Thatcher economy Flashcards
Aim of first budget
1979-82
Drain excess money setting targets to reduce the amount of money in circulation to control inflation as high state spending and large pay raises led to, too much money in the economy
Positive and negative of spending cuts
Positives- public spending dropped with an attempt to control inflation which rebalanced the economy
Negatives- Cuts in education and health and benefit increases were downgraded. Deflationary budget- the economy was shrinking and unemployment rising. Cabinet rebellion July 1981 rejected a further £5 billion of spending cuts- recession worst
Positives and neagtives of taxation
Positive Howe lowered direct tax for both standard and top rates so there was more of an incentive for people to work hard.
Negative Howe raised VAT from 8% to 15% which hit the poor harder than the rich
Monetarism success and failures
Successes - Inflation was in single figures by 1982 – never above 9% for the rest of the 80’s
Failures 1980-81 budget slashed gov spending leading to riots in several cities and manufacturing falling by 14% forcing more money on unemployment benefits and in 1983 phased out in favour of more successful supply-side policies
Supply-side economics - breaking even
Wanted efficiency by 1982 but in reality 1985
1984 the gov subsided nationalised industries by around £1.1 bill but by 1988 they were making a profit of 1.3 billion, some still need grants
1984 MacGregor had a plan to close 75 pits making 64,000 coal miners redundant
Supply-side economics - privitisation
1979 nationalised companies employed 25% of workers but produced 10% GDP
Encouraged ordinary people to buy shares - ‘Tell Sid’ campaign accompanied the Gas sale, with 4.6 mill buying, would sell shares below the market rate so value increased quickly, 1990 25% owned shares
1982- 1986 privatised:Cable, Wireless, Jaguar, Gas, Telecom, aerospace
Boom and Bust
1987-90
Deregulation- made it easy for to buy shares, ½ interest rates, easier & more attractive to borrow money
Controlling inflation- when inflation is high interest rates rose and vice versa when inflation was low - rigid policy
Crash and Bust- people borrowing money were hit harder as they had to pay more interest for longer. Led to the economy crashing late 80s, rising unemployment and an economic recession, led to the resignation of Lawson with Major coming in
ERM
1990
Leaving the ERM
1992
Successful in her economic aims
Inflation - Over 18% in 1980 but was in single figures by 1982 and never above 9% for the rest of the 80’s
Unemployment - Began to fall from 1986 onwards- remained historically high as not top priority
Reduce the states role in the economy - privatised large parts of the industry and cut taxes.
Finance industry - boosted the economy of London and the southeast. Investment rose 300% compared to an 8% rise in manufacturing investment.
Failed in her economic aims
Inflation - 1979-97 British inflation ran ahead of the European average in all but 5 years. A return to long-term trends not vast improvement
Economic Growth - Grew at an average of 4% a year in the mid-80s- little change. In 1950 Britain was ranked 6th in the world for GDP per capita, but 1997 14th.
Unemployment - peaked at 3.2 million in 1985.
Reduce the states role in the economy - grew. Various areas of gov spending grew significantly- social security 9%, law+order 36% and in the military with a promise of 3% rise per year
Labour productivity - In 1979 British workers were around 50% as productive as US workers 1997 77%. Still less productive than workers in France, Germany and Japan in 1997.
Industry - Closure of coal pits, car plants, steel mills disproportionate levels of unemployment in UK. The balance of payments of manufactured goods declined from a £5 billion surplus in 1979 to a £20 billion deficit in 1989.
