3.3 Heath and the Economy Flashcards
First economic policies 1970-71: What was growth like between 1970-71?
Encouraging growth and inflation
First economic policies 1970-71: In March 1971, what did Barber propose?
To replace purchase tax with VAT
First economic policies 1970-71: What did Barber relax from 1970-71?
Exchange controls
First economic policies 1970-71: How did Barber liberalise the banking system?
Competition and Credit Control
First economic policies 1970-71: What did Barber reduce?
Direct taxes
When was decimilisation?
1971
What was decimilisation?
British currency would have100 new pence instead of 144 old pennies in a pound
Why was it hoped that de Gaulle noticed decimilisation?
To highlight how keen Wilson and Heath were on all things European and show Britain wanted to be modern
What did Heath abolish to combat rapid inflation?
Prices and Incomes Board
What did Heath have to do to combat rapid inflation?
Severe spending cuts
Sweetened by a reduction in standard rate income tax
What subsidies did Barber cut to combat rapid inflation?
Council house rents and expenditure of milk to children
What chant comes from the cuts to expenditure of milk to children?
Thatcher the milk snatcher
Problems in 1971: What began to jump?
Wages and therefore prices
Problems in 1971: What did inflation rise to from 1969 - 1971?
5% to 10%
Problems in 1971: What was the problem of British employers at this time?
They were not generating entrepreneurial activity
Problems in 1971: What was the growth rate between 1969 and 1971?
2.5% to 1.7%
Problems in 1971: What did Britain’s industrial productivity need to be to keep pace with inflation?
5%
Problems in 1971: What was the surplus in 1971?
£1bn
Problems in 1971: What was the deficit in 1973?
£1bn
How many people were unemployed in 1972?
1 million
What is stagflation?
This is when inflation and unemployment rise sharply at the same time
Inflation spirals upwards but because of unemployment industrial capacity fails to grow, and often stagnates.
When did Rolls Royce face bankruptcy?
1971
What did the government do with Rolls Royce?
They nationalised the company
What did the government do when the Upper Clyde Shipbuilders were on the verge of collapse?
They nationalised it
Why was the nationalisation of Rolls Royce and the Upper Clyde Ship Builders a problem?
It was a u-turn on their earlier aims at Selsdon Park
The Economy 1972-73: What did Barber do with the 1972 budget?
Cut taxes and increased public expenditure
The Economy 1972-73: What did Barber’s budget push the growth rate to?
7.4% by 1973
What did Heath fail to secure?
Trade union cooperation on wage restraint
What did Heath create to control inflation?
Prices Commission and a Pay Board
What came into play on the 6th November 1972?
A 90 day freeze on pay and prices (including rent)
What did the Price and Pay Code do?
Limited increases in pay, rent, and prices
Why was the Price and Pay Code a u-turn on Selsdon Park?
They were introducing their own incomes policy
In 1972, what did Barber say about the pound?
‘no reason to believe that the pound was overvalued’
What does ‘floating the pound’ mean?
This means the forces of supply and demand will determine the price of the currency
Why did Barber float the pound?
As a temporary measure
He said that the trade balance had deteriorated and did not want to have to borrow money
What happened to the pound after Barber floated it?
Plunged on the market
How many people were unemployed by 1973?
500,000
Why did the 1973 Oil Price Crisis begin?
The Yom Kippur War
What was the Yom Kippur War?
A war between a coalition of Arab states v Israel
What did the war prompt OPEC to do?
Declare an oil embargo
What is OPEC?
Organisation of Arab Petroleum Exporting Countries
What did the price of oil rocket to in 1973?
4x the usual levels
By March 1974, how much had oil prices risen by?
From $3 a barrel to nearly $12 globally
By 1980, how much did oil cost?
$35 a barrel
What did the value of sterling fall by as a result of the oil crisis?
$1.50 to the £1
How much did inflation grow to by 1974?
16%
