Margaret Thatcher, everyone agrees, altered Britain dramatically – whether for better or worse, though, depends on your perspective. Her government nationalised industries, confronted trade unions and attempted to reassert Britain’s international authority. It also radically reformed and reduced a civil service which had been growing alongside the state since the Second World War. The leaner and more commercially-focused civil service of today is, in large part, a product of the Thatcher era – but how did she achieve that? And on a personal level, how did the notoriously direct Thatcher treat the civil servants who served under her?

The politician who entered Downing Street on 4 May 1979 was no great lover of officialdom. To people such as Thatcher’s ideological mentor and first trade secretary Keith Joseph, Whitehall was guilty of complicity in the economic decline that characterised Britain in the 1970s, and had to be made more efficient – in short, more like the private sector. But Thatcher did find allies among civil servants and – in contrast to the New Labour era – many of her closest advisers were officials rather than political appointees. The redoubtable Bernard Ingham, her long-standing press secretary, and foreign policy advisor Charles Powell were both civil servants.

Whatever scepticism Thatcher and her allies felt about the civil service was reflected back at her from within Whitehall – and not just because of her radical policy proposals. Robin (now Lord) Butler, who served as Thatcher’s principal private secretary and later as cabinet secretary, recalls watching the new prime minister give her famous oration of St Francis’s prayer outside 10 Downing Street the day she came to power. “I said to my wife: ‘I don’t think that woman will last three months’,” Butler says. “How wrong I was.”

Some of that wariness can be attributed to male chauvinism, Butler concedes, but some was rooted in resistance to the introduction of an approach to economic policy – and government in general – that cast aside the conventions of the post-war consensus.

Where once JM Keynes was the dominant intellectual influence in Britain’s corridors of power, Thatcher’s policies were focused on tackling inflation though the ‘monetarist’ theories of Milton Friedman. This meant much tighter control over the supply of money, reduced spending and less government intervention in markets. Keynesians within Whitehall were “very sceptical”, admits Lord Butler, and were “expecting her to fail, so that it would be necessary to reflate the economy”. That scepticism was only overcome, he says, when the economy started to grow again after the notoriously harsh spending cuts imposed in the 1981 Budget.

It wasn’t only spending that Thatcher wanted to cut, but the size of the civil service itself. John Ward, who served as general secretary of civil service managers’ union the FDA during the 1980s, says the service had been a “Rolls Royce machine” staffed to perform at a high level during periods of peak demand. “Thatcher and her ministers began to question whether you always needed a Rolls Royce to drive around, and whether a Ford Fiesta might be just as good in some circumstances,” Ward recalls. Lord Butler claims that, although officials were not opposed to greater efficiency in principle, when Thatcher called for the 700,000-strong civil service to be reduced to 630,000 by 1983, “she seemed almost to have plucked a figure out of the air”.

Foreshadowing the almost perpetual efficiency drives led by various private sector figures in the decades since, Thatcher began by appointing Marks & Spencer boss Derek Rayner to lead a review, which isolated where the cuts should be focused. She also brought responsibility for civil service issues back to Downing Street, handing them to the Cabinet Office and abolishing the dedicated civil service department which had existed since the 1960s. Thatcher’s supporters argue that the long-term success of these reforms is demonstrated by the fact that that Labour not only retained them, but extended the drive – most recently through the Treasury’s operational efficiency programme, published alongside this year’s Budget.

But in the 1980s all of this, recalls Ward, was a “big shock to the system”; one followed by a dispute over pay that threatened to undermine the government’s reputation as a model employer. As well as rationalising staff numbers, Thatcher sought to rationalise wages across the public sector – and the civil service was no exception. Among her reforms was the abandonment of parity with private sector pay levels, which Ward believes represented a move away from fairness towards a system based solely on value for money.

“What is probably rather difficult to understand now is that it was not just a concept of fairness; there was actually a sophisticated system for measuring this comparability,” Ward says, explaining how until the Thatcher period, a dedicated civil service unit compared details of pay and benefits to ensure broad parity with the commercial world. “What really offended [civil servants] was when overnight she said: ‘Get rid of all that – we can’t be bothered with it’,” he says.

In the ensuing 1981 pay dispute, strike action organised by a variety of unions, including the FDA, failed to budge the Iron Lady – perhaps a harbinger of the shape of industrial disputes to come.

Later in the Thatcher decade, a separate review by banker Sir Robin Ibbs recommended moving many areas of responsibility away from Whitehall and into new, executive agencies. These agencies have since grown massively in size and responsibility, transforming the landscape of government. Nowadays, it is standard practice that central departments set policy and standards, while agencies – such as Jobcentre Plus or HM Prison Service – deliver them. But that was not the case until the Thatcher era.

All this upheaval might suggest that Thatcher was hostile to the civil service as an institution, but on a personal level her relationship with officials was more complex. John Whittingdale, a Conservative MP who served as her political secretary – the only non-civil servant in her private office – says she was both enormously demanding, and highly loyal to those who worked closely with her. Of course, those officials who worked closely with the prime minister were almost always of “extremely high quality”; they had to be, Whittingdale says.

The contrast between Thatcher’s views of institutions and of individuals was typified by her attitude to the Foreign Office, according to Lord Butler. “She often said it was on the side of foreigners, but when she met individual ambassadors and officials in the Foreign Office, she had a very high opinion of them.”

As among the population at large, the woman known to her staff as Mrs T provoked – and continues to provoke – intense reactions from those who served her. Those who could withstand the occasional handbagging and win her respect often went far; once she sensed an official was on her side, Lord Butler says, “you became a member of the family”. It was a family that brought dramatic change to the civil service, creating reforms that have shaped the way government works today.