Big tax-cutting budget, particularly income tax (basic rate cut to 25% from
29% in 1986; top rate cut from 60 to 40%). Led to redistribution from poor
to rich – rich got absolutely richer. Further fuelled the consumer boom
Disagreements
over policy
Lawson (Chancellor) wanted GB to join the ERM (European Exchange Rate Mechanism), which
would provide discipline by fixing the parity of sterling, which would forcibly keep inflation low.
Thatcher opposed – argued that it would limit the government’s freedom of action in economic policy.
Recession
Economic growth = 3.7% 1984-88. Growth fuelled by consumer spending and a property price bubble, led to
overheating in the economy. Inflation increased from 4 to 10% between 1988-1990. Deficit increased to record
£20 billion (4.4% GDP). Privatisation revenues increasingly unable to hide budget deficit (privatisation revenues
accounted for £13bn of £14.5bn surplus in 1988-9). Interest rates rose from 7.5% to 15% between 1988-90.
Poll tax
Aim:
to reform local government finance in order to restrain free-spending policies
of Labour councils and to increase councils’ accountability to tax payers.
What was it?
Would replace house-hold rates (charged to property-owners) with a
flat rate ‘community charge’ paid by ALL adults (i.e. all adults would
pay the same amount, regardless of how well off they were).
What went wrong:
Thatcher never had the support of her Chancellor (Lawson). Tax was introduced 1989-90 as the economy
soured. More people were worse off than under the old system and the only people who benefited were the
wealthy. Labour councils exploited the confusion to increase spending anyway (on average double the original
estimates), and the government got blamed for the tax increase. Tax cost 2.5 times more to collect than rates had.
Impact:
Damaged support among the middle classes and within the Tory Party itself. Protests (e.g. March
1990). Tories lost four by-elections during 1989-90. Labour took a 20-point lead in the polls. Thatcher’s
personal popularity ratings fell to their lowest point. Led Tory MPs to question her leadership.
Europe
Big issue = what should
Britain’s place in Europe be?
Lawson and Howe wanted more integration,
Thatcher less. Conflict played out over
specific policy issues, especially ERM
Federalism (closer
integration)
Thatcher supported idea of GB’s sovereignty and free enterprise. Concerned
at immaturity of Europe’s institutions and feared that because Europe wasn’t
fully democratic it was vulnerable to creeping socialism and bureaucracy.
Budgetary
contributions
GB’s contributions to the EEC budget were disproportionately
high. Thatcher battled to secure a reduction in budget payments
Deeper absorption
into Europe
1986 Single European Act – step towards more centralised Europe. Commitment to closer political
and monetary union. Established principle of supra-nationality (states were subordinate to the EEC).
Abolished right of individual states to veto majority decisions. ERM – GB joined October 1990 as a
means of fighting inflation. In end increased inflationary pressure, forcing GB to withdraw in 1992.
Thatcher’s
opposition
Made hostility to Europe clear. Disliked federalism, bureaucracy and lack of accountability.
Direct confrontation with European ministers made enemies in Europe. 1986 populist
Bruges speech condemned ‘the erosion of democracy by centralisation and bureaucracy.’
Internal opposition
Lawson
Disagreement between Thatcher and Lawson re: ERM created lack of trust. Thatcher increasingly relied on the
advice of Prof. Alan Walters, an economic adviser who opposed the ERM. Also increasingly upset by Thatcher’s
pandering to tabloid populism. Resigned November 1989. Replaced by John Major – not a committed Thatcherite.
Howe
Foreign secretary. Wanted to improve relations with the EC. Persuade Thatcher to sign the Single
European Act in 1985 committing Britain to principle of closer integration. Treated with disregard
by Thatcher – demoted from Foreign Secretary to Deputy PM July 1989. Resigned October 1990
and made a devastating speech in the House of Commons against her. Criticised her obstructive
attitude to European development. Replaced by Douglas Hurd – not a committed Thatcherite.
Anthony Meyer
1989 stood against her in a leadership contest. Pro-European.
33 MPs voted against her, and 25 others abstained. Suggested
that Thatcher’s popularity within the party was declining.
Heseltine
Bitter enemy since 1986 Westland affair. Declared
candidature against Thatcher after Howe’s resignation
in 1990. Supported by Lawson and Howe.
Leadership battle
November 1990
Thatcher’s campaign team complacent – did not actively canvass support
for her. In the first round ballot she won 204 votes to Heseltine’s 152.
Although she was nearly the outright winner, the fact that 2/5 Tory MPs had
withdrawn their support made her position untenable and she resigned.