Theme 1 - Economy Flashcards
What impact did WW1 have on Britain?
1920 debt amassed 8 billion
Many many people died
Imports remained at pre war levels but exports rapidly declined resulting in negative balance of payments
What caused the 1919-20 boom?
During the war individuals and business couldn’t spend there money meaning they saved vast amounts. After the war they were able to spend these savings
What items/products did people invest there money in?
Shares
Rationed luxuries such as coffee, soap and cigarettes
What caused the 1920-21 recession?
Heavy industry could not keep up with foreign competition and an underinvestment in industries (Britain producing 83k tonnes of steel compared to USA’s 125k)
What effects did the 1920-21 recession have?
Debt rose from 120% of GDP to 160%
Goods were in short supply and therefore became expensive
World economy was no longer dominated by UK -Japan took over textile industry
What was retrenchment?
The term used to describe a policy of spending cuts Lloyd George made
What was the Geddes axe? And what did it aim to do?
Introduced £87 million cuts in expenditure in 1922-23 budget. Mostly from military but also effected health, welfare and housing
Aimed to stimulate economy
What was free trade? +/-
No taxes on foreign goods
+ can trade internationally without fear of other countries imposing taxes on your goods
+ goods are sold at competitive rates as British industries have to compete with international imports
- can be outcompeted by foreign competitors
What are tariffs? +/-
Taxing certain imported goods
+ helps domestic industries by making foreign goods more expensive
- other countries can also apply tariffs and goods are not as cheap as they don’t have to be competitive
What caused the 1929 depression?
Wall Street crash in America
Why did the depression effect the UK?
USA had replaced the UK as the worlds largest importer meaning that when depression hit UK’s exports fell by 50%
How did the crash effect the economy? What areas were worst effected?
Shrank by 5%
Unemployment up to 2.5 million in 1930 from 1 million in 1929
Coal, Colton, steal, ship building, dock work and the shops and markets around these areas were worst effected
How successful was MacDonald in tackling economic issues? (1924-25)
Not very - unemployment rose to 8% in 1925 and he was reluctant to step in
However inflation did fall to 1% in 1924 compared to 15% in 1920 - this was due to lack of spending tho
What caused the end of MacDonald’s second premiership?
Rumours of unbalanced budget caused mass selling of pound in America - value of pound dropped - spending cuts proposed to keep pound stable - threat of cuts split Labour Party
What did the National gov do that MacDonald failed to do?
Implemented the spending cuts he proposed - mainly through 10% cut in public sector wages and introduction of means test
What stimulated British recovery and how did it?
Removal of gold standard in 1931
- Decreased interest rates which meant borrowing was cheaper leading to housing boom in south east and Midlands
- British goods were cheaper and more competitive
- Banks were willing to spend again
What signs were there that Britain was recovering
- Income rose to 19%
- Industrial production rose to 46%
- Exports rose to 28%
What did Churchill do to help with the war effort?
Created war time ministries of: health, food, war production and supply
What had Britain failed to do pre war and was the result of this failure?
Re-arm effectively
Military spending skyrocketed after 1940
15k aircraft built in 1940 but 47k built in 1944
What aid was provided to Britain during the war?
Between 1939-41 USA offered aid
Lend-Lease agreement meant that the US would offer supplies and the bill would be paid after the war
American Liberty ships provided coal, oil and food
What was Britain’s economic state after WW2?
Bad - £4 billion owed to the US with £70 million daily interest, economy contracted by 1/4 and trade declined by 2/3
Lower GDP than Germany and Japan
What did the UK ask America for and was it given?
An Emergency loan in the form of a ‘gift’
Congress refused to give it as a gift
What aid did the UK receive from America to help it recover and how was it used?
£2.7 billion of Marshall aid - used ineffectily and instead of investing in industry they used it for general expenses
What does nationalisation mean? How did the UK Nationalise industry?
State taking control of private owned firms. Took control of coal, power, railways, ship building and banking
Why was nationalisation not as effective as it could of been?
Shareholders of newly nationalised industries were compensated. This meant that despite private rail being bought for £1 billion it actually cost the government £2 billion due to compensation fees. Little money was left to revamp industries
What did conservatives promise to prioritise from 1951?
Public work schemes and a mixed economy
What was stop-go economics?
Gov increased taxes and interest when economic growth was too high therefore stopping inflation by making it harder to spend (stop). Then they would reduce taxes and interest rates when economy slowed down to allow growth once more (go)
Why were NICKY and NEDDY created?
To try to unite Labour, management and government. Believed this would allow economic goals to be planned and achieved
What was NICKY?
Group of businessmen who gave guidance to employers and unions on what gov considered reasonable pay increases. Gov feared inflation could get out of control unless pay rises were managed
How successful was NICKY?
Not very - Unions ignored wage restraints as they knew workers wanted more spending power
What was NEDDY?
Meetings were management and unions discussed economy and cooperate with one another
How successful as NEDDY?
Medium - Gov couldn’t enforce legal control so just hoped both sides would voluntary agree with one another
What problems was the economy facing in 1964?
- Consumer spending increased and demand for foreign goods caused a balance of payments problem throttling the value of pound
- Unemployment at highest since pre war (878k)
- Gov refused to devalue pound so had to borrow £714 million from IMF
What was created to tackle the problems NICKY left behind?
1966 prices and income act - forced statutory. Wage freeze for 6 months to curve inflation
1967 prices and income act - allowed wage increase to companies that could prove increasing productivity and output
What did Wilson found in 1964? And how successful was it?
Ministry of tech - aimed to bring advanced tech and new processes into industry
Very successful - become one of the largest gov body
Why did Wilson devalue the pound in 1967 and how much did he devalue it by?
Hoped to ease deep seated problems in economy - 14%
What was the IRC?
- Organisation promoting efficient practices in industry and mergers in business where it was believed economic efficiency would increase if they merged.
- Offered loans to those wanting too introduce efficient measures
How successful was the IRC?
Mergers mainly failed. Eg: British Motorsport + Layland = failure
How did Heath reverse many of Wilsons and Macmillan’s plans?
- Abolished IRC = Believed state could not promote modernisation and it had to be done by private businesses
- Stopped gov’s ability to control or influence prices and income = reversing the 1966 and 1967 prices and incomes acts
- Wanted a free market = going against NICKY and NEDDY’s ideas of corporatism
What cuts did Heath make to try to stimulate growth?
- Subsidies to council houses
- Free school milk
- Raising chargers on prescription
£330 million worth of cuts in first budget
How successful were these cuts?
Not very - Heath did not count on increasing inflation and unemployment. Many public sector workers (mainly miners) went on strike
What was the 1976 IMF loan? And why was it needed?
£4 billion landed on condition that Britain could prove they could pay it back and agree to £3 billion worth of spending cuts
Caused by increasing inflation, devaluation of pound and increasing strikes
When and why was the gold standard reintroduced?
- 1925 budget
- a decreasing value of the pound was bad for British prestige and Churchill believed a competitive economy could not be built by the government simply making things easier for manufacturers
