thatcher: enomics Flashcards
what kind of politician was Thatcher? what did she believe?
conviction politician
rejected consensus politics as to her it means abandoning her principles .
what was Monetarism ?
prioritising controlling inflation over controlling unemployment.
cause of inflation seen as too much money in the economy.
-tax rises and spending cuts
what was Thatcher’s plan to reduce inflation 1979-90? why was this thought to work?
change of taxation system
- raise VAT from 8% to 15%
- cut the standard rate of tax ( 33% to 30%)
- cut the top rate of tax (83% to 60%)
more incentive to work hard (in reality shifted tax burden to the poor)
what spending cuts did Thatcher introduce in 1980 - 1982?
more radical
- public spending drop (£11bil - £9bil 1980-81)
- 1981 budget - raise income tax in a recession, deflationary
what was the consequence for the 1981 government budget?
- taxes raised by £4bil
- 364 economist wrote to the times in protest of the budget
- softened the policy middle 1981
- cabinet rebellion july 1981 - rejected further cuts
deflationry budget - reduction on spending and rise in taxes. very unconventional in a shrinking economy when usually increase spending to safegaurd jobs and stimulate growth
how impactful was monetarism?
not very - overall a failure and very unpopular due to the burden on the poorest during a heavy recession.
was rejected by her won cabinet and was a turning point in her career.
what was Thatcher’s position on state-run industries?
- believed they were inherently less effective and efficient than private industries. (no incentive to make profit)
- government money should not be used to “keep failing industries afloat”
what was Keith Joseph’s impact on national industry?
- allowed British steel as well as many other national industries to decline. (didn’t reduce government spending as had to pay for redundancy settlements)
- invested £990 million into british leyland (loss amking company - failure)
what was the aim of Thatcher’s introduction of Keith Joseph ?
end government subsidies for nationalised industries.
what did Thatcher’s economic policy shift to at the end of 1982?
supply side economics - designed to stimulate production in the private sector through tax cuts and privatisation.
what were the tax cuts under supply side economics ?
- 1982/1983 income tax
- 1980s corporation tax
- 1987 standard rate of income tax 30% to 27% (nigel lawson)
how did Thatcher intend to make nationalised industries profitable again?
- set targets for industries t break even by 1982 (failed to happen despite large job losses)
- redundancies led to drop in government subsidisation and increase in profits
( - 1984 - gov. subsidisation = £1.1 billion - 1988 profit = £1.3 billion)
- once nationalised industry became profitable they were usually privatised.
why did Thatcher chose to initiate privatisation?
- fit with her convictions that the state should not be involved in the economy
- private companies would be more profitable
what state were nationalised industries in when Thatcher came to power?
BAD
- British Airways over £544 million loss between 1981 - 1982
- 1979 nationalised companies employed 25% of british workers but made only 10% of GDP
many running t a loss and requiring government subsidies to continue to run.
how was privatisation under Thatcher distinctive?
- encouraged ordinary people to buy shares in companies.
- “popular capitalism”
- advertising campaigns - “tell Sid” 4.6 million people bought shares in British Gas
- “returning power to the people”
what convinced the Tory “wets” of privatisation ?
British Telecom 1984
£3.7 billion into the treasury, major advertising campaign to promote share ownership.
success pointed to a revitalisation of the british economy.
where was the economy after Thatcher’s third election (1987) ?
economic policy was working
- economy growing from mid 80s
- inflation low, unemployment in decline
- economy grew 4% a year (1985-1988)
- “loadsamoney” culture
what was deregulation?
(Nigel Lawson)
(removing or reducing state regulation)
Nigel Lawson - relaxed credidt regualtions (lower income large sums of money) , decreased interest rates
made bowrrowing cheaper.
what was the “big bang” (Nigel Lawson)
deregulation of London’s financial markets
- Financial services Act 1986 attempt to attract foreign investment by making trading shares easier.
- stock exchange began computer trading
how was inflation controlled?
(Nigel Lawson)
interest rate policy to control inflation.
raise interest rates when inflation began to rise. ( people would save money as they would have to spend more on their loans so decreased spending)
what did Lawson’s policies lead to on 17th October 1987?
stock market crash rather than a prolonged boom
“Black Monday” wiped £50 million off the value of shares.
what did Nigel Lawson do to try and prevent an economic crash?
(after Black monday)
- cut interest rates 7.5%
- cut the top rate of income tax from 60% to 40% and standard trate from 27% to 25%
how well did Lawsons attempts to prevent an economic crash work?
NOT VERY WELL
low interest rates and historically low taxes lead to rising inflation.
then increased interest rates which hit anyone who borrow in the mid-1980s
economy went into recession and unemployment rose
HOWEVER -
policy succeeded in reducing inflation
how successful was thatcher in controlling inflation?
OVERALL REASONABLY SUCCESSFUL
- overall was higher than European average 1979-1997
- 13.4% in 1979 - 18% in 1980
- dropped in early 80s and remained relatively low for the rest of her premiership
How successful was Thatcher in growing the British economy?
FAILURE
- Economy gre 45 each year BUT overall little long term change in growth rates
- 1960-73 = 3.3%
1983-92 = 2.8%
- was better than under Heath but worse than under Macmillan/Wilson
how successful was Thatcher in halting British economic decline ?
FAILURE
- 1950 = 6th in the world
- 1997 = 14th in the world
- continued to decline in spite of Thatcher’s policies (in relative terms)
how successful was Thatcher in curbing unemployment?
FAILURE
- Never top priority, hoped would decline with the private sector
- peaked at 3.2 million 1985
- fall in 1986 but remained historically high
- Thatcherism = high rates of unemployment
- 174-79 = 3.4%
- 1980-90 = 9.1%
how successful was Thatcher in rebalancing the economy?
(state spending)
FAILURE
- state role in economy grew (1979 = 37% 1997 = 44%)
- rise in unemployment led to rise in spending o social security
- large military spending (promise to increase y 3% each year to buy US nuclear weapons)
how successful was Thatcher in improving productivity ?
AVERAGE
- did improve labour productivity from the 70s
- internationally British industry was behind
- 1979
british workers = 50% as productive as US
- 1997
British workers = 77% as productive as US
