Economy Flashcards
1951-1964 - Conservatives
What dictated economic policy in this period?
The Post-War consensus
What were the key features of the Post-War consensus relating to the economy?
- Belief in a mixed economy - mixture of private enterprise and state owned enterprise
- Desire to have full employment
What did the Conservatives want to use alongside the Post-War consensus in their economic dealings?
Keynesian economic principles - government should intervene to ensure that there is demand in the economy - influenced by Great Depression and ensuing financial issues of the 1930s
Positive economic indicators
What ended in July 1954?
Food rationing
What milestone was achieved concerning employment levels in 1955?
Less than 1% of the workforce was unemployed
What industrial sectors saw huge expansion?
Electrical and engineering sectors
What industries began to provide more jobs?
Cars, steel and other metals
What was issued in 1955 that led to a feeling of affluence and growing consumerism?
1955 “Giveaway budget” which made £134m in tax cuts for middle classes
What had happened by the late 1950s concerning Britain’s import levels?
Britain was able to import 29% more goods than in 1951 - shows that world trade was improving
By late 1950s what did Britain enjoy?
A higher income per head than any other major country except the US
What happened in 1959 after the Suez crisis caused the “Run on the Pound” crisis?
The sterling regained its value against the dollar
What did the 1959 “Giveaway budget” provide?
Tax cuts of £370m
How many people were employed in the service industries by 1960?
Nearly 5m people were - 1/5 of working population
Between what dates was the British economy at its peak?
1960 and 1964
Can you provide a statistic to support this view that Britain’s economy was at its peak between 1960 and 1964?
Exports rose 10% between 1961 and 1964
Negative economic indicators
What happened following the Suez Crisis in 1956?
Run on the Pound - value of the pound crippled compared to the dollar
What did Britain remained stuck in in this period, especially in 1957 and 1958?
The “Stop-Go” cycle
What did Britain have low levels of between 1952 and 1959 compared to US and Western European countries?
Industrial production rates
What was introduced in 1961?
National pay pause
What did Britain do subsequently?
Applied for an IMF loan
What did the failure of EFTA and lack of British economic growth lead to Britain doing in 1961?
Applying to join the EEC
What was created to try and devise a long-term strategy for economic planning in Britain in 1961?
The National Economic Development Council (NEDC)
What other organisation was created to keep an eye on wages and prices in 1962?
The National Incomes Commission
What happened to Britain’s EEC application in 1963?
It was vetoed by Charles de Gaulle
Between 1961 and 1964 what percentage did imports remain higher than exports?
By 20%
1964-1970 - Labour
What did Labour continue to follow in their handlings of the economy?
The Post-War consensus
Positive economic indicators
What did the Labour government survive in 1965 and 1966?
The sterling crises
Who played an enormous role in stabilising the economy as Chancellor of the Exchequer in 1967 to 1970
Roy Jenkins
What did Jenkins do concerning the economy?
Raised taxes, tightened up government spending and implemented deflationary tactics
What was achieved concerning the balance of payments in 1969?
A balance of payments surplus was achieved
Negative economic indicators
What countries was Britain severely lacking behind in 1964?
West Germany and Japan
How much of a deficit did the Labour party inherit from the Conservatives in 1964?
£800 million
What was the cabinet divided over?
How to solve the economy - did not want to deflate or devalue as were worried about not meeting manifesto commitments and weakening Britain’s global position
What was set up to try and establish national economic planning? What happened to it?
The DEA - conflict with treasury led to it failing by 1967
What did the Prices and Incomes Policy of 1966 lead to?
National striking and a sterling crisis
What did the Middle East war and national dock strikes of 1967 do to the balance of payments?
It severally affected it
What was the government forced to do after the balance of payments was severely impacted?
Devalue the pound (for the purpose of increasing exports in global market) - value dropped by 14%
What happened to the second EEC application in 1967?
It was rejected - made only for economic reasons
At what rate was inflation running at in 1969 to 1970?
12%
What did Britain remain stuck in?
The ‘Stop-go” cycle
1970-1974 - Conservatives
Positive economic indicators
What seemed to be working by the government?
Their investments to modernise industry
By 1974 what had the unemployments rate fallen to?
500,000
Negative economic indicators
What did Anthony Barber’s (Chancellor of the Exchequer) attempts to encourage economic investment lead to in 1970?
Stagflation - high inflation accompanied by rising unemployment levels
By 1970, what were unemployment levels at?
1m
What famous event occurred in 1971?
The U-turn on stopping lame duck subsidies - Rolls Royce nationalised and money poured into Upper Clyde shipbuilders
What did the Yom Kippur War and OPEC oil embargo lead to in Britain?
Stopping of exports, rocketing oil prices and long queues at petrol stations
1974-1979 - Labour
Positive economic indicators
What did Callaghan handle well?
The 1976 IMF crisis and loan was repaid by May 1979
By 1978 what was now accessible to Britain?
North Sea oil - Britain now had 9 oilfields in production
What was falling by 1978?
Unemployment levels
What did the inflation levels reduce to?
10%
What had been achieved by 1978 which was monumental?
The days lost to industrial disputes had fallen to a 10 year low
Negative economic indicators
What did Healy’s budgets of April 1975 impose?
A steep rise in taxation and cuts in public spending
What enterprise was being questioned by 1975?
The National Enterprise Board used to administer government’s shares in private enterprise and give financial aid
The nationalisation of what industry caused serious concern in 1975?
British Leyland
What was becoming clear concerning the Social Contract by 1975?
It was failing to limit wage demands
What was introduced as a result of the failure of the Social Contract?
A more formal pay restraint policy - caused party divisions to further intensify
What did the poor balance of payments put pressure on by 1976?
The sterling and led to concerns that Britain did not have enough currency in reserve to support it
In December 1976 what did the Government receive for making large spending cuts?
A £3bn IMF loan
By 1978 what were the levels of unemployment at?
1.6m
1979-1990 - Conservatives
What was Thatcher’s main economic aim?
To control inflation
What was Thatcher’s main economic principles?
- Monetarism (1979-1986) - economic theory that argued the best way for governments to control inflation was by restraining government spending and borrowing and curbing the amount of money in circulation
- Privatisation (1979-1990) and Deregulation (1986-1990)
Privatisation
What is the principle of privatisation?
Driven by the idea that individuals were better at spending money than governments; also that the private sector was more dynamic and efficient at delivering goods and services; belief that market competition encouraged improvements and innovation - also used to try and cut state costs of running services
What industries were privatised in the period of 1979-1986?
BP 1979, British Aerospace 1980, British Telecom 1984 and British Gas 1986
What happened to the number of individuals owning stocks and shares in the period of 1979-1990?
Increased from 3m to 9m
What did this increase in the ownership of stocks and shares bring for the government?
A lot of revenue - critics thought that companies were sold off cheaply in order to ensure shares were all taken up
What did privatised companies do?
Cut back on their staff and their pensions - made life more insecure
What did the drive for privatisation signal?
The end of the post-war consensus for economic management
Deregulation
What does deregulation involve?
Government limiting economic interference by removing excessive involvement to make it easier for businesses to trade and grow - loosening of controls on banks and markets
Effects of Deregulation
What did the government introduce?
Measures to assist start-up companies
What did the Loan Guarantee Scheme do?
Made it easier for businesses to borrow money
What did the Enterprise Allowance Scheme do?
Encouraged unemployed to start their own companies by giving them £40 a week for up to a year
What occurred in October 1986 concerning the London Stock Exchange?
It became deregulated which made London again the world financial centre - it could now compete with Wall Street
What did deregulation create in British society?
The Yuppie class - abbreviation for young urban professional and used to describe people working in cities who had a large amount of dispensable income which was spent on consumer goods such as cars and early mobile phones
What was the GDP growth in Britain in the 1980s?
2.2% overall - as second booming half of decade couldn’t overcome fully the first half
What did economic realignment from manufacturing to service industries cause in Britain?
The north-south divide to sharpen
What was the unemployment levels in Liverpool?
25%
What did the economic realignment cause in the cities?
Urban decay, increase ill health, depression, alcoholism and drug addiction
What were the 1981 riots in inner city areas fuelled by?
Poverty
What happened to the stock market following deregulation in 1987?
It crashed
What was the “Lawson Boom” of 1988?
The rapid expansion of the economy resulted in a balance of payments problem
By 1990 what had inflation risen to?
10.9% - higher than it had been in 1980
1990-1997 - Conservatives
What was the 1990s a tale of?
Two halves - 1990- September 1992 was negative and from September 1992-1997 was positive
Negative economic indicators 1990-September 1992
By the end of 1990 what had happened to the manufacturing rate in Britain?
It was declining
What had happened to interest rates in late 1990?
They had severely increased
What had happened to the levels of unemployment towards the end of 1990?
A steep rise
What had happened to house prices towards the end of 1990?
They had slumped
What negative economic indicators occurred in 1991 to early 1992?
Unemployment rose from 1.6m to 2.6m; homeowners trapped in negative equity - mortgage values higher than current value of their home; homes were re-possessed - severely affected traditional Tory voters
What was the government forced into in the early stages of 1992?
Government forced into high public spending especially on NHS and borrowing
What huge event occurred on the 16th September 1992?
Black Wednesday - government forced to withdraw from Exchange Rate Mechanism due to collapsing value of the pound
Positive economic indicators September 1992-1997
What was Britain no longer required to do after leaving the ERM?
No longer had to keep high interest rates and exchange rate floated down which helped exporters
What happened to the levels of unemployment?
The decline slowed
What happened to the housing market?
It picked up
What did deregulation allow for in working practices?
Benefits and flexibility
What happened to the world trade scene?
It expanded as America came out of recession at same time as Britain in second-half of 90s
Who was Britain doing better than?
Germany who was struggling with the costs of reunification and sluggish growth rates
By 1997 what had been achieved concerning the British economy?
Unemployment down; productivity up slightly; consumer spending up; car ownership up; houses prices up; businesses were supported by government policy and so supported Conservative economic policies
1997-2007 - Labour
After the 1997 election which of Thatcher’s principles did Gordon Brown follow?
Keeping inflation low, keep government spending under control, be pro-business and setting rules on government borrowing
What did Brown want to move away from?
Labour’s image as “tax and spend”
What did Brown do to the Bank of England?
Made it independent of government - government would still set inflation targets but Bank would decide where to set interest rates to achieve this
What did Brown call his policies?
“Prudence with a purpose” - having a growing and stable economy would help improve public services
What happened to the amount of public spending from 2001?
Spending on public services sharply increased - particularly on new schools, new hospitals and pay rises for doctors, nurses and teachers
What did the large spending lead to?
Inflation increasing from 2.6% in 1997 to 4.8% by 2007
What were the Project Finance Initiatives (PFIs) used for?
Financing for public services were done through the PFIs
What happened to the debts due to the large public spending?
They were stored for the future
What did Brown also do severely?
Borrowed heavily from foreign banks - wasn’t an issue until the financial crisis loomed
What did Brown also do to raise funds?
Taxed pension savings - led to a fall in value of £8bn by 2007
In what other ways did Brown bring in money?
- Raising National Insurance
- Removing marriage tax allowance for couples under 65
- Removing tax relief on mortgage payments
- Reducing level of tax-free savings that could be earned each year in certain saving accounts called TESSAs and PEPs from £12,000 in 1999 to £7000 by 2007
What did Brown do to Britain’s gold reserves?
He sold some of it when the price of gold fell between 1999 and 2002 - by 2005 gold prices had bounced back meaning Britain lost £3bn
What had China done in the same period concerning gold?
China had bought gold and basically doubled their money when the prices bounced back
How did life seem for consumers?
It seemed good - living standards were high, unemployment was low and people had money to spend
What did critics warn?
That this consumer boom was not based on increased productivity in the economy but on rising house prices (which could have started to fall) and high levels of personal debt and credit card spending - this was the bubble that would burst in 2008
