Thatcher also believed in ‘rolling back the state’ and cutting government spending. This was following the ideology of economist Freidrich Hayek. There were several methods that she persued which included privatisation of the national industries. Companies such as British Petroleum, British Telecoms, and Cable & Wireless were privatised, and this not only reduced government intervention, but also raised large amounts of capital for spending in other areas. By 1987, there had been 14 major companies that were privatised. This, like North Sea Oil was used to fund the cut in taxes. Macmillan viewed privatising these industries as akin to ‘selling the family silver’ and was dead set against doing so. In 1980 public spending as a percentage of GDP was 43.5%, and this dropped by 1% by 1995. Many right and far right wing conservatives criticise Thatcher for not rolling back the state enough, 1% over 15 years was such a small amount that they claim that she didn’t actually reduce the size of the state, but reduced spending behind economic growth. This meant that government spending appeared to be shrinking, but in fact the economy was expanding. The controversy from the left wing was that she should not be decreasing the role of the state, but increasing it, and the figures appeared to show that she was siding with neither the left nor the right wing.
The monetary policy that Thatcher persued was also extremely controversial especially amongst the low income earners. She cut all rates of income tax from 33% to 25% and 95% to 45%, and increased VAT from 8% to 15% This meant that the rich effectively got richer, and the poor remained the same because they had to spend more of a percent of their income. This started to show an increasing division between the rich and the poor and the North South divide. These tax cuts caused a big increase in consumer spending, which in turn fuelled inflation, and by September 1990, inflation hit 10%. In order to counter this, interest rates went up to 15% in October 1989, a monetary policy which was unpopular with mortgage holders.
I think that overall, Thatcher’s economic policies definitely improved the country’s personification as the ‘sick man of Europe.’ She wrestled down inflation because she knew what it felt like to be on the receiving end of rising prices, and she ran the country very much like a household should be run. I think that the monetary policy she pursued was necessary, because at the time, it was the high earners that were working in the financial services district (Canada water). However the move affected many lower income families, who weren’t seeing a rise in their personal wealth, even with the cuts in income tax. I think that the rolling back of the state was a complete failure because it she did not pursue what her original ideology was. As a result, she was actually reverting back to a “one nation conservative” that she initially set out to overcome. I think that overall combined, her policies were actually quite successful
PLAN
Thatcher
-Poll tax 1989-1990
- Supply side policies – nationalising
- cutting the government subsidy to the miners
- unemployment was at 3.3 million by 1982
- Monetarism cutting direct taxes, and increasing vat. It hit the lowest earners in society harder,
by
mindcrypt (student)
