The Making of Modern Britain 14- Thatcher's economic policies and their impact

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What was monetarism?
Economic theory by Milton Friedman- argued the best way for govts to control inflation was by restraint of govt spending and borrowing.
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What did the first budget of 1979 set out to do?
To reduce govt spending according monetarist principles.
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By 1980, what had the economy done?
PLunged into a serious recession. Inflation was above 15% and sharply rising unemployment, going above 2 million.
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What else came back?
Stagflation.
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REMINDER- what is stagflation?
the usual combination of inflation and stagnant economic growth, which produces unemployment.
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What saved the country from being in a more serious situation and a serious run on the pound?
the flow of North Sea oil and gas. Saved Britain from a balance of payments crisis.
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What had many people expected the ovt to do after this ?
Reverse it's policy.
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What did the government do instead?
1981 budget applied further monetarist policies.
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Name such things that occured during this budget?
Govt borrowing went down, grants to local councils were cut, and benefist were frozen.
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What did Howe call this budget?
'The most unpopular budget in history'.
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But what was the other reason why Thatcherites wanted to cut public spending?
believed that individuals spent their money better than the govt did.
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What did this lead a shfit away from?
Direct taxation, such as income tax to indirect taxation such as VAT.
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Therefore, what did Geoffrey Howe redue income tax from and to?
33% to 30%.
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But how much did VAT go up from?
8% to 15% in 1979.
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Taxes on what went up in every single budget from 1979 to 1987?
Petrol, cigarettes and alcohol.
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What did supporters argue about reducing taxation?
it would incentivise wealth creation by allowing people to keep more of what they earned.
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What did critics argue about this?
Transferring the burden onto the indirect taxation system was less progressive and hit poorer people harder.
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What did cutting public spending lead to?
A series of clashes between Tory central govt and many Labour-controlled councils.
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What did the Thatcher govt see the left-wing councils as?
Enemies, but in terms of ideology and blamed them for wasting resources.
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Name one of the fiercest battles.
Greater London Coucil leader Ken Livingstone (LW) and the government.
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What was Ken Livingstone demonised as?
Thatcher said his policies on education and public transport were provocations. Demonsied him as the 'loony left'.
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What were the 'loony left'?
Given by right-wing press to left wing councils that promoted liberal and politically correct policies. e.g. multiculturalism and gay rights.
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What did the Conservatives do to control the overspending of the Labour local authorities?
Introduced rate capping. Limited amount of money that the council was allowed to raise in local taxation.
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What councils tried to rebel against this?
Liverpool and Sheffield, in 1985. They refused to set budgets.
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Why did they have to back down?
As they were threatened by bankruptcy.
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What did the Local Authority Act of 1986 abolish?
the big metropolitan local authorities that were set up under Heath. The powers of the government were greatly increased at the expense of local govt.
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What was the short term gain but long term consequence?
It was a clear victory against the 'loony left', but it damaged local accountability.
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Why could Thatcher never cut public spending in real terms?
Because spending on social security went up due to high levels of unemployment.
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Privatisation and deregulation
......
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What was the final nail in the coffin in terms of monetarism?
Lawson abandoned spending targets in 1986. But this didn't mean a return to pre-Thatcherite economics.
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What was there a continued empathsis on?
Supply side economics rather than demand-side economics.
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What did supply side economics focus on?
Privatisation and deregulation.
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What was privatisation also known as?
Denationalisation- the selling off of publicly owned industries to the private sector.
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Name examples of this in Thatcher's first term?
BP was privatised in Oct 1979, BA was privatised in Feb 1981.
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When did privatisation gain full momentum?
After the sale of BT in Dec 1984.
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What was so special about the sale of British Gas in Dec 1986?
It was the biggest share offer in history, and accompanied by a high-profile advertising campaign seeking to maximise purchase of shares by ordinary people.
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Between 1979 and 1990, what did the number of individuals owning stocks and shares go up to?
From 3 million to 9 million.
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What ideology was privatisation driven by?
An anti-socialist ideology. Links with Thatcherism which believed that individuals were better at spending money than the govt.
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What would businesses do under this?
They would compete with others in the marketplace, encouraging improvements and innovation.
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How would outsourcing become involved?
It would become increasingly widespread e.g. in refuse collection.
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What is outsourcing?
Private companies took on contracts to deliver goods and services previously provided for by the State.
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What did privatisation bring for the govt?
Lots of revenue.
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What did critics argue about privatisation?
Privatised enterprises were sold off cheaply in order to ensure all shares were taken up.
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Examples of what could have happened for employees?
Some lost jobs as there were cut backs on staff, and some found they could no longer rely on job security and on a reliable state pension.
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What did radical Thatcherites want to push forward with?
Further privatisation, incl the coal industry and railways. Drew up plans to privatise parts of the NHS.
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Deregulation- meaning?
the loosening of controls on banks and financial markets- leads to a massive boom in investment banking and financial speculation.
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What did this mean for the govt?
That they would interfere as little as possible.
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What did it make easier to do?
For businesses to trade and grow, therefore, encouraging entrepreneurship and wealth creation.
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What other measures did the government introduce?
Ones to encourage start-up companies.
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Give an example of this. (LGS)
the Loan Guarantee Scheme- made it easier for small businesses to borrow money.
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Give another example of this. (EAS)
Enterprise Allowance Scheme- encouraged the unemployed to start up their busineses by giving them £40 a week for up to a year to get their business off the ground.
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What did financial deregulation do for the City of London?
Freed them from the tight controls of the Bank of England.
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27th Oct 1986- what happened?
the 'Big Bang'- deregulated the stock exchange- opened way for computer screening trading, replacing the 'old boys network' with free competition.
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What did this mean for foreign banks?
They could now operate as stock brokers.
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What did this make London?
The new wolrd financial centre as it blew away old tradition.
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What was the 'yuppie'?
Short for 'young urban proffesional'- people working in the city with a large disposable income. Spent on consumer goods such as the first mobile phones and cars.
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What did the yuppiue become?
An iconic image of the 80s. City became a place where bigger risks were taken and bigger fortunes could be made.
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What did financial services become?
One of the UK's most important export industries.
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What did the economy mean for the Thatcher premiership?
No doubt the economy grew under Thatcher. Helped to boost her premiership even further.
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However, what happened to productivity?
Did not increase by much . GDP only 2.2% growth during 80s was no better than the 70s.
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What countries were above Britain in the average annual growth rates?
Japan with 4.1% average annual growth, the US with 2.8%.
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What did Thatcherites believe was a threat to the economy?
Inflation. Followed New Right and monetarist prinicples.
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What did they blame for past economic problems?
Keynsian economic policies. Had allowed inflation to rise.
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What conclusion did they come to?
If they could control inflation then the economy would grow and be more successful.
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Controlling inflation
....
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What were used as a mechanism to control inflation?
Interest rates.
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What were they raised to 1979?
17%.
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What was the downside of this?
HIger interest rates meant it was made more expensive for businesses to borrow.
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What else did they do?
Increased the value of the pound which made it difficult for businesses to export.
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So what did the high interest rates of the early 80s mean?
It led to a decline in both output and demand.
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What did this lead to?
A recession with many businesses going bankrupt.- led to high unemployment.
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What else made the recession worse?
Initially inflation went up. Peaked at 22% in May 1980.
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However, inflation did fall. What do?
2.5% in 1986.
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But, what happened in the later 80s?
Attempts to control inflation led to another recession. Eventual entry to the European Exchange Rate Mechanism in 1990.
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by 1990, what had inflation reached?
Double figures again. 10.9% in 1990.
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Unemployment
...
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Why wasn't unemployment seen as a priority aim?
As the Thatcherite govt saw inflation as the key economic threat.
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What happened as a result of monetarist principles?
The impact on industry was drastic. Many industrial plants closed down permanantly,
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Where were the worst hit areas?
The Midlands, the North, central Scotland and South Wales.
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What did some claim was happening to Britain?
the 'deindustrialisation of Britain'.
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What did manufactoring output fall by?
15% in 2 years. West Midlands- fell by a quarter. Steel production alone fell by 30%.
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By 1983, what did unemployment rise to?
Over 3 million (highest in the post-war period) 13.5% of the total workforce .
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What policies did the govt introduce to combat this?
Youth employment schemes- employers received a subsidy to take young people on.
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When did the unemployment rate fall below 3 million?
Not until after 1987.
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What did the govt stick to?
It's idea that inflation was more important than unemployment.
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Give an example of an area where unemployment was seriously bad.
Liverpool- unemployment rate at 25%- remained in double figures throguhtout the 80s.
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What did economic realignment mean for the men?
They were hit harder than women in many homes. Women had to become the main breadwinners.
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Economic re-alignment
.....
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What did old, labour-intensive industries face challenges from?
Foreign competition and from technological innovation.
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What was the British economy moving towards?
Services rather than manufactoring. Thatcher embraced this change.
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However, what was the large negative of this?
In some areas, manufactoring was all some people knew e.g. coal mines, shipyards. They therefore faced painful adjustments.
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What did this mean for the working class and communities?
The foundations that they were living on were crumbling.
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What did this sharpen?
The north/south divide. Old traditional industries were based in areas such as Midlands, the NE etc.
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What could the economic realignment also be seen as?
the urban decay of many inner city areas Increased problems with ill health and depression, as well as alcohol and drugs.
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1981- what did Howe advised Thatcher about?
Cities such as Liverpool could be left to 'managed decline'.
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1981- series of riots between April and July, where?
Brixton. Birmingham, Toxeth.
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What was the Scarmen Report 1981?
Commissioned to examine the causes of the riots in 1981. Identified poverty and race as key componants.
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What exacerbated the riots?
Areas where youbg Black and Asian people felt the 'sus law' meant the police unfairly targeted them.
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What was the sus law?
Gave police officers permission to stop and search suspected persons if they thought they had committed a crime. Black people and ethnic minorities felt like the police were unfairly targetted them.
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Despite the Scarmen report and changes to policing, waht were there?
Further riots in 1985.
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But what did economic realignment lead to positively?
Investment and regeneration in some areas.
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Other cards in this set

Card 2

Front

What did the first budget of 1979 set out to do?

Back

To reduce govt spending according monetarist principles.

Card 3

Front

By 1980, what had the economy done?

Back

Preview of the front of card 3

Card 4

Front

What else came back?

Back

Preview of the front of card 4

Card 5

Front

REMINDER- what is stagflation?

Back

Preview of the front of card 5
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