Former UK Conservative MP Nigel Lawson passed away last week. As Margaret Thatcher’s longest‐​serving Chancellor of the Exchequer (1983–1989), Lawson’s legacy on economics is a complex one. While his policies in the late 1980s led to a boom and bust cycle, exacerbated by the mistaken decision to shadow the Deutschmark, his overall impact was positively transformative, steering the country towards a smaller government, free‐​market economic policy.

Lawson’s ingenuity came to the fore in opposition, when he brokered an amendment with Labour rebels to the 1977 Finance Act. This ensured that income tax thresholds would be uprated by inflation as the default each year — creating a new hurdle to prevent governments from sneakily taxing households when inflation was high.

His early tenure in the Thatcher government saw Lawson as a driving force behind the abolition of exchange controls. As energy secretary, he then masterminded the stockpiling of coal. This strategic move empowered Thatcher’s government to confront the militant trade union in that industry, allowing the country to pursue labor market reforms. Impressively, Lawson also laid the groundwork for the privatisation of nationalised industries such as British Gas, British Airways, and British Telecom.

As Chancellor, Lawson oversaw a growing UK economy that caught up with its European counterparts. The combination of strong growth and restrained public expenditure saw the state shrink from 42.8 percent of GDP in 1983/84 to 34.7 percent in 1989/90. Tax cuts saw revenues relative to GDP fall too, from 39.5 to 34.7 percent of GDP. When Lawson resigned, the country was running a balanced budget.

Lawson’s 1984 Mais Lecture remains the best articulation of Thatcherism’s economic shift away from Britain’s post‐​war Keynesian consensus. Governments after World War II had tried to use macroeconomic policy to pursue growth and microeconomic policy to fiddle with prices and wages. Lawson said this was “precisely the opposite” of their “proper role.” Monetary and fiscal policy instead should aim to keep inflation under control, while regulatory and tax reform should be focused on removing market distortions that harm growth, investment, and employment.

On the latter, Lawson enacted several pro‐​growth reforms, including cutting corporation tax, abolishing a tax in every annual budget, and initiating crucial industry‐​specific regulatory reforms such as the Big Bang deregulation for the City of London. His 1988 budget abolished all income tax bands except two — at 25 percent and 40 percent.

Aside from his policy legacy, Lawson played an important role in propagating free‐​market economic concepts through his writings and speeches. Here are a selection of his best quotations:

• “It is the rediscovery of the enterprise culture, operating within the framework of markets progressively liberated from rigidities and distortions, that will provide the only answer to the curse of unemployment, and the only true generator of new jobs.”

• “…the real evil of excessive government spending, and the excessive taxation that must necessarily accompany it, lies not in the probability of inflationary pressure but in the certainty of misallocation of resources, economic and social debilitation, excessive state power, and –very far from least—the erosion of personal freedom.”

• “If you work harder than I do at the same job, and are commensurately better rewarded, then that is ‘justice’. If your extra reward is then taken from you in taxation, then that is ‘social justice’. Concepts which are intended to sound much the same are more like polar opposites: to use language thus is to pervert it.”

• “It is commonly overlooked that the disincentive effect of a high marginal rate of tax depends not only on the rate itself but on its persistence. The reason an 83 percent marginal rate is such a burden is not just the rate itself, but that, once a taxpayer reaches it, there is no escape from it.”

• “Capitalism works – and works far better than any other system – because the discipline of the marketplace keeps greed, folly and incompetence in check.”

• “While in the private sector persistence in failure is likely to lead eventually to bankruptcy or at least severe financial loss, the incentive for self‐​correction on the part of the State is very much weaker: indeed, nothing is harder than the admission of failure in the political arena.”

• “far from ever more State intervention being justified by virtue of the admitted imperfections of the market, a greater reliance on markets is justified by virtue of the practical imperfections of state intervention.”

In his later years, he made several high‐​profile interventions in politics. The most striking was his early backing for Brexit. Lawson was eventually named chairman of Vote Leave — the campaign group that won the referendum on EU membership.

 

This article was first published by the CATO Institute.