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The Road to 1992: Recession, Tax Revolt, and Leadership Switch

In the early 1990s, the Conservatives, in office for over ten years, were nearing the end of their third term in deep political difficulties over economic management. Inflation, which had been markedly reduced in the earlier period of Conservative Government, rose again from the late 1980s, and was running at about 10 per cent in the early 1990s. And after the 'Lawson boom' of the later 1980s, described in Chapter Eight, 1990 saw the start of another major recession that lasted longer than that of the early 1980s and was only slightly smaller in its effects on output and unemployment. The latter again rose to three million and so was only just below the peak of the early to mid-Thatcher period. Similar recessions proved electorally fatal to right-of-centre political leaders or parties on the other side of the Atlantic, namely President George H.W. Bush in the United States and Brian Mulroney's Conservatives in Canada, who were both defeated by opponents attacking their economic record in the early 1990s.

Further, on top of the political problems associated with approaching a general election in such conditions, the incumbent Conservatives faced more specific electoral difficulties associated with the introduction of an unpopular new tax. After eleven years as prime minister (the longest tenure in the twentieth century), Margaret Thatcher was ousted in 1990 in a leadership challenge following a political crisis caused by the replacement of the traditional local property tax by a poll tax (Butler, Travers, and Adonis 1994). That switch in local taxation went back to Conservative ambitions to scrap the old system of local taxation (announced as long ago as the party's 1979 general election manifesto) and it had been intended to create more winners than losers, particularly among swing voters. But in the event it provoked a major tax revolt, including riots and civil disobedience, and came to be seen as fatal to the Conservatives' chances of re-election.

Facing the prospect of electoral defeat, Conservative MPs ousted Margaret Thatcher and the Party leadership was eventually won by a 'dark horse' candidate, John Major (then Chancellor of the Exchequer, most of whose ministerial experience had been as Chief Secretary of the Treasury under Nigel Lawson). Major appointed Norman Lamont, who had organized his leadership election campaign, to take his place as Chancellor, and the new government swiftly announced the demise of the poll tax, to be replaced by a variant of the previous local property tax system combined with a 2.5 per cent increase in VAT to cover the funding gap left by the abandonment of the poll tax.

With a new leader and the decision to scrap the poll tax announced, the Conservatives' poll ratings improved (the Party was sixteen percentage points behind Labour in the month before John Major became prime minister, but led by three points the following month) and the Major Government claimed credit for military success in the first Gulf War and for securing two opt-outs for the UK in the 1992 EU Maastricht Treaty (including an opt-out from the single currency). Labour and the Conservatives were running level at about 40 per cent each in the polls in March 1992, but a final poll of polls just ahead of the 1992 general election gave Labour a narrow lead and the outcome was widely predicted to be either a narrow Labour victory or a hung Parliament and a minority Labour Government.

On the fiscal policy front, the Conservatives' 1992 electoral strategy included a dramatically tax-cutting giveaway budget before the election. The budget cut income tax from 25 to 20 per cent for the first tranche of taxable income, electorally outflanking Labour's proposal for a similar change,1 and was combined with a heavy assault on Labour's plans for taxation and expenditure. Given that Labour was behind the Conservatives in the opinion polls at that time on economic and financial competence (though it led in many other policy domains), Labour's Shadow Chancellor, John Smith, sought to make the Party's fiscal plans credible to voters by bringing out a 'shadow budget' early in the election campaign, to demonstrate the affordability of Labour's election promises. That shadow budget included plans to increase income tax and compulsory National Insurance contributions for higher earners (partially reversing the tax cuts for top earners introduced in 1988) to reduce taxes on those on lower incomes. The Party claimed such measures would make eight out of ten taxpayers better off.

At first this tactic appeared to pay off for Labour in the election campaign, but six days after the Shadow Budget appeared, the Conservatives produced 'costings' of Labour's plans, proclaiming an impending tax 'bombshell' ('The Price of Labour: ?1250 a Year for Every Family')[1] [2] and splashed that '?1250 a year per family' figure on billboards across the country in poster campaigning. In the event, while the pollsters and the exit polls predicted a Conservative defeat, the Conservatives unexpectedly secured a small but clear overall fourth-term victory of twenty-one seats, comparable to the margin of their victory in 1951.

  • [1] This 20 per cent lower rate band was claimed to be the first step towards a standard rate of20 per cent. See Norman Lamont, Budget Statement, HC Deb 10 March 1992, c.761.
  • [2] Nigel Lawson (1992: 201) says similar costings of the Labour Opposition's pledges to reversespending cutbacks had been drawn up under his Chancellorship for the 1987 election, but thatthose costings were hardly (if at all) used in that campaign.
 
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