5 The Effect of Thatchers Economic Policies Flashcards
1
Q
conviction politics
what did Thatcher believe about politics and the PWC?
A
- politics should be rooted in political leaders principles, rather than consensus
- the PWC was bad because politicans soguht consensus over doing the right thing.
2
Q
Thatcher’s economic outlook
what was she against?
Who should be dependent on the state? hard work? key to economic growth?
A
- dependency, high tax, and powerful unions
- only the most vulnerable should be dependent on the state
- tax prevented hard working people from benefitting from the money they earned
- individual enterprise - key to economic growth
3
Q
Thatcher’s economic outlook
private companies vs state spending: thatchers opinions + on unions
A
- pricvate companies more efficient than nationalised ones
- private companies HAD to make a profit, so they tried harder to do so, gov spending should be cut
- unions also interferred with efficency
4
Q
the rule of law
Thatchers opinions on the rule of law?
A
- British people should obey the law because it protects them
- change should be made through elections not marches, occupations, strikes, and reform
- radical protest forced change and was undemocratic
- only individual rights deserve to be protected
5
Q
nationalism
what did she think about British law and protection of all groups?
black rights and feminist groups, interference with other countries
A
- black rights and feminist groups were misguided because British law protected everyone
- britain had civilised values of individual rights, hard work, and democracy
- she opposed interference in British affairs in other countries
6
Q
monetarism, 1980-1992
what was monetarism?
A
- new priority of controlling inflation, not unemployment
- tax rises and spending cuts.
7
Q
monetarism, 1980-1992
Geoffery Howes Medium Term FInancial Strategy
A
- set out targets for reducing the amount of money in circulation to control inflation
8
Q
monetarism, 1980-1992
What did Thatcher and Howe believe about excessive state spending?
A
- excessive state spending over years and years had resulted in too much money flooding into the economy
- ineffective industries produced to few goods and this meant price rises
- monetarist policy (insp. by Milton Friedman) meant reducing the amount of money in the economy to reduce inflation
9
Q
Taxation
how much was VAT raised?
A
- 8-15%
10
Q
Taxation
top rate decreased?
A
83-60%
11
Q
Taxation
who did the raising of VAT hit?
A
- the poorer people
- because its a spending tax, they were spending a much higher proportion of their income
12
Q
spending cuts
public spending dropped?
1980-1981
A
- £11b in 1980 to £9b in 1981
13
Q
spending cuts
why did she cut spending?
A
- if the govenrment would do less, the private sector would do more
14
Q
spending cuts
overall taxes were raised by…? during a recession..
A
- £4b
- new taxes were introduced on north sea oil and a one off windfall tax was imposed on the banks
15
Q
spending cuts
cuts where? increases where?
A
- cuts in education
- health and benefit increases
16
Q
spending cuts
deflationary budget
A
- when the economy was shrinking and unemployment was rising
17
Q
spending cuts
how many economists wrote to the times protesting the policy?
A
- 364 economists
18
Q
spending cuts
cabinet rebelion 1981
A
- rejected a further £5b on spending cuts
19
Q
North Sea Oil
government recieved how much from north sea oil 1983-1985? what did it help finance?
A
- £41b from North Sea OIl
- double what the governemnt recieved from the North Sea in Thatchers first term
- helped finance government policies, including large amounts of unemployment benefits and tax cuts
20
Q
Nationalised Industry 1979-1982
what did she believe about the efficency of nationalised industries? Sir Keith Joseph?
A
- she believed it was less effieicent than private industries, as they didnt have to make a profit
- she believed government money should be used to keep failing industries afloat long term
- Sir Keith Joseph was appointed secretary of state, a fellow supporter of free markets
21
Q
Nationalised Industry 1979-1982
British Steel: what did keith Joseph do to the British steel industry?
A
- allowed the government wouldnt support hte loss making in British steel
- so it made 53,000 workers redundant in 1979
- but redundancy settlements cost more anyway (1979-1981 £1b payments to British Steel)
22
Q
Nationalised Industry 1979-1982
how was the steel industry still making a loss by 1981?
A
- £450m
23
Q
Nationalised Industry 1979-1982
Joseph and British Leyland?
A
- invested £900m
- Thatcher wanted to end government subsidies to nationalised industries
- which meant laying off large workers
- British Leyland promised to lay off 30,000 workers in return for gov investment in 1981
24
Q
supply-side economics 1982-1987
why was monetarism abandoned?
A
- it was impossible to measure the money supply
25
# supply-side economics **1982-1987**
Thatchers free market policy
- Thatcher embraced a free market policy designed to stimulate production in the private sector by tax cuts and privatisations.
26
# *Tax Cuts*
governemnt cut which taxes in the **1980s**?
- income and corporation tax
27
# *Tax Cuts*
Nigel Lawson (2nd chancellor) cut standard tax in **1987**: how much?
- 30-27%
28
# *Breaking Even*
nationalised industries and breaking even: when should they do so?
- Nationalised Industries should break even by **1982**
- moved to **1985** due to job losses
29
# *Breaking Even*
**1984** subsidising nationalised industries vs **1988** profits
- **1984**: £1.1b government subsidise to nationalised industries
- **1988**: 1.3b
30
# *Breaking Even*
as a result, grants to struggling industries fell..?
- £3.8b in **1984** to £335m in **1987**
31
# *Breaking Even*
then job losses due to grants to struggling industires falling?
- job losses: British steel lost 95,000 workers between **1979-1983**
- National coal board announced 75 pit closures and 64,000 job losses
- once industries were profitable they were privatised
32
# *Privatisation*
why didnt Thatcher like nationalisation? British airways loss **1981-1982**? Nationalised companies **1979** workers vs GDP?
- privatisation was more profitable and efficient, nationalised industries are not forced to make ap rofit
- British airways made a loss of £544m between **1981-1982**
- **1979** nationalised companies employed 25% of British workers, but only 10% of the GDP
33
# *Privatisation*
what did Thatcher also encourage?
- shares
- in attempt to create '*popular capitalism'* so a larger proportion of society owned shares and felt the benefits of a free market
34
# *Privatisation*
**1979** vs **1990** share owning
- **1979** 7% owned shares
- **1980** 25% did
- the governmetn sold shares below the market rate so purchases could see their investment quickly
35
# *Privatisation*
Between **1982-1986** what did Thatcher privatise?
- british aerospace and cable wireless
- jaguar (cars)
- british gas
- Britoil
- British telecom (bought £3.7b to the treasury) **most importantly *convinced most tories that privatisation would revive the economy***
36
# **lawson boom and bust, *1987-1990***
Thatcher and economy growth **1985-1988**?
- the economy grew at around 4% per year
- right to buy
- privatisations became popular
37
# **lawson boom and bust, *1987-1990***
stock market and yuppie culture
- contrasted the 1970s pessimism
- london became associated with the yuppie culture
- stock market fashionable
- mid **1980s** were about consolidating and sustaining the economic upswing
38
# *Deregulation **Nigel Lawson***
relaxation + decreased interest rates?
- relaxation of credit controls, allowing people with lower incomes to borrow large sums of moeny
- decreased interest rates from **14%** in **1985** to **7.5%** in **1988** borrowing was cheaper
39
# *Deregulation **Nigel Lawson***
*1986 Financial Services Act*
- made it easier to trade stocks and shares
- stock exchange also began computer trading! :D
40
# *controlling inflation*
interest rate policy was used to control inflation? What did higher interest rates do to spending?
- when inflation rates rose, lawson rose interest rates, and vice versa
- higher interest rates would decrese spending as people would have to pay higher rates on their loans
41
# *crash and bust*
stock market crash **1987**
- 17th october
- 'black monday'
- wiped £50m off the value of shares
42
# *crash and bust*
how did Lawson cut interest rates and income tax?
- cut interest rates **7.5%**
- **1988** budget cut at the top rate of income tax from 60-40%
- standard rate was cut from 27-25%
43
# *crash and bust*
what did low interest rates actually lead to? What did John Major do?
- rising inflation
- John Major (chancelor 3) raised interest rates further, which meant a recession, and unemmployment rose but inflation decreased
44
# consequences: *inflation*
inflation in **1980**
- 18%
45
# consequences: *inflation*
however, inflation **1983-1989** and **1992-1997**
- relatively low #
- however, between **1951-1969** inflation was rarely above 5%, so perhaps a return to long-term trends rather than improvement
46
# *Economic Growth*
**1983-1992** average growth per year
- 2.5%
47
# *Economic Growth*
**1950** Britain ranked in the world in terms of GDP, **1973**, **1997**
- **1950**: 6th in the world
- **1973**: 11th
- **1997**: 14th
48
# *Productivity*
world trends compared to Britain
- Britain was lagging behind other countries
- **1979**: british workers were about 50% as productive as US workers
- even still less productive than workers in France, Germany, and Japan in **1997**
49
# *Industry and finance*
Financial services investment compared to manufacturing? **1997** british industry percentage of the GDP? balance of payments deficit? unemployment?
- 300% investment in financial services
- 8% in manufacturing
- **1997** 21% of the GDP was british industry compared to **1960s** 40%
- balance of payments went from £5b surplus in **1979** to £20b deficit in **1989**
- unemployment disproportionately effecting the north
50
# *unemployment*
**1985**, **1980-1997**
- **1985**: 3.2m (peak)
- **1980-1997**: 8.5% never fell below
51
# *The state and the Economy*
what did she want? how did she fail?
- she wanted to redcuce the states role in the economy and increase private sector involvement, she failed
52
# *The state and the Economy*
public spending as a % of the GDP under thatcher
- **1979**: 37%
- **1997**: 44%
53
# *The state and the Economy*
social security spending
- grew by 9% overall
54
# *The state and the Economy*
spending on law and order increase
- 36%
55
# *The state and the Economy*
spending in the military
- 3% increase per year
- boguht US' trident nuclear weapon
56
# conclusion
overall
- changed the nature of the economy
- large governmetn owned sectors were privatised
- direct taxes cut and indirect taxes rose
- unemployment became the norm
- long term rates of inflation continued as they had since **1960**, Britain still lagged behind its competitors
