Thatcher's economic policies and their impact

• An economic theory that argued the best way for the governments to control inflation was by restraint of borrowing and curbs to the money supply. By 1980, the economy went into a recession, inflation was at 15% , rising unemployment (about 2 million) and stagflation was back.

  Monetarism
• • Heavy monetarist policies
  • borrowing went down
  • funding to local councils cut
  • Howe called it 'the most unpopular budget in history'
  • Reason for this: Thatcher wanted to cut public spending as they believed individuals spend money better than governments.

  1981 budget
• • Move away from direct taxation, such as income tax, to indirect taxes such as VAT (as people chose to buy these goods) because of the belief that individuals spend money better than governments.
  • Income tax rate fell from 83% to 44% by 1988 and the standard rate fell from 33% to 25%
  • VAT: went up from 8% to 15% in 1979
  • Taxes on petrol, cigarettes and alcohol went up between 1979-87

  Taxes
• for: people argued this would incentivise wealth creation as more people had their own money they had earned

  against: putting the burden onto indirect taxation was less progressive and hit poorer people harder

  For and against direct taxation
• Thatcher saw them an enemies as she thought that not only did they differ ideologically but that they wasted resources. Greater London council headed by a left-winger Ken Livingstone as Thatcher treated their education and public transport were provocations as he stood for the 'looney left' 


  Conservative and labour councils
• Name given by right-wing press to left-wing local councils that promoted liberal policies.

  looney left
• • Aim: to tackle overspending of local councils
  • Limited the amount of money the council was allowed to raise in local taxation.
  • In 1985 Sheffield and Liverpool councils rebelled and refused to set budgets. Eventually they were threatened by bankruptcy and forced to back down
  • 1986 Local government Act abolished the big metropolitan local authorities which meant that powers of the central government which was a clear victory against the looney left. However social security spending went up due to high unemployment so public spending went up. 


  Rate capping
• Supply-side economics took over during this period.
• • BP was privatised in 1979
  • British Aerospace in 1980
  • British Telecom in 1984
  • Sale of British Gas in 1986
  • What did this do? It increased the amount of shareholders there win in businesses, the number of stocks and shares went up that individuals owned from 3 million and 9 million between 1979-90.

  Privatisation
• • Private individuals were better than spending money than government, it was more dynamic and efficient at running and delivering goods and services.
  • Businesses would compete with each other for prices in the marketplace which encourage improvement and innovation.
  • Bought a lot of revenue to the government 


  Why did Thatcher believe in the private sector more?
• For and against privatisation:

  Against: people could no longer have good job security and reliable pension provision. Companies sold off cheaply in order to ensure all shares were taken up.
• • Removing the 'red tape' making it easier for businesses to trade and grow, encouraging enterprise and wealth creation.
  • Measures to encourage start-up of companies: Local Guarantee Scheme which make it easier for small businesses to borrow money. Enterprise Allowance Scheme encouraged unemployed to start their own businesses by giving them £40 per week.

  Deregulation
• • Freed up City of London and financial markets in tight control of Bank of England
  • Big Bang: 27th October 1986: deregulated the London Stock Exchange, opening the way for computer screen trading and replacing 'old boys' network with free competition. 


  Financial deregulation
• Bigger risks were taken and bigger fortunes could be made. It made London the financial capital of the world and allowed to compete with Wall Street.

  The Yuppie
• • 2.2% of GDP growth

  GDP
• • 17% in 1979, made it more expensive for businesses to borrow
  • Increased the value of the pound which made it more difficult for businesses to export and borrow
  • The economy went into recession, many businesses went bankrupt and high unemployment.
  • May 1980 inflation at 22%
  • 2.5% in 1986

  Inflation rates
• • output fell by 15% in 2 years
  • West Midlands: production fell by 1/4
  • Steel production cut by 30% to less than 14 tons.
  • By 1983, unemployment rose to over 3 million this was the 13.5% of total workforce

  Manufacturing
• • move to service industry from manufacturing
  • strengthened south-north divide

  Economic realignment
• Examined causes of 1981 riots and identified race and poverty as key components. The areas that hit the hardest, were high unemployment and deprivation. Despite this report and changes to subsequent changes policing policies there were still riots in 1985.

  Scarman Report
• Gave police officers permission to stop and search suspected persons if they thought they might commit a crime. Black people and those from ethnic minorities believed that the police unfairly targeted them.

  Sus law
• • interest rates are used to control inflation which were raised to 17% in 1979 but this made it more expensive for businesses to borrow.
  • They also increase the value of the pound meaning it is more expensive to export
  • Highest point of inflation: 22% in May 1980, Lowest: 2.5% in 1986
  • However, the way in which Thatcher was dealing with maintaining a low inflation rate lead to a recession and entry into the ERM

  Control of inflation
• • no loner seen as an aim, because now it was inflation
  • Unemployment traded off for being more competitive in industry rather than keeping unemployment levels low
  • As a result, many industrial plants were closed and areas like the Midlands, North, Scotland and Wales were hit the worst. The South wasn't affected by this as badly

  Unemployment