Under Atlee’s Labour government from 1945 to 1951, a more activist macro policy than in the inter-war period ran alongside a more interventionist micro policy.

This was a necessity borne out of the emergency requirements of the post–war recovery programme. During the Conservative era of the 1950s, it matured into the ‘post-war consensus’ (macro) and the mixed economy (micro), which lasted until 1979.

During this time, so little separated the parties in their economic outlooks that this was the era of economic ‘consensus’.

The macro environment was characterised by rapid consumer spending growth (the end of the post-war austerity) and greatly increased trade liberalisation.

Regional policy, investment incentives and competition policy were all key policy instruments.

During this second phase, there was also a growing recognition that while growth in the UK was historically good, it was poor in international terms.

A failure to improve in relative terms would eventually result in a drop in living standards.

Attempts to maintain faster growth through demand policies ran into progressively larger balance of payments deficits and rising inflation, often sparked by labour shortages and wage pressures.

Both Conservative and Labour governments of this era took initiatives designed to promote better performance and faster growth.

The Harold Macmillan government established the National Economic Development Office (NEDO) in 1962 with a tripartite structure (management, unions and government) which was intended to improve the previously poor contact between the three sides of industry and to encourage analysis and planning at an industry level.

During Harold Wilson’s Labour government of 1964 to 1970, the National Plan aimed to raise the UK’s rate of non-inflationary growth over five years.

To support reform and restructuring, new institutions were set up, such as the Ministry of Technology, the Department of Employment and Productivity, the Department of Economic Affairs and the Industrial Reorganisation Corporation.

Even in the late 1960s, it was clear that many of these initiatives were not working as intended.

The macroeconomic environment undermined the National Plan (and led to the first peacetime statutory Prices and Incomes policy).

Many of the investment, R&D and competition policies proposed to help UK industry had been adopted in other countries (often to greater effect), whilst sterling crises and industrial relations unrest meant the government was too obsessed with short-term problems to pursue long-term policies.

Disenchantment with intervention and the election of Edward Heath’s Conservative government in 1970 led to a policy termed ‘disengagement’. (This was referred to by opponents as Selsdon Man after the Conservative conference at the Selsdon Park Hotel where the ideas were formulated.)

The principle behind the slogan was to extract the new government from incomes policy and industrial policy. In the end, it re-defined incomes and industrial policies and also extracted itself from exchange rate and monetary policy as well.

Very soon after taking office, this government was backtracking on its earlier promises. Not only was an incomes policy introduced, but the disengagement from industrial policy was reversed.

Having said there would be no support for ‘lame ducks’, the government intervened to support Upper Clyde Shipyards and Rolls Royce when the two were threatened with liquidation.

An Industry Act (1972) spelt out the forms of assistance that were available and Heath, apart from joining the EEC, was no more successful than Wilson in reversing the UK’s long-term decline.

Labour returned in 1974 and lasted in office until 1979, first under Wilson and then, from 1976, James Callaghan.

In a macro environment struggling to cope with the impact of the first oil price hike, Labour had the same inclinations to intervene that they had shown in the 1960s.

A new institution was set up, the National Enterprise Board (NEB) in 1975, which could take stakes in British companies, make loans or form new companies.

In the end, most of its funds were used to rescue private sector companies in trouble (such as British Leyland).

The Industrial Strategy (1976-79), co-ordinated by the National Economic Development Office, was yet another attempt to raise the performance of manufacturing industry.

Retaining the tripartite structure, a series of industry Sector Working Parties tried to identify the factors that constrained performance and then propose action programmes for government, management or unions to overcome the constraints.

Like the National Plan a decade earlier, it was ambitious, bureaucratic and undermined by the unstable political and economic climate.

Recognising the breakdown of the post-war consensus, and believing that the government did not know better than the market, the Conservatives adopted new approaches to both macro and micro economic policies.

On the micro side, ‘disengagement’ was back on the agenda. Underpinned by the tax and balance of payments benefits coming from the first of the North Sea oil to come on stream, a radical new approach to industrial issues was adopted.

Although Mrs Thatcher did not wind up NEDO (that happened under John Major), the corporatist approach to industrial issues was abandoned and the Trades Union Congress (TUC) and Confederation of British Industry (CBI) were relegated to the sidelines.

In terms of specific initiatives, the government’s approach was less to help or support particular sectors of the economy than to create a more dynamic, competitive, market-driven environment. There were several elements to this approach.

Privatisation was the dominant feature of the early Thatcher years, transferring to the private sector assets that were previously publicly owned.

This had several effects, such as:

• a substantial benefit to the Exchequer;
• an introduction to share-owning for a large part of the population; and
• a reduction in the state’s involvement in important parts of the economy.

It also introduced market disciplines to large sectors that were previously shielded from competitive pressures and freed the managements to take advantage of opportunities for expansion and innovation previously denied them.

A fundamental change to employment practices and industrial relations law (previously contemplated by Wilson and tried without success by Heath) placed constraints on the activities of trade unions and made UK labour markets freer and more flexible.

This was intended to encourage companies to employ more people, part of the argument being that if it were easier to fire, businesses would be more willing to hire.

The government tried to reform the tax system in a way that helped the economy to perform more efficiently.

It was, for example, claimed that by reducing the top rate of personal income tax to 40% by 1988 (it had been 83% under Labour) incentives were created for high-income earners and the so-called ‘Brain Drain’ (where the best talents went overseas) was reversed.

Similarly, removing investment allowances but lowering the corporation tax made the UK a low-business tax economy which encouraged new investment.

Small businesses and the creation of an enterprise culture were given a high priority with a range of measures, such as the Small Firm Loan Guarantee Scheme and the development of an equity market (the Unlisted Securities Market) for smaller businesses which wanted to raise funds from the public.

Competition was encouraged with radical reforms in areas such as finance (Big Bang) and the legal profession.

That some of the measures introduced in the third phase were difficult to implement and caused problems for individuals and groups is undeniable, but the fact that many were necessary is apparent from the Labour government’s acceptance of the changes and its unwillingness to go back to the way things were in 1979.

This process of restructuring has gone further in the UK than in most major EU countries and many eurosceptics believe that joining the single currency would have implied a return to the 1970s policies.

Tony Blair countered this by recognising the need for reform in Europe, calling for the EU to restructure to meet the challenge of the global economy.

It was an initiative he re-inforced following the defeat of the proposed Euro constitution in June 2005.