THE EDUCATION OF THE TREASURY: THE MEDIUMTERM FINANCIAL STRATEGY 1980–84
| Date | 01 September 1985 |
| DOI | http://doi.org/10.1111/j.1467-9299.1985.tb00905.x |
| Published date | 01 September 1985 |
| Author | COLIN THAIN |
THE EDUCATION
OF
THE TREASURY: THE MEDIUM-
TERM FINANCIAL STRATEGY
1980-84
COLIN
THAIN
The first Thatcher government introduced an innovatory macro-economic plan
-
the
medium-term financial strategy
(~Fs)
-
in
March
1980.
It was the most notable example
of how the Government sought to change the direction of post-war policy. This article
traces the origins and formulation of the strategy, noting that it was Treasury-imposed,
and monetarist in orientation. During its implementation however it was substantially
modified. The phrase 'pragmatism and continuity' best describes this process. Aspects
of
macro-economic policy are introduced to develop this theme. There is clear evidence that
the Treasury was 'educated' by the problems encountered: the objectives
of
the
MTFS
were
not uniquely achievable simply because they were deliberately limited in scope. Never-
theless, the strategy has survived as a policy framework and freed from its monetarist
dogma remains a useful means of co-ordinating objectives.
INTRODUCTION
The one important innovation of the Conservative Government was its medium
term financial strategy.
.
.it was the only innovation for which the Thatcher
government stood a chance of being remembered in the macroeconomic field.
(Brittan
1983:
252)
The Treasury is frequently criticized for not
specifying
its macro-economic objectives
in a clear and easily testable
form.
The medium-term financid strategy
(MTFS)
unveiled in March
1980
was a notable exception to this. For the first time, a
Government's plans for reducing money supply growth, public sector borrowing,
public expenditure and taxation over a four year period were published. Indeed,
the
MTFS
was similar in many ways to the National Plan
of
the
1960s
in that
medium-term objectives were published
in
order to influence the actions of economic
decision-makers. But, significantly, Chancellor Howe was at pains to emphasize
how dissimilar the
MTFS
was to this ill-fated Plan. He stressed that 'this strategy
is
by no means to be confused with a national plan.. .for it is concerned with
Colin Thain is a Lecturer in Politics at the University of Exeter. The research upon which this article
is based was funded by the
ESRC
and conducted at the University
of
Manchester. The author
is
grateful
to Professor Maurice Wright
for
his invaluable comments on this research. Much of the article has
benefited from conversations and correspondence with individuals involved or interested
in
the policy
mw
of
this period. And the views
of
one
of
this
Journal's
anonymous
assessors proved most helpful.
This article
is
a revised version of a paper presented at the
PSA
Annual Conference at the University
of Manchester, 18 April 1985.
~~ ~
Public Administration Vol. 63 Autumn 1985 (261-285)
0
1985 Royal Institute
of
Public Administration ISSN 0033-3298 $3.00
262
COLIN
THAIN
only those things
-
very few of them
-
that the Government actually have within
their power to control’ (House of Commons, 26 March 1980, col.
1442).
It is this confident assertion, that the strategy was achievable because it was
deliberately modest and ostensibly within the power of the Treasury to implement,
which invites a study of the
MTFS.
This
article assesses the strategy in its first four
year period from 1980-81 to 1983-84. It begins by asking whether the real change
of direction in economic policy began in 1976 rather than with the introduction
of the
MTFS.
The origins
of
the strategy are then traced.
Who
was involved in
the formulation stage? What discussions took place? The politico-economic rationale
for the strategy is set out, followed by a discussion
of
its objectives, targets and
instruments. The centre-piece of the article is an assessment of the implementation
of
the
MTFS.
What difficulties were encountered and how did the Treasury
respond? Finally, an attempt is made to measure and evaluate the ‘success’ of the
strategy.
THE HEALFY CHANCELLORSHIP,
1976-79
The view that the strategy was merely a continuation of the policies of the Labour
Chancellor, Denis Healey, is erroneous. Students
of
policy-making should not be
surprised to find many elements
of
continuity between the actions of one
government and another, even during periods of major policy change (Hogwood
and Peters 1982). The economic policies of Chancellor Healey and Chancellor Howe
are no exception. However, this does not invalidate the
view
that the period marked
by the introduction of the
MTFS
was the most significant change
of
direction in
economic policy since 1944.
Healey did preside over major developments in policy. First, the objectives of
macro-economic policy changed. In his Budget speech in 1975, Healey dropped
the assumption on which previous Budgets had been based, that policies would
maintain
full
employment
(House
of Commons,
15
April 1975, col. 282). Similarly,
the 1977 Public Expenditure White Paper’s Medium Term Assessment did not
assume that expenditure levels would assure full employment (Wright 1981). In
common with other industrialized nations, the defeat of inflation was given priority.
And this meant that fiscal policy was not used in a counter-cyclical way. Policy
was neutral after 1975 despite rising unemployment (Mosley 1984; Mathews and
Sargent 1983).
Second, the balance between monetary and fiscal policy changed. In line with
other major economies, Britain’s policy makers relied more heavily on monetary
targets as a guide to decision-making. This was primarily because interest rates
became less reliable in a period of rising inflation and unstable exchange rates
(OECD
1979). In 1976 Healey published money supply targets, thereby regularizing
what had been unofficial
Bank
of England monitoring of monetary aggregates since
1973. More significantly, when the appreciation of sterling in 1977 threatened the
integrity of the money supply targets, the Treasury ’unplugged’ the exchange rate and
allowed it to float upwards. Primacy was given to controlling the money supply even
at the cost
of
making British goods less competitive (Congdon 1982; Fforde 1983).
To continue reading
Request your trial