Thatchers economic policies

What is monetarism?

Economic theory that the total amount of money in an economy is the primary driver of economic growth, short-term output, and long-term price levels

What were the three key principles of monetarism?

1. Reduce government spending accroding to monetarism principles

2. Control money supply to control inflation

3. Economic growth

What was the economic situation like by 1980?

• Serious recession hit by inflation above 15%

• Sharply rising unemploymeny going above 2 million

• Stagflation was back which was last seen under Heath

Why could the economic situation by 1980 have been worse?

• There could have been a serious run on the pound and severe balance of patments crisis

• Saved by the flow of North sea oil and gas making the production of plastic cheaper

What was Thatchers repsonse to the economy?

• Expected to reverse its policy/U-turn but instead thatcher applied even further monetarist measures

• Govrnment borrowing went down and grants to councils and benefits were frozen which removed support for failing industry

• This was done as the government belived individuals spent their money better than the government did

What did monetarism mean for taxes?

-Income tax as top rate fell from 83% to 40%

-VAT increased from 8 to 15%

-Increase in sin taxes

How did monetarist policies affect local councils?

-Conservative central government viewed labour-run councils as enemies and blamed them for wasting resources

-Greatest opposnent of spending cuts was greater London Council, led by left winger Ken Livingstone

What was rate capping?

-Limited the amount of money that the council was allowed to raise in local elections

-Conservative conservative introduced it in order to limit the overspending of labour local authorities

What was the authorities’ reaction to rate capping?

In 1985, a number of authorities like sheffield and liverpool tried to rebel and refused to set budgets

Backed down due to threats of bankrupcy

What did the Local government Act 1986 do?

-Abolished the big metropolitan local authorities set up by the Heath government

-The powers of the central government were greatly increased at the expense of local government

-In the short term, this was a victory against the loony left, but in the long term, it damaged local accountability

When did Monetarism under Thatcher end?

-Effectively ended in her second term with Lawson abandoning spendfing targets in 1986

How did Thatcher continue to attempt to break the post-war consensus economy?

-Thatcher introduced supply-side economics, which concentrated more on market reforms such as privatisation and deregulation

-Introduced in 1979 and was accelerated after 1983 when “wets” were marganislised

What was the cycle of supply side economics

1. Deregulation for businesses-meaning removinf restrictions,easier to set up bsuinesses

2. Flexible labour makes it easier to hire/fire workers-prioritising profit over employment

3. Emoployees spend on goods and servises

4. Business make profit

5. Profit encourge expansion/further investment into businesses

What was the main goal of supply side economics compared to demand side?

-Supply side is more focused on lower inflation

-Demand side focuses on employment