Topic 5: Major and Economics (1990-97)

Question 1

3

Give an overvew of the British economic decline 1992-97

Answer 1

• Unlike 1964 and 1974, Tories were returned in election and forced to manage its own economic situation
• Overall tax burden higher in 1990s than 1970s
• Britain’s long-term economic decline did not halt relative to other nations

Question 2

3

How did the ERM function?

Answer 2

• Britain required to maintain fixed exchange rate of 2.95 marks to pound
• Narrow band allowed for fluctuations
• Thought that tying pound to strong German economy would precipitate prosperity

Question 3

4

Describe the causes of Black Wednesday (ERM disaster) 1992

Answer 3

• Britain had joined at overvalued rate
• German Bundesbank set high interest rates following huge costs of unification
• British currency under pressure to devalue or face even greater collapse of output and employment
• Money market began to mass-sell sterling

Question 4

5

Describe the events of Black Wednesday

Answer 4

• 16 September 1992
• Major and Lamont dithered and refused to devalue pound
• Ordered spending of currency resevres to buy up sterling being rapidly-sold on currency markets
• Interest rates constantly increased throughout day to tempt speculators to buy pound - reahced peak of 15%
• Speculation forced Lamont to announce decision to leave ERM at 7pm

Question 5

4

Describe the immediate economic effects of Black Wednesday

Answer 5

• Central plank of Major economic policy had failed
• Had wasted £5bn trying to ward off inevitable devaluation
• High interest rates only worsened negative equity
• Value of sterling had declined by 20% in day

Question 6

3

Describe the long-term economic impact of Black Wednesday

Answer 6

• Economy quickly stabilised
• Leaving ERM prevented Britain from having to maintain high interest rates to protect stability of sterling
• Alowed exchange rates to flow downwards, which aided British exports

Question 7

3

Describe the resignation of Norman Lamont

Answer 7

• 1993, proposals to extend VAT into domestic fuel and other items provoked widespread anger
• Resigned in May 1993
• Replaced by Ken Clarke

Question 8

5

Describe privatisation under Major

Answer 8

• Severe pressure on public finances made it unavoidable to boost spending
• Coal industry privatised 1994
• Railways privatised 1996
• Major introduced PFIs
• Hopes of centrist Major administration dashed

Question 9

1

Describe limits to privatisation under Major

Answer 9

• Plans to privatise Post Office abandoned to public opposition

Question 10

2

Describe Private Finance Initiatives (PFIs)

Answer 10

• private companies would fund infrastructure improvements and deliver public services
• state would pay for these over the length of contract

Question 11

7

Describe the British economy by 1997

Answer 11

• By 1997, most economic indicators were positive
• Productivity up marginally (GDP growth at 5%)
• Unemployment down
• House prices rose and negative equity disappeared
• End of American recession led to expansion of world trade
• Business supportive of government policy
• Paved way for boom period under New Labour

Question 12

3

Describe the causes of pit closures in the 1990s

Answer 12

• In spite of increased productivity, British coal demand remained low
• Double price of imported Australian, Colombian and American coal
• Privatised electricity industry not obligated to buy British coal unlike nationalised electricity board

Question 13

6

Describe the pit closure programme of the 1990s

Answer 13

• British Coal (NCB successor) proposals to cut jobs and pits
• Led to political anguish, even among Conservative MPs
• Even loyal Nottingham pits were to be shut down
• Government limited plan following miner demonstrations
• Yet proceeded with majority of closures
• Remainder of industry sold to private sector at below-value price

Question 14

2

Describe the fall in the mining workforce after the pit closure programme in the 1990s

Answer 14

• By June 1993, workforce at 44k
• less than half of 1990 level

Question 15

4

Describe Heseltine’s role in the pit closure programme of the 1990s

Answer 15

• Served as Trade/Industry Secretary, 1992-95 - so responsible
• Had given repeated assurances to UDM leader Roy Lynk that UDM pits would not be shut down
• Major wielded political astuteness in placing Heseltine in difficult brief
• 1993 heart attack left him politically sidelined