The 1981 Budget: ‘A Dunkirk, not an Alamein’

Darwin College Humanities and Social Sciences Group
Duncan Needham
The Richard King Room, Darwin College
Tuesday, October 8, 2013 - 14:10 to 15:00

The 1981 Budget was the most controversial in post-war British history. Mrs Thatcher’s Government overturned the Keynesian
orthodoxy that had guided economic management since the Second World War by raising taxes in the depths of the worst recession since
the 1920s. This prompted 364 leading economists, including five former government Chief Economic Advisers, to write: ‘there is no basis
in economic theory or supporting evidence for the Government’s belief that by deflating demand they will bring inflation permanently under
control and thereby induce an automatic recovery in output and employment.’ Despite this dire warning, the 1981 Budget coincided with the start of a period of robust growth for the British economy. The Budget’s contribution to that growth has remained the subject of fierce
controversy for over thirty years and even today influences the debate over the present coalition Government’s austerity measures. This
talk will show that attempts to portray the 1981 Budget as the ‘the political equivalent of the Battle of Britain: the Thatcher Government’s
finest hour’ (Nigel Lawson, 1992) are wide of the mark. Rather, it was precisely the U-turn that Mrs Thatcher had so publicly ruled out at the
October 1980s Conservative party conference. Fiscal policy, which had been too loose, was tightened − to the bewilderment of much of the
economics profession; monetary policy, which had been too tight, was loosened − to the relief of British business. This rebalancing allowed personal consumption, through increased household debt, to become the engine of growth in the 1980s.

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