How effective were Margaret Thatcher's economic policies?

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Elena Kekkos

How effective were Margaret Thatcher’s economic policies?

On coming to power in 1979, with a majority of 70 and 43.9% of the vote, Thatcher was in prime position to implement her unique form of economic policies, which came to be known as Thatcherite.  Thatcherism had two elements to it:  it was an attempt to introduce historically different policies; and an attempt to replace the consensual and cooperative policy style of British government with a more centralised and directed way of conducting things.  The most important features within her economic policies were threefold.  The first involved an attempt to radically change the structure of ownership in the community (in the 1980s the government ‘privatised’ nearly half of what had been public owned in 1979).  Secondly, Thatcherism aimed to change the structure of rewards: it cut the tax bills of the very rich, while also reducing the value of many welfare benefits, especially those of the unemployed.  The theory behind this was that by making unemployment less attractive, the unemployed would be encouraged to take jobs with low wage rates. Lastly, Thatcherism withdrew subsides to many industries, compelling the closure of many concerns and the more efficient operation of the rest in the face of international competition.  How effective this change of policy was, and the impact of the policies themselves (tax reduction, privatisation and trade union reform) needs to be looked at with close analysis.

Earlier post-war conservative and labour governments had used macroeconomic policy to regulate aggregate demand and maintain employment:  when unemployment threatened to increase, they used Keynesian macroeconomic policies, a combination of lower interest rates and taxes and increased government expenditure to increase demand and employment.  However, when Thatcher came to power, the new conservative policy would be to use macroeconomic policies to control inflation:  Keynesian macroeconomic policy would be used in reverse.  Interest rates and taxes would be raised and government expenditure would be lowered to deflate demand and to reduce and hold down inflation. Nigel Lawson later encapsulated the new focus of macroeconomic policy and the statement:  ‘it is the conquest of inflation and not the pursuit of growth and employment which is…the objective of macroeconomic policy’.  This monetarists’ macroeconomic brief was conducted under Thatcher’s Chancellor Sir Geoffrey Howe from 1979 until 1983.

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Margaret Thatcher had to create economic policies very quickly when she came to office, as the yearly Budget was due; this explains why her policies were short-term.  For example, direct taxation, such as income tax was reduced which automatically favoured the electorate who had welcomed Thatcher into power.  However, although the cuts were for all sectors of society, it is perceived that the policy was much more in favour of the ‘big cats’ of society. Conversely, by autumn of 1979, the government faced a shortage of income because of the income tax reductions, and an increase in expenditure because ...

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