Deregulation, Taxation and Inflation Paper 1: Key Question: What impact did Thatcher’s government (1979 – 90) have on Britain 1979 – 97?

Lawson Boom and Bust In 1987, Thatcher and the conservatives won their third election. This gave Thatcher the confidence that her economic vision for Britain was working. From the mid 1980’s the economy started growing again, inflation remained low and unemployment began to decline. On average the economy grew at around 4 percent a year from 1985 to 1988 (this level of growth exceeded anything since 1960). Popular capitalism was also gaining more support, millions of people had applied to buy their own council flats and privatisation was becoming very popular. The late 1970s had been had era of pessimism. The late 1980’s had seen the emergence of a ‘loadsamoney’ culture and London had become know has yuppie central. Yuppies (Young upwardly-mobile professionals’) were associated with stock market trading, and according to popular stereotype, wore sharp suits, drunk champagne at lunch and used a super-sized gadget known as a mobile phone.‘loadsamoney’ yuppie central The stock market become fashionable: The Time, for example, launched an ongoing lottery- style game based on the stock market.

Lawson Boom and Bust By 1987 the economic atmosphere had been transformed in Britain. Thatcher’s first year had been dedicated to ending Britain’s supposed economic crisis, the mid 1980’s were about consolidating and sustaining the economic upswing. Chancellor Nigel Lawson attempted to keep the boom going with a series of measures designed to continue the curbing the state and setting the market free.  Deregulation  Controlling Inflation

Deregulation Thatcher was keen to remove rules and regulation that she believed stifled innovation and competitiveness. The first example of this was the removal of exchange controls in October 1979: before 1979, there was limits to how many pounds people could convert into foreign currency and spend aboard. The end of this restriction fuelled greater overseas investment (which returned profits to Britain), but also led to huge increase in consumer spending on foreign goods, which detrained wealth from Britain. The most significant example of deregulation was the ‘Big Bang’ of October 1986 under Nigel Lawson and the same year the ‘Lawson boom’ began. This relaxed rules on the ownership and trading operation of banks, resulting in massive growth in financial services. The City of London rapidly grew to become one of the major financial centres in the world as financial institutions took advantage of the more relaxed rules to offer risker financial products. This allowed people with lower incomes to burrow large sums of money. At the same time he decreased interest rates from 14% in 1985 to 7.5% in Therefore making burrowing cheaper.

Deregulation Lawson also deregulated London’s financial markets. The 1986 Financial Services Act made the trading of stocks and shares easier in an attempt to attract foreign investment. This change took place at the same time that the stock market began computer trading. Together these two measures were know as the ‘Big Bang’. The ‘Big Bang’ meant a great deal of government regulation on the financial industry was scrapped: this modernised the stock market and allowed banks to take more risks with their leading and investments. This had a number of effects on the private individuals:  First, unregulated finance led to the rise in private household debt, which stood at £16 billion in 1980 and increased to £47 billion in  Second, easier access to mortgages meant that mortgage debt rose from £43 billion to £235 billion.  Third, by 2003, personal debt, including mortages, stood at £1.3 trillion – by far the highest in Europe. While banks made huge profits, a 2003 Financial Services Authority estimated that six million families, around 20% of the total, faced problems with debt. The rise of credit cards also contributed to the problem.

Deregulation Answer the question below: What were the positive and negative effects of deregulation? Write a balanced argument and explain the most significant effects. You need to go beyond PEE format answers –you need try and judge the importance of the factors you are examining and in the conclusion identify how significant/influential/important it was – not just explain the overall effect it.

Make notes on Controlling Inflation, Crash and bust and The consequences of Thatcher’s Economic policy, (page 176, 177 and 178) Homework complete the Historical interpretation: Thatcher’s economic legacy on page 179. Read the two extracts and answer the questions 1 to 3.