THATCHER 1979-90 CHAPTER 14

Question 1

MONETARISM

• Argues the best way to control inflation is through

Answer 1

restraint of government spending, borrowing and strict curbs on the money supply - leads to economic growth.

Question 2

MONETARISM

• 1980  economy plunged into a serious recession –

inflation, unemployment (give figures)

Answer 2

inflation above 15%,
sharply rising unemployment above 2 million.
Stagflation was back – there would be a serious run on the pound if the North Sea oil and gas didn’t save Britain from a severe balance of payments crisis.

Question 3

MONETARISM

• 1981 - budget applied to further monetarist measures –

3 things

Answer 3

• government borrowing went down,
• grants to local councils were cut and
• benefits were frozen.

Question 4

MONETARISM

• Thatcherites wanted to cut down public spending because

Answer 4

they believed individuals spent their money better than governments did.

Question 5

MONETARISM

• This efficiently led to a shift away from direct taxation (income tax) towards indirect taxation (VAT) -

top and standard rate fell from and to what

Answer 5

the top rate of income tax fell from 83% to 40% by 1988
and the standard rate fell to 25% from 88%.

Question 6

MONETARISM

• VAT went up to

Answer 6

15% and taxes on petrol and alcohol went up.

Question 7

MONETARISM

what did the supporters and critics of reducing direct taxation and increasing indirect taxation argue?

Answer 7

• Supporters argued reducing direct taxation would incentivise wealth creation as it allows people to keep more of what they earned.
• Critics argued transferring the burden onto an indirect system hit the poor people harder.

Question 8

MONETARISM

• Cutting public spending led to a series of clashes between the conservative government and many labour controlled local councils.

why

Answer 8

• Thatcher government saw left wing local councils as enemies as they blamed them for wasting resources.

Question 9

MONETARISM

• One of the greatest battles fought = Livingstone (head of the Greater London Council) vs Thatcher - treated many GLC policies in education and public transport as provocations and Livingstone was demonised as the face of the ‘loony left’.

what was the loony left?

Answer 9

The name given to left wing local councils who promoted liberal ad politically correct policies by the right-wing press.

Question 10

MONETARISM

• In order to control the overspending of Labour local authorities, the conservative government had introduced rate capping.

what was this and what did it do?

Answer 10

taxation charged on all privately owned houses and businesses.
it limited the amount of money that the council was allowed to raise in local taxation.

Question 11

MONETARISM

• 1986 - Local government act abolished the big metropolitan local authorities that had been set up by Heath’s government:
  the powers of the central government were

compare to local

Answer 11

greatly increased at the expense of the local government – led to a clear victory against the looney left.

Question 12

MONETARISM

• Despite the rhetoric on controlling public spending, Thatcher never managed to cut public spending in real terms

spending on what went up?

Answer 12

spending on social security went up due to high levels of unemployment.

Question 13

PRIVATISATION AND DEREGULATION

Monetarism was effectively ended by thatcher’s second term and Lawson

Answer 13

abandoned targets by 1986.

Question 14

PRIVATISATION AND DEREGULATION

This didn’t mean a return to pre-Thatcherite policies as there continued to be a greater emphasis on

supply or demand?

Answer 14

the supply side economics rather than a return to the demand side economics of the Post War Consensus

Question 15

SUPPLY SIDE ECONOMICS

describe the 5 steps of the supply cycle

Answer 15

1. deregulation for businesses (and low taxation) encourages enterprise and entrepreneurship
2. flexible labour makes it easier to hire/fire workers
3. employees spend on goods and services (encouraged by low taxation on individuals)
4. business make profits
5. profits encourage expansion/ further investment into business

Question 16

DEMAND SIDE ECONOMICS

describe the 5 steps of the demand cycle

Answer 16

1. government uses tax to support full employment
2. employees spend on goods and services produced by businesses
3. businesses make profit
4. profits encourage expansion/ further investment into business
5. government can tax business and individuals

Question 17

PRIVATISATION

• Denationalisation became became central to Thatcherite economic policy.

* The drive for privatisation gained real momentum with

Answer 17

the successful sale of British telecom in 1984.

Question 18

PRIVATISATION

• The number of people owning stocks went up from

Answer 18

3 million to 9 million.

Question 19

PRIVATISATION

• Privatisation was driven by an anti-socialist ideology - it was a core belief that private sector was

compare to public

Answer 19

more dynamic and effective than the public sector in delivering goods and providing services.

Question 20

PRIVATISATION

• Outsourcing became increasingly widespread.

what was it?

Answer 20

private companies took on contracts to deliver goods and services that were previously provided by the state

Question 21

PRIVATISATION

• Privatisation brought a lot of revenue for the government, however critics argued

Answer 21

privatised enterprises were sold cheaply in order to ensure al shares were taken up, and sometimes made life insecure for employees who lost their jobs as private enterprises cut back on staff and they could no longer rely on reliable pension provision.

Question 22

PRIVATISATION

• Radical Thatcherites wanted to push ahead with further privatisations,

3 sectors

Answer 22

including the coal industry and railways.
They also drew up plans to privatise parts of the NHS.

Question 23

THATCHER GOVERNMENTS’ PRIVATISATIONS

what was privatised in
1979
1981
1987
1988
1989
1990

Answer 23

1979 British petroleum
1981 British aerospace
1987 British airways, Rolls Royce
1988 British steel
1989 British water
1990 British electricity

Question 24

DEREGULATION

means that the government…

and leads to…

Answer 24

interferes as little as possible -a makes it easier for businesses to trade and grow – encourages entrepreneurship and wealth creation.

Question 25

DEREGULATION

• Loan guarantee scheme  made it

Answer 25

easier for small businesses to borrow money.

Question 26

DEREGULATION

• Financial deregulation led to a massive boom in

Answer 26

investment banking and freed financial markets from the control of the Bank of England.

Question 27

DEREGULATION

• 1986 - London Stock Exchange deregulated – foreign banks can operate as stockbrokers.

this led to

Answer 27

London becoming one of the financial capitals of the world and competed with Wall Street.

Question 28

DEREGULATION

• Financial services became one of the UK’s most important export industries.

however (compare GDP increase to US and Japan %)

Answer 28

Productivity didn’t increase much, and GDP grew by only 2.2%, below USA’s 2.8 and Japan’s 4.1%.

Question 29

ISSUES OF INFLATION, UNEMPLOYMENT, AND ECONOMIC REALIGNMENT

• Thatcherites believed inflation was a threat to the economy - blamed Keynesian economics which allowed inflation to rise and concluded

Answer 29

if inflation could be controlled, the economy would grow and be more successful.

Question 30

THE CONTROL OF INFLATION

• Inflation rates were used as a mechanism to control inflation : raised to

what % in 1979?

Answer 30

17%

Question 31

THE CONTROL OF INFLATION

• inflation rates made it more expensive for businesses to

Answer 31

borrow and export (high interest rates increased the value of the pound).

Question 32

THE CONTROL OF INFLATION

• high export and import rates led to a decrease in both output and demand

this meant

Answer 32

economy went into recession and many businesses went bankrupt, leading to high unemployment.

Question 33

THE CONTROL OF INFLATION

• Inflation also went up as a result, of rates going up peaking at

what % and when

Answer 33

22% in 1980.

Question 34

THE CONTROL OF INFLATION

inflation fell after and reached a low of .

what % and when

Answer 34

2.5% in 1986

Question 35

UNEMPLOYMENT

• Thatcher government saw the control of inflation as the key economic threat to British economy -

unemployment?

Answer 35

maintaining low levels of unemployment was no longer seen as the primary aim - the rise of unemployment had to be accepted.

Question 36

UNEMPLOYMENT

• The impact of monetarist economic policies in the early 1980s on industry were drastic:

manifacturing & steel prod fall, unemployment rise (figures for all)

Answer 36

• Manufacturing output fell by 15% in 2 years.
• Steel production was cut by 30%.
• 1983 - unemployment rose to over 3 million (13.5% of the total workforce). it did not fall below 3 million until 1987.

Question 37

UNEMPLOYMENT

• The government remained firm in its conviction that controlling inflation was controlling employment. In some areas which had been dependant on heavy industry, unemployment rates went as high up to .

%

Answer 37

25%

Question 38

UNEMPLOYMENT

fewer people were being employed in the manufacturing industry  the economic realignment towards service industries meant

who was hit harder?

Answer 38

men were hit harder than women.

Question 39

ECONOMIC REALIGNMENT

• Even without the government’s economic policies, long term economic trends were already affecting Britain’s old industries.

what shift did thatcher’s government embace?

Answer 39

economy moving away from being based on manufacturing and heavy industry to becoming based on service industries.

Question 40

ECONOMIC REALIGNMENT

• In the areas that had never known anything but coal mines and steelworks, people faced painful adjustments -

what divide was growing and why

Answer 40

the north-south divide was growing as he foundations of the traditional working class and communities crumbled.

Question 41

ECONOMIC REALIGNMENT

which areas had the highest and lowest income?

Answer 41

• The southeast had the highest average weekly household income, whereas the northeast had the least.

Question 42

ECONOMIC REALIGNMENT

• This economic realignment could also be seen in the urban decay of many inner-city areas - there were increased problems of

what 4 things

Answer 42

ill health and depression, as well as drugs and alcoholism.

Question 43

ECONOMIC REALIGNMENT

• 1981  series of riots between April and July in London, Birmingham, and Liverpool.
• The Scarman report was commissioned to examine the causes of these riots, which

identified what as the key components?

Answer 43

identified poverty and race as the key components - the areas in which riots had happened were suffering high levels of unemployment and deprivation.

Question 44

ECONOMIC REALIGNMENT

London, Birmingham, and Liverpool were also areas where young black and Asian people felt the ‘sus law’ meant the police unfairly targeted them. Despite the Scarman report and subsequent changes in policing policies, there were further riots into 1985.

what was the sus law?

Answer 44

The sus law gave police officers permission to stop and search suspected persons if they thought they might commit a crime.

Question 45

ECONOMIC REALIGNMENT

This economic realignment led to investment and regeneration in some of these areas:

what happened in london and lierpool?

Answer 45

• Heseltine spearheaded redevelopment projects in the dockland areas of London and Liverpool.
• In London, the canary wharf development became the second most important financial district in the country after the city of London - symbolises a shift to service industries.

Question 46

ECONOMY- SUMMARY

The economic realignment that resulted from thatcher’s economic policies depended on perspective

this meant

Answer 46

Britain was a different place depending on if it was north or south.