In recent years, the British Banking system has become highly concentrated due to the wave of mergers following the credit crunch. Top 5 British Owned banks Bank Market value (£bn) As of October 2013 Assets (£bn) As of 31 March 2017 1. HSBC 126 1,936 2. Lloyds Banking Group (Bank of Scotland/Halifax) 53.5 817 3. …
Reducing the power of trades unions and increased labour market flexibility.
Financial deregulation, e.g. building societies becoming profit-making banks.
Reducing higher rates of marginal income tax to increase incentives to work.
Ending state subsidies for major manufacturing companies.
Encouraging home ownership and share ownership.
Targeting money supply and monetarist policies to reduce inflation of late 1979. Monetarism was effectively abandoned by 1984.
Joining EU Single Market in 1988
The Economic Impact of Margaret Thatcher
When Mrs Thatcher came to power, she sought to
Reduce inflation – running at around 14% in 1979 (after periods of 20% plus in the late 1970s)
Reduce budget deficit.
Increase efficiency of the economy
Reduce the 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 to 5% by 1983, but at the cost of a deep recession and unemployment rising to over 3 million.
In 1981, 365 economists signed a letter to the Times newspaper arguing the government should reverse its economic policy and seek an end to the recession. This caused Mrs Thatcher to make her famous speech to the Conservative party conference of 1981.
“To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady’s not for turning! (BBC)
It was great politics, but the economic cost was a significant decline in GDP and unemployment staying at nearly 3 million until the mid-1980s.
In the 1970s, days lost to trade union strikes were at all-time highs. It was feared that poor industrial relations were a key factor in holding back industry. Thatcher was determined to reduce the power of trades unions and end industrial disputes from costing British industry.
Trade union membership fell in the 1980s, forever changing British unions.
There is no doubt that industrial disputes were a real problem in the 1970s (though it should be remembered there are always two sides to industrial disputes – not just unions). Apart from the coal mine strike of 1984, days lost to strikes fell significantly in the 1980s, and there have been improved industrial relations.
To some extent Mrs Thatcher can claim some success, e.g. ending the right to secondary picketing, ending closed shops, compulsory ballots. But, also, the decline in trade union power was also caused by other factors, such as the decline in British manufacturing, British heavy industry and the rise in unemployment.
An iconic moment of Mrs Thatcher’s early policies was the Miners strike of 1984. She successful outmanoeuvred the miners and fundamentally weakened the NUM – no more would the mining unions be able to bring down a government like in the 1970s. The strike was bitter, leaving lasting scars, and miners see the decline of the industry as evidence that their fears over pit closures were true. But, the mining industry had been declining since the 1920s. Even in 1945, half a million people worked in coal mines. Today, the figure is less than 10,000 and is being replaced by cheap imports and other forms of electricity. (see: decline of coal mines) It is hard to justify, given the environmental cost of coal, that a government should have subsidised a declining industry.
UK Unemployment in the 1980s
Unemployment rose sharply at the start of the 1980s, due to deflationary monetary and fiscal policy. The recession of 1981 and decline of heavy industry also caused a rise in structural unemployment – even in the boom years of the mid-1980s, the unemployment rate remained high. Even in the late 1980s, unemployment was over 2 million. A significant factor was the structural and geographical unemployment caused by industrial decline.
After 1985, the UK economy grew very rapidly. Economic growth reached 4-5% a year. This was well above the UK’s long-run trend rate. The Conservatives felt there had been a supply side miracle. But, inflation increased to 9%. And in 1990, the boom came to an end, leading to another recession of 1991-92.
From 1985, the UK economic boom and growth in consumer spending cause a deterioration in the current account deficit. In the Lawson boom, the deficit reached 5% of GDP.
A key feature of Thatcher economics was the implementation of supply-side policies aimed at increasing the efficiency of the economy. These policies included:
Reducing the power of trades unions
Privatisation of state-owned assets from BP and BT to gas, water and electricity.
Deregulation of monopolies, such as gas and electricity
Deregulation of the financial sector, e.g. enabling building societies to become profit-making banks.
A key philosophy of Mrs Thatcher was the idea of a ‘home owning democracy’. During the 1980s, homeownership rates rose. In particular, the policy of selling off council homes to residents helped to increase homeownership rates. It is worth noting that homeownership rates had been rising since the late 1960s. In the 1970s, we see a similar trend in house prices to the 1980s. (1970s housing market) Also in recent years, the percentage of home ownership rates has fallen, due to house prices becoming unaffordable for many.
Home Ownership – Mrs Thatcher encouraged a belief in home-ownership. Many Council houses were bought by tenants. It led to a rise in home-ownership rates.
House prices in the late 1980s boomed, with record house price inflation, especially in the south-east. This created a powerful feel-good effect and contributed to the Lawson boom of the late 1980s. But, the growth in house prices was also unsustainable and prices fell after 1990.
Another feature of the 1980s housing market was a slowdown in house-building compared to the previous decades; this contributed to housing shortages in 1990s and 2000s.
What do we mean by balanced economic growth? Also, is it important for an economy to promote a balanced approach to growth? A balanced economy suggests that economic growth is sustainable in the long-term, and the economy is also growing across different sectors – and not focused on one particular industry or area. A balanced …
Readers Question: What do you understand by the terms ‘monetary policy’ and ‘fiscal policy’? Explain with reference to a country of your choice:- a) How these policies have been used by the government to try to achieve its objectives Definition – monetary and fiscal policy Monetary policy is managed by the Bank of England. They have …
The UK population is projected to increase by 9.7 million over the next 25 years from an estimated 64.6 million in mid-2014 to 74.3 million in mid-2039. (ONS). Approx. 50% of the population increase is expected due to net migration.
This is a look at the economic and social impact of a rise in the population.
The UK is bucking the trend of many Western economies, such as Italy, France and Japan – who are seeing low birth rates, an ageing population and declining populations.
The growth of the UK population raises many issues, some positive and some negative. From an economic perspective, the population growth is generally good news. The growing population will increase the productive capacity of the economy, and help the UK avoid a demographic time bomb through improving tax revenues. However, a growing population will exacerbate existing problems, such as the long-standing housing crisis and a shortage of supply. It will also put pressure on existing infrastructure and the transport network. To deal with the rising population and congestion, we are likely to see increased building on greenbelt land and a change in the UK’s landscape.
On the one hand, population growth will help the UK economy become one of the largest in the EU, but as a consequence, we will have to deal with increased congestion and increased demand on local infrastructure.
The UK is already struggling to meet existing demand for housing. A rising population will put even more pressure on housing; also, the rise in the number of households is greater than the rise in the population due to the growth of single occupancy households.
As mentioned in ‘housing crisis’, the UK already has a persistent shortage of housing. Demand is rising faster than our willingness to build. This shortfall is causing an increase in long-term house prices, reducing affordability. If the UK population continues to grow to 71 million plus it will, ceteris paribus put upward pressure on house prices. It will require a dramatic change in housing policy and could require large-scale new towns to catch up with the shortage.
House price to earnings for first time buyers likely to keep rising.
If the supply of housing fails to meet the growth in the number of households, it will increase the cost of living. House prices will rise and the cost of renting will also continue to rise. This is likely to exacerbate the growth in wealth inequality we have seen in the past few years.
Arguably we could deal with the housing shortage if the political will is there. In the 1950s, we built 400,000 new homes a year. But, given the current resistance to even moderate new home building programmes, 300-400,000 new homes a year will be very difficult.
Limiting the impact of an ageing population
Many countries with declining populations are seeing a rise in the percentage of people over retirement age. This puts pressure on government spending (health and pensions) and leads to lower tax revenues (See: impact of an ageing population). The UK population is rising due to net migration and higher birth rates. This means the UK has a higher % of people of working age, who are net contributors to the exchequer (paying income tax, not receiving pensions)
Therefore the growth in the population improves the long-term UK budgetary position, reducing the need for spending cuts and/or tax increases.
The growth in the working age population also increases the size of the UK labour force, enabling higher productive capacity. This will help increase UK real GDP compared to other countries. (note, GDP per capita – GDP per head may not be affected by a growing population.)
However, by mid-2039, more than 1 in 12 of the population is projected to be aged 80 or over. (ONS)
Increased efficiency of greater population density
Increased population density is more efficient from both an environmental and economic perspective. The highest carbon per capita consumption comes from rural/low population density areas. There are economies of scale in providing transport and infrastructure which helps reduce the per capita impact on both government spending and the environment.
At different times there have been campaigns to ‘Buy British’ – patriotic efforts to support the economy. The campaigns seem quite popular, but usually fade out, having made little difference to major macro-economic variables. It is a form of economic nationalism and similar campaigns can be seen in many different countries. Buy British campaigns can …
The UK economy is showing signs of economic recovery. Positive economic growth, falling unemployment, and after a long gap – rising real wages. However, despite positive economic growth, there are many potential threats that could derail the economy and lead to a period of prolonged weak growth or even future recession. Some of the main …