1980's- Thatcher's economic policies Flashcards
What is Monetarism?
- Economic theory; control amount of money in circulation (by reducing borrowing and spending ) –> control inflation
- -> economic growth
What was the economic situation in 1980?
Economy in Recession: Increase in unemployment (2 Mil) and Inflation (15%)
–> Stagflation
What had helped the economy from declining even further in the early 80’s?
North sea oil and Gas
Why was the 1981 budget so unpopular?
- Reduced public spending
- Grants to local councils were cut
- Benefits frozen
Why was there a shift from direct to indirect taxation?
Thatcher thought that people spent their money better than government
What is a positive and negative of the shift away from direct towards indirect taxation?
Positive: Incentivise wealth creation
Negative: Hit poor the hardest in consumer goods
What did the conservative government believe about Labour local councils?
-They wasted resources
How did the government control the spending of labour local councils?
Rate capping: limited the amount a council was allowed to raise in local taxation
How did Thatcher centralise power?
1986 - Local government act - expanded powers of central gov at the expense of local councils
Did Thatcher ever cut spending in real terms?
no- spending on social security (benefits) actually increased
when was monetarism ended?
1986, when Lawson abandoned spending targets
what is supply side economics?
- Low taxation =.> encourage spending + enterprise
- Deregulation=> enterprise -Flexible Labour markets => less job security
=> Leads to economic growth
What is demand sides economics?
-Increased taxation => support full employment
Did the economic growth rate and productivity improve under Thatcher?
- 2.2% annual growth rate ( same as 70’s)
- Slump in productivity - couldn’t keep up with foreign imports
What were two Mechanisms used in order to control inflation?
- Increased Interest rates => more difficult for business to borrow
- 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
What was a negative effect of high interest rates in the early 80’s?
- High interest rates=>decline in output
- -> led to economic recession -> rise in unemployment
what were levels of inflation like in the 80’s?
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
What did the Tory government see as the bigger issue?Why?
how severe was the issue of unemployment?
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
What were the effects of the ‘deindustrialisation of Britain?
- Many industrial plants closed
- Manufacturing fell by 15%
What were some companies privatised under Thatcher?
BP in ‘79
British Aerospace in ‘80
British gas in ‘86
What were the positives of Privatisation?
-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
What were the negatives with Privatisation?
- 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)
what was the motivation for deregulation?
- Aligned Thatcher’s ideological beliefs: Less state intervention
- Incentivise wealth creation and business: “remove red tape”
What were two schemes set up to encourage business as a part of financial deregulation?
- Loan Guarantee scheme: easier for small business to borrow
- Enterprise allowance scheme: Encouraged unemployed people to start business. £40 a week
What was an effect of financial deregulation?
-Freed up the city and financial markets from tight control the Bank of England
=> Economic Growth
What was the “big bang” in October 1986?
-deregulation of the London stock exchange
→opened the way for computer screen trading and introduced free competition
-Enourage foreign investment
→ lead to economic growth
What were the negatives of financial deregulation?
- Productivity didn’t grow at the same rate
- 2.2% growth rate was no better than in the 70’s
What was the North south divide?
-Prosperous south and Less prosperous North
How were old industries being affected by long term economic trends?
- 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
How did the Working class suffer as a result of economic realignment?
- 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)
What was Thatcher’s stance on declining industry?
The government should no longer subsidise “lame duck industries” that couldn’t support themelsves
→ Lead to managed decline
How was economic realignment received in some areas of the country?
1981 riots: Areas of high unemployment ie Liverpool at 75%
