The economy under Thatcher Flashcards
When was Thatcher’s first term?
4th May 1979 - 1983
When was Thatcher’s second term?
1983 - June 1987
1983 landslide majority - 144 seats
When was Thatcher’s third term?
1987 - November 1990
1987 landslide majority - 102 seats
Vote of no confidence
What was the continuing of Thatcher?
Major continues in office
In 1992 election, he wins 21 seat majority
New Labour begin to rise from 1995. Elected 1997.
What were Thatcher’s key ideas in office?
- Conviction politics
- Economy
- Rule of Law
- Nationalism
What was conviction politics?
- Politics should be rooted in the fundamental beliefs of the political leader rather than in consensus and compromise
→Heath’s u-turn was an example of this problem
What were Thatcher’s ideas towards the economy?
- Against dependency culture, high tax, powerful unions.
- Valued hard work, low tax (reward for your effort), individual enterprise, economy efficiency.
What was Thatcher’s rule of law?
- Felt you should trust the law to defend your rights
- Suspicious of radical protest (strikes, marches)
- Felt reform should be through elections
What was Thatcher’s view towards nationalisation?
Opposed interference in British affairs by other countries.
What monetarism? (1980-82)
An attempt to bring down inflation by controlling the money supply in the economy.
What was the aim of monetarism? (1980-82)
Less money in society = money has a higher value and prices fall.
How did the Conservatives aim to achieve monetarism?
Conservatives sought to reduce money supply by spending cuts and raising interest rates (to decrease borrowing).
How was Thatcher’s economic policies a success?
Thatcher’s free market policies reversed Britain’s relative economic decline.
How was Thatcher’s economic policies a failure?
- Thatcher’s policies did little to change Britain’s long-term economic performance.
-Thatcher’s economic policies weakened British industry.
How did Thatcher’s economic policies impact class?
She unbalanced Britain’s economy and created massive inequality of wealth - both regionally and class wise.
What was Thatcher’s problem of inconsistency with monetarism?
Thatcher didn’t apply monetarism consistently.
-In her first two years, allowed above-inflation pay settlement of 16% to end steel strike and awarded public sector a 25% pay rise.
How was the cabinet divided?
Divided into ‘wets’ (opposed) and ‘dries’ (supporters)
What did Thatcher assert after this cabinet divide?
1980 Conservative Conference: Thatcher asserted monetarism would continue.
→“You turn if you want to: the lady’s not for turning”
How did monetarism begin to fade out?
Monetarism became less significant from 1983.
What economic policy did Thatcher switch to after monetarism?
Shift towards ‘supply-side’ economics.
What was ‘supply-side’ economics?
Stimulating the free economy and not limiting it → tax reductions, deregulation, decline of union power
What was the impact of monetarism at first?
→1981, Chancellor Geoffrey Howe found public sector borrowing was increasing (£9.25b in 1978-9 to £14.5b by end of year).
→364 economists encouraged govt to abandon monetarism but they didn’t.
How did commitment to monetarism pay off?
→Inflation fell from high of 21.9% in May 1980 to 5% by Dec 1982.
→Helped Thatcher win 1983 election.
What happened to monetarism in Thatcher’s second term?
Monetarism phased out in favour of supply-side economics.
Inflation never rose above 9% for the rest of the 1980s.
How did monetarism fail in terms of inflation?
Inflation stood at 10.3% in 1979 and 10.9% in 1990
→ ultimately, no major change
How did monetarism fail in terms of unemployment?
- Slashing of govt spending in 1980 and 1981 budgets led to riots in cities (incl. Brixton in London)
- Firms went bankrupt →3 million unemployed in 1982
- Unemployment benefits forced up government spending.
How did monetarism fail in terms of production?
Manufacturing fell by 14% in 1980-81.
What was the intention of privatisation?
Make companies more efficient: by 1979, many nationalised companies were running at a loss and requiring govt subsidies.
→British Airways made a £544m loss between 1981-82.
What was the aim of privatisation?
Gain revenue (money) for govt from ‘popular capitalism’ (involving more people in capitalism by enabling them to buy shares).
What was privatised?
Privatised British Airways, Steel, Telecom, Gas and Britoil.
How was privatisation promoted?
Campaigns encouraging people to buy shares
→ ‘Tell Sid’ Campaign accompanied British Gas sale and stressed how easy it was to buy shares
What was the success of privatisation in terms of government money?
Raised £19 billion - funded government cutting taxes
What was the success of privatisation in terms of shareholders?
In 1979, 7% of population owned shares
By 1990, 25% did.
How did privatisation improve customer service?
- Privatisation of 10 state-owned regional water authorities in 1989 → number of customers at risk of low water pressure fell by 99%.
-BT privatisation led to better customer service: wait time for installation reduced from 6 months to 15 minutes
How did privatisation fail in terms of job losses?
200,000 jobs lost due to coal privatisation.
How was privatisation a failure in terms of shareholders?
Distribution of shares uneven: 9% unskilled male workers owned shares compared to 50% of professional males.
How did privatisation a failure in terms of conservative principles?
- Harold Macmillan described privatisation programme as ‘selling off the family silver’
- Against traditions of Conservative Party.
What was the commitment to deregulation?
- 1986 Financial Services Act: made trading of stocks and shares easier to attract foreign investment
- Rise of computers meant stock exchange started computer trading (enabled instant transactions)
What was the Lawson Boom?
To keep the boom going, Chancellor Lawson permitted the relaxation of credit controls and lowered interest rates (made borrowing easier)
What was the success of deregulation (Lawson Boom)?
Economic growth reached 4% a year in 1985-88 under Chancellor Lawson
What was the success of deregulation? (‘Big Bang’)
City of London grew rapidly and became a major world financial centre.
→’Yuppie-Culture’: young, upwardly mobile professionals, often involved in stock trading
What was the success of deregulation? (Overseas Investment)
- Removal of exchange controls fuelled overseas investment
- This ultimately led to profits returning to Britain.
