Fight against inflation

• While all previous post-war governments had prioritised employment - Thatcher was willing to risk higher unemployment in order to tackle inflation
• Thatcher and her advisers believed that access to money should be cut, in order to reduce inflation = increasing interest rates this meant that many companies, in particular manufacturing industry struggled to survive
• 1978 - inflation stood at 11% by 1980 it had doubled to 22% largely due to spiralling pay demands
• Thatcher refused to print money to cover inflation as it punished 'careful savers' and 'rewarded reckless borrowers'
• Monetarism, it argued that governments should prioritise low inflation and should achieve this by controlling the amount of money in circulation in a nation's economy
• Monetarism was given a prominent role in the 1980s 'Medium-Term Financial Strategy', but was never fully understood by Thatcher
• The key problem being that no one was quite sure how best to measure how much money was in circulation
• By 1983, even fans of monetarism such as Chancellor Nigel Lawson began to give up on the idea of setting targets for money supply
• A range of supply-side policies were introduced to replace monetarism; these included cuts to income tax, cuts to welfare payments where possible and a wide range of deregulation
• Supply-side is an economic theory that argues that governments should encourage production; they should do this by removing regulations and cutting taxes
• Supply-side theory went against the 'demand-side' post-war consensus, begun under Attlee's Labour government, which argued governments should tax and spend to create demand
• 1980 and 81 budgets slashed government spending, with especially unpopular cuts to spending on housing and social security
• Supply-side cuts had negative consequences for many people in inner-city areas, there were riots in several cities, with the most severe in Leeds, Birmingham, Liverpool and London
• Riots were partly sparked by racial issues, the poverty in those areas heightened tensions
• In 1980 and 81, manufacturing produced fell by 14%
• By 1982, unemployment had risen to over 3 million
• The scale of unemployment benefits forced up government spending, despite this inflation was reduced to single figures by 1982, and never rose above 9% for the rest of the 1980s