5- Thatchers economic policies Flashcards
monetarism
belief that inflation is caused by the amount of money in the economy
*aimed to reduce money supply by cuts to gov spending + higher interest rates
(theory developed by Friedman but only tested in dictatorship in Chile)
(introduced in thatchers first term
“ the lady is not for turning”
refused to print money to cover inflation as it punished “careful savers” and rewarded “reckless borrowers”
privatisation
aimed to resolve Britain’s economic stagnation
aimed to cut government expenditure on loss making industries + reinvigorate the economy + incentivise workers
Attempt to overthrow the post war settlement- 20% of country’s indosuty in states hands
Hoped to create more tory voters by creating more share owning citizens
(before 1983: British aerospace, British sugar and petroleum)
1984: British telecom sold
1986: British Gas sold - raised £5.4 billion, encouraged to by shares in advertising campaign “ if you see Sid, tell him”
*shares sold cheaply to ensure a quick wide take up = launch of ‘popular capitalism
deregulation
removal of rules and regulation (hope to encourage innovation and competitiveness
= removal of exchange controls in 1979 (ended restriction on how many pounds could be converted and spend abroad)
+ 1986 ‘Big Bang’ relaxed rules of the ownership and trading operations of banks
First credit card was launched in 1966, by 1980 there were 10 million credit cards in Britain, and by 1990 it increased to 27 million
taxation
she did not believe that taxation should be used to take money from the rich to subsidise the poor (=lack of incentive to work hard + bred dependence)
* aim to promote more investment, growth + gov income by tax cuts
1980 budget: top rate of income tax cut from 83% to 60%
1988 budget: basic rate of income tax from 29% to 25%, higher rate was cut to 40%. (tax cuts so large = called “giveaway budget”
Rise in indirect taxes- VAT. Paid by everyone.
Cigarettes 14pence to 80 pence VAT
cuts subsidised by discovery of North Sea oil and privatisation
BUT average tax bill rose by 6% between 1979 and 1990 due to in indirect taxation
1979: VAT was increased from 8% to 15%
monetarism impact
success:
inflation reduced into single figures by 1982 and never rose above 9%
failure:
Hard to measure the amount of money in circulation
Unpopular cuts made rot spending on housing and social security= negative consequences for people in city areas
1980 and 1981 budgets slashed gov spending= riots in serval cities(Brixton)
1980-81: manufacturing fell 14%
1980 :inflation rose to 22% due to souring pay demands
1982:unemployment at 3 million= increased unemployment benefits
= 1983: removed for a more successful supply side policies (tax cuts and deregulation)
privatisation impact
success
£19 billion raised= able to pay tax cuts
number of share holders went for 3 to 11 million between 1979-90
since privatisation of the 10 state owned water authorisers in 1989= number of customers at risk of low water pressure fell 99%
BT privatisation = better customer service (previously had to wait 6 months for installation of a BT line)
failure
1990: only 20% of share holders were individuals (failure of popular capitalism
distribution of shares was uneven- only 9% of unskilled workers owned any shoes compared to half of all professionals
privatisation=gas prices increased faster than inflation
caused 200,000 job losses (coal privatisation)
privatisation of British rail did not improve the service
privatisation impact
success
£19 billion raised= able to pay tax cuts
number of share holders went for 3 to 11 million between 1979-90
since privatisation of the 10 state owned water authorisers in 1989= number of customers at risk of low water pressure fell 99%
BT privatisation = better customer service (previously had to wait 6 months for installation of a BT line)
failure
1990: only 20% of share holders were individuals (failure of popular capitalism
distribution of shares was uneven- only 9% of unskilled workers owned any shoes compared to half of all professionals
privatisation=gas prices increased faster than inflation
caused 200,000 job losses (coal privatisation)
privatisation of British rail did not improve the service
deregulation impact
success:
removal of exchange controls = greater overseas investments (profit returned to Britain)
Big Bang- city of London grew rapidly, become one of the major financial centres of the world- financial institutions took advantage of the more relaxed rules to offer riskier finical products that returned huge profits
Lawson Boom- economic growth reached 4-5% a year in late 80s
Big Bang modernised the stock market and allowed banks to take more risk with their lending and investments
failure:
removal of exchange controls led to an increase in spending on foreign consumer good= drained money from Britain
Big Bang = riskier financial schemes- unscrupulous individuals made huge sums of money (contributed to financial crisis 2008)
became more accustomed to borrowing money - thatcher supported ‘careful savers’
(private household debt increased from £16 billion to £47 billion in 1989
mortgage debts rose from £43 billion to £235 billion )
taxation
success:
cuts were a stimulus which helped increased disposable and consumer confidence = increased consumer spending and economic growth
decline in tax avoidance schemes
tax cuts contributed to Lawson Boom
failure:
increase in regressive taxes like VAT and national insurance payments placed a higher burden on the poor (shift of direct taxes to indirect taxes) = increasing wealth inequality
