Britain is a deeply divided country. Inner London is the richest part of the entire European Union, while Cornwall and Wales benefit from the regional aid dispensed by Brussels. There is full employment in the better-off towns and cities of the home counties, while in Knowsley on Merseyside the true level of joblessness is well over 15%.

The electoral map of Britain at the 2010 election captures this divide. There is little Conservative presence in the big conurbations outside London but only a sprinkling of Labour seats in the south-east, the south-west and East Anglia.

This regional split, which has grown over time, is crucial in understanding the mixed feelings generated by the death of Margaret Thatcher. That she was revered and loathed in equal measure goes without saying. That these opinions are often rooted in a well-founded economic rationale is less commonly accepted.

Let's start with Britain as it was when Thatcher became prime minister in 1979. Contrary to what some of her detractors say, Mrs T did not create the north-south divide; unemployment was higher in the northern regions even then, and for decades governments had been trying to compensate for the decline of the staple industries of Britain's mid-Victorian pre-eminence: coal, cotton and shipbuilding.

That's why Harold Wilson put the Royal Mint in Llantrisant and the Girobank was set up in Bootle. In the 1930s, the centre of gravity of the British economy shifted to the south-east, which is where many of the new light engineering firms were established. Regional policy in the 1960s and 1970s aimed to relocate some of this work – car plants, in particular – to the northern regions.

Despite these efforts, in May 1979 it was much more difficult to get a job in Consett than it was in Crawley, and living standards were higher in the south. Thatcher's 11 years in Downing Street amplified this existing trend in three distinct phases.

Phase one was the shakeout of manufacturing in 1980 and 1981. Again, this needs to be put into some sort of historical perspective. Manufacturing jobs had peaked in the mid-1960s and the workforce had shrunk by a million. Britain's industrial competitiveness had been impaired in the 1970s by high inflation, offset by a lower exchange rate.

But the first two years of the Thatcher era were a veritable bloodbath. Industry faced a quadruple whammy: higher oil prices; an appreciating foreign exchange rate courtesy of sterling's emerging status as a petro-currency; rising inflation caused by a doubling of VAT and high pay claims; and sky-high interest rates deemed necessary to reduce the growth in the money supply.

The damage was greater than the Thatcher government expected and greater than it need have been. The old industrial regions – the north-west, the north-east, Yorkshire and Humberside, the West Midlands, Scotland and Wales – went through the wringer.

Phase two of the process involved "right to buy", the mass sell-off of council houses, and financial deregulation. Both were popular in southern England because it meant an end to mortgage queues and the ability to buy cut-price property in a part of the country where prices were high relative to other regions. House prices started to rise sharply from the mid-1980s, creating a feelgood factor for those sitting on hefty capital gains.

Phase three was the big bang in the City. This accelerated the economy's transformation away from manufacturing towards the service sector and the financial services sector in particular. The government's thinking was that it made sense to exploit the size and international reputation of the City, because this was a sector in which the UK had a comparative advantage.

So by the late 1980s one half of the country was enjoying boom conditions while the other half was still nursing deep wounds from the recession of the early 1980s.

The property bubble's subsequent bursting and the export-led recovery that followed Black Wednesday – 16 September 1992 – meant the growing regional disparity of the 1980s was briefly arrested in the first half of the 1990s, but the trend then re-emerged under the three Labour governments from 1997 onwards.

Both Tory and Labour governments thought something had to be done about the industrial regions. For Thatcher, the remedy was market forces and encouraging inward investment. Labour made a Faustian bargain with the City and the better-off citizens of the south-east: it allowed rampant financial and property speculation, using the government's rake-off to expand the size of the state's presence in the UK's old industrial heartlands.

As a report by Manchester University's Centre for Research on Socio-Cultural Change put it: "The rhetorical promise of enterprise under Margaret Thatcher was real jobs in a new economy. But in the event (and accidentally), through deregulating finance Thatcher and Blair did more for the working rich in London and (middle-class) homeowners with equity than they did for unemployed steel or car workers."

Taken in its entirety, the story of the northern regions since 1979 goes like this: deep slump in the 1980s in which a huge rise in joblessness was masked by taking people off the claimant count and putting them on incapacity benefit; some recovery in employment in the 1990s, heavily concentrated in distribution, call centres and the public sector; further growth in the 2000s, driven this time by an increase in public spending that would have been halted whichever party had won the 2010 election.

The CRESC study found that there had been no private-sector job creation in manufacturing-rich regions such as the north-east and the West Midlands between 1997 and 2010. What's more, one of the traditional stabilising mechanisms – people moving from north to south – ceased to operate. In the boom years from 1997-2006, 85% of the extra jobs created in London were filled by people born outside the UK.

The current government's attempts to bridge the north-south divide look doomed to failure. All but one of the 20 worst districts for hidden unemployment lie north of a line from the Severn to the Wash, according to a study last year by the Centre for Regional Economic and Social Research at Sheffield Hallam University.

The economy's structure means that the growth sectors when it recovers are, according to Capital Economics, likely to be financial services, professional services and communications, digital and media. All three are concentrated in London, which also accounts for almost a third of money spent on regeneration projects. The £15bn invested in Crossrail dwarfs spending on infrastructure in the north. Indeed, the £322m earmarked for new rail lines to boost the big northern cities is exceeded by the £350m to lengthen two platforms at Waterloo station. Doubtless many of the commuters who will benefit have a soft spot for Mrs T. But it is easy to see why in other parts of the land she is not seen as an economic saviour.