Theme 1b: Responding to economic challenges

Question 1

Post War Boom - 1918-1920

Answer 1

• Short speculative boom, 1918-1920
• People had accumulated large savings which could now be spent.
• Total amount of new shares increased dramatically:
  1918 = £65 million
  1920 = £384 million
• Goods in short supply and became expensive - end of boom.

Question 2

Recession - 1920-1921: Affect on industries

Answer 2

• Old industries hit hardest - coal and ship building.
• Hubs of heavy industry became depressed - tyneside and south wales.
• Underinvestment in steel industry - surpassed by Germany and the USA.
• Coal crisis resulted in strikes
• Decline in textile industry - losing out on the market.

Question 3

Recession - 1920-1921

Answer 3

• Debt rose from 120% of GDP to 160%
• Unemployment rose to 12% - 1921: 2 million unemployed.
• Cost of living rose 25% (1918-1920) but wages stagnant.

Question 4

Attempts to solve economic problems, 1921-1924:

Geddes Axe

Answer 4

Retrenchment:

• Geddes Axe = £87 million worth of cuts - 1922-23 budget.
• Most came from military but also health, welfare, and housing budgets.

Question 5

Attempts to solve economic problems, 1921-1924:

Free trade vs Protectionism

Answer 5

• DLG in favour of free trade

- Some tories wanted tariffs but this split the party - led to first Labour govt.

Question 6

Attempts to solve economic problems, 1921-1924:

MacDonald

Answer 6

• Didn’t have a majority to increase spending.
• Unemployment down to 6.5% by 1924.
• Started to rise under Mac - up to 8%.

Question 7

1925 Gold Standard blunder

Answer 7

• Over valued the pound by 10% - prolonged the slump.

- Made exports less competitive - this hurt older industries more.

Question 8

Depression, 1929-1934

Answer 8

• Exports declined by 50%
• Unemployment:
  1929 = 1 million
  1930 = 2.5 million
• Abandoned Gold Standard in 1931
• 10% cut in unemployment assistance - split the labour party.

Question 9

Recovery, 1934-1939

Answer 9

• Unemployment fell - 17% –> 8.5%
• GNP rose 23%
• Cut in interest rates –> Housing boom –> 100,000s houses built (1934-35 = 293,000)
• Devaluation made exports more competitive.

Question 10

Managed Economy, 1939-1951

Wartime

Answer 10

• Chamberlain and DORA (Defence of the Realm Act - 1939). Gave Govt more power.
• Churchill created new ministries:
  Ministry of Food, and Ministry of War Production
• Increase in military expenditure:
  1939 = 15% of net income
  1943 = 55% of net income.
• Lend-lease agreement = financial lifeline

Question 11

Post war austerity, 1945-1951

Answer 11

• Rationing reintroduced and areas experienced food shortages (Bread 1946-1948).
• £4 billion of war debt to USA
• Maynard Keynes negotiated a £2 billion loan.
• Britain was the largest recipient of Marshall money:
  £2.7 billion in loans
  Was invested in foreign affairs (Korea, Greece)

Question 12

Nationalisation, 1945-1951

Answer 12

• Govt committed to full employment

- 1950: Investment in infrastructure = 9% (20% in Germany).

Question 13

Nationalisation, 1945-1951

The key industries

Answer 13

• Coal Industry Nationalisation Act 1946
• Bank of England Act 1946
• Transport Act 1947 (railways…)
• Electricity Act 1947
• The Gas Act 1948
• Iron and Steel Act 1949.

Question 14

Response to Economic Challenges, 1951-1979:

Recurring problems

Answer 14

• Devaluation
• Balance of payments problems
• Inflation
• Union disputes
• 1970s unemployment

Question 15

Tories and post war economy, 1951-1964

Answer 15

• Post war consensus - Butskellism –> committed to full employment
• All rationing over by 1954 - economic boom underway.
• Mixed Economy - no increase to nationalisation but didn’t reduce it.
• Stop-go economics
• NEDDY and NICKY to manage economy

Question 16

Tories and post war economy, 1951-1964:

Committed to full employment

Answer 16

• Keynesian-style public work schemes
• Unemployment averaged 500,000
  Didn’t return to the highs of the 1930s

Question 17

Tories and post war economy, 1951-1964:

Stop-go economics

Answer 17

• Attempt to control inflation and unemployment - didn’t work.
• Made access to consumer credit easier in 1954
• Stop: Raise interest rates to make it harder to borrow.
• Go: Reduce interest rates - facilitate an acceleration in spending.

Question 18

Problems by 1964

Answer 18

• Unemployment at its highest level since the war in 1963 = 878,000
• Growth in imports led to a balance of payment problem which threatened the pound.
• Aug 1961, govt refused to devalue the pound - IMF loan = £714 million to support it.

Question 19

Wilson govt, 1964-1970

Answer 19

• Wage freeze in 1966 for 6 months to curb inflation - Prices and Incomes Act.
• Ministry of Technology in 1964 - aim to modernise economy (Tony Benn, 1966).
• Industrial Reorganisation Corporation (IRC) to boost efficiency.
• Plagued by inflation and balance of payments deficits.

Question 20

Devaluation 1967

Answer 20

• Decrease of 14%
• $2.80 to $2.40
• Led to Callaghan resigning

Question 21

Heath govt, 1970-1974

Answer 21

• Intended to reject corporatism and embrace free market.
• Huge spike in inflation to cuts and then union action - tax cuts led to spike in 1973.
• Oil crisis led to price rises.

Question 22

Heath cut spending, 1970-1974

Answer 22

• Cuts to subsidies to council houses
• Cuts to free school milk
• Raising charges to prescription
• First budget made cuts of £330 million

Question 23

Heath axed IRC

Answer 23

The role of private business to modernise, not the state’s.

Question 24

Labour govt, 1974-1979

Answer 24

• Abandoned full employment

Question 25

Labour were plagued by inflation

Answer 25

• Prices rising faster than wages - 30% by 1975

- Led to strike action.

Question 26

IMF loan, 1976

Answer 26

• Pound had fallen by 20% - $2 to $1.63
• The loan was £4 billion but required the govt to make £3 billion of spending cuts.
• The left were angry at the cuts - Benn wanted protectionism and to leave the EEC.
• Callaghan started to recognise monetarism.