Boneheaded ex-PM Margaret Thatcher’s most senior official warned 29 years ago that her City free-for-all could mean a future financial collapse, newly released government papers revealed yesterday.

The notorious Tory ignored the accurate predictions of Cabinet secretary Sir Robert Armstrong and went ahead with her “Big Bang” that saw stock exchange regulations torn up in 1986.

In a private memorandum he set out a string of concerns months before she tore up City rules — an act linked directly to the 2008 collapse of the banking system.

The March 17 1986 document reports “increasing disquiet about the things going on in the City.”

Sir Robert warns: “They think more about the way in which corners are being cut and money is being made in ways that are at least bordering on the unscrupulous.

“It tends to be summed up by the people saying that they doubt whether it really is good enough any more to leaving the policing of the City to self-regulation.”

Free-market zealot Thatcher — aping then US president Ronald Reagan (above) — opted to ignore the warnings and tear

up the rule book, comforted by advice from policy adviser David “Two Brains” Willetts.

The still-serving MP claimed at the time there would be no repeat of the “boom and bust” seen following earlier City deregulation in 1971, when a housing bubble was followed by a market collapse and banking crisis with dark premonitions of 2008.

“We do not expect a systemic problem,” Mr Willetts stated in a joint policy paper.

But within 20 years the taxpayer had been forced to bail out the collapsed banking system to the tune of trillions of pounds, prompting the current era of “austerity” cuts.

Sir Robert was less accurate about rocketing financiers’ pay packets, suggesting that it was “a bubble that will be pricked in a year or two.”

In fact City wages have rocketed in the 30 years since, with chief executives of the biggest companies seeing pay rise from 18 times the average in 1980 to 174 in 2013.