The impact of Thatcherism 1979-1987: Economic Flashcards
How did the new Conservative government try to reduce government spending in their 1st 1979 budget?
Monetarism
What is monetarism?
The theory that the government could control inflation by restraining spending and borrowing the supply of money in circulation
What was the economic state of Britain by 1980?
- In recession
- Inflation rose to 15%
- Unemployment rose from 2 million to 3 million
What saved Britain’s economic state in 1980?
The supply of North Sea oil and gas
Despite monetarism leading to a recession, did the government continue to use it?
- Yes, it was continued in the 1981 budget
- Benefits were frozen
- Grants to councils were cut
- Government borrowing went down
What was the key Thatcherite belief and what did it lead to?
- Individuals spent money better than governments
- Income tax was cut from 83% to 40% by 1988
- Standard rate fell from 33% to 25%
- VAT increased from 8% to 15%
- Taxes on petrol, cigarettes and alcohol increased in every single budget between 1979-1987
What did the supporters and critics of the key Thatcherite belief say?
Supporters- believed it would prompt wealth creation by allowing people to keep more of their own money
Critics- the burden was now transferred to the indirect, less progressive, tax system
What did the cuts to the local governments lead to?
- Many clashes (especially with Labour run councils)
- To discredit Labour protests, Conservative government accused them of wasteful spending on loony left policies
What was rate capping and what did it lead to?
- Conservative government introduced to control the overspending of Labour local authorities
- Limited the amount of money the council was allowed to raise in local taxation
- In 1985 many authorities tried to rebel against it but had to back down after being threatened by bankruptcy
Did the Conservative government ever actually manage to cut spending?
Despite claims of it, no, largely due to the growing welfare bill caused by rising unemployment
What economic policy was abandoned in Thatcher’s 2nd term and why?
Monetarism when the Chancellor abandoned spending targets in 1986
What was the new emphasis on within Thatcher’s 2nd term?
Privatisation and deregulation
When did the privatisation campaign begin?
- With the sale of British petroleum in 1979
- Continued throughout the decade where electricity, gas, telecoms and many others were sold off
- Gave the government vital revenues
What was privatisation driven by?
The anti-socialist ideology against nationalised industries and the belief that the private sector was better at delivering goods and services
What did the supporters and critics of privatisation say?
Supporters- the shareholding population increased from 3 million to 9 million
Critics- many valuable government assets were sold of cheaply, leading to worse terms and conditions for transferred employees
