Labour economic policies Flashcards
Nationalised industries
- Union strikes caused national disruption.
- coal mining, civil aviation, telecommunications, transport, electricity, has and water.
Unions
- During inflation: used threat of strike action to demand wage increases.
- Resisted attempts by gov to use power to restrict pay increases or to make wage increases dependent on improved productivity.
- Wage increase not linked to improvement in productivity made industry’s labour costs higher and increased inflation.
- Higher labour costs so goods more expensive. –> balance of payment difficulties
- High labour costs reduced profit that employers could invest in research and development, new machinery and plant.
Why did labour need to heed unions?
- Labour Party allied with trade unions who provided most of its money.
- 1960s, almost half British workforce belonged to trade unions.
Advantages of devaluation:
- Foreigners get more ponds in exchange for their currency. British exports cheaper and more competitive.
- Imports more expensive –> wipe out balance of trade deficit.
Disadvantages of devaluation:
- Britain’s international prestige damaged
- Rise in import prices –> inflation.
Deflation:
Tax rises / cuts in government expenditure.
- Take money out of consumers’ pockets and reduce spending power of industries and businesses.
- Decrease import bill.
- Decrease gap between imports and exports.
Devaluation:
Deduce the exchange value of pound
- Had been £1 : $2.80 since 1949.
Why not devaluation:
- Reduce savings of working-class families
- Devaluation destroyed Labour gov in 1931 and in 1949 has severely damaged Attlee’s gov
- Tiny commons majority would have an election soon. ‘Devaluation would sweep us away.’
- Would upset Americans. America has balance of payments deficit and US treasury feared currency traders would assume Americans were about to do same and run on the dollar.
Autumn 1964 –> Chancellor of the exchequer Jim Callaghan
negotiated foreign loan to prevent run of the pound.
Over 9 months, introduced a series of deflationary measures.
Jim Callaghan’s deflationary measures:
- Increased tax on tobacco, alcohol
- Temporary import surcharge.
Conditions of gaining US financial assistance:
- maintain British Far Eastern bases
- British forces previously fighting in Borneo to defend Commonwealth state of Malaysia against Indonesia. —> support America in Vietnam
The National Plan date and who
September 1965
Department of Economic Affairs
National Plan targets
- Annual growth rate of 3.8% over 6 years.
- Increase in exports of 5.25% each year to wipe out balance of payments deficit.
National plan required Government to:
- New National Board for Prices and Incomes (NBPI) –> ensure wage increases would only be granted if accompanied by increases in productivity.
- Investment funds for modernisation of industries + improvement of workers skills + programme of regional development.
Little chance of success for National Plan:
- Treasury guarded role of government’s economic ministry and did not co-operate with DEA.
- Recommendations of National Plan were undermined by Treasury’s deflation
- NBPI had no power to enforce decisions. Relied on co-operation of trade unions.
When was the Department of Economic affairs wound up?
1969
Successes of National Plan
- Contributed to Labour Party’s victory in March 1966 general election (vision of future)
- ‘You know Labour government works’
- Chancellor’s deflationary measures had reduced balance of payments deficit and prevented run of the pound.
Devaluation date
November 1967
1967 economic difficulties:
- 16 May 1966 the seamen began to strike, demanding pay increase that exceeded government’s pay guidelines.
- Strike damage British exports and poor trade figures threatened another run on the pound.
- Strikes ended July –> government chose deflation rather than devaluation to deal with balance of payments deficit.
- Autumn 1967. Unemployment high: 1967 risen to 2.5 million.
What was the pound devalued to?
Was $2.80
Now $2.40
Was devaluation successful:
- Slow and substantial balance of payments deficit remained.
- Did not prevent cuts in spending.
- Roy Jenkins replaced Callaghan as chancellor.
- Severe deflationary measures were still needed to cure balance of payments crisis.
Effects of devaluation:
- Jan 1968 gov announced all British forces east of Suez (apart from Hong Kong and Persian Gulf) were to be withdrawn by the end of 1971.
- Prescription charges reintroduced (abolished in 1964)
- Raising school-leaving age from 15 –> 16 was deferred from 1971-3. Undermined educational reform the Labour government believed was essential in plan to modernise Britain.
Budget of March 1968 Jenkins
Determined to overcome balance of payments deficit.
- Deflation –> increased taxation by £923 million.
Signs of improvement in 1969
- Balance of payments showed a surplus
- Value of sterling rose and interest rates were reduced.
Economic record of government
- Unemployment higher in 1970 than 1964
- Britain’s percentage share of world exports of manufactured goods
1960: 16%
1970: 11%
When was seamen’s strike?
1966
High defence expenditure and the investment in research and development:
Spent more money, resources and research on military than other NATO countries (save for USA)
Lack of investment
- Encouraged development of manufacturing sites in south Wales, Scotland, Merseyside and Tyneside
- This was undermined by deflationary policies which imposed cutbacks in gov investment.
