Thatcher's Economic Policies + Change? Flashcards
(15 cards)
Monetarism, 1979-1982
Policy
Departure from Keynesian consensus
Chancellor Geoffrey Howe
Reduction of inflation through ‘monetarism’ (American economist, Milton Friedman)
* Reduction of gov spending,
* Prevention of wage increases,
* Suppression of consumer spending
Monetarism, 1979-1982
Taxation
Indirect taxes increased in 1979: VAT increased from 8% to 15%
Lowered direct taxes in 1981: standard Income Tax decreased from 33% to 30%, top rate decreased from 83% to 60%
Monetarism, 1979-1982
Spending Cuts
Deep cuts to public spending
Fell from £11 to 9 bn (1980-81)
Cuts to education, healthcare, benefits
Plans for £5bn worth of cuts abandoned in 1981 following Cabinet rebellion
Monetarism, 1979-1982
Nationalised Industry
Secretary of State for Industry, Sir Keith Joseph
Believed nationalisation + subsidies made industry dependent
Ended subsidies unless efficiency improved
1979 - British Steel made 53,000 workers redundant
British Leyland given £990m subsidy if they laid off 30,000 workers
Monetarism, 1979-1982
Results
1982 - Forced to abandon monetarism
Brought down inflation (13% to 8%) but also led to spiralling unemployment
Criticism from press, public, and economists
364 wrote joint letter - published in The Times - advised gov against spending cuts in recession
Supply-Side Economics, 1982-1987
Policy
Stimulating production in private sector
Cut corporate and business tax, cut back on ‘red-tape’ by deregulating industry
Supply-Side Economics, 1982-1987
Tax Cuts
Reduced income taxes twice, 1982 and 1983
Further tax cuts in 1984 by new Chancellor Nigel Lawson - standard rate of income tax (30% to 27%)
Supply-Side Economics, 1982-1987
Nationalised Industry
British Steel shed workers, 95,000 redundant by 1983
National Coal Board forced to close 75 coal pits, made 64,000 miners redundant
1984 - Gov spending £1.1bn yearly on state subsidies
1988 - Nationalised industry making £1.3bn profit
Supply-Side Economics, 1982-1987
Privatisation
Fifty large state-owned industries sold off
Britsh Airways, British Steel, Cable and Wireless, Jaguar, Brit Oil, and British Telecoms (sold for £3.7bn)
1979-1980: Raised £377m
1985-1986: Raised £2,600m
1988-1989: Raised £7,000m
Sold ‘North Sea Oil’, 10% gov rev in 1980s
Total: £20 billion in revenue
Supply-Side Economics, 1982-1987
Popular Capitalism
Encouraged the public to buy shares
£40m on ‘Tell Sid’ advertising campaign, encouraged buying shares in newly-private British Gas
4.6 mil bought shares, by 1990 - 25% of public had shares from 7% in 1979
Supply-Side Economics, 1982-1987
Results
Increased efficiency and competitiveness
1980 - 1986 - Unemployment never below 2 million
1986 - Rose to 3.4 million
Privatisation led to revenue, so tax cuts
Popular capitalism not equal - 50% professional males owned shares, 9% working class males
Boom and Bust, 1987-1990
Policy
Encouraging consumer spending to create consumer boom
Deregulation of industry
Boom and Bust, 1987-1990
Deregulation
Financial Services Act (1986) - Abolished credit and exchange control
Increase in foreign investments - boom in financial industry
Increase in investment by 300%, London centre of finance + banking
Boom and Bust, 1987-1990
Interest Rates and Tax Cuts
Generous measures
Series of ‘giveaway budgets’ between 1987 and 1988 to cut standard income tax from 27% to 25% and top rate from 60% to 40%
Lowered interest rates from 14% in 1985 to 7.5% in 1988
Boom and Bust, 1987-1990
Results
‘Lawson Boom’
But unregulated finance led to increased private household debt -** £16bn in 1980, $£45bn in 1989**
Mortgage debt rose from £43bn in 1979 to £235bn by 1990
Overall personal debt rose to £1.3 trillion by 2003, highest in Europe
Surge in spending, rising inflation
Re-rose interest rates to 15% in 1989
