Economic Policies of The Thatcher Government Flashcards
Inflation
> Made British industry overpriced due to ‘spiral’ of rising prices and rising wages- British goods became too expensive comp to other countries
Reduced incentives and enterprise because higher prices led to higher taxation- businesses should as free from tax and restriction as possible in order to thrive
Was fuelled by govt spending + lack of effective control of money in circulation
Result of ‘Keynesianism’
Could only be tackled by reducing money in circulation = monetarism
Taxation
> 1979, Chancellor Howe changed the taxation from direct to indirect
This made things worse -VAT increase pushed up price of goods
Howe resorted to the deflationary methods used by previous govts to tackle inflation -1980 +’81 budgets:
- cut govt expenditure
-Reduced govt borrowing
-Increased taxes
Howe’s policies and economic problems
> Positive impact on inflation but contributed to economic downturn:
-rate at which prices rose was reduced from 19% in 1980 to 4.5% in 1983
-Manufacturing output fell by 14% and many firms went out of business
-Unemployment more than doubled between 1979 -‘83 to over 3m
-Govt didn’t support industries facing problems
-Value of £ increased which made exports dearer (though it boosted financial sector)
Social cost of tough economic conditions evident in April ‘81 -riots broke out in Brixton, South London + over the next few months more happened
Despite rise in unemployment, Britain’s growth rate and productivity began showing signs of recovery by ‘82
Privatisation
-After 1983, Thatcher’s govt. accelerated the sale of Britain’s state-owned enterprises and utilities into the private sector.
-Thatcher’s opinion of privatisation was that it was ‘fundamental to improving Britain’s economic performance’.
-Thatcher thought that nationalised industries were:
• inefficient and over-manned
• Would be better able to raise investment capital once released from govt. control
-Thatcher increased the number of shareholders by 8m by 1990 from the time she came into power. It was her belief that this policy would reward hard-working families who would achieve an ‘economic stake in society’ from this policy.
-Thatcher’s long term plan was to create a ‘share-holding democracy’. It was thought that by workers having a share of the business that they were working for, it would not only be the bosses benefitting from profit but also workers which would unite the bosses and workers in their aims.
Tax cuts and deregulation
> Nigel Lawson, chancellor from ‘83-‘89 continued Howe’s policy of shifting revenue from direct to indirect taxes
Financial Services Act of 1986 deregulated London stock market - called the ‘big bang’ -ended the Stock Exchange’s monopoly on share dealing
Increased north/south divide
