Wilson and the Economy Flashcards
What were the two options for Wilson to respond to the economic crisis of 1964?
Why was he reluctant of both options?
What was Wilson forced to do?
- Devaluation of the Sterling –> which was clearly overvalued
- Deflation –> cutting back economic growth
Devaluation: mindful of painful experience in 1949
- could not succeed without cuts in spending
Deflation: Clarke argues deflation not an option as labour denounced it as stop-go economics
Wilson forced to depend on US support
When was the first sterling crisis? + Why did it happen?
1964
- When Callaghan’s autumn budget kept manifesto pledges to increase pensions + abolished prescription charges
- gold reserves dwindling daily
How was the 1964 sterling crisis solved? *
- Bank rate raised to 7%
- temporary surcharge in imports imposed
- income tax increased
- $300 million international aid from US federal Reserve and European central banks
How was economic recovery following the first sterling crisis?
What did labour do in response?
- early 1965 pound was strengthened and markets recovered
- US support was crucial
- unemployment averaged 1.5% between 1965-66
- In 1966 prices may have been 9% higher but earnings 11% higher
- called an election in 1966 to capitalise from situation
What was the National Plan?
- The Department for Economic Affairs DEA
- Brown at helm - had great potential
- National Plan published in 1965
- idea was that it was possible to improve economic performance by the national coordination of resources and investment
- set goal for sustained growth at 4% per annum
- soon rendered unattainable by government decisions
- Plan had no teeth
- By 1965 lacked all credibility + labours pledge for economic growth withered away
What did Callaghan earn the rep of?
- tax reformer
- introduces selective employment tax
- not enough
When was the second sterling crisis?
1966
Causes of the second sterling crisis? *
- Stimulated by Seamen’s strike
- damaged exports and caused a massive run on reserves
- June monthly trade deficit doubled
What is the solution for the Sterling crisis of 1966?
- The July Package introduced 1966
What was the July package?
- Bank rate at 7%
- cuts in government spending
- hire purchase restrictions
- complete freeze on wage and price increases
Effects of the July Package on Brown?
- Brown and National plan are immediate casualties
- lost credibility and pensioned off to foreign office
- national plan dead
What are the effects of the July Package? *
- short term impressive
- Economy grew by 2%
- Balance of payments for 1966 finished in the Black
But… - plunged into a heavy deficit
- visible trade gap in 1967 of £600 million even wider than 1964
Effects of the July Package on defence cuts?
- Demonstrated serious need for defence cuts
- obvious target was Britain’s presence east of suez
- however, this was exactly what Wilson promised the US he would maintain in exchange for support of the sterling
- early 1967 wilson rejected deal offered by the USA
- instead pans were made for a phased withdrawal of East of Suez
What were the causes of devaluation in 1967? *
- June 1967 - six day war between Israel and Egypt –> temporary oil embargo shattered hopes of balance of payments surplus
- Sep - series of unofficial strikes on docks savagely afflicted exports at critical time –> monthly trade deficit of £107 million
- Foreign loans cast markets into turmoil + cost nation £500 mill
What was devaluation?
- Pound devalued from $2.80 - $2.40
- shock world and caused temporary panic in washington
What were the effects of devaluation on government ? Also some economic effects / solutions? *
- Callaghan announced a standby credit $1400 million with the IMF - with severe terms attached
- Callaghan resigns
- Harold Wilson’s credibility evaporated when he says on TV ‘the pound in your pocket has not been devalued”
- Bank rate at 8%
- Gov in serious difficulties –> losing by-elections
- Conservatives ahead in opinion polls too
Who was Callaghans successor ? What was his budget? *
- Roy Jenkin at Treasury
- In Budget of March 1968 warned of ‘2 years of hard slog’
- cuts needed in order for devaluation to work
- £923 million taking out of the economy
- defence spending decreased from 6 to 4% of the GDP
- Postponement in raising the school leaving age to 16
- Abandonment of target of 800,000 houses
- tax increases of £900 million
How was the economy in 1969? *
- Jenkins added a further £340 million to taxation in 1969 budget
- balance of payments improved
- surplus of £500 million 1969 - 800 mill by 1970
- labour under jenkins turned economy around
However, achieved through Traditional deflationary Treasury rather than up beat expansion of the DEA
How were trade union relations between 1964-1966?
-Wilson tolerant and permissive at first
- 1964 - Trade unionist Frank Cousins as minister of technology
- Union bosses come to No. 10 for ‘beer and sandwiches
for hard-ball policy discussions
- those days if the gov wanted inflation down needed union say so for wage restraints
When was the Trades Disputes Act and what was it? *
- 1965
- designed to close loopholes found in 1906
- in wage bargaining Wilson struck a posture of modernisation + diplomacy
- Many disputes over beer and sandwiches at No.10
Why were there deteriorating relations between trade unions + when? *
- rush of unofficial strikes 1966-68 outlined power of unions - opinion polls showed public concern
- ‘Mad Friday’ 6th December 1968 - emphasised power of unions + how they could feed widespread fears about british stability
- colossal run on the pound $100 mill lost that day
- mass rumours in circulation - resignation of Wilson - further devaluation - queen abdicated
What and when was in place of strife?
- Barbara Castle –> department of productivity + employment from 1968
- produced white paper ‘In Place of Strife’ led to Industrial Relations Bill in 1969
What was the Industrial Relations Bill?
- Attention focused on 3 penal provisions:
- 28 day Conciliation pause
- imposed settlements in inter-union disputes
- enforcement of strike ballots
What was the response to the Industrial Relation Bill? *
- aroused fury in union circles - introduced force of law
- cabinet divided - backed by Wilson + Jenkins and Callaghan opposed
- TUC voted it down - almost 8 million votes to only 846,000
- Wilson and Castle lost - Bill humiliating withdrawn
- Following was the rising tide of inflationary wage settlements –> Callaghan suffered consequences
