Yesterday the Prime Minister told us the Union problems in the NHS and education could be as deep rooted as in the nationalised industries in the 1980s. He says he is ready to tackle them: he should be ready for the backlash.

The 1980s followed a decade of failure in our principal industries in public ownership. In the 1970s there were waves of redundancies in steel, huge losses on the railways and strikes in the coal industry. Look at Hansard for the 1970s and see just how much time Parliament spent debating bail outs and endless restructurings. The “commanding heights” of the economy fell apart at their Whitehall seams. A Labour government presided over constant closures in the main industries, to the bitter disappointment of their supporters.

The Thatcher government embarked on a different course. Steel was privatised. The aim was to manage coal and rail without day to day ministerial involvement, whilst the subsidies should be reduced as the industries concentrated on serving their customers. It was easy in theory, but horribly difficult in practise.

The Unions decided to make pit closures the test. I remember well leading a day long discussion in the Policy Unit as we saw the government lurch towards a major industrial confrontation. On previous occasions the government had always pulled back, fearing the power of the big three unions to disrupt. We weighed it all up. We reckoned it could just be done. There was enough coal on the ground, it was spring so demand was dropping. We knew it had to end with the miners going back to work or with the government broken. After a lot of agonising we did not counsel caution.

Had we known then what we discovered as the weeks of dispute went by, we might have urged them to pull back from the brink. We never thought people would lose their lives in the violence, or even that the divisions caused by the dispute would go so deep. Once committed we knew we had to continue -–to waver meant the effective end of the government. It did not make it much easier to accept the violence and the hatred that flared. We saw it daily on our televisions, and wept for our country. We saw it when it came to Westminster, when we went out against advice to hear and see for ourselves and understand the passions at first hand. It was a modern kind of civil war.

Nor was it always easy holding the government's nerve steady. The Prime Minister was fine – she led from the front and instinctively realised that ministerial intervention would be disastrous. The Energy department, set up to micro manage the coal and related industries, had an insatiable hunger to get involved and offer compromise. That would have turned a crisis into a disaster.

I would not wish all that on Mr Blair, let alone on the country. In the 1980s we did establish – at great cost – the principle that managers should run nationalised trading enterprises on commercial lines. We prepared them for a life in the private sector. Had we privatised coal earlier, I am sure we would have saved many more jobs.

In the first decade of the new century Mr Blair is called to offer us reform of our great public services. No Conservative dared try to reform the Unions in teaching and medicine – we knew their power and usually opted for the quieter life. The occasional run in with the doctors on issues like the limited list was bruising. Tackling doctors' contracts would have made that look like a Vicarage tea party.

The Prime Minister is right to think that he cannot spend all the money wisely without change. Reform does mean altering the habits and attitudes of a lifetime in the unionised workforces of the public sector. In some ways it is easier for a Labour government, as the public is less suspicious of their intentions towards the NHS. In some ways it is more difficult, as many of the Union leaders are personal friends of Cabinet members, and there are shared habits of mind going back decades.

It's part of the Chancellor's cunning, that he has backed Tony Blair into this position. He cannot now ignore the need for reform, because he has raised such expectations of improvement. It is the very test of his government, just as industrial restructuring and the Union problem became the public test of the Thatcher government. He must press on , and lead the workforces into better ways. He will need to ensure that all staff work to the best possible effect, which means changing the working practises and contracts in many a school and hospital. I wish him more goodwill than we received for something similar in the 1980s.