Lesson 7 - Did Conservatives Economic Policy Bring Economic Prosperity? Flashcards
Reasons for post war boom
- food rationing ended in 1954 = end of austerity and higher living standards
- expansion in electrical, engineering, steel, cars etc
BUT other countries such as west Germany and France producing more. - economic recovery 1952-1954 under labour post war policies
BUT conservatives inherited a fragile state i.e Korean War
Butlers economic policy
Problems:
- decline in exports as people brought outside the sterling area
- Retrenchment (cut on gov spending) needed
Solutions:
- reduction on imports
- raising interest rates from 2% to 4% to discourage borrowing
What is the Keynesian theory
- government borrows more money to spend on projects
- creates more jobs and higher wages = more money to spend
- increases demand as they bought more goods and services and helped industries sell goods
- business would continue to pay wages and employ people. In nationalised industries, government could use profit to fund projects and welfare reforms.
What is stop-go economics
aimed to control excessive growth (which could lead to inflation) and stimulate growth when the economy slowed down. When growth was too much, interest rates were increased, if there’s not enough growth, interest rates were decreased.
Strengths of stop-go economics
- not reliant on loans
- interest rates rises discouraged borrowing, tax, increases to check overspending and import controls would limit imports and reduce trade gaps.
- these could be lowered to encourage spending - the economic situation would be monitored at each annual budget.
Weaknesses of stop-go economics
- did not produce a consistently performing economy
- the government was always reacting to events rather than directing them
- British economy not keeping up with other European countries i.e west Germany.
What caused butler’s downfall?
Budgets of 1955
Before the election in 1955, butler introduced a generous budget in April. This cut both income tax and purchase tax. As a result, conservative majority increased from 17 to 60. Everything looked good. HOWEVER
Too many imports and wage increases led to economy overheating so in 1955 butler had to raise purchase taxes again on goods such as household objects. Gaitskell attacked butler.
What is the ‘pots and pans’ budget?
When butler had to raise purchase taxes again on goods such as household objects.
What was the thorneycraft economic policy called?
Monetarism - cutting inflation
Why was thorneycroft worried about the stop-go approach?
Between 1948 and 1956 - wages increased by 75% but output had only rise by 28% which would lead to inflation
What was thorneycroft’s solution?
Limit wages and to cut money supply
What two groups opposed thorneycroft’s approach. Why?
One nation conservatives - concerned it would lead to job cuts and cutbacks in housing
Trade unions - difficult to pursue are against high wage increases especially in some industries such as coal where miners were not paid the same as others.
What are one nation conservatives?
A form of conservative ideology which advocates for the importance of a society working together as part of one nation.
Successes of the conservative economic policy?
- higher salaries increased internal demand
- full employment achieved by 1955 - unemployment 200,000
- sterling regained its value
Failures of the conservative economic policy?
- taxation remained high
- other countries had bigger growth i.e west Germany
- pressure from the USA after the suez crisis started a run on the pound (devaluing)
