Economics/Industrial (1979-87) Flashcards
1
Q
2
Describe monetarism
A
- Restrict money supply and reduce public expenditure to tame inflation
- Done through raising interest rates, making ucts and strengthening the pound on the FOREX
2
Q
4
Describe Thatcher’s supply-side economics
A
- Low taxation encourage consumption
- More flexible labour regulations to encourage enterprise
- Re-organisation from direct to regressive indirect tax
- taxes on petrol, cigarettes and alcohol went up in almost every single budget from 1979-87
3
Q
4
Describe Howe’s June 1979 budget
A
- Income tax: top rate cut from 83% to 60%; lower rate cut from 33% to 30%
- VAT up from 8% to 15% to finance income tax cuts
- Public spending reduced by £4bn
- Interest rates increased from 12% to 14%
4
Q
4
Describe the effects of 1979 budget
A
- 1980, serious recession occurred
- led to rise in public spending as benefit payments increased
- Unemployment reached 2m (13.2%) - highest in Western Europe
- 1980 Tory Party Conference, Thathcer indicated she would not reverse policy with aimed dig at Heath (‘U-turn if you want to…’)
5
Q
3
Describe the economy by 1980
A
- Inflation stood at 22% in early 1980
- Mood worsened by Tebbit’s comments for the unemployed to get on their bike and find work
- Only North sea oil receipts kept balance of payments in reasonable condition
Tebbitt a junior minister at time
6
Q
6
Describe the terms of 1981 budget
A
- Many expected governmental reversal, instead they doubled-down
- Marked monetarist triumph against Keynesian Treasury orthodoxy
- 20p increase on petrol tax
- £3.5bn spending cuts
- Grants to local councils cut
- No changes to low income tax
7
Q
5
Describe the effects of the 1981 budget
A
- Amounted to biggest fiscal squeeze in peacetime
- expenditure rose due to collosal bil of social security payments stemming from increased unemployment
- from 1979-81, British GDP fell by 2.5%
- productive capacity falling more rapidly than ever recorded before
- return of stagflation
8
Q
2
Describe the response to the 1981 budget
A
- Government standing fell to 27% in opinion polls
- In a famous letter to the Times, 364 economists denounced the government’s economic approach as ruinous
9
Q
2
Describe the 1982 budget
A
- £1.3bn tax giveaways
- condemned by Con MP Ian Gilmour who had advocated £5m reflation package
10
Q
Describe privatisations in Thatcher’s first term
A
- BP sold in 1971
- British Aerospace sold in 1981
- Sale of Amersham International 1982
11
Q
4
Describe the sale of Amersham International 1982
A
- Radiochemical Centre, a specialist medical services group
- Renamed to Amersham International in 1981and sold in 1982
- First complete privatisation where govt sold 100% of shares
- $130m paid to government was $38m less than the prevailing market share of the company - set negative precedent
12
Q
4
Describe the shift in inflation levels (1979-83)
A
- early 1980 - 22%
- 1981 - 12%
- 1982 - 8.8%
- 1983 - 5%
13
Q
3
Describe the economic positives of Thatcher’s first term
A
- Productive capacity would have worsened had the govt continued to support ‘lame duck’ industries of British Leyland and Rolls Royce
- Delivered on pledge to reduce inflation
- Monetarism quitely abandoned by 1984 through falling exchange rates and loosening of money supply limits
14
Q
5
Describe the economic negatives of Thatcher’s first term
A
- Inflation reduction due to mass unemployment
- Monetarism destroyed value of privatised companies
- productive capacity was falling more rapidly than ever recorded
- 25% of manufacturing capacity lost in 1st term
- 81 other nations saw GDP rise by 5%; britain’s fell more rapidly than ever before
15
Q
4
Describe Nigel lawson as CX
A
- Became chancellor following re-election in 1983
- Exuded econmic competence
- Abandoned monetary control and shifted to supply-side focus
- Urged cuts in public spending though spending increased anyways due to high unemployment
