2. Economic developments

Question 1

Arguements for devaluation?

Answer 1

• It would support the value of the pound and prevent inflation
• Solves the balance of payments problem
• Discourages imports
• Encourages exports

Question 2

Arguements against devaluation?

Answer 2

• Make the UK look weaker across the world
• Peoples wages would have less purchase power
• Eventually leads to strike action

Question 3

State of economy and budget deficit

Answer 3

• Labour inherited £800 million deficit
• ER in 1964, $2.80 to the £, too high but Wilson desperate not to be seen as the party of devaluation.

Question 4

Arguements for deflation

Answer 4

• support value of pound
• stop inflation

Question 5

Arguements against deflation

Answer 5

• old “stop-go” approach Labour determined to break away from
• fears it would stop labour meeting manifesto commitments = extra spending on welfare and tech.

Question 6

Why was the Department of Economic Affairs created?

Answer 6

• modernise economy
• resolve economic problems
• avoid devaluation
• aim = secure restraint needed to prevent inflation rising which gov would then need to stop w/ controls.

Question 7

Who led the DEA?

Answer 7

George Brown

Question 8

Why did the DEA fail?

Answer 8

• overlapped with the Treasury and role of Chancellor, Callaghan didn’t know who to listen to.
• Brown – impulsive and lacked consistency (drink problem). Came up with National Plan – created in unison with trade unions and industry but did not have support of united government.
• some blames anti-Labour civil servents, felt BoE underminded browns efforts - refused to pass over documents + tapped Browns phone

Question 9

Prices and incomes policy aim?

Answer 9

• to keep down inflation, gov intervention to set limits on prices and call for wage restraint in negotiations between unions and employers.
• alternative to DEA failure

Question 10

What came frrom the prices and incomes policy?

Answer 10

Prices and incomes Board 1966 - to impliment it.

Question 11

Key events led from inflationary policies to decision to devaluate

Answer 11

Sterling crisis in 1966 – due in part to strike by National Union of Seamen
- 1967 – aug national dockers strike affected BoP
- 1967 - war outbreak in middle east affected oil supplies

Question 12

“pound in your pocket” speech

Answer 12

= Nov 1967 – decision to devalue: pound dropped by 14% to $2.40,

Question 13

Policies along with devalution

Answer 13

• defence cuts
• introduced hire purchase restrictions
• higher IR
  = deflationary pressures

Question 14

Devaluation positives

Answer 14

• Improved Trade Balance
• Boost to Exports
• Increased Competitiveness
• Support for Industrial Modernization
• Potential Boost to Tourism

Question 15

Devaluation weaknesses

Answer 15

• Initial Inflationary Pressures
• Political Backlash - tried so hard to aviod it, damaged credability.
• Effected EEC application = rejection
• Criticism and Perceived Economic Weakness
• Impact on Standard of Living - worsened living standards
• Increased Costs for Foreign Travel

Question 16

Roy Jenkins as Chancellor

Answer 16

• Used deflationary methods > raised taxes and tightened up government spending of all areas of economy,
• top priority improving BoPs > achieved a balance of payments surplus by 1969
• 1969-70 inflation still 12%
• Labour confident about 1970 election due to improved economic situation.

Question 17

Who replaced Callaghan as chancellor and when?

Answer 17

Roy Jenkins - supported devlauation in 1964
- 1967-70