thatcher: enomics

Question 1

what kind of politician was Thatcher? what did she believe?

Answer 1

conviction politician
rejected consensus politics as to her it means abandoning her principles .

Question 2

what was Monetarism ?

Answer 2

prioritising controlling inflation over controlling unemployment.
cause of inflation seen as too much money in the economy.
-tax rises and spending cuts

Question 3

what was Thatcher’s plan to reduce inflation 1979-90? why was this thought to work?

Answer 3

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)

Question 4

what spending cuts did Thatcher introduce in 1980 - 1982?

Answer 4

more radical
- public spending drop (£11bil - £9bil 1980-81)
- 1981 budget - raise income tax in a recession, deflationary

Question 5

what was the consequence for the 1981 government budget?

Answer 5

• 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

Question 6

how impactful was monetarism?

Answer 6

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.

Question 7

what was Thatcher’s position on state-run industries?

Answer 7

• 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”

Question 8

what was Keith Joseph’s impact on national industry?

Answer 8

• 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)

Question 9

what was the aim of Thatcher’s introduction of Keith Joseph ?

Answer 9

end government subsidies for nationalised industries.

Question 10

what did Thatcher’s economic policy shift to at the end of 1982?

Answer 10

supply side economics - designed to stimulate production in the private sector through tax cuts and privatisation.

Question 11

what were the tax cuts under supply side economics ?

Answer 11

• 1982/1983 income tax
• 1980s corporation tax
• 1987 standard rate of income tax 30% to 27% (nigel lawson)

Question 12

how did Thatcher intend to make nationalised industries profitable again?

Answer 12

• 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.

Question 13

why did Thatcher chose to initiate privatisation?

Answer 13

• fit with her convictions that the state should not be involved in the economy
• private companies would be more profitable

Question 14

what state were nationalised industries in when Thatcher came to power?

Answer 14

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.

Question 15

how was privatisation under Thatcher distinctive?

Answer 15

• 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”

Question 16

what convinced the Tory “wets” of privatisation ?

Answer 16

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.

Question 17

where was the economy after Thatcher’s third election (1987) ?

Answer 17

economic policy was working
- economy growing from mid 80s
- inflation low, unemployment in decline
- economy grew 4% a year (1985-1988)
- “loadsamoney” culture

Question 18

what was deregulation?
(Nigel Lawson)

Answer 18

(removing or reducing state regulation)
Nigel Lawson - relaxed credidt regualtions (lower income large sums of money) , decreased interest rates
made bowrrowing cheaper.

Question 19

what was the “big bang” (Nigel Lawson)

Answer 19

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

Question 20

how was inflation controlled?
(Nigel Lawson)

Answer 20

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)

Question 21

what did Lawson’s policies lead to on 17th October 1987?

Answer 21

stock market crash rather than a prolonged boom
“Black Monday” wiped £50 million off the value of shares.

Question 22

what did Nigel Lawson do to try and prevent an economic crash?
(after Black monday)

Answer 22

• cut interest rates 7.5%
• cut the top rate of income tax from 60% to 40% and standard trate from 27% to 25%

Question 23

how well did Lawsons attempts to prevent an economic crash work?

Answer 23

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

Question 24

how successful was thatcher in controlling inflation?

Answer 24

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

Question 25

How successful was Thatcher in growing the British economy?

Answer 25

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

Question 26

how successful was Thatcher in halting British economic decline ?

Answer 26

FAILURE
- 1950 = 6th in the world
- 1997 = 14th in the world
- continued to decline in spite of Thatcher’s policies (in relative terms)

Question 27

how successful was Thatcher in curbing unemployment?

Answer 27

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%

Question 28

how successful was Thatcher in rebalancing the economy?
(state spending)

Answer 28

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)

Question 29

how successful was Thatcher in improving productivity ?

Answer 29

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