Thatcher's economics 1979-83

Question 1

who was Thatcher’s first chancellor?

Answer 1

Geoffrey Howe

Question 2

what was his first budget designed to do?

Answer 2

implement monetarism

Question 3

what was monetarism?

Answer 3

-focuses on inflation as the key economic indicator that needs to be managed in a modern economy
-emphasis on controlling the money supply along with the provision of credit in order to generate economic prosperity whilst controlling inflation

Question 4

describe the elements of the 1st budget: (1979)

Answer 4

-increased interest rates on borrowing
-reduced income tax especially on higher earners (cut from 85% to 60% for the top level)
-VAT (increased from 8% to 15%) and indirect taxes on goods and services - became the main new source of revenue for the government
-principles designed to reduce inflation and ‘penalise consumption rather than effort’

Question 5

describe the 2nd budget (1981):

Answer 5

-significant spending cutbacks
-increased net taxes by £4billion
-duties raised significantly
-borrowing decreased
-grants to local councils were reduced
-benefits were frozen
-very controversial

Question 6

what did 364 economists do in 1981?

Answer 6

wrote a letter to The Times warning that such hardline monetarist policies would exacerbate an already damaging recession and create further unemployment

Question 7

describe economic consequences of Thatcher’s economic policy:

Answer 7

-inflation fell from around 15% in april 1980 to 3.7% in june 1983
-this was a great achievement but at the cost of high levels of unemployment, peaking at over 3 million in 1982
-generally high interest rates
-sharp recession 1979-81
-economy shrank by 2% in 1981

Question 8

describe social consequences of Thatcher’s economic policy:

Answer 8

-led to increased unemployment and hardship
-riots broke out in areas of existing poverty e.g. Moss Side, Toxteth and Brixton
-Thatcher’s response was police repression to restore law and order, especially the ‘Sus’ law, which was disproportionately used against ethnic minorities
-instead of seeing the rioters as victims of social and industrial change, the gov. portrayed them as layabouts and thugs

Question 9

what state was Thatcher’s government in by 1982?

Answer 9

-her personal popularity and that of the conservatives was at an all time low
-unemployment was higher than it had been in 1979
-inflation was still above 10%
-gov. spending to support ‘lame duck’ industries had not been decreased significantly
-social disorder and unrest had increased
-her chances of winning the next election looked slim