Deregulation

• Thatcher was keen to remove the rules and regulations that she believed stifled innovation and competitiveness
• The first example of this was the removal of exchange controls in October 1979; before 1979 there were limits to how many pounds' people could convert into foreign currencies and spend abroad
• The end of exchange controls fuelled greater overseas investment (which returned profits to Britain) but also led to a huge increase in consumer spending on foreign goods, which drained wealth from Britain
• The most significant example of deregulation was the 'Big Band' of October 1986
• Big Bang relaxed the rules on the ownership and trading operation of banks, resulting in the massive growth in financial services
• The City of London rapidly grew to become one of the major financial centres of the world as financial institutions took advantage of the more relaxed rules to offer riskier financial products that returned huge profits
• In the longer term, deregulation enabled unscrupulous individuals to make a lot of money in an unsustainable fashion; this culture, not tackled by New Labour after 1997, led to the 2008 financial crisis
• British people became more used to borrowing to pay for consumer goods
• The 'Big Bang' meant that a great deal of government regulation on the financial industry was scrapped; this modernised the stock market and allowed banks to take more risks with their lending and investments
• The 'Big Bang' had several effects on private individuals:

  • unregulated finance led to the rise in private household debt, which stood at £16 billion in 1980 and increased to £47 billion in 1989
  • easier access to mortgages meant that mortgage debt rose from £43 billion to £235 billion
  • by 2003, personal debt, including mortgages, stood at £1.3 trillion - by far the highest in Europe
• While banks made huge profits, a 2003 Financial Services Authority report estimated that 6 million families, around 20% of the total, faced problems with debt
• The rise of credit cards also contributed to the problem of debt
• The first credit card was launched in June 1996
• By 1980 there were 10 million credit cards in Britain
• By 1990 the amount of credit cards had risen to 27 million
• In 1986 the Conservative govt under Thatcher introduced a package of new rules relaxing the regulation on the LSE
• The phrase Big Bang, is used in reference to the sudden deregulation of financial markets, effected by Thatcher in 1986
• The new legislation on LSE

  • scrapped fixed commission rates, arguably making the exchange more competitive in a global market
  • paved the way for integrated investment banks by getting rid of the barrier between stockbrokers and stock jobbers
  • abolished rules barring foreign companies from buying City firms
  • Created a modernised and more efficient market by swapping exchange floor trading for screen-based computer trading
• Abolishing rules barring foreign companies from buying City firms meant that 65% of the Citys's workforce had non-British employers in 2011
• While it can be argued that the Big Bang, helped give Britain a competitive edge in the global economic market it also allowed for the risk of integrated investment bank
• Many of the integrated investment banks faced a massive conflict of interest since they both advise companies on deals and market financial problems to investors
• These reforms along with easy credit and the privatisation of public companies by Thatcher's government led to a huge boom in the UK and established the age of consumerism