To what extent were Labour and Conservative governments successful in tackling the economic problems facing Britain, 1945 – 1979? Flashcards
p1- Full employment and industrial recovery in the 1940/50’s
Britain faced a number of significant problems in 1945:
Britain had worked up £4 billion of debt from war, British exports had fallen by 40% due to the disruption to
global trade, and this had in turn created a dangerous balance of payments crisis
the British economy had shrunk by 25% since 1914
Labour used loans (from America) to nationalise key industries in order to run them centrally - Coal (1946), Gas (1948),
Iron and Steel (1949) – the Conservative governments under Churchill and Eden also accepted the need for a ‘mixed
economy’
As a result of the investment provided to industry, unemployment stayed below 2% (1945-51) and remained low
throughout the 1950s
Attlee’s Chancellor, Sir Stafford Cripps, took the radical (and unpopular) measure of devaluing the pound in 1949 from
$4.03 - 2.80: the devaluation helped to stimulate overseas trade and increased the competitiveness of British goods
By the mid-1950s, many of the problems facing Britain had been resolved:
Britain’s global exports grew by 80% and the percentage of world trade dominated by Britain grew from 17-20%
overall industrial production rose by ⅓ and new industries (such as cars and electrical goods) boomed in the
late 1940s and early 1950s with (GDP) increasing 3% each year after 1947
However, governments in the 1940s and 1950s failed to invest in Britain’s long-term economic growth or infrastructure:
the nationalisation cost the government over £2bn (over £1bn was spent on purchasing the railways alone)
after such high expenditure the government lacked the money needed to invest in infrastructure and therefore
there was no economic regeneration
as a result, little was done to modernise or improve Britain’s heavy industry – this would lead to a long-term
decline of the competitiveness of British industry
while Britain spent 9% of her GDP on infrastructure and industrial restructuring in the 1940s, Germany spent
20% - as a result, British industry would struggle to keep up with Germany, Japan and the US in the 1950’s
the devaluation gave a short-term boost to British exports as it made British goods cheaper abroad, however,
this also reduced the buying power of British industry and significantly increased the cost of imports
p2-Failure to promote long-term growth in the 1960s
Ultimately, Macmillan’s government failed to develop a consistent economic policy and failed to promote long-term
economic growth: Britain was known as the ‘sick man of Europe’ by the mid-1960s:
Macmillan has been accused of ‘budget politics’ – using tax cuts and interest rate cuts before an election to win
political support: e.g. taxes and interest rates were cut in the ‘giveaway budgets’ of 1959 and 1964 in order to
stimulate consumer spending, however, these measures were quickly reversed when inflation rose each time
Macmillan’s policies were criticised for being ‘stop-go’: short-termist’ policies that did not produce consistent
growth.
By 1964, economic growth had fallen to 2.3% per year compared to 5.1% in Germany and 4.3% in France,
unemployment had reached its highest level since the war (878,000), and there was a £800m balance of payments.
E2:Similarly, Wilson’s stated aim of achieving a ‘technological revolution’ failed to materialise and damaging trade union
militancy was left unresolved:
Wilson’s Industrial Reorganisation Committee aimed at promoting efficiency in industry via mergers, however,
this policy proved disastrous: e.g. the £25m loan to British Leyland ended in loss
Wilson failed to tackle rising trade union wage demands which were causing inflation to spiral out of control –
the Prices & Income Acts (1966 and 1967) attempted to introduce a wage freeze for 6 months but it soon
became clear this was unenforceable following waves of strikes - 10m working days lost in 1967 alone
Having failed to improve the competitiveness of British industry, Wilson was forced to devalue the pound in 1967 from
$2.80 - $2.40 (14% decrease in value).
p3- Economic crisis in the ‘ungovernable’ 1970’s
In, what became known as the ‘ungovernable seventies’, successive governments struggled to reduce the growing UK
debt or improve the fate of Britain’s struggling industry and falling exports.
Heath’s attempted to initiate a ‘new style of government’ that would be a clear departure from the decades-long
Keynsian consensus:
Heath made £300m cuts in his first budget (including cuts to council housing, education, and school milk) and
made further cuts (public sector wages) in the ‘Barber Budget’ (1972) in an effort to bring down the spiraling
government debt
Heath embraced free market economics and rejected corporatism: he axed Wilson’s IRC and abolished NBPI
which brought an end the government’s involvement in setting wages and prices
E2:However, Heath forced to make a U-turn by 1972 as inflation had risen to 15%, unemployment had tripled (to 6%), and
industrial output had fallen even further – this was clear evidence that his new ‘free-market’ approach had not
succeeded.
The Labour governments of the late-1970s were similarly crippled by the crisis they inherited: inflation was at 30% by
1975 and the value of the pound was falling = Wilson was forced to ask the IMF for (another!) loan of $4 billion (which
only worsened the debt) but was forced to accept £3 billion of spending cuts to prove that Britain could manage her
debts
In a desperate attempt to curb the rising inflation, Callaghan introduced a 5% wage increase cap (1977): this led to the
‘Winter of Disconent’ (1978-79) and Labour were forced to abandon their attempts to control wage demands.
