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
