The Economic Revolution
- Thatcher’s revolution began with the early budgets
- His first budget was introduced in June 1979 and included the following changes;
- Interest rates were raised to 14%.
- The standard rate of income tax was cut from 33% to 30%, and the highest rate from 83% to 60%. The idea was to incentivise the population by rewarding hard work and success.
- To balance the lost income tax revenue, the government raised the rate of of VAT and other indirect taxes that all consumers had to pay. VAT went from 8% to 15%. The impact of these tax changes meant that it was now consumption that was being taxed, not effort. (This would penalise the less well off.)
- These changes had a profound effect on the already weak economy
- The increased prices of goods due to higher levels of VAT pushed up inflation to 21.9% by the end of 1980.
- Cuts to government spending and support for nationalised companies was also cut, but not as far as Thatcher had hoped was possible.
- Other free market changes introduced included the abolition of the Price and Income Commission and ending controls on the movement and value of currency.
- The value of the pound increased, which harmed exports, adding to unemployment.
- Ironically, the government had to borrow more money to pay for the increasing unemployment benefits due to with a shrinking tax revenues.
, Howe’s second budget in the summer of 1980
- promised more of the same, cutting a further…