Economy 1951-64

Question 1

What was the economic situation Butler inherited?

Answer 1

The Korean War (1950-3) rise in world raw material prices, so cost of GB’s imports increased appreciably -> B of P’s deficit approaching 700 mill

Question 2

How did Butler first react to economic situation?

Answer 2

Decided he must ring about a reduction in demand; package of restrictions was introduced, including controls on credit (bank rate raised from 2 to 4% to discourage ppl from borrowing money) and strict limits on import => first ‘stop’ phase
-> By the end of 1952 deficit had been converted to surplus of 300 mill

Question 3

Can Butler take credit for improvements by 1952?

Answer 3

Main reason was increase in import prices caused by K war lasted only a short time. During 1952, import prices fell to old levels whereas GB’s exports continued to sell at roughly same prices.

Question 4

Why were ‘stop’ periods damaging?

Answer 4

Hindered economic growth. Butler’s measures had unfortunate effect of reducing investment in industry at a time when industrialists should’ve been aiming for rapid growth. -> Although there was a trade surplus end 1952, GB exports falling.
By the early 1960’s the repeated ‘stops’ were holding ac industrial expansion and GB was lagging behind Eu competitors.

Question 5

How did Butler’s policies change before the 1955 election?

Answer 5

Go period 1953 + 4
1. cutting bank rate
2. encouraging full investment
3. producing some industrial expansion
=> Full employment, exports increased and economy moved into a period of boom
4. shortly before general election 6p off income tax

Question 6

Why were ‘go’ periods damaging?

Answer 6

Full employment brought rising wages, demand for goods at home increased causing inflation. Exports were affected adversely by large numbers of strikes -> 1955 unfavourable balance of payents

Question 7

How did Butler’s policies change after the election?

Answer 7

Tried to reduce home demand by raising purchase tax and hire purchase deposits.

Question 8

How did Macmillan respond to the economy?

Answer 8

1. Continued ‘stop’ policy
2. Raised ban rate to 5.5p cent so more expensive to borrow cash
   -> credit squeeze to reduce import
   Produced a favourable trade balance for 1956.

Question 9

How successful were Thorneycroft’s policies?

Answer 9

1. ‘Go’
2. Taxes and credit restriction reduced and an export boom followed
3. More cash available to spend at home, causing increase in demand and consequent rise in prices and imports
4. Prices rises led to wage demands and strikes -> exports soon affected and b of p affected again

Question 10

Were Amory’s policies successful?

Answer 10

Produced 1959 tax-cutting budget -> relaxed credit controls and allowed wage increases -> contributed to a consumer boom which brought flood of imports and unhealthy trade balance. Public began to realise that Cons more interested in winning votes than securing a stable, well-managed economy. Chancellor tried to hold down wage increases -> credit squeeze 1960.

Question 11

What did the Cons. do when they realised stop, go policies were failing?

Answer 11

1961 applied for membership of the EEC but application turned down by France. Later the same year set u pNational Economic Development Council followed by National Incomes Commission 1962 -> encourage more central planning by brining together representatives of gov, business and tu’s to discuss prod, targets and wages

Question 12

Why was there not enough investment in industry?

Answer 12

1. Stop policies discouraged industrialists from risking long-term investment -> too much of available money invested abroad
2. Gov. spending far too much on defence, manufacturing H bombs
3. Decline of industries e.g. textiles, shipbuilding
4. Other industries expanding (aircraft, cars, chemicals) production costs were too high, made GB good expensive
5. Strong foreign competition
6. Unemployment became a bigger problem 1960s -> 1963 900k out of work

Question 13

What was the economic situation in 1964?

Answer 13

Failure to enter EEC and economic stagnation followed by a final ‘go’ period caused a sudden surge in imports causing a balance of payments deficit of 748 mill for 1964

Question 14

In what sense was there not enough expenditure on social services?

Answer 14

Rising unemployment, no positive vision for welfare state, building of council houses neglected despite successful house building, leaving local authorities to build unsatisfactory tower block flats for rest of people