The main distinguishing feature of the British economy is that the country does not develop on the basis of the principles of a social market economy, like Germany or France, but uses the neoliberal, Anglo-Saxon model of development. Therefore, the model of the British economy is closest to the United States and is very different from continental European countries.
The foundations of the modern neoliberal model of development of the British economy were laid in 1979, when the policy of “Thatcherism” was implemented in the country, named after Prime Minister Margaret Thatcher, the leader of the British Conservatives. Thatcherism implied non-conservative reforms in the economy aimed at reducing the active role of the state in the economy.
The economic policy of the British government during the period of power of the Conservatives included programs based on the support of the market mechanism and entrepreneurship, efficiency and flexibility of the economic system:
– privatization policy. From 1979 to 1994, the privatization program brought about £55.5 billion to the state budget. Such giants of the English economy as British Telecom, British Soal and many others were sold;
– deregulation. The costs and administrative costs of the state to regulate the economy were significantly reduced;
– tax reforms. The tax burden on individuals and legal entities has been significantly reduced. The base rate of individual income tax became 25%, and corporate income tax began to be levied at rates of 25 and 33%.
Government spending has been reduced from 47.5% of GDP in 1982 to 41.6% of GDP in 1996, with the public sector now producing about 8% of GDP. To reduce costs, reforms were carried out in the social sphere, in fact, which led to a rejection of the principles of the previous system, which resembled the social market economy of continental European countries. However, at the same time, the incentive to work among the population was significantly increased, and the dependent moods in society were practically over.
To combat inflation, which by the time M. Thatcher came to power was more than 13%, monetary policy was pursued according to the classical canons of monetarism. The amount of money in circulation was controlled, short-term interest rates became the most important tool of monetary policy. Due to the rather high level of interest rates during the entire period of activity of the Conservatives of Great Britain, it was possible to attract a significant amount of foreign capital and save most of the national capital.
Despite the initial success of neoconservative programs to reform the British economy in the late 80s of the last century, the popularity of the Conservatives somewhat decreased. To a large extent, this was facilitated not only by the government’s active attack on the system of social guarantees, but also by the fact that in 1987 there was a crisis in the country’s stock market, which caused inflation, limited the access of the population and entrepreneurs to credit resources.
In 1990, Margaret Thatcher was replaced by her successor John Major, who continued the neoconservative policy in the economy. Thatcher and Major sought to contrast the British model of the economy with the traditional social market economy of most European EU member states. In this regard, there were frequent disagreements between Great Britain and the continental countries on the issues of the common European economic policy.
The Conservatives received a final defeat in 1997 The population, tired of the Conservatives and their policies, supported the Labour Party, hoping for a return to social orientation in the macroeconomic policy of the government and an increase in income due to the redistributive role of the state.
However, the new Prime Minister Tony Blair did not change the previous economic course, as the British model of a mixed economy turned out to be more effective than most European countries. This model is distinguished by a minimum of state intervention in the economy and a maximum of private initiative. The UK keeps pace with scientific and technological progress. The restructuring of the sectoral structure of the economy has brought to the fore the high-tech industries, in which a significant number of high-paying places are created. The growth rate of the economy at the end of the XX century was 2.5-3.5% per year, the unemployment rate is two times lower than in Germany and France.
Due to the fact that the British economy is in a better structural position than the national economy of France and Germany, Tony Blair’s plan involves the confrontation of Great Britain with the policies of the two continental powers.
The UK continues to take its principled position in the EU, primarily because integration under the hegemony of France and Germany with their socio-market economy will mean for the UK a departure from the previous principles of liberalism in the economy. In this case, the UK will have to act in the same way as most EU countries:
– increase taxes;
– to increase the level of state regulation of the economy.
Therefore, it is no coincidence that, although Tony Blair himself, unlike his predecessors, has nothing against European integration, the UK did not enter the European Economic Union and did not introduce the euro since January 1999.