Monetarism and Impact

What was thatchers view on the postwar consensus?

She believed it failed and by 1951-79 both labour and conservative governments had acceptedkeynesian economics, state intervention and full employment. The crisises of IMF loand and Winter of Discontent convinced Thatcher that a radical alternative was needed.

What did Thatcher government introduce and what were the aims?

Monetarism, aimed to reduce government spending, control the money supply which believed to reduce inflation.

What hit the economy in 1980 and the consequences?

A recession, which hit inflation which rose above 15% and also it sharply rose unemployment going above 2 million.

What was therefore back during the recession?

Stagflation, however the economy would've been far worse and would have been on a serious run on the pound, but the North Sea oil saved UK from a BOP crisis.

What did Thatcherites believe that individuals did better than govs?

That individuals spent their money better than governments did.

What did the Thatcherites belief lead to?

A shift away from direct taxation i.e income taxes, VAT etc.

What did the rates of tax change to?

The top rate of income tax fell from 83% to 40% by 1988 and the standard rate fell from 33% to 25% in 1979. And taxes went up for cigarettes,petrol and alcohol between 1979-87.

Where did Thatcher find her ideologies of?

Milton Friedman, who taught that the root cause of inflation was government spending. Thatcher tried to reduce government spending hoping it would reverse the position in Britains PSBR deficit.

What did Thatcher do to control inflation also?

Interest rates were kept at a high level in order to deter irresponsible borrowing and keep the pound on the international financial market.

What were inflation figures from 1979-83?

Inflation dropped from 19% in 1979 to 5% in 1983.

What Financial strategy was introduced in 1980 and what was it supposed to do?

The Medium Term Financial Strategy 1980, introduced as a 4 year plan to reduce inflation and create conditions for log term output and employment growth rather than than short term booms.

Who introduced the Medium Term Financial Strategy 1980?

Geoffrey Howe

what did Howe's Budget 1981 defy economic theory?

As it introduced to raise taxes during a deep recession, to defend the credibility of the MTFS 1980.

Why was a Budget needed?

As monetary and borrowing targets by the MTFS were massively overshot. High unemployment benefits and collapsing tax revenues during the recession caused the Public sector Borrowing requirement (PSBR) to soar to 5.4% of GDP instead of the targeted 3.75%

What else did Chancellor Howe introduced?

A intense deflationary budget that extracted £4 billion out of the economy through: the stealth tax (dragged lower income earners into higher tax bands) and also a windfall tax to plug the govs huge borrowing gap which raised around £400 million alone.

What response did the Budget receive?

It provoked fury and a letter was signed by 364 economist on March 30th 1981, stating this would deepen the depression

What occurred in Summer 1981?

The UK economy began a slow recovery. Inflation fell to 4.6% by 1983. But UK manufacturing output plummeted by roughly 15% during this period and unemployment peaked 3.2 million by 1985.

What did the Budget 1981 prove to Thatcher?

That it was the ultimate proof of her mantra "The lady is not for turning", defying the 364 experts. This cemented her political authority.

What did the thatcher see LW local councils as?

Enemies

what did the 1982 public opinion poll show?

That thatcher was seen as the most unpopular as she scored the lowest.

What did Thatcher attempt to control and what did it cause?

Local government spending through spending limits and reduction in grants. Causing major conflicts with Labour-controlled councils in London, Mersyside and South Yorkshire. This distorted relationship between central and local government..

What occurred in April 1981 South London?

Hundreds of youths went on the rampage of burning shops and looting property.

Where else did riots occur?

St Pauls region of Bristol, Toxteth, Moss side in Manchester.

Why was there rampage reactions?

Due to Thatchers tough monetarist policies that led to increased unemployment, poor job prospects in deprived areas and alienation of black people who felt they were being discriminated.

What did Norman Tebbit compare this to?

Compared father in the 30s with the layabouts in the 80s in the 1981 Conservative Party Conference. 'He didn't riot, he got on his bike and looked for work'.

What did Tebbit urge Thatcher not to do?

To not allow the riots to deflect her from her policies and keep her promise that 'The lady's not for turning'.

Thatcher not slowing monetarism down was what?

A act of defiance against the wets, ministers like Peter Walker urged the policy to be slowed.