Thatcher part 1 - effect of Thatcher's economic policies Flashcards
why have the Thatcher years been described as revolutionary?
unlike previous Conservative leaders - prioritised the fundamental beliefs of politicians rather than consensus and compromise
overturned economic policies that governments had relied on since 1945
what argument is there against Thatcher being revolutionary?
several problems arose - rise in inflation and unemployment (stagflation) led millions of people in Britain to lose their jobs
why was monetarism and the aim to control inflation a significant break with the past?
previous governments prioritised keeping unemployment low, thus allowing inflation to rise
Thatcher’s priority of controlling inflation overturned economic policies the government had relied on since 1945
why did Thatcher and Howe want to control inflation?
believed there was too much money flooding into the economy due to excessive state spending and large pay rises for industry
inefficient industries produced too few goods and the result was price rises
what were Thatcher’s first actions on taxation and what was her reasoning?
change the tax system - Howe raised indirect taxes at the same time as lowering direct taxation
Thatcher reasoned that decreased income tax would give people an incentive to work harder
by how much did Thatcher cut public spending (1980-81)?
dropped from £11 billion to £9 billion
to rebalance the economy so the government did less to make the private sector do more
what were the measures introduced in the 1981 budget?
raised income tac during the middle of a recession
cuts in education
downgrading health and benefit increases
why was the 1981 budget so controversial?
went against conventional actions taken by governments
364 economists wrote the ‘The Times’ in protest
what does the Cabinet’s rejection of further spending cuts tell you about the political impact of Thatcher’s policies?
July 1981: cabinet rejected a further cut of £5 billion, fearing it would worsen the recession
Thatcher’s policies were highly controversial and their damaging resulted created fear surrounding the proposition of spending cuts
why was North Sea Oil so important to Thatcher’s overall economic approach?
1983-85: government received over £41 billion from North Sea Oil
helped finance policies (e.g paying for unemployment benefits and tax cuts)
why did Thatcher mistrust state-run industries?
believed they were inherently less effective than private industries as they didn’t need to make profit
believed government money shouldn’t be used to keep failing industries afloat
appointed Keith Joseph as Secretary of State for industry to reduce government spending on nationalised industries
what actions did Keith Joseph take on nationalised industries?
allowed some of Britain’s national industries to decline
- British Steel - made 53,000 workers redundant in 1979 and lost over £450 million annually
however, heavy government spending still continued to cover redundancy costs
- over £1 bilion (1979-81)
how do Keith Joseph’s actions reflect Thatcher’s goals
his action on nationalised industries aligned with Thatcher’s goal of ending subsidies and forcing industries to become efficient through redundancies
Why did Thatcher’s chancellors cut income and corporation tax?
Howe then Lawson
continued throughout Thatcher’s time in office - believed to incentivise people to work harder
how did Thatcher encourage nationalised industries to become more efficient?
redundancies, restructuring, and investment
had originally set targets for nationalised industries to break even by 1982, but this had to be changed to 1985
why did Thatcher believe privatisation would bring prosperity?
believed it would make companies more profitable and efficient as they’d be forced to make profit
how did privatisation fit into Thatcher’s belief in ‘Popular Capitalism’?
privatisation was accompanied by campaigns to encouraged ordinary people to buy shares to feel the benefits of free market
- e.g ‘Tell Sid’ campaign
why is the mid-80s often seen as the high point of Thatcherism?
economy started growing again, low inflation, declining unemployment
people were converting to popular capitalism
privatisation became popular
economy grew about 4% a year (85-88)
what were yuppies and how are they significant in the 80s?
young upwardly-mobile professionals
associated with stock market trading and the 80s saw an emergence of a ‘loadsamoney’ culture
- London became associated with yuppie culture
what was the ‘Big Bang’?
1986
deregulation of London’s financial markets took place at the same time that the stock exchange began computer trading
what was Lawson’s economic policy after 1985?
used interest rate policy to control inflation
planned to raise interest rates when inflation rose and cut interest rates when inflation was low
what was ‘Black Monday’?
17th October 1987: Lawson’s policies led to stock market crash
what was Lawson’s response to ‘Black Monday’?
due to fear of economic crash, Lawson introduced measures to keep the economy going
- cut interest rates to 7.5%
- 1988 budget cut top rate of income tac from 60 to 40%
how did Lawson’s measures create a recession at the end of the Lawson Boom?
inflation rose and Lawson increased interest rates
negatively impacted those who had borrowed money after Lawson’s deregulation of credit
economy went into recession and unemployment rose
