Thatcherism and Economic Policies of Margaret Thatcher

Margaret Thatcher, known as the Iron Lady, was the first female prime minister of not only the United Kingdom, but also of a European country, as well as the most elected one of the 20th century. Her tenure was one of great economic, social, and political change, forever changing the way the U.K worked. Her political career began in 1959, when she won a seat in the House of Commons by winning the Conservative seat in Finchley (London).

She held numerous posts during her pre premiership years, including parliamentary secretary in the Ministry of Pensions and National Insurance (1961 to 1964), chief opposition spokesperson on education (1969-1970) and Secretary of State for education and science. She reached the height of her career when she was elected prime minister on May 4th’ 1979, being reelected in next two general elections. This essay will explore Thatcher’s premiership, with a particular analysis of three of her economic and social policies, and conclude that her tenure was one of success in some aspects, and failure in others.

The economy was an area where Thatcher carried out most reforms and introduced numerous policies, aiming to create a free market capitalist economy in the U.K. her economic polices include the introduction of monetarism, deregulation, privatisation, decrease in the power of trade unions, and decrease in taxes. One of her initial and most controversial economic polices was monetarism. Monetarism is the belief that the economy can be regulated by the control of the money supply, as suggest by Milton Friedman (Black, 2009). Thatcher aimed to pursue this policy to the highest degree. The theory was that a tight hold must be kept on the money supply via the Bank of England by maintaining high rates of interest, so that firms and individuals were forced to reduce borrowing. Management must therefore keep costs down by laying off workers and streamlining operations for greater efficiency.

There would be no government grants to prop up inefficient firms, so that only those that made themselves competitive would survive. Though it was believed to be drastic, it would become effective in the long term. (Lowe, 2009). With Howe as Chancellor of the Exchequer, Thatcher was able to make the first moves towards monetarism. Howe’s budget of June 1979 was designed to control inflation, which was running at 10% when the government took office. He reduced the standard rate of income tax from 33% to 30%, while the top rate was reduced from 83% to 60%. In addition, the tax on unearned incomes came down from its highest rate of 98% to 75%. This of course reduced government income. To make up that loss Howe increased the rate of VAT was almost doubled from 8% to 15% (Evans,1997). With purchasing power reduced as unemployment rose, inflation would be controlled and wage demands moderated accordingly. One advantage of monetarism was that the control it exercised was more impersonal than Heath’s wage restraint, and therefore there was less chance of a direct confrontation between government and unions.

A further advantage was that by 1983, the interest rate had fallen to 4.5%, and the government had therefore achieved its primary aim (Lowe, 2009). Many firms, which had slimmed down during the first burst of monetarism, became extremely efficient and increased their productivity and competitiveness, so they could rival the best in Europe. in fact, during the 1980s, productivity grew by over 4% a year. Income tax was reduced steadily over the eleven years, and living standards improved for most people (Black, 2009). Cuts in direct tax were popular, and helped provide Thatcherite Conservatism with both a value system and popularity. Lower tax rates released purchasing power (Sked ad Cook, 1993). Unfortunately, there were some drastic side effects. Unemployment had more than doubled, rising to 2.7 million (Evans, 1997). Most of the jobs to disappear included jobs in heavy industry and unionised industries. The industrialised areas of south wales, north England, and the central belt of Scotland was mass levels of unemployment (Dutton, Jenkins, and Kerridge, 2016). Hundreds of firms went bankrupt, as the high interest rates and tightly controlled money supply prevented people from borrowing. In 1981 alone, the economy shrank by 2%, and by the end of 1982 something like 25% of British manufacturing capacity had been destroyed, with production falling by 14% (Lowe, 2009).

The British economy suffered the worst depression for fifty years, partly because the pound was strong, and this made exports more expensive and encourages imports. There was also a deepening world recession which would in any case have affected Britain (Childs, 2012). The north suffered the worst of the deep recession and high unemployment of the early years; and it benefited least from the eventual boom of the late 1980s. The changes in taxation led to the wealthy paying less tax and the poorer paying more, while increasing the cost of living. However, the government believe that these issues would be short term, once inflation was beaten. But, inflation rose, so Howe was forced to raise interest rates- from 12% to 14% in June 1979 and to 17% in December. This made borrowing expensive, something that affects both individuals and businesses. In the meantime, public spending was going in the wrong direction- in part because of the climbing number of unemployment people, who had to be paid out-of-work benefits, whereas if had they been in work, they would have been paying tax. (Dutton, Jenkins, and Kerridge, 2016).

A key features of Thatcher’s economic policy was reduced government intervention and reliance on market forces to ensure efficiency, known as deregulation. This was a part of her campaign for popular capitalism. One of the primary ways this was achieved was through privatisation. Privatisation had three main aspects including denationalisation of publicly owned assets, sub-contracting of government-financed goods and services and reducing or removing state supervision or monopoly in area such as transport regulation, telecommunication licenses and the like (Evans, 1997). During the Thatcherite governments as well as John Major’s tenure, government owned shares were sold to the public. Companies which were privatised include British Petroleum, British Telecom, British Rail, and British Gas (Dutton, Jenkins, and Kerridge, 2016).

The policy of privatisation was associated with various benefits. Shares in going concerns made available at artificially low prices were easy to sell. Important breaches had also been made in the argument that a civilised society should keep those utilities on which all depended in public hands. The very notion of public ownership became deeply unfashionable. Privatisation offered quick and easy rewards. Public ownership by contrast seemed outdated (Evans, 1997) The number of shareholders rose from 3 million in 1979 to 11 million in 1990. The overall revenue produced through the selling of these shares, which was around £19 billion, aided the government in carrying out tax cuts. On another level, however, privatisation was less successful. Publically owned monopolies were replaced not by vigorous competition from which consumers benefited in the form of efficient production of high-quality goods and low prices, but privately owned monopolies, which all too often offered the consumer no better service than before (Evans, 1997).

For example, the privatisation of British Rail led to a highly confused situation where the government continued to subsidise private firms that operate the trains. Spending on trains has doubled since 1994 while most commuters would agree that the service has not improved. Employment was also effected, with publicly owned corporations employed fewer than half as many people (Dutton, Jenkins, and Kerridge, 2016). Many small shareholders kept their stocks long enough to realize quick profits and then sold them back again to the large institutions. In 1979 38% of shares were owned by individuals, by 1990 this figure was 20%. The long-term financial beneficiaries of privatisation were the pension-fund managers. The interest of most ordinary citizens in stocks and shares, if sustained at all, was at one removed (Childs, 2012).

The Housing Act of 1980, sitting council tenants were given the right to buy their houses and flats. This was a manifesto pledge in 1979 to establish the UK as a “property-owning democracy”. Property was sold at discounts of up to 50% of the market price in certain cases, reflecting the years of rent paid. The results were dramatic and between 1979 and 1983 about half a million houses and flats were sold. By 1983 £1.87 billion had been raised from the sales (Sked and Cook,1993). The Housing Act has been seen to be one of the Conservative government's most popular policies. The sale of council houses brought house ownership in Britain up from 44% to about 60% of the population, the highest in western Europe. This is seen as a benefit as home ownership arguably leads to a more stable society (Dutton, Jenkins, and Kerridge, 2016).

It also provides people with finical security with a tangible asset to fall back on. Home ownership was regarded as the best form of housing tenure by approximately 85% of the population. The discounts greatly aided those who could not otherwise afford to purchase property, aiding them in making investments for the future. This decreased the dependency culture that Thatcherite government was greatly opposed to. Such an increase in home ownership has also helped to break down class barriers. Owning your own home is no longer the preserve of the middle and upper classes (Savage, 1990). While this policy did have various benefits, it simultaneously created problems. Social housing exists to help people who cannot afford to buy and who find commercial rents leave them poor.

Selling council houses left fewer properties for these people. The reduced number of council house and flats left more people homeless (Dutton, Jenkins, and Kerridge, 2016). The better housing in wealthier sold, while the public sectors increasing became ‘sink housing’, rented by those who suffered relative deprivation. Thus, in Newcastle, there were above average sales of council houses in the westerns and northern estates, and below average sales of those along the river and in the east. Other cities had similar trends (Black, 2009). The right to buy has made a huge dent in the supply of social housing, decreasing the number of new affordable houses built each year. When it was introduced there were 5.5 million affordable homes in England, now there are only 4.2 million.

The accumulative effect of this net loss of affordable housing is now being felt with a housing crisis in the south-east and record numbers of people in temporary housing.While it has been acknowledged that the act decreased class differences, critics state that the success of the policy has further stigmatised and excluded those households that cannot afford to buy and increased the gap between rich and poor (Childs, 2012).