Economic Impact of Margaret Thatcher

By Tejvan Pettinger on January 13, 2011 in uk economy A look at the economic and social impact of Mrs Thatchers economic policies.

Summary of the Thatcher Economics

Belief in desirability of free markets over government intervention. E.g. pursuing policies of privatisation and deregulation. Pursuit of supply side policies to increase efficiency and productivity Unemployment in 1980s, higher than any time since Great Depression. Reduced power of trades unions and increased labour market flexibility. Financial deregulation of 1980s, e.g. building societies becoming profit making banks (later would be involved in credit crunch of 2008) Growth in income and wealth inequality. Targeting money supply and Monetarist policies caused recession of 1981, but did reduce inflation. Rapid economic boom in late 1980s, especially in south of England and in the service / financial sector. But, the boom was unsustainable and caused recession of 1991.

The Economic Impact of Margaret Thatcher

Recession of 1981
When Mrs Thatcher came to power, she sought to

Reduce inflation Reduce budget deficit. Increase efficiency of economy Reduce power of Trades Unions

On coming to power, the Conservatives followed a policy of Monetarism seeking to control the Money Supply in order to control inflation. This involved higher interest rates, and higher taxes. This did reduce inflation, but at the cost of a deep recession and unemployment rising to over 3 million. UK Unemployment in 1980s

Unemployment never really recovered from 1981 recession. More details on this period at:

The Economy under Mrs Thatcher 1979-84

Lawson Boom of the 1980s

After 1985, the UK economy grew very rapidly. Economic growth reached 4-5% a year. This was well above the UKs long run trend rate. The Conservatives felt there had been a supply side miracle. But, inflation increased to 10%. And in 1990, the boom came to an end, leading to another recession of 1991-92 See more details on

The Lawson boom of the 1980s The recession of 1991 Download growth comparisons of UK and other European countries during Thatcher Years

Other Economic Theories and Beliefs of Mrs Thatcher

Privatisation Under Mrs Thatcher many nationalised industries were sold to the private sector. Her belief was that the private sector was more efficient because the private sector have a profit motive and pursue

greater efficiency than government owned industries. See: advantages and problems of privatisation Tax Cuts for High Earners. During the 1980s, tax rates for high income earners was reduced. Mrs Thatcher felt, high taxes discouraged incentives to work. However, as a consequence of tax cuts and growth in finance sector, inequality in UK widened. An acceptance of Inequality. Mrs Thatcher didnt quite break up the Welfare state, but increasingly there was greater means-testing. See: inequality in UK Home Ownership Mrs Thatcher encouraged a belief in home-ownership. Many Council houses were bought be tenants. It led to a rise in homeownership rates.

source: CML pdf

Poll Tax. A very controversial tax, which arguably led to Mrs Thatchers downfall. Poll tax Reduced Power of Trades Unions. The Miners Strike of 1984, led to a marked decline in the power of organised labour. Time lost to strikes fell rapidly.

Success of Thatcher Years

Privatisation did lead to efficiency gains for some industries. Helping lead to lower prices for telecoms, airlines and at times electricity. Deregulation of key industries led to greater competition within industries which were formerly monopolies. This competition helped create incentives to be more efficient and cut costs. Reduction in Power of Organised Labour. In the 1970s, UK industry was paralysed by strikes and industrial confrontation. During the 1980s, industrial relations improved. Growth of new service sector and financial sector industries

Inefficient firms no longer received state support, but had to be competitive and go out of business. Although it was a painful process, arguably it was necessary for long-term growth Rise in home-ownership helped more people feel they had a stake in economy.

Failures of Thatcher Years

The 1980s saw a return of mass unemployment levels not seen since the 1930s. Two recessions were caused by deliberate policies. Although inflation needed controlling in 1980, arguably the government deflated economy too much chasing money supply targets which were unreliable. The cost was unemployment and social disorder. Growth in north south divide and regional inequality. Unemployment particularly affected former industrial areas; the government were slow to help deal with problems of structural unemployment. The Lawson boom was a missed opportunity. The government deliberately created a boom and bust which caused an unnecessary and painful recession of 1991. The rise in home-ownership was good for those who could buy, but has increased wealth inequality in the UK. The supply of council homes is limited because many have been sold off. Large rise in inequality during the 1980s Financial deregulation of the 1980s laid framework for credit bubble of 2000s and subsequent credit crisis. For example, privatized building societies like Northern Rock, and Bradford & Bingley pursued risky growth strategies which eventually needed government bailouts. Thatcher reduced the power of trades unions, but arguably at the cost of alienating many working class because of the fierce nature of her conflict. Privatisation involved selling off state assets at an undervalued price. Many who could afford to buy shares, saw immediate gains. This was politically popular, but another missed opportunity to use nations resources to invest in future. Thatcher made little attempt to deal with environmental issues during a decade of increased concerns over global warming, pollution and environmental degradation.