1980's- Thatcher's economic policies

Question 1

What is Monetarism?

Answer 1

• Economic theory; control amount of money in circulation (by reducing borrowing and spending ) –> control inflation
• -> economic growth

Question 2

What was the economic situation in 1980?

Answer 2

Economy in Recession: Increase in unemployment (2 Mil) and Inflation (15%)

–> Stagflation

Question 3

What had helped the economy from declining even further in the early 80’s?

Answer 3

North sea oil and Gas

Question 4

Why was the 1981 budget so unpopular?

Answer 4

• Reduced public spending
• Grants to local councils were cut
• Benefits frozen

Question 5

Why was there a shift from direct to indirect taxation?

Answer 5

Thatcher thought that people spent their money better than government

Question 6

What is a positive and negative of the shift away from direct towards indirect taxation?

Answer 6

Positive: Incentivise wealth creation

Negative: Hit poor the hardest in consumer goods

Question 7

What did the conservative government believe about Labour local councils?

Answer 7

-They wasted resources

Question 8

How did the government control the spending of labour local councils?

Answer 8

Rate capping: limited the amount a council was allowed to raise in local taxation

Question 9

How did Thatcher centralise power?

Answer 9

1986 - Local government act - expanded powers of central gov at the expense of local councils

Question 10

Did Thatcher ever cut spending in real terms?

Answer 10

no- spending on social security (benefits) actually increased

Question 11

when was monetarism ended?

Answer 11

1986, when Lawson abandoned spending targets

Question 12

what is supply side economics?

Answer 12

• Low taxation =.> encourage spending + enterprise
• Deregulation=> enterprise -Flexible Labour markets => less job security

=> Leads to economic growth

Question 13

What is demand sides economics?

Answer 13

-Increased taxation => support full employment

Question 14

Did the economic growth rate and productivity improve under Thatcher?

Answer 14

• 2.2% annual growth rate ( same as 70’s)
• Slump in productivity - couldn’t keep up with foreign imports

Question 15

What were two Mechanisms used in order to control inflation?

Answer 15

1. Increased Interest rates => more difficult for business to borrow
2. Increased the value of £ => more difficult for business to export

Thatcher Dilemma: (High interest rates and ^ £ value to curb inflation or keep them low to promote business) -contradictory

Question 16

What was a negative effect of high interest rates in the early 80’s?

Answer 16

• High interest rates=>decline in output
• -> led to economic recession -> rise in unemployment

Question 17

what were levels of inflation like in the 80’s?

Answer 17

May 1980- Peaked at 22%

1986- inflation down to 2.5%, helping the Tories win in ‘87

-> Short lived :UK again went into recession -> ERM

Question 18

What did the Tory government see as the bigger issue?Why?

how severe was the issue of unemployment?

Answer 18

No longer committed to full employment -Inflation bigger issue

British Industry had to be more competitive/efficient internationally

-> therfore expected rise in unemployment?

Unemployment rose to over 3 Million by ‘83

Question 19

What were the effects of the ‘deindustrialisation of Britain?

Answer 19

• Many industrial plants closed
• Manufacturing fell by 15%

Question 20

What were some companies privatised under Thatcher?

Answer 20

BP in ‘79
British Aerospace in ‘80
British gas in ‘86

Question 21

What were the positives of Privatisation?

Answer 21

-Allowed for entrepreneurial middle class -owning stocks 3mil to 9mil -

Privatisation=> revenue for government

-Privatised companies could become more efficient => compete=> Innovation and economic growth

=> Drive prices of consumer goods down

Question 22

What were the negatives with Privatisation?

Answer 22

• enterprises were sold of cheaply to ensure all shares were taken up
• Job insecurity- lay off staff to become more efficient
• working class: couldn’t benefit from owning stocks (not enough capital to invest)

Question 23

what was the motivation for deregulation?

Answer 23

• Aligned Thatcher’s ideological beliefs: Less state intervention
• Incentivise wealth creation and business: “remove red tape”

Question 24

What were two schemes set up to encourage business as a part of financial deregulation?

Answer 24

• Loan Guarantee scheme: easier for small business to borrow
• Enterprise allowance scheme: Encouraged unemployed people to start business. £40 a week

Question 25

What was an effect of financial deregulation?

Answer 25

-Freed up the city and financial markets from tight control the Bank of England

=> Economic Growth

Question 26

What was the “big bang” in October 1986?

Answer 26

-deregulation of the London stock exchange

→opened the way for computer screen trading and introduced free competition

-Enourage foreign investment

→ lead to economic growth

Question 27

What were the negatives of financial deregulation?

Answer 27

• Productivity didn’t grow at the same rate
• 2.2% growth rate was no better than in the 70’s

Question 28

What was the North south divide?

Answer 28

-Prosperous south and Less prosperous North

Question 29

How were old industries being affected by long term economic trends?

Answer 29

• Decline in Industry:Couldn’t keep up with Foreign competition- producing more at a lower cost. Britian could import for cheaper.
• transition to services based economy ( Tertiary sector)
• Mining towns faced painful adjustments- foundations of W/C were crumbeling

=> north south divisions widened

Question 30

How did the Working class suffer as a result of economic realignment?

Answer 30

• Mining towns faced painful adjustments- foundations of W/C were crumbling
• Declining domestic industry
• Children could no longer expect to follow their parents into work ( The mines)

Question 31

What was Thatcher’s stance on declining industry?

Answer 31

The government should no longer subsidise “lame duck industries” that couldn’t support themelsves

→ Lead to managed decline

Question 32

How was economic realignment received in some areas of the country?

Answer 32

1981 riots: Areas of high unemployment ie Liverpool at 75%