In the 1980s, The UK introduced many supply side policies such as privatisation, deregulation, and reform of trades unions. The government also cut the higher rate of income tax from 80% to 40%. It was hoped that these supply side policies would create a productivity boom. The government argued this reinvigoration of the British economy would enable a faster rate of economic growth, and overcome the years of under achievement.
The Lawson Boom – The Miracle that never was
In the late 80s, economic growth reached 5% and the Thatcher government started to believe that it had succeeded. It was the era of the Lawson boom; confidence was high, house prices rising and a new feeling of wealth was almost visible (especially in the south) Newspapers and not just the government started to talk of an economic miracle. However, the ‘economic miracle’ was short lived the fast pace of growth caused the economy to overheat. As a consequence, inflation rose to 11% and the government were forced to raise interest rates in an attempt to reduce inflation. The Lawson boom was soon over and the UK was left with a pretty bad hangover: growth fell in 1992, unemployment rose to 3 million, and house prices plummeted by 15%.