Well, it's a bit more complex than that. I lived int he UK from 1988-95 and a few years after, and I'm Irish. There wasn't a collective freakout, but there was institutionalized discrimination; for example you could be held for longer than the usual statutory period, without communication and without access to a lawyer, based on suspicion of terrorism. There were quite a few Irish people falsely imprisoned because they were made scapegoats for terrorist bombings, and political prisoners were kept in dreadful conditions (and the UK is not known for having especially humanitarian penal policies to begin with). For a long time, Britain governed Northern Ireland with an iron hand and there was far worse treatment of the Catholic minority there than could reasonably be justified by security concerns - and I would
not characterize myself as an Irish Republican or anti-UK, indeed I sometimes wonder if Irish political independence was necessarily a good thing. Bear in mind that during the 1980s the UK government was still offering support to the Apartheid regime in South Africa and so forth.
On a personal level, that meant if you were Irish you had to expect your passport to be checked very rigorously, expect different treatment from police, and endure a fair degree of social static; back in 1992, for example, people might exhibit a stiff upper lip when it was announced that the tube was delayed, but when I would meet them at work later I'd know there had been a bomb scare because I'd hear a crack about whether I had a bomb in my briefcase or somesuch. furthermore, Irish terrorism was different in a few ways. First, in Northern Ireland it was counterbalanced by unionist terrorism against the Catholic/Irish republican minority, so a lot of the terrorism you'd hear about there was of the tit-for-tat tactical variety. In London, the IRA called in far more bomb threats than it detonated bombs, and it generally avoided bombing civilians but struck political and military targets - with a disproportionate level of effectiveness, which is one reason that London is awash in CCTV cameras. IRA terrorists killed a lot of senior people in the British establishment, from government minister to members of the royal family. They launched very few attacks on civilians on the mainland, and virtually all attacks on the mainland were carried out in London, the seat of government, or at places where high-value targets happened to be. Most of the country never saw a bomb threat because it was too far from any sort of political/military target. The IRA understood asymmetrical warfare extremely well and had no desire to provoke a wave of popular resistance or anger of the kind that comes from indiscriminate civilian bombing.
Saying the UK had this sort of thing all figured out and then US reaction to 9/11 caused them to turn dictator is just hopelessly un-anchored from reality and at odds with the long historical context. I see why it seems that way to you, but I assure you that things were/are quite a bit more complex than that.