1b: Responding to economic challenges (Britain 1918-1979)


Economic challenges after WW1

  • Brief post-war boom with luxuries sold like coffee and clothes
  • Economically challenged Britain after WW1 with large loans from USA, 40% of shipping sunk by German bombers, 750,000 men killed and a cost of £3billion
  • Hardest hit areas were those in heavy industry e.g. Welsh coalfields and Tyne and Clydeside with overseas competitors like USA, Japan and S. America. A loss of export trade due to textiles of silk in India and SE Asia, underinvestment (American steel more popular) and good industrial relations (48hr week) meaning pay had to stay very high with unefficent workers
  • SE England - light industry and electrical appliances grew (12% unemployed in light industry but 70% in heavy)
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Attempting to improve economic fortunes

  • The Geddes Axe - £87million in cuts to public expenditure of 1922-23 budget to stimulate economy
  • Tariffs debatable with other countries putting their tarrifs up in retaliation and didn't make British goods attractive
  • MacDonald failed to make economic changes and unemployment rose to 8% 
  • Churchill reintroduced Gold Standard in 1925 but argued that it caused prolonged economic slump
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Economic effects of Worldwide Depression

  • Export declined by 50% and collapse in trade from coal, iron, textiles, etc (unemployment @ 2.5million)
  • John Maynard Keynes suggested spending on roads for unemployment relief
  • 1931 - frantic selling of £ in America and 10% cut in unemployment benefit led to downfall of Labour on 24 August 1931 
  • Special Areas Act by National Government in 1934 led to direct government assistance like Tyneside, Wales and Scotland
  • Depression didn't last long and industry rose by 46% and incomes by 19%
  • Removal of Gold Standard allowed economic growth of 4% every year
  • Housing boom in SE and government able to allow a degree of inflation
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Wartime Economy

  • Churchill created specific ministries with power to intervene in workplace such as War Production, Aircraft Production
  • Increase in military expenditure at 47,000 new aircraft
  • 1939 American Neutrality Act - buy reserves with cash only
  • Lend-Lease Agreement had USA providing Britain with supplies
  • End of the war - £4billion of debt and repayment to USA costing £70million per day
  • 1948 Marshall Aid from General George Marshall who saw poverty across Europe. Aim to deter communism with £2.7billion in loans
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  • State took control of power, coal, railways, shipbuilding and banking in attempt to ensure full employment
  • Coal Industry Nationalisation Act in 1946
  • The Bank of England Act in 1946
  • The Transport Act in 1947
  • Cost around £2billion
  • Conservatives opposed this
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Conservative Economics

  • Public work schemes in a Keynesian style unemployment between 300,000 and 500,000
  • Thousands of workers from Caribbean and S Asia. 
  • Relaxation in credit
  • Japanese economy grew by 12% 
  • Macmillan believed in corporatism and set up 2 organisations in 1962
  • NEDDY - unions could discuss management of economy
  • NICKY - Economists and industry experts gave advice to employers but unions ignored NICKY as consumerism was attractive and they wanted to be apart of this
  • Unemployment grew in 1963
  • 1961 August government refused to devalue £ due to demand for foregin goods and accepted a £714million IMF loan
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Labour Economics under Wilson

  • Aim of modernising the economy and growth of the most talented
  • Prices and Incomes Act = wage freeze for 6 months.
  • 1967 - wages could only increase if company could prove efficency
  • The IRC - created mergers like British Leyland (Leyland and British Motors) but couldn't compete with Europe and Japan
  • 1967- £ devalued by 14% but Wilson claimed pound in pocket was unaffected
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Economics under Heath

  • Rejected corporatism and the free market and axed IRC as private companies should provide this
  • Cuts to state spending like free school milk and a rise in prescription charges
  • Inflation rose across world with 1973 oil crisis
  • Unemployment at 6%
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Labour and The IMF Loan

  • Inflation was biggest problem as it rose faster than wages by 30%
  • IMF Loan - Sept 1976 with £4billion due to slump in £
  • Must make £3billion of spending cuts and prove capable to repay debt
  • Accused Healey of selling British interests to international finance
  • Benn proposed Alternative Economic Strategy which argued leaving the ECC, full nationalisation and trade barriers known as Seige Economy
  • Both parties broke political consenus and post-war Keynesian thinking
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