Thatcher's Economy 1979-1990

Monetarism aims

• to reduce the money supply to reduce inflation which was above 15% by 1980

• applying monetarist principles could move Britain out of stagflation (but abandoned by 2nd term)

monetarism successes

• reduced direct taxes eg, income tax, in 1988 top rate went from 83% - 40% (but top rate only went from 33% to 25%, disproportionately in favour of wealthy)

• Rate capping - limits how much local councils can tax - Labour councils cannot interfere with monetarist tax

monetarism failures

1981 budget ‘the biggest fiscal squeeze in peace time’

• the shift to indirect tax was seen as less progressive, hit poorer people harder (1979 VAT increases 8% to 15%)

• in real terms government public spending wasn’t cut due to benefits for high unemployment

Privatisation aims

• driven by Thatcher’s anti-socialist thinking, private sector seen as more dynamic and competition would encourage innovation

• the sales to private companies would give the gov more income (if short term)

• ‘rolling back the frontiers of the state’

Privatisation successes

• 1984 British telecom successfully sold, stats drive for privatisation

• 1986 - British Gas sale accompanied by ‘tell Sid’ add campaigns

• maximised the no. of individuals buying stocks and shares 1979-90 3million to 9 million

• privatised 16 major companies

Privatisation failures

• critics: privatised companies sold cheaply to ensure all shares were bought up

• made life insecure for many employees - no longer relied on long-term job security or reliable pension provisions

• signalled the end of Post war consensus about economic management

Deregulation aims

• gov. wanted to encourage entrepreneurship and wealth creation through removing business regulation ‘the red tape’

• contributes to competition and innovation in the free market, would bring in foreign companies and create jobs

• as little gov intervention as possible

Deregulation successes

• Loan Guarantee Scheme - easier for small business to borrow money

• Enterprise allowance scheme 1983 - encouraged unemployed to start their own business, £40 a week for up to a year

• Financial deregulation - City of London freed from Bank of England controls

• Oct 1986 Lawson boom - deregulated the London Stock Exchange - London becomes a major financial global player, replaced the old boys network with free competition (yuppie culture) - financial services became UK’s most important export

Deregulation failures

• productivity did not increase much - 2.2% GDP growth rate in the 80s, no better than the 70s

• underperformed globally - Japan’s rate was 4.1% and USA was 2.8%

• British GDP hit - 4% in 1980

• finance centre in London increased the regional divide

realignment aims

• old labour intensive industries no longer successful, facing foreign competition

• Thatcher embraced the global shift of Britain’s economy away from goods and manufacturing towards services eg, finance

• the global trend was not her own doing

Realignment successes

• Britain’s financial industry was booming

• did successfully become a service-based economy

• Canary Wharf finance district becomes key

• Under Hesseltine, some money went into regenerating he docklands in Liverpool

Realignment failures

• lead to high unemployment in the industrial North - urban decay found in the Scarman report

• riots in Brixton, Birmingham, Liverpool, Leeds in 1981

• ‘Sus laws’ - allowed police to target ethnic minorities in the riots

• Geoffrey Howe suggest Liverpool should go into ‘managed decline’ - sparks outrage

Employment aims

• Thatcher’s gov. saw high inflation as its main threat - maintaining high employment was not a primary aim

• British industry had to be prepared to be more competitive, is this led to a rise in unemployment, it must be accepted

• high employment would’ve helped lower gov spending on welfare - ideal

Employment successes

• Youth Employment schemes - employers received a subsidy to take young people on

• employer National Insurance rates were reduced for lower paying jobs

• unemployment fell below 3 million in 1987 - indicates some progress by the end of the decade

• areas in the South and Southeast not hit as badly by unemployment

Employment failures

• ‘unindustrialisation of Britain’ - see production cut by 30%, manufacturing output falls by 15% in 2 years

• 1983 - unemployment is over 3 million, highest in post-war period

• areas dependent on industry like Liverpool had dates as high as 25%

• period of high interest rates - businesses do not want to borrow money

Gas Act 1986

• British Gas is privatised by the government, shares launched into the London Stock Market

Impact of British Gas privatisation

• successful ad campaign ‘Tell Sid’ encouraged everyday people to buy shares in the company

• about 1.5 million people bought shares in it - investors who held their stake would make x12 the original price

• the company became valued at 9 billion due to high investment]at the time, highest equity raise in history

British Gas privatisation criticism

• at the time British Gas were the only organisation that could supply gas to anyone in the country - the population had to accept prices and were at the mercy of market forces

Inflation initially falls under Thatcher

• 1979 - 16.5%

• 1986 - 3% (low - aims achieved)

Inflation rises at the end of her office

1986 - 3%

1990 - 10.5 % (suggests the deflationary measures were not sustainable)

Lowest GDP annual percentage growth rate

1980 = -4%

partially due to movement to a service-based economy - fall in productivity as Britain is not exporting as many goods

highest GDP annual growth rate

1985 = 4.8%

1986 = 4.7%

suggest productivity was growing sustainably, stays above 4% for three years

Britain’s annual percentage growth rate 1980-88

2.2% - positive, it is growing, higher than Germany and France suggesting it was fairly average in comparison to others

Other countries’ annual growth rate 1980-88

Japan - 4.1%, USA 2.8% - Britain was not improving as drastically as these

1986 unemployment in the North/northeast

19.1%

1986 unemployment rates in the South/southeast

10.1%

Evidence of regional North/South divide

• Northern unemployment rates encroaching close to 20%

• Thatcher seen as a hate figure in the North, has to appeal to cabinet ministers eg, Hesseltine, t appeal to Northern areas

• 1981 - riots in Leeds, Liverpool, Manchester due to social unrest

• MEANWHILE - new economic activities in London and surrounding areas (finance, Lawson boom) made them more prosperous areas

NHS spending under Thatcher

increases and remains high - welfare is needed due to high unemployment, not funding such a popular service would be political suicide

North Sea Oil

• critical for Thatcher’s success, profitable source of income for the gov