Thatcher 1 - Economics Flashcards
(66 cards)
1
Q
What were Thatcher’s ideas like?
A
- Different from mainstream conservative ideas
- Willing to discuss ideas
2
Q
What is Thatcherism?
A
- Series of ideas / principles that inspired Thatcher
- NOT a coherent ideology
3
Q
What does Thatcher being a conviction politician mean?
A
- Believed that politics rooted in political leader’s fundamental beliefs
- Not in consensus & compromise (believed one of greatest issues w/ post-war politics
4
Q
Why was Thatcher different to previous conservative leaders? (Macmillan, Douglas-Home, Heath)
A
- Rejected consensus politics
- Sticking to principles more important as finding consensus meant abandoning principles (morally wrong)
5
Q
What did Thatcher’s rejection of of consensus reflect?
A
- Conservative party’s recent history
- Main problem in 70s: Heath’s willingness to compromise, abandon ‘selsdon man’ programme and move to centre ground politics
6
Q
What was Thatcher against?
A
- Dependency
- High taxes
- Debt
- Powerful unions
7
Q
What did Thatcher believe her economic ideas reflect?
A
- Essential moral principles based on common sense
8
Q
What were the 3 pillars of Thatcher’s beliefs?
A
- Everyone should work hard to earn a living - everyone expect most vulnerable should not depend on state
- Hard work should be rewarded - therefore low income taxes to allow people to benefit from money earned
- Individual enterprise was the key to econ growth - help foster new gen of entrepreneurs by scaling back state Econ role
9
Q
What was Thatcher’s view on economic efficiency?
A
- Efficiency: private companies > gov agencies
- Private had to to make profit whilst gov could be wasteful as did not aim to make profit
10
Q
What was the result of these beliefs?
A
- Thatcher (and right of party) believed gov spending cut due to high tax required
- LED to growth of inefficient gov agencies at expense of more efficient private enterprises
- Highly critical of unions - argued interfered with free market and made industry less efficient
- ALL: led to slow econ growth + high inflation AKA stagflation
11
Q
Why was she a passionate believer of rule of law?
A
- Central to politics as result of democratic process and defence of individual rights
12
Q
Why did she dislike radical protest forms?
A
- Reform should come from elections rather than direct action (strikes, marches, occupations)
- Laws should be democratically changed as all citizens had right to vote
- Radical protests - undemocratic as used force > democratic debate
- Lawlessness / likely to denigrate to violence
- Tended to be used by unions, feminist groups, black rights groups to advance collective rights (She believed in individual rights)
13
Q
Why was Thatcher a nationalist?
A
- Firm believer in virtues of Britain & britishness
- Britain had fundamentally civilised values of individual rights, hard work, democracy and celebration of culture and rights
- Opposed interference of British affairs with other countries
14
Q
Why was she suspicious of various organisations
A
- Black rights groups (accused police of institutional racism)
- Feminist groups (campaigned for women’s liberation)
- Fundamentally misguided groups as under British law: freedom + justice guaranteed for all
15
Q
Why was the 11 years of Conservative rule described as a revolution?
A
- Overturned economic policies of gov since 1945
- Policies underpinned by new econ assumptions
- Significant changes to economy by 1997
16
Q
What was Thatcher’s early econ policy?
A
- Monetarism: new economic priorities
- Break with economic consensus dominated British politics
17
Q
What was Thatcher’s first econ priority and how was this different?
A
- Controlling inflation
- Previous govs: prioritised low unemployment therefore willing to allow inflation rise to preserve jobs
- Initial measures: spending cuts + tax rises
18
Q
What was Geoffrey Howe’s inflation control plan?
A
- Set out in medium term financial strategy accompanying his 1980 budget
- Targets to reduce amount of money in circulation to control inflation
- Believed after excessive state spending and large pay rises for industry = too much money in econ
19
Q
What did they do to tackle inflation?
A
- Change tax system
- Raise VAT 8% to 15%
- Lowered indirect taxation
- Cut standard rate of income tax 33% to 30% with top rate cut 83% to 60%
20
Q
What was the reasons for changes to the tax system and effects?
A
- More incentive for people to work hard as income tax decreased
- VAT increase hit poor > rich as greater portion of income spent
- Income tax cuts helped rich w/ higher incomes > poor
21
Q
What did Thatcher do for public spending
A
- Cut from 11bn GBP in 1980 to 9bn GBP in 1981
- Rebalance econ so gov did less to encourage private sector to do more
- Monetarist policy for inflation control
22
Q
Why was Thatcher’s 1981 budget a turning point?
A
- Against conventional wisdom - income tax raise in middle of recession
- New taxes on North Sea Oil
- one-off windfall tax imposed on banks
- Total taxes increased by 4bn GBP
23
Q
What did Thatch do whilst cutting gov spending?
A
- Cuts in edu, health, benefit increases downgraded
- Deflationary budget at time when econ shrinking and unemployment rising
- Vast change from past decades when gov increased recession spending to boost growth + ensure job security
24
Q
What were signs that the 1981 budget was highly unconventional?
A
- 364 economists wrote letter to Times to protest policy
- Concern in CP as labour’s shadow chancellor branded policy ‘sad monetarism’ due to pain would cause
25
What happened to Thatcher's policy in mid 1981?
- Policy softened
- Cabinet rebellion in July 1981 rejected further 5Bn GBP of spending cuts in fear of deepening recession
26
North Sea Oil
- Mid 80s: Major source of income for Thatch gov
- 1983-5 received over 41Bn GBP from North Sea Oil - double what received in first term
- Revenue help finance many gov policies (inc paying for large unemployment benefits and tax cuts)
27
Why was Thatch suspicious of state run industries?
1. Inherently less efficient than private industries (no need to profit)
2. Gov money should not be used to keep failing industries afloat in LT
- Try reduce gov spending on nationalised industries - appointed Sir Keith Joseph (fellow free market supporter
28
What did he allow some British national industries to do?
- Decline
- Gov no longer supported British steel as made losses leaving 53,000 workers redundant in 1979
- BUT Policy led to further gov payouts to steel industry to finance redundancy settlements
- 1979-81: Joseph authorised > 1Bn GBP of payments to British steel (more than labour in late 70s)
- Yet British steel still made loss of > 450Mn GBP by 1981
29
What did Joseph also do for British Leyland?
- Invested 990Mn GBP of gov money into loss-making car manufacturer British Leyland
- But LT vision clear: end gov subsidies for nationalised industries
- Therefore timetables set for industries become more efficient and start money making by laying off large workers + cut wage bills
- Joseph only willing to invest gov money in nationalised industries in return for guaranteed job losses
- British Leyland promised lay off 30,000 workers in 1981 for gov investment
30
What happened at end of 1982?
- Shift in econ policy as ministers admitted impossible to measure money supply therefore monetarism largely abandoned
- Inflation back at single figures Thatch believed that policy done its job
30
What was Thatcher's approach from 1982-8?
- Embraced free market policy (supply side economics)
- Designed to stimulate production in private sector, included tax cuts and privatisation
31
How did Thatcher implement tax cuts from 1982 onwards?
- Gov cut income tax and corporation tax
- standard rate of income tax cut from 30% to 27% in 1987
32
What did Thatch do to break even?
- Originally set targets that most nationalised industries break even by 1982 to ensure efficiency
- Even with large job losses still failed therefore target revised to 1985
- Fortunes of British nationalised industries turned around due to redundancies, investment, restructuring
33
Difference in gov subsidies vs profit 1984-8
- 1984: around 1.1Bn GBP subsidising nationalised industries
- 1988: Making profit of 1.3Bn GBP
- Gov still gave grants to some struggling nationalised industries fell from 3.8Bn GBP in 1984 to 335Mn GBP in 1987
34
What was the effect giving gov subsidies?
- Making these industries profitable again led to large-scale job losses
- British steel shed 95,000 from 1979-83
- In 1984, Head of National Coal Board announced plan to close 75 pits and make 64,000 coal miners redundant
35
What is privatisation?
Process whereby state-owned businesses sold to private shareholders
36
Why did the policy fit well with Thatcher's convictions
- Decreased state involvement in econ and therefore allowed more room for private initiative
- Believed returning companies to private sector make profitable and efficient as forced to make profit
- British airways made a 544Mn GBP loss from 1981-2
- 1979: nationalised companies employed 25% of British workers but only produced 10% of GDP
37
Why was privatisation under Thatch distinctive?
- Gov tried encourage normal people to buy shares to create 'popular capitalism' and 'share-owning democracy'
- Where large proportions of society owned shares and felt benefits of free market
- Argued way of returning power to the people
38
What accompanied most privatisations?
- Large advertising campaigns designed to appeal to ordinary people
39
'Tell Sid' campaign
- Accompanied British Gas sale
- Stressed how easy to buy shares
- 40Mn GBP campaign led to 4.6 million people buying shares in company
40
Why was buying shares popular?
- Gov tended to sell shares below market rate therefore purchasers see investment value increase quickly
- In 1979: only 7% of country owned shares but jumped to 1990 to 25%
41
What did Thatch privatise between 1982-6?
- Remainder of British aerospace and cable wireless
- Car manufacturer Jaguar
- British Gas
- Britoil
- British telecom
42
Why was the sale of British telecom a steep change?
- Sale brought 3.7Bn GBP into treasury and accompanied by major advertising campaign to promote share ownership
- Apparent policy success convinced most of Tory 'wets' that privatisation would revitalise British economy
43
Lawson boom and bust background info of 80s + 3rd election
- 3rd election victory win 1987: Thatcher confident in econ vision for Britain working
- Mid 80s: econ started growing again, inflation remained low and unemployment began decline
44
What was average econ growth in 1985-8?
- Around 4%
- Exceeded any growth levels from 1960
45
What happened to the idea of popular capitalism?
- Millions applied to buy their own council houses and privatisations became popular
46
What was the difference in atmosphere between late 70s and mid 80s
- Transformed economic atmosphere - ending supposed econ crisis to consolidating and sustaining econ upswing
- Pessimism to the 'loadsamoney' culture and London's growing association with Yuppies
47
Yuppies
- Young upwardly-mobile professionals
- Associated with stock market trading
- Popular stereotype: wore sharp suits, drank champagne at lunch, used mobile phones
48
What happened to the stock market?
- Fashionable
- Times launched ongoing lottery-style game based on stock market
- Players received free portfolio card from The Times
- Check value of stocks daily to see if prize won
49
How did Chancellor Nigel Lawson attempt to keep the boom going?
- Series of measures designed to continue curbing state and setting market free
- Deregulation
- Inflation control
50
What happened to the city of London in 1986
- Deregulation coinciding with Lawson boom
- Permitted relaxation of credit controls to allow people of lower incomes to borrow large sums of money
- Decreased interest rates from 14% in 1985 to 7.5% in 1989 - borrowing cheaper
- Deregulated London's financial markets
51
What did the 1986 Financial Services Act do?
- Trading of stocks and shares easier
- Attempt to attract foreign investment
- Same time as stock exchange began computer trading
- COMBINED = 'Big Bang'
52
What did Lawson do to monitor the money supply?
- 1985: Abandoned and switched to interest rate policy to control inflation
- Raise interest rates when inflation rise and cut when inflation low
- Encourage/ discourage spending due to debts & investments
53
What were the results of this policy
- NOT a prolonged boom
- 17 Oct 1987: Stock market crash (Black Monday)
- Wiped 50Mn GBP off share values
- Feared econ crash follow suit from stock market crash
54
What did Lawson do to attempt to reverse effects of Black Monday?
- Cut interest rates to 7.5%
- 1988 budget: cut top rate of income tax from 60% to 40% and standard rate cut from 27% to 25%
55
What were the results of Lawsons actions
- Deregulated credit + low interest rates + historically low taxes = rising inflation
- John Major attempted to increase interest rates to control inflation
56
Who did the Lawson bust impact as well as economic impacts?
- Everyone who borrowed money in mid-80s due to Lawson's deregulation of credit
- Recession and rising unemployment but inflation controlled
57
How did Nigel Lawson and John Major believe inflation could be controlled?
- Join Exchange Rate Mechanism (ERM)- a fixed exchange rate system with other European countries
- Initially Lawson overruled by Thatch on advice of chief econ advisor Alan Walters
- Major persuaded Thatch to join ERM
- MEANT other methods to fight inflation (high interest rates, spending cuts) temporarily halted it at cost of widespread unemployment and econ hardship
58
Which factors do we need to evaluate on consequences of Thatch's policies
- Inflation
- Econ growth
- Unemployment
- State role
- Productivity
- Industry
- Finance
59
Inflation - effects
- Thatch's prime econ goal with mixed achievements
- Initial success - 1979: 13.4% to 1980: >18%
- Fell in early 80s and stayed low (1986: 3.4%)
- Tended to be higher than in Europe, running ahead of europe's average for all but 5 years between 1979-97
- Historically Britain enjoyed prolonged periods of low inflation with inflation rarely > 5% in 1954-69
- Therefore could view as return to LT trends rather than vast improvement
60
Econ growth - effects
- Controlling inflation part of larger econ goal to increase Britain Econ's growth rate and end the relative decline (failed)
- British econ grew at about 4% a year in mid 80s but little LT change
-1960-73: 3.3% avg growth vs 1983-92: 2.5%
- Econ performance better under Thatch than Heath but LT weaker than Wilson and Macmillan in 60s
- Growth rates under Thatch comparable to whole period of 1960-97 (2.5%)
- Policies unable halt Britain's relative econ decline (ranking 6th worldwide for GDP in 1950 but 1997 fell to 14th)
61
Unemployment - effects
- Never top priority
- Still hoped decline with expansion of private sector
- Initial impact: unemployment drastically rose to peak at 3.2Mn in 1985 but fell afterwards
- Still historically high levels that became more normal
62
State role
- Econ rebalance another key aim - reduce state role in econ and increase private sector involvement (failed)
- Public expenditure and GDP grew (%age of GDP - 1979: 37% to 1997: 44%)
- Past initial confusion (tax cuts, privatisation) different areas of gov spending grew largely under Thatch
- Unemployment rise led to increased spending on social security (grew by 9%)
- Spending on law and order increased by 36%
- Large increases in military spending + Thatch's pledge to increase by 3% annually and buy US nuclear weapons system Trident
63
Productivity
- Improve efficiency of British econ by improving labour productivity
- Succeeded compared to 70s but international comparisons sow Britain lagging behind other countries
- 1979: British workers about 50% as productive as US workers but 1997: 77% closing gap
- Lagging behind US, British workers still less productive than workers in France, Germany and Japan in 1997
64
Industry
- Industrial production declined
- During 60s: Britain's industry produced about 40% of GDP but by 1997 almost halved to 21%
- Uk manufacturing exports declined
- Balance of payments of manufactured goods declined form %Bn GBP surplus in 1979 to a 20Bn GBP deficit in 1989
- Industry decline: closure of coal pits, car plants, steel mills = disproportionate unemployment levels for north
65
Finance
- Financial services expanded greatly in London and SE
- Sector investment rose 300% during Thatch years compared to 8% rise in manufacturing investment
