The diminution of working class and social democratic pressure is indeed in part due to legal restrictions on trade unions, their de-politicisation and marginalisation in most of the economy and in politics.
To that one must also add two further domains in which social democracy was squeezed out.
First the Labour Party itself. The rise of New Labour was both cause and effect of de-democratisation of the party structures, choreographed conferences, top-down control and consultation replacing elections. The fact that there has not been a contested election for leader since 1994 speaks for itself.
Second, in the 1980s much was made of municipal socialism. The centralisation of power started by Thatcher was continued by New Labour.