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But the real shooting upwards came between the beginning of and January , when the rate peaked Neal, , Some part of this upward trend was due to the exploitation of North Sea oil, which, other things being equal, plainly strengthened Britain's balance of payments and therefore increased demand for sterling.

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Many supporters of Tory policy, then and since, have urged that this oil bonanza, rather than policy, was the main contributor to the appreciation. The Conservative Manifesto of Craig, , —83 , and the policy document on which it was based Conservative Central Office, made little mention of the exchange rate. Labour was denounced in both documents for its policies leading to depreciation of the rate, but there was no argument to suggest that proposed Conservative anti-inflationary policies would do more than stabilize it.

Both documents placed anti-inflationary policy at the centre of the Conservative agenda, and both were clear that this policy implied control of monetary growth. Beyond this, little was said about what the policy would look like, and how it would work. The Manifesto famously denounced the Labour government for the rise in unemployment it had presided over.

As noted earlier, it may be argued that this was wholly mendacious and that the Conservatives were privately preparing for a massive increase in unemployment to serve their own ends. But there is no evidence for this Keegan, , —, Certainly there had been questioning of the meaning of full employment on the Conservative Right in the mids Joseph, ; Wood, , and monetarist radicals expected some rise in unemployment to follow from their anti-inflationary monetary policies Green, , 66—8.

But no one anticipated the scale of the disaster which would unfold. The Conservative line that government could not directly determine the level of unemployment was not at this time used as a reason to abandon the idea that they nevertheless should be held responsible for failings in this regard. The realization that general elections could be won against a background of mass unemployment only emerged in the wake of the result in although, of course, such a conclusion could have been drawn from the Conservative electoral success of Green, , The Conservative's initial period in office was dominated by the search for a way to reconcile the key promises to cut direct taxes while reining in government borrowing.

These two could in principle be reconciled by big expenditure cuts, but it had been recognized in the policy document that such reductions would have to be phased in, so the initial policies would have to combine income tax cuts with some rise in indirect taxation. What emerged from initial discussions was a package consisting of spending cuts, reductions in both the top and standard rates of income tax, a virtual doubling of value added tax, and higher interest rates to improve the marketability of government debt.

On the monetary side, the underlying assumption of policy was that the growth of the money supply, measured as M3, was closely linked to the size of the Public Sector Borrowing Requirement or, more precisely, that part of the PSBR not sold outside the banking system. The idea of such a link between fiscal and monetary aggregates was not invented by the Conservatives, but was part of Bank of England thinking from the mids Keegan , What was new was the way the Conservatives elevated this link into the centrepiece of their economic strategy, eventually emerging in early with a Medium Term Financial Strategy MTFS which made the reduction in the rate of growth of both M3 and the PSBR the key targets.

Overview: Victorian Britain, 1837 - 1901

The core of the MTFS was the idea that governments could not directly affect real economic variables especially growth and unemployment , but only financial variables, above all the inflation rate, by controlling the money supply, and public borrowing, which was seen as contributing to the growth of that supply. A number of things must be said about the MTFS.

First, it was not something the Conservatives had prepared before coming to office. While they had had intensive internal debates on the issues of taxation and public spending, and, of course, on trade union reform, they had devoted little attention to how monetary policy was to be conducted Keegan, , —; Oliver, , chapter 4. Most famously, Milton Friedman was strongly critical of the whole policy design, believing that the issues of fiscal stance and monetary growth were largely separate, and that attempting to control monetary growth by changing the size of the PSBR was quite the wrong way to go to achieve that aim Friedman in TCSC, , paras 55— Similar scepticism was expressed by Laidler, whose policy views in other respects were very close to those of the Conservatives TCSC, , paras 48— Indeed it is not clear that there was any prominent economist who believed in the stable relationship predicated by the MTFS.

It did so, however, in a way that reflected a complete absence of understanding about key relationships in the economy.

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Further, it acknowledges that monetary restraint may raise the exchange rate, but seems wholly insouciant about that rise, which at the time of the drafting of the evidence in June was already enormous Treasury Evidence in TCSC, , paras 11— Interestingly, the Bank of England evidence is much clearer on what was going on with the exchange rate, calculating a 40 per cent appreciation, measured by relative unit labour costs between and the middle of TCSC, , para As is well-known, the MTFS proved to have little relationship to what happened over the next few years, the M3 targets especially being significantly exceeded Tomlinson, , But what is more important in the current context is how little that Strategy had to say about the key issue of the exchange rate appreciation.

In fact, the rate was not mentioned at all in the first two versions of the Strategy, only making a belated appearance in when the peak of the appreciation was already past Stephens, , Another sign of the confusion in the core area of monetary policy was the public discussion of alternative approaches, most importantly monetary base control, an alternative to the focus on the PSBR outlined in a green consultative paper in — within only a few months of the announcement of the MTFS. Monetary base control followed the prescriptions of Friedman, but was ultimately rejected for the political reason that it was likely to destabilize interest rates, a crucial issue for the politically vital constituency of mortgagees Howe, , —70; Oliver, , 77— The core of the government's policy was therefore aimed at achieving an expectational change, an ambition which was grounded in neither direct empirical evidence about what shaped expectations, nor even a formal empirical model which could form the starting point for an assessment of the likely effects of the new policy.

On top of these massive uncertainties was the fact that the MTFS, as the main policy aimed at shaping these expectations, was only introduced in March , 10 months after the Conservatives came to office. In that intervening period they had introduced the hike in indirect taxes which, of course, conveyed the clear expectation that prices would rise sharply as the tax was passed on into prices, which is precisely what did happen, with the increase in the RPI nearly doubling in the first year of the government.

Thus, a tax policy decided in opposition, and to which both Mrs Thatcher and her Chancellor were resolutely committed, was pushed through despite being totally at odds with the expectational aspects of the macro-economic policy they were pursuing Howe, , What is striking about this group is how little economic knowledge they possessed; a notable exclusion was Nigel Lawson, by far the most knowledgeable Minister on economic issues. In particular, neither his contemporary responses to the TCSC inquiry nor his memoirs dispel the impression that Howe was out of his depth in discussing the economic issues faced in — TCSC, b , Qs.

In the early months of the new government the exchange rate appreciation was insouciantly neglected. The Bank of England and Treasury were baffled by what was happening, their theories of the rate being focused on the long-run equilibrium, which was plainly of little relevance to the current position TCSC, a , para Increasing evidence that the rate was crucial to the recession led eventually in the summer of to Mrs Thatcher and her adviser, Alan Walters, calling for a report from the Swiss monetarist academic Jurg Niehans, who argued that the height of sterling was indeed a problem and was indicative, not of the effects of North Sea oil, but of how tight monetary policy really was, whatever the figures for M3 might be suggesting Campbell, , 81—82; Thatcher, , — Within a few months this analysis legitimized cuts in interest rates, cuts which were probably crucial in the bottoming out of the recession in , although unemployment continued to rise for several years.

The above summary narrative of the events of — raises a number of questions. First, if, as the evidence clearly shows, the authorities politicians, the Treasury, the Bank of England were surprised and baffled about the scale of the exchange rate appreciation, should they have been? As noted above, the size of this appreciation was unprecedentedly large, so it would be harsh to condemn them for not anticipating the precise scale.

But the fact that changes in monetary stance could have large and unpredictable effects on exchange rates was something that should have been apparent to any interested observer at this time. The second question is why policy-making was so slow to get to grips with the appreciation issue once it became apparent that it was so important?

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Part of the answer is, as suggested above, the incoherence of policy, especially in the early months, when the divergent political imperatives of simultaneously reforming the tax regime and raising interest rates dominated any other actions. This was the background to the MTFS. But even after that was published in early the sense of incoherence was not allayed. Perhaps a third question to be posed is, how did the government try and make sense of the situation they had created?

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This insouciance came at a time when the industrial sector was almost bankrupt, symbolized by ICI making a loss for the first time in its history Keegan, , , In a previous retrospective on these years, Howe had combined a complete ignoring of what happened to the exchange rate, with a defence of fixed exchange rates in general, and the ERM in particular, as the basis of economic stability Howe, At the time the Conservatives tried to argue that part of the problem causing mass unemployment was that wage setters had not adjusted rapidly enough to the new regime.

It would have involved a fall in money wages, on a scale not experienced since —, at a time when inflation was still running in double figures. The answers to these questions reveal how extraordinary the policy-making regime was in this period. The result, to reiterate, was a recession and enormous levels of unemployment, with lasting effects on the welfare of many of those affected. Of course, such a view begs the question of how far the Conservative win in was based on economic policy. The evidence is clear that by that election the level of output in the economy had passed its nadir, even though unemployment was continuing to rise Dow, , chapter 8.

But that economic recovery was based on a reversal of the tight money policy that had been pursued in the first eighteen months of the government.


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In the budget of March interest rates were reduced by two per cent. But because of all the focus on the tightness of the fiscal stance announced in the same budget, this policy loosening, which soon ended the pound's upward movement, was largely ignored — most notably by the economists who famously protested against government policy in the same month as the budget Wickham-Jones, The Conservative win in was not solely based on economic issues.

The split in the Labour Party and the success of the SDP was crucial in dividing the anti-Conservative vote, and delivering a huge Conservative majority on the back of a 44 per cent share of the vote. ISBN Disputed [ edit ] Victorian values.

This phrase, often associated with Thatcher, derives from an interview with Brian Walden on Weekend World 16 January, However, it is Brian Walden who says, in summarising Margaret Thatcher, "you've really outlined an approval of what I would call Victorian values". And I am. You were taught to work jolly hard, you were taught to improve yourself, you were taught self-reliance, you were taught to live within your income, you were taught that cleanliness was next to godliness. You were taught self-respect, you were taught always to give a hand to your neighbour, you were taught tremendous pride in your country, you were taught to be a good member of your community.

All of these things are Victorian values. This quote is widely attributed to Margaret Thatcher on various websites, and also appears in a number of books, including The Concise Columbia Dictionary of Quotations , Columbia University Press , ed. Robert Andrews, p. Chairman, each generation has to stand up for democracy. Funds raised, along with the billions raised from North Sea oil and gas revenues and further billions raised from Right to Buy gave central government the means to spend its way out of the recession of the early s while maintaining the narrative of cutting taxes and reducing borrowing.

As a windfall means of gaining access to short-term financial resources, the policy was a limited success; limited in the sense that more money could have been raised. The fact that the fortunate few who bought shares could cash them in at a substantial premium may have generated a lot of goodwill towards the government; although it has been argued that most of those benefiting from the windfall gains of privatisation were Conservative voters already Stevens, A second supposed objective of privatisation was to promote economic efficiency in the UK.

This is no straightforward objective. We must bear in mind that what is efficient for an individual business is not necessarily efficient for the economy as a whole. It was for this reason many of the free-market economists of the s and s supported nationalisation of key utilities and transport.


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They considered only democratic accountability—that is, public ownership—will prevent natural monopolies from exploiting the public c. Recent history indicates that these concerns had some merit. Such is the strength of the current narrative of overcharging by privatised utilities sectors and railways, the cold-war political-economic policy of a price cap has recently been resurrected by the UK government May, Notwithstanding, overall, there is scant evidence of efficiency gains Hart, ; Hall, or of benefit to the customer arising from privatisation Parker and Martin, ; Letza et al.

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Thatcher had also supposed that privatisation would increase investment in British business. In this, she would likewise be disappointed. There is no evidence that UK business invested more as a result of this innovation. Privatisation generally has not delivered, therefore, in improving efficiency or promoting business investment.

Howe et al. Although the proportion of shares held in an individual capacity by UK citizens was declining before the Thatcher years, approximately halving from to , clearly the Thatcher reforms did little to address this decline. Conversely, the proportion of UK quoted shares in foreign hands approximately quadrupled during the Thatcher years, and has quadrupled again since ONS, b , a. Alongside of outright privatisation, recent UK governments have also pursued a policy of marketisation. This initiative, based on the ideological assumption of the relative efficiency of the private to the public sector, involved introducing quasi-market mechanisms into public services through a separation of the purchaser and provider functions of state agencies.

This facilitated a plethora of private organisations entering the market to sub-contract to government particularly in health, social care and housing Buchanan et al. The introduction of quasi-markets in the NHS for example has led to a confusing array of independent and private sector organisations available to commissioning groups to deliver health care services often with no clear lines of accountability Klein, Similarly, welfare clients have found it difficult to operate as active and effective consumers in the new care markets, as these favour the more articulate and affluent service users Clarke, Some would argue the privatisation strategy itself was undemocratic, given the hostility of the British people towards the policy.