Theme 1b: Responding to economic challenges Flashcards
Post War Boom - 1918-1920
- 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.
Recession - 1920-1921: Affect on industries
- 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.
Recession - 1920-1921
- 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.
Attempts to solve economic problems, 1921-1924:
Geddes Axe
Retrenchment:
- Geddes Axe = £87 million worth of cuts - 1922-23 budget.
- Most came from military but also health, welfare, and housing budgets.
Attempts to solve economic problems, 1921-1924:
Free trade vs Protectionism
- DLG in favour of free trade
- Some tories wanted tariffs but this split the party - led to first Labour govt.
Attempts to solve economic problems, 1921-1924:
MacDonald
- Didn’t have a majority to increase spending.
- Unemployment down to 6.5% by 1924.
- Started to rise under Mac - up to 8%.
1925 Gold Standard blunder
- Over valued the pound by 10% - prolonged the slump.
- Made exports less competitive - this hurt older industries more.
Depression, 1929-1934
- 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.
Recovery, 1934-1939
- 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.
Managed Economy, 1939-1951
Wartime
- 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
Post war austerity, 1945-1951
- 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)
Nationalisation, 1945-1951
- Govt committed to full employment
- 1950: Investment in infrastructure = 9% (20% in Germany).
Nationalisation, 1945-1951
The key industries
- 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.
Response to Economic Challenges, 1951-1979:
Recurring problems
- Devaluation
- Balance of payments problems
- Inflation
- Union disputes
- 1970s unemployment
Tories and post war economy, 1951-1964
- 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
Tories and post war economy, 1951-1964:
Committed to full employment
- Keynesian-style public work schemes
- Unemployment averaged 500,000
Didn’t return to the highs of the 1930s
Tories and post war economy, 1951-1964:
Stop-go economics
- 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.
Problems by 1964
- 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.
Wilson govt, 1964-1970
- 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.
Devaluation 1967
- Decrease of 14%
- $2.80 to $2.40
- Led to Callaghan resigning
Heath govt, 1970-1974
- 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.
Heath cut spending, 1970-1974
- Cuts to subsidies to council houses
- Cuts to free school milk
- Raising charges to prescription
- First budget made cuts of £330 million
Heath axed IRC
The role of private business to modernise, not the state’s.
Labour govt, 1974-1979
- Abandoned full employment
