Thatcher and monetarism

Question 1

What happened from the first budget in 1979?

Answer 1

Thatcher’s government aimed to cut government spending with monetarist principles: controlling the money supply which, it was believed, would reduce inflation and lead to economic growth.

Question 2

What was the state of the economy like in 1980?

Answer 2

Economic recession - inflation above 15% and sharply rising unemployment going above 2 million.

Question 3

What saved Britain from a severe balance of payments crisis in 1980?

Answer 3

Although stagflation was back, the flow of North Sea oil and gas prevented the economy being in a disastrous state and a run on the pound.

Question 4

What did Thatcher do with taxation?

Answer 4

There was a shift away from direct taxation (e.g. income tax) to indirect taxation (e.g. VAT).

Question 5

Give a statistic about the change in taxation.

Answer 5

Top rate of income tax fell from 83% to 40% by 1988, standard rate fell to 25% from 33%. VAT went up from 8% to 15% in 1979.

Question 6

What did supporters of this shift in taxation claim?

Answer 6

‘reducing direct taxation would incentivise wealth creation by allowing people to keep more of what they earned’.

Question 7

What did critics of this shift in taxation claim?

Answer 7

‘transferring the burden onto an indirect taxation system was less progressive and hit the poorer people harder’.