The problem with a 'it's political correctness gone mad!' argument is it ignores the context in which those laws were enacted. Racism and sexism were systematic and endemic in the UK during much of the 20th century.
You say that "political correctness had taken hold in local government by the early 1980s", but you don't mention that the reason for this was that during the early 1980s there were numerous serious race riots throughout the UK.
Hate speech and anti-discrimination laws have drastically improved the lives of millions of people in the UK. I don't pretend that discrimination has been eliminated, but you simply can't deny the fact that British society today is considerably less racist and sexist than it was thirty years ago.
Now, there is a side effect to this. Because the UK doesn't have explicit free speech protection mistakes have been made enforcing those laws. Sometimes people mis-interpret them, in the same way people mis-understand health and safety laws. But I would argue these costs are far out-weighed by the benefit that a ethnically diverse and accepting society has brought. I see that since I started typing this someone has already replied to you saying how much their life has improved due to these laws.
Getting back to your original point: I don't think this is a UK specific problem. I could probably cherry-pick similar examples from the US and other EU countries and come up with equally compelling arguments that "this shambles could only happen in [X]".
This is obviously a very emotional topic for many people. I don't expect this reply to change your mind, and I fully expect people to disagree with me. All I really want to get at is that as someone who also lives in the UK I disagree with your viewpoint.
Cause and effect, dude. This happened in the same time frame in virtually every single developed country on earth with different ways of approaching the issue. Chances are that being more tolerant was simply just an idea whose time had come.
Laws can and do cause drastic change. I think we could safely say that if hypothetically the supreme court was to find prohibiting same-sex marriage as unconstitutional the impact would be far more immediate and greater than legislating on a state-by-state ad hoc basis.
Society does not move to a predetermined end, and we will not be "better" off without protections of civil rights. That statement is dangerous because it assumes that there are not forces and persons who wish to regress.
A UK constituancy seat in 1960s was won by a conservative candidate against the Labour candidate, on the slogan: "If you want a nigger for a neighbour, vote Labour" http://www.guardian.co.uk/uk/2001/apr/27/race.world2
But no, apparently it's "gone too far" when you can't say that anymore!</sarcasm>
the UK doesn't have explicit free speech protection
Debatable. it doesn't have a written constitution, yes, however it has signed up various treaties that guarantee free speech (e.g. Charter of Fundamental Rights).
Regardless, all countries have limits on "free speech" (even USA). Many EU countries put a limit on free speech and don't include very racist vile speech as protected speech. This doesn't mean they have "no free speech".