2.2 The Economy Under Wilson

Question 1

What were the options to solve the economic crisis during Wilson’s time as PM?

Answer 1

The options were devaluation (reducing the value of the pound) or deflation (cutting economic growth), both with their downsides.

Question 2

Why was Wilson hesitant about devaluing the pound?

Answer 2

Wilson was initially reluctant because he presented himself as a defender of the currency and feared the impact on the money markets. Devaluation would also require cutting spending, going against their promises.

Question 3

What steps were taken during the 1964 Sterling Crisis to stabilize the economy?

Answer 3

Measures included raising the bank rate, imposing a temporary import surcharge, increasing income tax, and securing international aid of $300m from the US and European central banks.

Question 4

Why was Harold Wilson hesitant about devaluing the pound during his time as PM?

Answer 4

Wilson was initially reluctant because he presented himself as a defender of the currency and feared the impact on the money markets. Devaluation would also require cutting spending, going against their promises.

Question 5

What happened to the pound and markets by early 1965?

Answer 5

The pound strengthened, and the markets recovered by early 1965.

Question 6

What were the average unemployment rates in 1965-66?

Answer 6

Unemployment averaged only 1.5% throughout 1965-66.

Question 7

In 1966, what led to Labour calling for an election?

Answer 7

Higher wages compared to prices in 1966 led Labour to call an election.

Question 8

What was the purpose of the Department for Economic Affairs (DEA)?

Answer 8

The DEA aimed to coordinate national resources and investment for economic improvement.

Question 9

What was the National Plan’s goal, and why did it become challenging to achieve?

Answer 9

The National Plan aimed for sustained growth at 4% per annum, but it became challenging due to government decisions, rendering it unlikely.

Question 10

What happened to Brown and the DEA by the end of 1965?

Answer 10

By the end of 1965, Brown moved from the DEA to the Foreign Office.

Question 11

According to Kenneth O. Morgan, why did the DEA face challenges in its role?

Answer 11

Kenneth O. Morgan argued that the Treasury’s strong control over the economy made it hard for the DEA to promote stable expansion, making its role difficult from the start.

Question 12

What was included in Callaghan’s 1966 Budget to increase employment in manufacturing?

Answer 12

The Selective Employment Tax.

Question 13

Why did the markets remain unconvinced about the strength of Sterling despite measures in the Budget?

Answer 13

A seamen’s strike damaged exports and caused a significant run on reserves and the exchange rate.

Question 14

What happened to the trade deficit in June 1966?

Answer 14

The monthly trade deficit doubled.

Question 15

Why did Frank Cousins resign from the government in June 1966?

Answer 15

He resigned in protest at the government’s income policy.

Question 16

Who supported devaluation from the Left?

Answer 16

Castle and Crossman supported devaluation from the Left.

Question 17

Who backed devaluation from the Right?

Answer 17

Brown, Crossland, and Jenkins supported devaluation from the Right.

Question 18

What were the measures introduced in the July package to address the 1966 Sterling Crisis?

Answer 18

The measures included a 7% bank rate, cuts in government spending, hire purchase restrictions, and a freeze on wage and price increases.

Question 19

What happened to Brown and his National Plan after the July measures?

Answer 19

Brown was removed from the National Plan and transferred to the Foreign Office.

Question 20

What were the immediate effects of these measures?

Answer 20

Industrial earnings’ rise halved, and the economy only grew by a little over 2% in 1966 and 1967.

Question 21

What was the conclusion after implementing the July measures?

Answer 21

Despite these measures, it was evident that more actions were needed to address the economic situation.

Question 21

How did the balance of payments change after these measures?

Answer 21

While the balance of payments finished in the black for 1966, it shifted into heavy deficit afterward, with a trade gap reaching £600 million in 1967.

Question 22

What did the Crisis of 1966 highlight regarding Britain’s defense?

Answer 22

It demonstrated the necessity for defense cuts.

Question 23

What was the primary target for these cuts?

Answer 23

Britain’s presence east of Suez was the main focus for these reductions.

Question 24

What decision did Wilson make in early 1967 regarding the USA’s proposal?

Answer 24

Wilson rejected a deal from the USA that linked support for Sterling with continued British presence in the Far East.

Question 24

What had Wilson promised the USA regarding Britain’s presence in the Far East?

Answer 24

He had assured the USA that Britain would maintain its presence there.

Question 25

What were the main causes of the devaluation in 1967?

Answer 25

The causes included the Six-Day War leading to a temporary oil embargo, unofficial dock strikes in September, and a casual question about foreign loans in November.

Question 25

What plans did Wilson make afterward?

Answer 25

He devised plans for a phased withdrawal of Britain’s presence east of Suez

Question 26

What happened after Robert Sheldon’s question in November?

Answer 26

Two days after the question, the pound was devalued from $2.90 to $2.40, causing momentary panic in Washington.

Question 27

What announcement did Callaghan make and what followed afterward?

Answer 27

Callaghan announced a standby credit of $1,400 with the IMF but resigned on November 30th.

Question 28

How did Wilson address the public after the devaluation?

Answer 28

Wilson assured viewers that ‘the pound in your pocket has not been devalued’, which later proved untrue.

Question 29

What was the state of the bank rate, and how was the government faring during this time?

Answer 29

The bank rate stood at 8%, and the government was losing by-elections.

Question 30

What warning did Jenkins give in his March 1968 budget?

Answer 30

Jenkins warned of ‘two years of hard slog’ ahead.

Question 31

What additional cuts were proposed to make devaluation effective?

Answer 31

£923 million would be removed from the economy, reducing defense spending from 6% to 4% in 7 years. Plans for raising the school leaving age and building 500,000 new houses were also shelved.

Question 32

How did Jenkins propose to generate revenue, and what was the public’s response?

Answer 32

He increased taxes across the board, including duties on petrol, drink, and tobacco, and imposed a £900 million levy on high incomes. This was highly unpopular among the public.

Question 33

What action did Jenkins take in his 1969 Budget regarding taxation?

Answer 33

Jenkins increased taxation by an additional £340 million.

Question 34

What was the impact of this 1969 tax increase on the balance of payments?

Answer 34

The balance of payments saw significant improvement, reaching a surplus of £500 million in 1969 and rising to £800 million by 1970.

Question 35

How did Jenkins achieve the turnaround in the economy between 1964-69, and what agency was involved?

Answer 35

Jenkins managed to reverse the economy by implementing traditional deflationary measures from the Treasury, rather than the DEA (Department for Economic Affairs).