thatcher economic policy

Conviction politics:

Politics rooted in the beliefs of political leaders rather than in consensus and compromise

Thatchers view of consensus politics:

Sticking to principles was more important - abandoning principles through finding consensus was morally wrong - it was the main problem with post-war politics

Thatcher was against:

Dependency, high taxation, debt and powerful unions

Thatchers belief of who should be dependent on the state:

Only the most vulnerable

Why did thatcher want low income tax?

Hard work should be rewarded, tax prevented people from benefiting from the money they earned

Thatchers belief in individual enterprise:

It was the key to economic growth, she wanted to foster a new generation of entrepreneurs creating room for individual creativity by scaling back the state

Why did thatcher believe in private companies:

More economically efficient than state agencies, as they had to make a profit, they weren’t wasteful

Why did govt spending have to be cut?

It required high tax and led to the growth of inefficient govt agencies

Monetarism:

Economic priority of controlling inflation - significant break from prev govt that prioritised unemployment - initial measures of tax rises and spending cuts

Medium Term Financial Strategy:

Geoffrey Howe, Chancellor, plan to control inflation 1980. Targets for reducing money in circulation to control inflation

Howe raised VAT from:

8% to 15% - raising indirect taxation

Howe lowered direct taxation:

Cut Standard rate of income tax from 33% to 30% and the top rate from 83% to 60%

thatcher reform taxation effect on the economy:

Income tax went down to incentivise people to work hard

BUT increase in VAT hit paupers harder - spent higher proportion of their income than rich - cutting income tax helped the rich

Public spending cuts 1980-1:

From £11billion in 1980 to £9billion in 1981

To rebalance the economy - govt did less so private sector could do more - monetarist 0 control inflation

Thatcher’s 1981 budget:

TP - raised income tax in the middle of a recession - new taxes on North Sea oil and Windfall tax on banks - cuts in education and health - deflationary

1981 budget increased taxes by:

$4billion

Controversy of 1981 budget:

346 economists wrote to The Times to protest - shadow chancellor called it ‘sadomonetarism’

Limitations of the 1981 budget:

Softened in mid 1981 as cabinet rebelled and rejected further £5billion of cuts - feared worsening recession

North Sea oil

Major source of income - 1983-1985 govt received £41billion from oil - helped finance govt policy’s such as unemployment benefits and tax cuts

Keith Joseph:

Appointed sec of state for industry 1979 - supported free markets

Allowed some national industry to decline

British steel:

Loss making Govt stopped supporting 1979 - made 53,000 workers redundant

HOWEVER: policy led to further govt payouts to fund redundancy settlements 1979-1981 £1billion paid to British Steel

Still making a loss of £450 million in 1980 despite redundancies

British Leyland:

Loss making - Keith Joseph invested £990million - promised to lay off 300,000 workers in 1981 for govt investment

Motive for govt investment in failing industries:

To end govt subsidies for nationalised industries - timetables set for companies to start profiting - meant laying off workers

Supply side economics 1982-87

Monetarism abandoned as it wasn’t possible to measure money supply

Designed to stimulate production in the private sector - tax cuts and privatisation

Nigel Lawson cut standard rate of income tax:

From 30% to 27% in 1987

Breaking even:

All nationalised industries target to break even 1982 - failed and revised for 1985

Govt subsidies:

£1.1billion in 1981 - by 1988 nationalised industries were profiting £1.3billion

Grants to struggling industries fell from £4billion 1984 to £335,000 1987

1984 National Coal Board

Chair Ian MacGregor plan to close 75 pits and make 64,000 miners redundant

British airways losses:

Made a £544million loss 1981/2

Inefficiency of nationalised companies:

1979 employed 25% of British workers but produced 10% of GDP

Popular capitalism:

Ordinary people buy shares - larger proportion of society own shares so feel benefit of free market

Tell Sid

Large ad campaign to appeal to ordinary people - accompanied British Gas sale - stressed how easy it was to buy shares

SUCCESS: £40million campaign - 4.6million people bought shares

Why was buying shares popular:

Govt sold below the market rate to purchasers saw value of investment quickly

In 1979 — of the country owned shares:

7% - by 1990 25% were part of the ‘share owning democracy’