The period 1979–1992 was traumatic for the Labour Party in the UK, involving the loss of four general elections, the hegemony of Thatcherism and bitter internal divisions within the political left. Under the leadership of Neil Kinnock, the Party moved more to the centre ground in an attempt to become electable and capture the hearts and minds of those floating voters who are the key to winning general elections. By the early 1990s, many in the Labour Party felt that it had failed to understand the material aspirations of the skilled working class and lower middle class, the rise of consumer culture, the effects of globalisation and the increase in home ownership. It is also the case that the Party was having to survive in a world of growing corporate power and associated media hostility, as well as the erosion of its electoral base with the decline of heavy industry and attendant changes in the UK's occupational structure.

The centre-left accordingly began to fashion a social democratic version of the new neoclassical orthodoxy, as part of a broader macro-economic strategy of creating non-inflationary economic growth without the boom and bust of previous decades. Moving jobless people off benefits and into work would expand labour supply and contain wages, since more workers would be competing for jobs; the inflationary tendencies that had previously accompanied economic booms would be held in check. From a Keynesian perspective, more people in work would also boost aggregate demand by raising purchasing power. Economic growth would then be stimulated, and an economic virtuous circle would be created. The centre-left's view of the Thatcher experiment was that it had cynically and cruelly used mass unemployment and deindustrialisation as a means of achieving several aims: the rapid restructuring of British industry from manufacturing to service jobs, also assisting the growth of finance capital; the destruction of trades union power specifically, and working-class culture generally; and a deflating of the economy, since mass unemployment reduced aggregate demand. The result was a growth of long-term unemployment (often presented as male early retirement or work-disability), widening inequality, a sharp rise in child poverty, more insecure employment and whole areas of the UK blighted by deindustrialisation.

This critique was given added urgency by the recession of 1989–1992, when inflation rose and unemployment briefly reached 3,000,000.