How successful were the economic policies of the 1964-70 Labour government? Flashcards
What were Labour ministers aware of?
That in the 1950s Britain’s economic performance had lagged behind that of its main competitors, blaming the Conservatives who had failed to solve the problem
What problem did they inherit?
A balance of payments deficit of £800 million
What did the believe the deficit was a symptom of and how did they believe this could be solved?
Britain’s lack of competitiveness
By producing goods that were better/cheaper than products from overseas
What did the BOP deficit require British firms to do?
Improve their efficiency by investing in new technology and machinery
Grant wage increases only if workers were more productive
What did the BOP deficit need the government to do?
Use its revenue from tax to develop/improve Britain’s transport network
Maintain investment in the nationalised industries
Ensure that Britain had a well-trained workforce
Describe a run on the pound?
If the pound fell too far in value, bankers would quickly transfer their money from sterling into other currencies
What contributed to inflation?
A fall in demand for the pound which reduced its value
What did Britain depend on?
The invisible earnings of the City of London’s banking and insurance services to boost its exports
What risked a BOP deficit?
Government tax cuts because when people had more money, they often spent it on imports
Why was it difficult to reduce the import bill?
Britain needed to import many of its industrial raw materials and much of its food
Why did economists argue that trade unions contributed to the country’s economic difficulties?
In times of inflation, union leaders used the threat of strike action to demand wage increases
Unions resisted government attempts to try to restrict pay increases or to make wage increases dependent on increased productivity
Any wage increase made the industry’s labour costs higher and increased inflation
High labour costs made goods more expensive and reduced the amount of profit that employers could invest
Why did Labour have to take account of the trade unions?
Labour was allied to the unions who provided most of its money
Almost half of the British workforce belonged to a trade union
If Wilson failed to tackle the deficit what would happen?
Britain would gain a reputation abroad for economic incompetence which would discourage investment from overseas and damage the earnings of the City
What two solutions were the government faced with?
Deflation: tax rises and/or cuts in expenditure. These measures would take money out of consumers’ pockets and reduce the spending power of industries and businesses, decreasing the import bill
Devaluation: reducing the exchange value of the pound. Since 1949, the exchange rate was £1: $2.80. Devaluation would make British products cheaper, boosting exports. Because Britain relied on many imports, the cost of living would rise
Why did Wilson rule out deflation as soon as he came into office?
He believed it would reduce the savings of thrifty, working-class families
He was aware that devaluation had destroyed Labour in 1931 and severely damaged the Attlee government in 1949
He knew he would have to have another election soon
He did not want to upset the USA
What happened in 1964?
Callaghan negotiated international loans to prevent a run on the pound and introduced a series of deflationary measures which included higher taxes on tobacco and alcohol and a temporary import surcharge
What did Callaghan have to agree to in return for US financial assistance?
To maintain British Far Eastern bases
What did Wilson believe could make British industry more effective?
Better planning
What did Wilson create?
A new ministry - the Department of Economic Affairs (DEA) - to devise a plan to modernise and improve Britain’s economy
What was published in September 1965 and what were the targets?
The National Plan:
An annual growth rate of 3.8% over six years
An increase in exports of 5.25% each year to reduce the BOP deficit
What did the National Plan require the government to do?
Create a new National Board for Prices and Incomes to ensure that wage increases would only be granted if accompanied by increases in productivity
Provide investment funds for the modernisation of British industry, the improvement of workers’ skills, and a programme of regional development
Why did the National Plan never have much chance of success?
The Treasury guarded its role as the economics ministry and didn’t cooperate with the DEA
The recommendations of the National Plan for government spending were undermined by deflationary measures
The NBPI had no power to enforce its decisions as it relied on the cooperation of the trade unions
What happened in 1969 (economic)?
The DEA was wound up
What was the political impact of the National Plan?
It contributed to Labour’s victory in the March 1966 election because it suggested that the government had a coherent vision for the future
What did Labour campaign on in 1966?
‘you know Labour government works’
What was the impact of deflationary measures?
They had reduced the BOP deficit and prevented a run on the pound
What were critics of Labour’s economic policy pointing out?
That the government was struggling to impose wage restraints and the DEA and the Treasury were pursing contradictory policies
What did Labour have to accept in November 1967?
The humiliation of devaluing the pound because there seemed no other way out of its economics difficulties
What were wage rises limited to?
3.5%
What happened on 16 May 1966?
The seamen began a strike, demanding a pay increase that exceeded the government’s pay regulations and a 40-hour week
What was the impact of the strike?
Damaged British exports as exports worth £40 million were delayed by the strike and it threatened another run on the pound
What did the government choose to do in July 1967?
Deflation rather than devaluation
What was the BOP deficit in 1967?
£458 million
What was the unemployment rate in 1967 and in 1964?
1967: 2.5 million
1964: 1.7 million
What happened on 18 November 1967?
The pound was devalued and was now worth $2.40
How successful was devaluation at first?
The trade figures were stubbornly slow to improve and the BOP deficit remained
What did Roy Jenkins conclude?
That deflationary measures were still needed to cure the deficit
What happened in January 1968?
The government announced that all British forces east of Suez were to be withdrawn by the end of 1971
What was reintroduced?
Prescription charges
What was deferred and what was the impact?
The raising of the school-leaving age from fifteen to sixteen
Undermined the educational reform the Labour government had believed essential
What did Jenkins do in March 1968?
Increased taxation by £923 million
What was the rise in exports in 1968?
From 4% to 13-14%
What was the BOP in 1969?
£273 million
What was the rate of inflation in 1964 and what was it in 1970?
1964: 3.28%
1970: 6.37%
What was the unemployment rate in 1970?
4%
What happened to Britain’s percentage share of world exports of manufactured goods?
Declined from 16% in 1960 to 11% in 1970
What was Labour prevented from doing?
Achieving the aims it had set itself in 1964 of modernising the country and successfully planning a productive, competitive economy
What was GDP in 1964 and in 1970?
1964: $94.41bn
1970: $130.68bn
What was UK defence spending as a percentage of GDP in 1963 and 1970?
1963: 7%
1970: 5.4%
Why was Britain’s spending on defence negative?
It devoted more of its national resources and development budget to the military than other NATO countries apart from the USA. This reduced investment in other sectors of the economy
What investment was there but how was this undermined?
Motorways in the north of England
Encouraged the development of manufacturing sites in south Wales, Scotland, Merseyside, and Tyneside
By the government’s deflationary policies which imposed cutbacks in government investment
How much did public expenditure rise by from 1966 to 1968?
9%
