It's not just the decline in consumers' disposable incomes that makes today's Britain reminiscent of 1981
A royal wedding; an axe-wielding Tory chancellor claiming to be clearing up Labour's mess; angry protesters taking to the streets – it's not just the decline in hard-pressed consumers' disposable incomes that makes today's Britain reminiscent of 1981.
Official figures show disposable income – after taxes and benefits – has declined by 0.8% over the past year, the first fall since 1981. It's the latest evidence that, as the Bank of England governor, Mervyn King, has said, Britons are facing the worst squeeze on their living standards since the 1920s. And with mothballed factories and lengthening dole queues in many of our former industrial heartlands, and growing disquiet about mooted closures of libraries and Sure Start centres, today, as 30 years ago, ordinary households are bearing the social costs of an economic crisis.
In 1981, too, austerity was all the rage – and there were warnings that the Conservatives' prescription for a crisis-hit economy would do more harm than good. ouths fought running battles with the police on the streets of Brixton, south London, in riots that underlined the sharp divide between the haves and the have nots.
That year Margaret Thatcher's chancellor, Geoffrey Howe, introduced one of the most controversial budgets in postwar British history. With the economy deep in recession, he imposed a series of tax rises. Motorists were clobbered by a petrol duty increase that put 20p on the cost of a gallon; North Sea oil companies were hit by a new tax, and personal allowances were frozen – instead of increasing by 15%, in line with inflation. (Yes, that's 15% – putting into perspective the 4.4% rate many are fretting about today.) Howe's policies attracted a furious response from 364 economists, including a young Mervyn King, who argued that his single-minded battle against inflation would make a fragile economy weaker.
Michael Foot, the then Labour leader, called it "a budget to produce over three million unemployed ... a no-hope budget introduced by a no-hope chancellor".
Controversy still rages today about whether Howe was laying the groundwork for the subsequent recovery, or kicking Britain while it was down. But Foot was right that unemployment would hit 3 million, for the first time since the Great Depression.
In some ways, Britain in 1981 was a more innocent place – the big bang reforms to financial regulation had not yet unleashed the big bucks bonanza seen later in the decade, and with mortgage lending still tightly controlled, owning a home was an impossible dream for many. Fewer women were in the workplace; shopping was not yet quite the leisure activity it became in the noughties.
It seems quaint now, but back then, many families scrimped and saved. Now the average household has debts worth about one and a half times its income – that would have beenunthinkable 30 years ago, and is one of the reasons many economists believe Britain faces a long, hard slog before it shrugs off the legacy of the early-noughties' boom years.
Consumer confidence has slumped even before the bulk of Osborne's spending cuts bite – and they are much deeper than anything Howe dared to impose.
David Cameron may be right that measuring GDP doesn't capture the way families feel about their everyday economic lives, but while disposable income is falling, the feelgood factor is unlikely to return. Few people are predicting social unrest in 2011 on the scale of the Brixton riots of 1981; but while recession ended later that year, it took five years for unemployment to start falling.