Thatcher’s first-term economic policies –
Thatcher the conviction politician
Election results 1979 – won with a working majority. Manifesto states her government would
–
• Halt Britain’s economic decline through the promotion of free market
forces
• Reduce unnecessary government interference and bureaucracy in the
economy.
• Use the law to smash the power of trade unions
Monetarism –
Inflation is the economy’s greatest ill, stagflation 1970s, governments should increase the
value of money by reducing its supply. The more valuable money the more it can buy, so
prices would fall. Achieved through reducing public spending and increasing rates of interest
to deter lending and credit.
Effects of monetarism –
High unemployment as weak firms went bankrupt – rose by 1 million, social unrest. The idea
was unsuccessful as inflation doubled from 11% to 22% from 1978-80. However, must be
regarded that thatcher was not elected until 1979.
POLICIES –
Howe was the first chancellor
• Reversals policy – accepted policies from predecessors (clegg
commission appointed by previous labour gov – looking into salaries of public sector,
awarded 25% rise). Gave Leyland more subsidies. Allowed an above inflation pay
settlement of 16% to end the steel strike.
MONETARISM 1979 – cabinet split into wet v dry’s some believing her policies were failing.
Policies of the 1981 budget -
• Against 350 economists the 1981 budget cut government
expenditure(cuts in housing and social security)from 11 billion in 1980 to 9 billion in
1981
• Increased indirect taxes by keeping the threshold at which people paid
taxes the same despite the rising line of inflation VAT – from 8% to 15% whilsr
reducing direct, top rate cut 83% to 60% and the poorest 33% to 30%. This hit the
poorest people first, as they spent higher proportion of income on immediate
spending. New taxes on north sea oil and one off windfall tax imposed at the same
time. Taxes increased by £4 billion.
• This caused social unrest riots in Handsworth, Birmingham and
Brixton.
, • Cabinet rebelled in 1981 rejected a further 5 billion in cuts, which they
feared would make the recession worse
• Unemployment rose reaching 3 million in 1983. But inflation had
reduced to 9%.
• Manufacturing output fell to 30%.
Nationalisation –
Keith joseph appointed shared thatcher’s views, he allowed some industries to decline,
british steel would no longer be supported, forced 53,000 redundant, despite this 1 billion
was invested and still made loss of 400 mil. But investment into Leyland (loss making)
The success in the Falkland’s war got thatcher re-elected in 1983, and this landslide victory
gave her confidence to expand privatisation of state owned assets.
Economic developments of second term 1983-87 –
Monetarism was less significant but the economy was stimulated by supply-side economics
involving deregulation, extension of credit, tax reductions and decline of union power.
Regressive taxation, income tax goes down so this incentivised people to aim to earn more.
SupplySide introduced 1982 –Free market policy embraced to stimulate industry in private
sector. Tax cuts of 3%
• Inflation fell steadily, in 1980 at 22% to 5% in 1982. Public believed
that economy was set to improve – optimism contributed to thatcher’s triumph in
1983 election.
• Wanted to stimulate industry and promote the private sector, aimed to make
industries more productive, set aims for companies to break even by 1982, failed so
now aims of 1985. In 1984 gov was subsidising nationalised industries 1.1 bill by 88
were making profit of £1.3 bill. Grants were reduced from 3.8 bill to 335 mil. More
profitable.
• Tax cuts Nigel Lawson incharge– cut income tax and corporation tax,
standard rate income cut from 30% to 27% in 1987.
• Popular capitalism – tried to encourage normal people to buy shares.
Advertising campaigns like British gas ‘find Sid’
PRIVATISATION –
Intention was to gain revenue from popular capitalism, ordinary people could own shares in
private companies, evident in British gas ‘tell sid’, success and 4.6 million people bought
shares. This was viable because gov undersold industries therefore purchases would see
quick rise in value British airways, steel, telecom, gas were sold off. Gov raised £7 billion
from 1988-9. British telecom saw repairs to be quicker and provide a better service now
privatised.
By selling off the 50 biggest business she made 50 billion. She undersold industries so this
meant that the nation lost out however this did encourage the owning of shares to be open
to all people. But most people sold there shares, only 9% owned by unskilled working class,
but increased from 7% country owning shares to 25%.
Other prime ministers followed privatisation, Major and Blair.
Thatcher the conviction politician
Election results 1979 – won with a working majority. Manifesto states her government would
–
• Halt Britain’s economic decline through the promotion of free market
forces
• Reduce unnecessary government interference and bureaucracy in the
economy.
• Use the law to smash the power of trade unions
Monetarism –
Inflation is the economy’s greatest ill, stagflation 1970s, governments should increase the
value of money by reducing its supply. The more valuable money the more it can buy, so
prices would fall. Achieved through reducing public spending and increasing rates of interest
to deter lending and credit.
Effects of monetarism –
High unemployment as weak firms went bankrupt – rose by 1 million, social unrest. The idea
was unsuccessful as inflation doubled from 11% to 22% from 1978-80. However, must be
regarded that thatcher was not elected until 1979.
POLICIES –
Howe was the first chancellor
• Reversals policy – accepted policies from predecessors (clegg
commission appointed by previous labour gov – looking into salaries of public sector,
awarded 25% rise). Gave Leyland more subsidies. Allowed an above inflation pay
settlement of 16% to end the steel strike.
MONETARISM 1979 – cabinet split into wet v dry’s some believing her policies were failing.
Policies of the 1981 budget -
• Against 350 economists the 1981 budget cut government
expenditure(cuts in housing and social security)from 11 billion in 1980 to 9 billion in
1981
• Increased indirect taxes by keeping the threshold at which people paid
taxes the same despite the rising line of inflation VAT – from 8% to 15% whilsr
reducing direct, top rate cut 83% to 60% and the poorest 33% to 30%. This hit the
poorest people first, as they spent higher proportion of income on immediate
spending. New taxes on north sea oil and one off windfall tax imposed at the same
time. Taxes increased by £4 billion.
• This caused social unrest riots in Handsworth, Birmingham and
Brixton.
, • Cabinet rebelled in 1981 rejected a further 5 billion in cuts, which they
feared would make the recession worse
• Unemployment rose reaching 3 million in 1983. But inflation had
reduced to 9%.
• Manufacturing output fell to 30%.
Nationalisation –
Keith joseph appointed shared thatcher’s views, he allowed some industries to decline,
british steel would no longer be supported, forced 53,000 redundant, despite this 1 billion
was invested and still made loss of 400 mil. But investment into Leyland (loss making)
The success in the Falkland’s war got thatcher re-elected in 1983, and this landslide victory
gave her confidence to expand privatisation of state owned assets.
Economic developments of second term 1983-87 –
Monetarism was less significant but the economy was stimulated by supply-side economics
involving deregulation, extension of credit, tax reductions and decline of union power.
Regressive taxation, income tax goes down so this incentivised people to aim to earn more.
SupplySide introduced 1982 –Free market policy embraced to stimulate industry in private
sector. Tax cuts of 3%
• Inflation fell steadily, in 1980 at 22% to 5% in 1982. Public believed
that economy was set to improve – optimism contributed to thatcher’s triumph in
1983 election.
• Wanted to stimulate industry and promote the private sector, aimed to make
industries more productive, set aims for companies to break even by 1982, failed so
now aims of 1985. In 1984 gov was subsidising nationalised industries 1.1 bill by 88
were making profit of £1.3 bill. Grants were reduced from 3.8 bill to 335 mil. More
profitable.
• Tax cuts Nigel Lawson incharge– cut income tax and corporation tax,
standard rate income cut from 30% to 27% in 1987.
• Popular capitalism – tried to encourage normal people to buy shares.
Advertising campaigns like British gas ‘find Sid’
PRIVATISATION –
Intention was to gain revenue from popular capitalism, ordinary people could own shares in
private companies, evident in British gas ‘tell sid’, success and 4.6 million people bought
shares. This was viable because gov undersold industries therefore purchases would see
quick rise in value British airways, steel, telecom, gas were sold off. Gov raised £7 billion
from 1988-9. British telecom saw repairs to be quicker and provide a better service now
privatised.
By selling off the 50 biggest business she made 50 billion. She undersold industries so this
meant that the nation lost out however this did encourage the owning of shares to be open
to all people. But most people sold there shares, only 9% owned by unskilled working class,
but increased from 7% country owning shares to 25%.
Other prime ministers followed privatisation, Major and Blair.
