Heath and the economy Flashcards
encourage growth/inflation
march 71 barbers first budget proposed to replace purchase tax with value added tax and also reduced the exchange controls. Barber oversaw the liberalisation of the banking system ;competition and credit control’ which led to high levels of lending and increasing in the sterling money supply.
Decimalisation
the currency went decimal in 71, there would be 100 new pence rather than 144 pennies in the pound
inflation and stagnation
the root problem for the government was inflation, abolition of the price and incomes board, Wilson government had set up to deal with inflation.
spending cuts = Heath government then introduced severe public cuts, in council house rents and school milk.
problems 1971
wages and prices began to rise in 1971 at an accelerated pace. British employers were not responding to being left to their own device. the productivity needed to increase by at least 5% to help keep pace with inflation Britain was not exporting enough as a record of 1 billion surplus in 1971
Nationalisation of Rolls Royce
this happens very quickly after Sheldon park discussions, Rolls Royce was a major manufacturer of aircraft engines as well as luxury cars. However they faced bankruptcy in 71 and because of their international status.
The economy Boom
1972-73, the march budget cut taxes and increased public expenditure, this pushed the growth rate up to 7.4% by 1973. Voulentary wage control proved to be impossible to maintain and heath was forced into an economic u-turn, when heath failed to secure trade union cooperation on wage restraints and anti-inflation measures in 1972. the government had also introduced its own incomes policy which was the ultimate u-turn and went against everything deiced at Sheldon Park.
floating the pound
72 Barber said he had no ‘reason to believe that the pound was overvalued’ a week later he floated it which was a ‘temporary measure’ but the pound immediately plummeted.
unemployment
by 1973 it had reached 500,000
Yom Kippur War
Failures in the economy started with the Yom Kipper War, the war prompted OPEC to declare an oil embargo on countries they considered to be supporting Israel, this targeting the US and the UK in particular, the prise of oil rocked to 4 times the normal price. by the end of the embargo it was 1972 = $3 a barrel, 1974 = $12 a barrel and 1980 $35 a barrel, as a result imports became more expensive, the value of sterling was reduced leading to a budget deficit and inflation grew again to 16% by 1974.
