How successful were Thatcher's economic and social policies? Flashcards
What had all parties agreed on since 1945?
Unemployment should be kept low by government spending
The importance of nationalised industries
That the government should try to control prices and wages and enter into negotiations with unions
What was happening by the late 1960s and 1970s?
Right-wing economists were challenging consensus politics, influencing politicians
Who had a major influence on Thatcher?
Her key adviser Keith Joseph
What had happened between 1973 and 1979?
Retail prices had doubled
What were Thatcher and Joseph convinced of?
That economic recovery depended on conquering inflation
What did she believe inflation did/was?
Hit social stability by eroding savings and causing strikes
Made industry overprices
Reduced incentives due to high tax
Fuelled by government spending and lack of control
How did she believe inflation could be tackled?
By reducing the amount of money in circulation (monetarism)
What was the social problem of inflation?
It was a moral issue as it prevented people from providing for the future in an independent way
What was Keith Joseph’s ideology?
Small government intervention, wanting the markets to be allowed to determine wages and prices
In favour of deflation and a reduction in jobs because it would establish the basis for economic growth
What happened in June 1979?
Howe reduced the top rate of income tax from 83% to 60%
Reduced the basic rate from 33% to 30%
VAT increased from 8% to 15%
What was the impact of the 1979 budget?
Inflation increased by 4.54% in 1980 as the VAT increase pushed up the price of goods
What did Howe resort do and what did the 1980 and 1981 budgets do?
Resort to deflationary measures
1980: Cut spending by £575mn, abolished 25% lower rate of income tax, and increased excise duty
1981: £2.5bn reduction in spending costs, tax threshold raised by 18%, and increased net taxes by £4bn
What did Howe describe his 1981 budget as?
‘the most unpopular in history’
What happened to the rate at which prices rose?
Reduced from 18% in 1980 to 4.5% in 1983
What was inflation in 1981?
15%
What happened to manufacturing output?
Fell by 14% and many firms went out of business
What happened to unemployment?
More than doubled between 1979 and 1983 to over 3mn
What did the government not do?
Act to support industries which were facing problems
What were interest rates and what was the impact?
17%
Boosted overseas confidence but made conditions difficult for anyone with loans to pay
What happened to the pound?
The value of the pound increased which led to the BOP deficit increasing to £24.7bn in 1989
What happened in 1981 and what became evident?
In April riots broke out in Brixton and south London
In July riots broke out in Liverpool
The social cost of the tough economic conditions
What happened over the next three weeks and what was Thatcher’s reaction?
Further rioting occurred in six other major cities
She was shocked but did not accept that her economic policies were to blame
What was GDP growth in 1981 and 1982?
1981: -2%
1982: -1%
What was happening by 1982?
Unemployment increased by 117.9% since 1979
Growth rate and productivity (output per hour rose from 2.4% in 1979 to 4.5% in 1982) began to show signs of recovery
What was claimed?
That growth was because the government’s tough policies were working
What happened to businesses?
Weaker businesses were failing, but stronger ones thrived
What was the index of industrial production in 1979, 1981, 1987, and 1990?
1979: 86
1981: 80
1987: 96
1990: 102
What was Britain becoming?
More competitive
What was a significant cause of economic improvement?
The increase in North Sea oil production which had turned Britain into a net exporter of oil by 1980 (production increased from 75mn tonnes in 1980 to 125mn tonnes in 1985)
What happened to government expenditure?
It rose by almost 13% between 1979 and 1990 in real terms
Expenditure as a percentage of GDP fell from 48% to 39%
What was unemployment attributed to?
The reduction of government spending
What was the unemployment rate in 1979, 1984, and 1990?
1979: 5.3%
1984: 11.8%
1990: 7.5%
What happened after 1983?
The government accelerated the sale of state-owned enterprises and utilities into private hands
What did Thatcher believe, argue, and maintain?
That privatisation was fundamental to improving economic performance
Argued that the sell-off would raise revenue with which to fund tax cuts and boost investment and enterprise
That nationalised industries were inefficient would be better able to raise investment capital once privatised
What happened to shareholders?
In 1979 Britain had 3mn private shareholders and by 1990 there were almost 11mn
What did she hope?
That the policy would reward people she admired whose small shareholdings would give them a modest stake in the future of capitalism
What was the problem?
The government tended to undervalue the assets of each industry being privatised, and the value of the shares usually climbed steeply immediately after issue
What did this encourage?
Many shareholders to sell their allocation quickly at a profit, usually to big financial operations
What was privatised in 1979, 1986, and 1989?
1979: British Petroleum
1986: British gas
1988: Water utilities
What did Nigel Lawson continue?
Howe’s policy of shifting revenue from direct to indirect taxes, reducing further both the top and basic rates of income tax
What did Lawson do in the 1984 budget?
Reduced corporation tax from 52% to 50%
Increased excise duty on alcohol and cigarettes (2p on a pint of beer)
Extended VAT
What happened to capital gains tax?
Howe got rid of bands, changing it to a universal rate of 30% in 1980
Lawson aligned the rates with those of income tax in 1988, leading to the UK having one of the highest rates of CGT in the world (40%)
What did the Financial Services Act of 1988 do?
Deregulated the London stock market in the so-called ‘Big Bang’
What did the Financial Services Act do?
Revitalised the City of London’s money market by ending the Stock Exchange’s monopoly on share dealing
What did the Chancellor’s policies produce?
‘Lawson boom’
Unemployment fell to 1.6mn in 1989
What did it seem like?
That the wealth gap had widened
What have Thatcher’s supporters argued?
Succeeded in reducing inflation
Privatisation improved performance and lowered prices
Deregulation allowed London to remain at the centre of a global financial market
What do critics of her policies maintain?
Economic success came from the bonanza of North Sea oil
Privatised services were run for the profits of shareholders
Deregulation encouraged selfishness
Social cost of the policies outweighed the benefits
What did a cartoon from the Guardian in 1981 show and say?
Hare (inflation) and tortoise race (policies)
‘look champ, I know what I’m doing. In a few years, he’ll slow down and take a nap’
What were government reforms aimed at?
Making the NHS more efficient by applying business principles to its administration
What were the business principles?
Hospitals became NHS trusts in control of their own budgets
NHS services were expected to compete with one another to provide the most efficient service
GPs became fund-holders
What did government supporters argue?
That these changes injected some much needed financial discipline into the NHS
What did its critics argue?
It was the first stage in the privatisation of the NHS, in which the profit motive would take priority over patient care
What had been a concern for some time and what was the feeling?
The quality of Britain’s secondary school education
That Britain was lagging behind other countries and that teachers were not being subject to the quality control common in other jobs
What happened in 1986?
The GCSE replaced O Levels (more academic) and CSEs (didn’t lead easily to further training/education)
What happened in 1988?
The government introduced a national curriculum
State schools were given the right to opt out of control by their local education authority
What were the concerns?
That GCSEs weren’t academically rigorous enough
Testing was too frequent and the national curriculum made teaching too restrictive
What happened in 1981?
Government imposed a 15% cut on HE
What happened in 1988?
A University Funding Council was created to ensure that university education reflected the needs of the economy
What happened to the university staff?
Some lost their security of tenure
What did the government remove?
The polytechnics from local authority control and brought them under the control of the Universities Funding Council
What did the government not do?
Abolish grants for young people to attend places of higher education
What were the changes?
Controversial, with Oxford refusing to grant Thatcher an honorary degree
What did Thatcher want to do?
Create a ‘property-owning democracy’ to reward those who shared the values she admired by enabling them to own their own homes
What did she believe?
That owning property gave people a stake in their communities and made them less likely to support socialism
What does this explain?
Why one of her government’s first actions was to allow long-term council tenants the right to buy their houses
What did she insist on to encourage home ownership?
That home owners should continue to get tax relief on their mortgages
What happened during her premiership and to property ownership?
The amount of government money spent on subsidising mortgages doubled and property ownership increased by 12%
What was inflation in 1980, 1984, and 1987?
1980: 16.4%
1984: 4.3%
1987: 3.3%
What was the unemployment rate in 1982, 1987, and 1990?
1982: 13%
1987: 10.5%
1990: 6%
What was GDP growth in 1984, 1987, and 1990?
1984: 2.3%
1987: 5.4%
1990: 0.7%
What were house prices rising by in the late 1980s?
30%
By the late 1980s, what happened to BOP?
Grew to a deficit of over 4% of GDP
