Premiership of Margaret Thatcher

The Premiership of Margaret Thatcher began on 4 May 1979 following the victory of the Conservative Party in the 1979 general election.

First government 1979–1983

Deflationary strategy

Under the Thatcher government, the taming of inflation displaced high employment as the primary policy objective.

As a monetarist, Thatcher started out in her economic policy by increasing interest rates to slow the growth of the money supply and thus lower inflation. She had a preference for indirect taxation over taxes on income, and value added tax (VAT) was raised sharply to 15%, with a resultant actual short-term rise in inflation. The fiscal and monetary squeeze, combined with the North Sea oil effect, appreciated the real exchange rate. These moves hit businesses—especially the manufacturing sector — and unemployment exceeded 2 million by the autumn of 1980, up from 1.5 million at the time of Thatcher's election just over a year earlier.

Former prime minister Edward Heath, who was also Thatcher's predecessor as party leader, was one of the fiercist critics of Thatcher's economic policies, although his verbal attacks on her policies were often seen as a sign of his anger at her for ousting him from the party leadership in 1975.