III.

Party Leader and Prime Minister

After the Conservative Party’s defeat in the 1974 elections, Thatcher challenged Heath for leadership of the party, easily winning the post in early 1975. An outspoken critic of the Soviet Union, Thatcher earned the nickname the “Iron Lady” after delivering a blistering attack against the Soviet leadership in a 1976 speech. In 1979 Thatcher led her party to an election victory against the Labour Party government of James Callaghan. During the election campaign, Thatcher vowed to reverse the United Kingdom’s economic decline and to reduce the size of government.

As prime minister, Thatcher emphasized the importance of free-market economics and entrepreneurialism. Her efforts to revive the economy were centered largely on monetarism, the theory that the supply of money in the economy affects such things as prices, output, and employment (See also Supply-Side Economics). In an effort to reduce Britain’s high rate of inflation, Thatcher raised interest rates and introduced extensive budget cuts. In addition, her government lowered direct taxes on income and raised indirect taxes such as the value-added tax, or VAT. Thatcher also led a legislative assault on the powers and freedoms of British trade unions, which had helped bring down the previous Labour government by staging a series of unpopular strikes during the infamous “winter of discontent” of 1978 to 1979.

Thatcher’s policies succeeded in reducing inflation and budget expenditures, but at a cost of cuts in spending on social services and rising unemployment. The policies, which also included privatization measures and reduced subsidies to businesses, hit many employers hard, especially manufacturing industries. In 1981, despite a severe recession, Thatcher’s government further increased taxes, driving up unemployment to its highest level since World War II. Unemployment only began to fall in 1986, when Thatcher’s policies were credited with bringing down interest rates, curbing inflation, and forcing British industries to become more competitive internationally.

In 1982, amid the difficult recession and growing pressures on Thatcher’s government to reverse its policies, military forces from Argentina occupied the Falkland Islands (Islas Malvinas). The islands, located off the Argentine coast, were claimed by both Argentina and the United Kingdom. Thatcher quickly dispatched a naval task force to the Falklands that defeated the Argentines, a policy that was enormously popular in the United Kingdom. Bolstered by success in the Falklands, and aided by divisions within the Labour Party, Thatcher led the Conservative Party to a sweeping victory in the general elections of June 1983.

With an expanded majority, Thatcher continued her economic policies. Many of the United Kingdom’s large public utilities were privatized, and labor reforms further reined in the power of trade unions. In a symbolic move that significantly weakened trade union resistance to Thatcher’s reforms, her government took a tough stand against striking coalminers. The miners—members of National Union of Mineworkers (NUM)—opposed the government’s plans to close down unprofitable mines and cut thousands of jobs. Following a violent and bitter year-long strike that lasted from 1984 to 1985, the miners were forced to return to work without a deal. In October 1984, amid the ongoing strike, Thatcher narrowly escaped injury when a bomb planted by a splinter group of the Irish Republican Army (IRA) exploded in Brighton’s Grand Hotel during a Conservative Party conference.

In foreign affairs, Thatcher cultivated a close relationship with United States president Ronald Reagan, a conservative politician with whom she was often compared. Thatcher backed defense policies championed by Reagan, including the doctrine of nuclear deterrence in the Cold War. A strong proponent of the North Atlantic Treaty Organization (NATO), Thatcher supported the 1979 decision to base nuclear-armed cruise missiles in the United Kingdom—a controversial move that aroused mass protests in Britain. In 1986 Thatcher permitted U.S. military forces to launch bombing raids against Libya from British air bases.