in 1961. The leader of the Opposition condemned the visit as a "diplomatic coup" for the South African government, and Labour MEP Barbara Castle rallied European Socialists in an unsuccessful attempt to stop it. In talks at Chequers, Thatcher told Botha the policy of racial separation was 'unacceptable'. She urged him to free jailed black leader Nelson Mandela; to halt the harassment of black dissidents; to stop the bombing of African National Congress (ANC) guerrilla bases in front-line states; and to comply with UN Security Council resolutions and withdraw from Namibia.

Thatcher defended Botha's visit as an encouragement to reform, but he ignored her concern over Mandela's continued detainment, and although a new constitution brought coloured people of mixed race and Indians into a tricameral assembly, 22 million blacks continued to be excluded from the representation. After the outbreak of violence in September 1984, Thatcher granted temporary sanctuary to six African anti-apartheid leaders in the British consulate in Durban.

In July 1985, Thatcher, citing the support of Helen Suzman, a South African anti-apartheid MP, reaffirmed her belief that economic sanctions against Pretoria would be immoral because they would make thousands of black workers unemployed; instead she characterised industry as the instrument that was breaking down apartheid. She also believed sanctions would disproportionately injure Britain and neighbouring African countries, and argued that political and military measures were more effective.

Thatcher's opposition to economic sanctions was challenged by visiting anti-apartheid activists, including South African bishop Desmond Tutu, whom she met in London, and Oliver Tambo, exiled leader of the outlawed ANC guerrilla movement, whose links to the Soviet bloc she viewed with suspicion, and whom she declined to see because he espoused violence and refused to condemn guerrilla attacks and mob killings of black policemen, local officials and their families.

At a Commonwealth summit in Nassau in October 1985, Thatcher agreed to impose limited sanctions and to set up a contact group to promote a dialogue with Pretoria, after she was warned by Third World leaders, including Indian Prime Minister Rajiv Gandhi and Malaysian Prime Minister Mahathir Mohamad, that her opposition threatened to break up the 49-nation Commonwealth. In return, calls for a total embargo were abandoned, and the existing restrictions adopted by member states against South Africa were lifted. ANC president Tambo expressed disappointment at this major compromise.

China and Hong Kong

Hong Kong was ceded to the British Empire following the First Opium War and in 1898 Britain obtained a 99-year lease on the territory. In 1984 Margaret Thatcher visited China with a view to resolve the difficulties that would inevitably be encountered as Hong Kong was returned to the Chinese in 1997 and the Prime Minister signed an agreement with Deng Xiaoping to award Hong Kong the special status within China of a "Special Administrative Region". Under the terms of the agreement, China was obliged to leave Hong Kong's economic status unchanged after the handover on 1 July 1997, for a period of at least fifty years.

European rebate

At the Dublin European Council in November 1979, Thatcher argued that the United Kingdom paid far more to the European Economic Community (EEC) than it received in spending. She famously declared at the summit: "We are not asking the Community or anyone else for money. We are simply asking to have our own money back". Her arguments were successful and at the June 1984 Fontainbleau Summit, the EEC agreed on an annual rebate for the United Kingdom, amounting to 66% of the difference between Britain's EU contributions and receipts. This still remains in effect, although Tony Blair later agreed to significantly reduce the size of the rebate. It periodically causes political controversy among the members of the European Union.

Channel Tunnel

Thatcher, like many Britons, had long been fascinated by the idea of a tunnel under the English Channel linking to France. The idea had been tossed around for over a century, but was always vetoed, usually by insularity-minded Englishmen. Opposition to the tunnel over the decades reflected the high value the British placed on their insularity, and their preference for imperial links that they controlled directly. By the 1960s circumstances had changed radically. The British Empire collapsed and the Suez crisis made clear that Britain was no longer a superpower, and had to depend on its military allies on the continent. The Conservatives could more carefully consider the long-term economic value to business and strategic value, and also the new sense of a European identity. Labour was worried that a tunnel would bring new workers and lower wage rates. Britain's prestige, security and wealth now seemed safest when tied closely to the continent.

Thatcher and Mitterrand agreed on the project and set up study groups. Mitterrand as a socialist said the French government would pay its share. Thatcher insisted on private financing for the British share, and the City assured her that private enterprise was eager to fund it. Final decisions were announced in January 1986. P. M. H. Bell concludes:

1987 general election

Thatcher led her party to a landslide victory in the 1987 general election with a 102-seat majority. Her resolute personality played a key role in overcoming the well-organised, media-wise Labour campaign led by Neil Kinnock. He was weakened by his party's commitment to unilateral nuclear disarmament at a time Thatcher was helping to end the Cold War. Fleet Street (the national newspapers) mostly supported her and were rewarded with regular press briefings by her press secretary, Bernard Ingham. Polls showed that Thatcher's leadership style was more important for voters than party identification, economic concerns, and indeed all other issues. She entered the record books, becoming the longest continuously serving Prime Minister since Lord Liverpool (1812–27), and the first to win three successive elections since Lord Palmerston in 1865.

Despite her third straight victory she remained a polarising figure. Hatred from the far left motivated scores of songs that "expressed anger, amusement, defiance and ridicule" towards her. Protesters loved to chant the slogan 'Maggie Out!'

Economics

The Chancellor of the Exchequer, Nigel Lawson, over-reacted to a market fall with his reflationary 1988 budget, stoking inflation and precipitating a slide in the government's fortunes. By the time of Thatcher's resignation in 1990, inflation had again hit 10%, the same level she had found it in 1979.

Overall, the Thatcher government's economic record is disputed. In relative terms, it could be held there was a modest revival of British fortunes. Real gross domestic product had grown by 26.8% over 1979–89 in the United Kingdom as against 24.3% for the EC-12 average. Measured by total factor productivity, labour, and capital, British productivity growth between 1979 and 1993 compared favourably with the OECD average.

However under Thatcherite management the macro-economy was unstable, even by the standards of the Keynesian era of stop-go. The amplitude of fluctuations in gross domestic product and real gross private non-residential fixed capital formation was greater in the United Kingdom than for the OECD.

In the Thatcher years the top 10% of earners received almost 50% of the tax remissions, but there proved to be no simple trade-off between equality and efficiency. The receipts ratio did not fall below the 1979 level until 1992. The expenditure ratio rose again after Thatcher's resignation in 1990, even climbing for a time above the 1979 figure. The cause was the heavy budget charge of the recessions of 1979–81 and 1990–92 and the extra funding required to meet the higher level of unemployment.

Homosexuality and Section 28

Though an early backer of decriminalisation of male homosexuality, Thatcher, at the 1987 Conservative Party conference, issued the statement that "Children who need to be taught to respect traditional moral values are being taught that they have an inalienable right to be gay". Backbench Conservative MPs and Peers had already begun a backlash against the 'promotion' of homosexuality and, in December 1987, the controversial 'Section 28' was added as an amendment to what became the Local Government Act 1988. This legislation was repealed by Tony Blair's 1997 Labour government between 2000 and 2003.

Welfare reforms

Welfare reforms in her third term created an adult Employment Training system that included full-time work done for the dole plus a £10 top-up, on the workfare model from the United States.

Environment

Thatcher, a trained chemist, became publicly concerned with environmental issues in the late 1980s. In 1988, she made a major speech accepting the problems of global warming, ozone depletion, and acid rain. In 1990, she opened the Hadley Centre for Climate Prediction and Research. In her book Statecraft (2002), she described her later regret in supporting the concept of human-induced global warming, outlining the negative effects she perceived it had upon the policy-making process. "Whatever international action we agree upon to deal with environmental problems, we must enable our economies to grow and develop, because without growth you cannot generate the wealth required to pay for the protection of the environment".

European integration

At Bruges, Belgium, in 1988, Thatcher made a speech in which she outlined her opposition to proposals from the European Community for a federal structure and increasing centralisation of decision-making. Although she had supported British membership, Thatcher believed that the role of the EC should be limited to ensuring free trade and effective competition, and feared that new EC regulations would reverse the changes she was making in the UK: "We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level, with a European super-state exercising a new dominance from Brussels". She was specifically against Economic and Monetary Union, through which a single currency would replace national currencies, and for which the EC was making preparations, now known as the euro and in force as legal tender since January 1999. Britain has so far remained outside the eurozone. The speech caused an outcry from other European leaders, and exposed for the first time the deep split that was emerging over European policy inside her Conservative Party.

Thatcher's popularity once again declined, in 1989, as the economy suffered from high interest rates imposed to temper a potentially unsustainable boom. She blamed her Chancellor, Nigel Lawson, who had been following an economic policy which was a preparation for monetary union; in an interview for the Financial Times, in November 1987, Thatcher claimed not to have been told of this and did not approve.

At a meeting before the European Community summit in Madrid in June 1989, Lawson and Foreign Secretary Geoffrey Howe forced Thatcher to agree to the circumstances under which she would join the Exchange Rate Mechanism, a preparation for monetary union and the abolishment of the pound sterling. At the meeting, they both claimed they would resign if their demands were not met. Thatcher responded by demoting Howe and by listening more to her adviser Sir Alan Walters on economic matters. Lawson resigned that October, feeling that Thatcher had undermined him.

South Africa and release of Mandela

Thatcher continued to be the leading international advocate of a policy of contact with apartheid South Africa, and the most forthright opponent of economic sanctions against the country, which was ruled by a white minority government. Her stand had divided the Commonwealth 48–1 at three conferences since 1985, but had brought her influence in South Africa's white community. Rejecting the US policy of disinvestment as a mistake, she argued a prosperous society would be more receptive to change.

In October 1988, Thatcher said she would be unlikely to visit South Africa unless black nationalist leader Nelson Mandela was released from prison, and in March 1989 she stressed the need to release him in order for multi-party talks to take place, urging that the African National Congress's promise to suspend violence should be enough to permit his release, and that the 'renunciation of violence' should not be an absolute condition for negotiations for a settlement. At the end of March 1989, Thatcher's six-day, 10,000-mile tour through southern Africa – a follow-up to her 'look and learn' exercise in Kenya and Nigeria in 1988 – did not include South Africa because Mandela had not yet been released.

Thatcher met reformist South African president-in-waiting F. W. de Klerk in London in June 1989, and stressed that Mandela must be freed and reforms put in place before she would visit the country. In July 1989 she called for the release not only of Mandela, but also Walter Sisulu and Oscar Mpetha, before all-group talks could continue.

Thatcher therefore welcomed de Klerk's decision in February 1990 to release Mandela and lift the ban on the ANC, and said the change vindicated her positive policy: "We believe in carrots as well as sticks". However Thatcher had also set the freeing of Mandela as a condition of friendship with the white government.

Thatcher said the European Community's voluntary ban on new investment should be lifted when Mandela was released. However her call to the world to reward reforms was countered by Mandela himself, who while still in jail argued sanctions must be maintained until the end of white rule, and criticised her decision to lift a ban on new investment unilaterally. Mandela declared:

We regard the attitude of the British Government on the question of sanctions as of primary importance ... My release from prison was the direct result of the people inside and outside South Africa. It was also the result of the immense pressure exerted on the South African Government by the international community, in particular from the people of the UK.

However Foreign Secretary Douglas Hurd was adamant: "We needed to make a practical response to a man, President F. W. de Klerk, who has taken his political life into his hands". Nevertheless, as a gesture of goodwill Thatcher agreed to begin aid to the ANC, which until its suspension of violence she had criticised as "a typical terrorist organisation", her disapproval reinforced by her anti-socialism.

Thatcher's opposition to sanctions left her isolated within the Commonwealth and the European Community, and Mandela did not take up an early offer to meet her, opposing her proposed visit to his country as premature. Mandela rejected all concessions to the South African government, which he accused of seeking the easing of sanctions before it had offered "profound and irreversible change".

Mandela delayed meeting Thatcher until he had gathered support for sanctions from other world leaders in the course of a four-week, 14-nation tour of Europe and the United States. Their first meeting failed to resolve differences over her unilateral lifting of sanctions and his refusal to renounce armed struggle until existing conditions for the black majority in South Africa changed. In their economic discussions, Mandela initially favoured nationalisation as a preferred method for redistributing wealth between blacks and whites, but with British investment in South Africa in 1989 accounting for half of the total, and with bilateral trade worth just over $3.2 billion, Thatcher successfully urged him to adopt free market solutions, arguing they would be needed to maintain the kind of growth that would sustain a liberal democratic order.

Cold War ends, Germany reunites

The NATO nations or in general agreement on delicately handling the collapse of communism in Eastern Europe in 1989, the reunification of Germany in 1990–91, and the end of communism and the Soviet Union in 1991. There was no gloating or effort to humiliate Gorbachev. While US President George H. W. Bush wanted to make NATO more of a political than a military alliance, Thatcher, spoke out for the importance of the military role. Like Mitterrand in France, she was nervous about the reunification of Germany, repeating the quip from Lord Ismay, NATO's first secretary general: " The purpose of NATO is to keep the Americans in, the Russians out, and the Germans down." Thatcher and Mitterrand had a more specific worry. Bush said, "Margaret still feared the worst from reunification and, like Mitterrand, worried that the Germans might 'go neutral' and refuse to permit stationing nuclear weapons on their soil." That is, Chancellor Kohl might trade neutralisation of united Germany as part of the price the Kremlin wanted to approve unification. In the event, Germany was reunited and there was no neutralisation.

Thatcher gave strong support to President Bush in reversing Iraq's invasion of Kuwait in 1990, to which she authorised 45,000 troops. In the subsequent Gulf War (1991), they saw combat under her successor Prime Minister Major in Operation Granby.

Leadership election, 1989

In November 1989 Thatcher was challenged for the leadership of the Conservative Party by Sir Anthony Meyer. As Meyer was a virtually unknown backbench MP, he was viewed as a "stalking horse" candidate for more prominent members of the party. Thatcher easily defeated Meyer's challenge, but there were sixty ballot papers either cast for Meyer or abstaining, a surprisingly large number for a sitting Prime Minister. Her supporters in the Party, however, viewed the results as a success, claiming that after ten years as Prime Minister and with approximately 370 Conservative MPs voting, the opposition was surprisingly small.

Poll tax

Thatcher was fiercely committed to a new tax – commonly called a "poll tax" – that would apply in equal amounts to rich and poor alike, despite intense public opposition. Her inability to compromise undermined her leadership in the Conservative Party, which turned decisively against her. Thatcher sought to relieve what she considered the unfair burden of property tax on the property owning section of the population, and outlined a fundamental solution as her flagship policy in the Conservative manifesto for the 1987 election. Local government rates (taxes) were replaced by the community charge, popularly known as the 'poll tax', which levied a flat rate on all adult residents. Everyone rich or poor paid the same and would heavily redistribute the tax burden onto the less well-off.

She defended the poll tax, firstly, on the principle of marginality, that all voters should feel the pain of local taxation, and, secondly, on the benefit principle, that burdens should be proportional to benefits received. Ministers disregarded political research which showed potential massive losses for marginal Conservative-voting households. The Independent on Sunday suggested:

The poll tax was introduced in Scotland in 1989 and in England and Wales in 1990. This highly visible redistribution of the tax burden onto the less well-off proved to be one of the most contentious policies of Thatcher's premiership. Additional problems emerged when many of the tax rates set by local councils proved to be much higher than earlier predicted. Opponents organised to resist bailiffs and disrupt court hearings of community charge debtors. One Labour MP, Terry Fields, was jailed for 60 days for refusing to pay.

An indication of the unpopularity of the policy was given by a Gallup poll in March 1990 that put Labour 18.5 points ahead. As the crisis deepened and the Prime Minister stood her ground, opponents claimed that up to 18 million people were refusing to pay. Enforcement measures became increasingly draconian. Unrest mounted and culminated in a number of riots. The most serious of these happened on 31 March 1990, during a protest at Trafalgar Square, London. More than 100,000 protesters attended and more than 400 people were arrested.

Tony Travers of the London School of Economics commented on the policy debacle:

What remains to be explained is why a politician who had hitherto shown such brilliant populist sensitivity should destroy herself with a tax reform which inflicted terrible damage on millions of people who had been in the front line of the Thatcher Revolution ... Either the government failed to understand what most research and many commentators were saying, or they did understand it and believed that they could, as the saying went, "tough it out". A third possibility is that ministers came to understand the electoral damage ahead, but were afraid to put the case strongly enough to a Prime Minister at the helm of her "flagship".

Constitutional commentators concluded from the tax fiasco that 'the British state has become dangerously centralised, to an extent that important policy developments can now no longer be properly debated.' The unpopularity of the poll tax came to be seen as an important factor in Thatcher's downfall, by convincing many Conservative backbenchers to vote against her when she was later challenged for the leadership by Michael Heseltine.

After the Prime Minister's resignation, former chancellor Nigel Lawson labelled the poll tax as 'the one great blunder of the Thatcher years', and the succeeding Major government replaced it in 1993 with Council Tax, a banded property tax. Former Trade and Industry Secretary Nicholas Ridley agreed that Thatcher had suffered a massive defeat over the poll tax, but he argued that Major's repeal "vindicated the rioters and those who had refused to pay. Lawlessness seemed to have paid off.'

Ousted from office, 1990

Thatcher's political "assassination" was, according to witnesses such as Alan Clark, one of the most dramatic episodes in British political history. The idea of a long-serving Prime Minister – undefeated at the polls – being ousted by an internal party ballot might at first sight seem bizarre. However, by 1990, opposition to Thatcher's policies on local government taxation, her Government's perceived mishandling of the economy (in particular the high interest rates of 15% that eroded her support among home owners and business people), and the divisions opening in the Conservative Party over European integration made her seem increasingly politically vulnerable and her party increasingly divided. A Gallup poll in October 1990 showed that while Thatcher remained personally respected there was overwhelming opposition towards her final initiatives – 83% disapproved of the government's management of the National Health Service, 83% were against water privatisation, and 64% were against the Community Charge, while various polls suggested the party was trailing Labour by between 6 and 11 points. Moreover, the Prime Minister's distaste for "consensus politics" and willingness to override colleagues' opinions, including that of her Cabinet, emboldened the backlash against her when it did occur.

On 1 November 1990, Sir Geoffrey Howe, one of Thatcher's oldest and staunchest supporters, resigned from his position as Deputy Prime Minister in protest at Thatcher's European policy. In his resignation speech in the House of Commons two weeks later, he suggested that the time had come for "others to consider their own response to the tragic conflict of loyalties" with which he stated that he had wrestled for perhaps too long. Her former cabinet colleague Michael Heseltine subsequently challenged her for the leadership of the party, and attracted sufficient support in the first round of voting to prolong the contest to a second ballot. Though she initially stated that she intended to contest the second ballot, Thatcher decided, after consulting with her Cabinet colleagues, to withdraw from the contest. On 22 November, at just after 9.30 am, she announced to the Cabinet that she would not be a candidate in the second ballot. Shortly afterwards, her staff made public what was, in effect, her resignation statement:

Neil Kinnock, Leader of the Opposition, proposed a motion of no confidence in the government, and Margaret Thatcher seized the opportunity this presented on the day of her resignation to deliver one of her most memorable performances. Among other quips, she famously noted: "a single currency is about the politics of Europe, it is about a federal Europe by the back door. So I shall consider the proposal of the Honourable Member for Bolsover. Now where were we? I am enjoying this [sic]".

She supported John Major as her successor and he duly won the leadership contest, although in the years to come her approval of Major would fall away. After her resignation a MORI poll found that 52% agreed with the proposition that "On balance she had been good for the country", while 48% disagreed thinking she had been bad. In 1991, she was given a long and unprecedented standing ovation at the party's annual conference, although she politely rejected calls from delegates for her to make a speech. She "all but shunned" the House of Commons after losing power, and gave no clue as to her future plans. She retired from the House at the 1992 election, at the age of 66 years.

Political economist Roger Middleton summed up the economic record of the Thatcher era in the following terms:

Ironically, as The Economist acknowledged, albeit prematurely, at the close of her premiership:

The 11-year duration of her three terms in office altogether make up the third and most recent premiership to have outlasted a decade from start to finish, following only the ministries of Walpole in the 1730s and Pitt the Younger in the 1790s. She also continues to hold the distinction of winning the most votes at each general election in total of any British prime minister in British history, with over 40 million votes cast for the Conservatives under her leadership between 1979 and 1987, despite never increasing her 1979 share of 43 per cent of the vote. Only in Southern England and the Midlands did she ever win a majority of the popular vote, albeit narrowly.

GCSEs

Papers released in December 2014 show that Thatcher completely disapproved of GCSEs which, in 1986, Sir Keith Joseph was trying to introduce in the face of fierce opposition from teaching unions. At very least she wanted a 2-year delay to ensure rigorous syllabuses and adequate teacher training. However, when the unions who had been involved in a pay dispute for 2 years further criticised reforms at their conference, Joseph persuaded her to go ahead immediately to avoid appearing to take their side. According to Dominic Cummings, special advisor to Michael Gove, it was a catastrophic decision which led to a collapse in the integrity of the exam system.

Cocaine production

In July 1989 Thatcher called for research on the use of biological weapons against cocaine producers in Peru, in the context of the feared crack cocaine epidemic among black British people. Carolyn Sinclair, a policy adviser, suggested that Thatcher proceed cautiously in working with black communities because she believed they gave cannabis to babies.