Topic 2: Economy/Industrial relations (1964-70)

Question 1

3

Describe the economy in 1964

Answer 1

• £750m budget deficit
• £800m balance of payments deficit
• Overvaluation of sterling (£1 = £2.80)

Question 2

4

Describe opposition to devaluation in 1964

Answer 2

• To combat crises, choices were deflation or devaluation
• Wilson fearful of market devaluation
• devaluation could not succeed without cuts in spending - would abandon party’s promises months after taking office
• Wilson forced to pursue American-dependent economic policy subject to their conditions

Question 3

2

Describe the causes of the 1964 Sterling Crisis

Answer 3

• Callaghan’s autumn budget kept peldge to increase pensions and abolish persription charges despite huge deficit
• led to crisis in money markets (esp on Gold Reserves)

Question 4

5

List the measures taken to solve the 1964 Sterling Crisis

Answer 4

• Callaghan and Wilson unified in resisting devaluation
• bank rate raised to 7%
• temporary surcharge on imports
• income tax went up to 8s 3d
• Loan of $300m from US Fed and European Central Banks

Question 5

3

Describe the economy in 1965

Answer 5

• 30% Capital Gains Tax and Corporation Tax
• Unemployment avg 1.5% (1965-66)
• Market recovers and pound strengthens

Question 6

4

Describe the economy in 1966

pre-sterling crisis/seamens’ strike

Answer 6

• Balance of Payments Surplus £127 million
• American support crucial
• Prices 9% higher than 1964, but earnings 11% higher
• Lab capitalised on situation and called election for March 1966

Question 7

2

Describe the DEA

Answer 7

• September 1965, ‘National Plan’ published
• George Brown at helm

Question 8

2

Describe the ‘National Plan’

Answer 8

• Outlined idea that growth could be achieved through national economic planning
• Set growth rate target at 3.8% per annum - had been achieved in 1963/64

Question 9

4

Describe the failure of the DEA

Answer 9

• Events in 1964 made target improbable
• No govt plan to restrict incomes or increase productivity
• Brown moved from DEA to FO (after 1966 July Package)
• lost credibility by 1966, abolished 1969

Question 10

3

Describe Callaghan’s May 1966 budget

Answer 10

• Selective Employment Tax introduced
• Intended to subsidise manufacturing industry with proceeds of service industry
• would boost exports

Question 11

2

What were the causes of the 1966 Sterling Crisis

Answer 11

• Selective Employment Tax not sufficient to convince markets that sterling was immune from devaluation
• Stimulated by seamens’ strike

Question 12

3

What were the effects of the May 1966 seamen’s strike

Answer 12

• Damaged exports
• Run on reserves
• Run on exchange rate of sterling

Question 13

3

What were the effects of the 1966 Sterling Crisis

Answer 13

• Monthly trade deficit doubled
• Cousins resigned (Minister of technology) in protest over income policy
• Internal cabinet pressure from Castle, Callaghan, Brown, etc for devaluation

Question 14

6

How was the 1966 Sterling Crisis solved?

Answer 14

• July Package 1966
• Britain’s economy would run with larger margin of spare capacity
• Bank rate rose to 7%
• Spending cuts at home and abroad
• Hire purchase restricted
• Complete wage/price freeze

short-term success, long-term failure

spare capacity - available land, labour and capital

Question 15

4

Describe the effects of the July Package 1966

Answer 15

• National Plan confirmed dead - Brown left DEA
• wages/prices frozen for 12 months
• Economic growth little more than 2% in 1966-67 (half of envisaged National Plan target)
• Balance of Payments surplus (of £127m) for first time in 3 years, before plunging into heavy deficit

short-term success, long-term failure

Question 16

3

Describe the economy in 1967

Answer 16

• Dock strikes
• Monthly trade deficit for October was £107m, easily the worst on record
• Run on pound (Sheldon question)

Question 17

3

Describe defence cuts (1967-68)

Answer 17

• Triggered by sterling crisis 1966
• 1967, Wilson rejected USA plan explicitly linking support for sterling with continued British presence in Far East
• Jan 1968, instead plans made for withdrawal East of Suez

Question 18

4

Describe the causes of devaluation 1967

Answer 18

• ‘Six day war’ between Israel and Egypt in June 1967 → resulted in temporary oil embargo
• Shattered hopes of balance of payments surplus
• Unofficial dock strikes 1967
• Question by Robert Sheldon MP about foreign loans caused market chaos (run on pound that cost govt £500m would occur)

Question 19

2

Describe devaluation 1967

Answer 19

• 18 Nov 1967
• Pound devalued from $2.80 to $2.40

Question 20

6

Describe the effects of devaluation 1967

Answer 20

• Standy credit loan of $1.4bn from IMF
• Severe terms attached e.g. bank rate set at 8%
• Callaghan resigns on 30 Nov
• '’the pound in your pocket has not been devalued’ (irresponsible and untrue)
• Economic competence ruined - previous sacrificies nullified
• Govt loses by-elections by swings of up to 18% - largest since war

Question 21

4

Describe the economy in 1968

Answer 21

• Jenkins had replaced Callaghan
• March 1968 budget warned of ‘2 years of hard slog’
• £923m of cuts
• Tax rises on high incomes, fuel and consumer goods

Question 22

7

Describe the March 1968 budget

Answer 22

• Jenkins warned of ‘2 hard years of slog’
• £923m taken out of economy in massive deflationary package
• Defence spending fell from 6% of GNP to 4% within 7 years
• Postponed raising of school leaving age to 16
• Abandoned target of 500k new houses
• Higher taxes levied on alcohol, high incomes, fuel
• Led to £800m balance of payments surplus by 1970, but deeply unpopular with public

Question 23

3

Describe the economy in 1969-70

Answer 23

• 1969 Budget - £340m tax rises
• Balance of payments reached £500m surplus in 1969, £800m surplus in 1970
• Jenkins had turned economy around - but through deflationary Treasury rather than expansionary DEA

Question 24

5

Describe harmonous relations with unions (1964-66)

Answer 24

• Opinion polls in 1960s showed public had 60% approval of unions
• Wilson made Frank Cousins, former Union official, as Minister of Technology
• ‘Beer and sandwiches’ - codename for hard-ball policy discussions
• Govt needed unions on side with inflation-restrictionary policies
• 1965 Trade Dispute Act

Question 25

2

Describe the Trade Dispute Act 1965

Answer 25

• Closed loophole Unions had found in previous act in 1906
• liked by unions

Question 26

4

Describe unofficial dock strikes 1967

Answer 26

• Series of unofficial strikes in September 1967
• Savagely disrupted exports at critical time (following July Package)
• October monthly trade deficit = £107 million - easily worst on record
• Contributed to devaluation

Question 27

5

Describe Mad Friday 1968

Answer 27

• 6 December 1968
• Threat of General Strike swirled
• Caused run on pound of £100m that day
• Wild rumours (further devaluation, Wilson’s resignation, Queen’s abdication)
• Showed power of unions

Question 28

3

Describe In Place of Strife (1969)

Answer 28

• White paper by Castle (Employment Secretary)
• Led to Industrial Relations Bill 1969
• Intended to extend socialist planning to increasingly militant trade unions

Question 29

3

What were the 3 main provisions of In Place in Strife (1969)

Answer 29

• a 28 day cooling off period - govt had more power to negotiate due to less urgency
• imposed settlements in inter-union disputes
• enforcement of strike ballots - prevent repeat of unofficial dock strikes

Question 30

5

Describe the reaction to In Place of Strife (1969)

Answer 30

• Divided cabinet and infuriated unions
• TUC voted it down by circa 8m votes to around 850k
• Wilson and Castle had lost
• Bill forced to be humiliatingly withdrawn
• Led to inflationary wage settlements causing economically difficult winter of 1969-70

Question 31

4

Describe the Prices and Incomes Board

Answer 31

• set up 1965 under Wilson
• initially set with pricing of soap, bread, road haulage
• headed by Aubrey Jones, conservative MP
• abolished 1970