Supply side economics in the UK

In 1979, the election of Mrs Thatcher’s Conservative party led to the introduction of new supply-side policies, which challenged the post-war consensus and tried to implement free-market reforms into the UK.

Intellectual support for supply-side economics

Mrs Thatcher was impressed with right-wing intellectuals such as Milton Friedman and F. Hayek. They were critical of social democracy and government intervention, arguing that free-markets were nearly always more efficient and productive than state-intervention.

The problems of the 1970s created renewed interest in alternative solutions, as the post-war consensus seemed to break-down against a backdrop of high inflation, rising unemployment, industrial unrest and a declining performance of the UK economy.

Supply-side reforms in the UK

  1. Financial deregulation
  2. Privatisation
  3. Deregulation
  4. Competitive Tendering
  5. Income tax cuts
  6. Reduced power of trade unions.
  7. Laissez-faire attitude to industry.

Financial deregulation

In the 1980s, building societies were deregulated and allowed to become profit-making banks. There was also a deregulation of rules on liquidity ratios and. This led to a growth in financial instruments, such as derivatives and credit default swps.


A flagship policy of the Conservative party in the 1980s. Privatisation involved selling off state-owned assets to the private sector. The aim was to create a ‘property-owning democracy’ raise revenue and increase efficiency in these industries. It included some of the biggest names in British industry, such as BP, BT, British Airways, plus the major utilities, such as gas, electricity and water. Privatisation continued into the 1990s with Royal Mail, British Rail. See – privatisation


This involved making state-owned monopolies face up to competition. For example, Royal Mail used to have a monopoly on parcels and letter delivery. This changed with private firms entering the logistics business. It also changed industries like telephones and electricity, which saw more competition.

Competitive Tendering

For public services which were natural monopolies, the government opened up public services, such as refuse collection to competitive tendering. This meant private firms could bid for the right to run a service for a particular time period. This system of franchises was also used for the privatised railways.

Reduced power of trade unions

  • Reduced power of trades unions. The Conservative party made it harder for unions to strike. This contributed to the fact Trade unions in the UK became less powerful than in the 70s. This is partly due to Thatcher reforms, but also long-term structural economic change reducing the power of unions.

Income tax cuts

Under the Conservatives, the top rate of income tax was cut from 83% to 40%. The argument was that it would encourage greater incentives to work and increase labour productivity. It also contributed to a rise in inequality.

Laissez-faire attitude to industry/unemployment

Mrs Thatcher was more reluctant to offer state support to declining industries, such as coal and steel. She supported the philosophy of laissez-faire. There was also a similar attitude to the rise in unemployment in 1981. 365 economists wrote a letter to the Times criticising the government’s policy towards the economy, but Mrs Thatcher kept her course, arguing it was more important to control the money supply.

The UK has used various supply-side policies to try and reduce unemployment. For a general overview of supply side policies in the UK


See also:

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