British History Harold Wilson

Harold Wilson's early economic problems whilst his time in government from 1964-1970

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Wilson's early economic problems
In 1964, Labour was handed a severe balance of payments crisis and a threat on the pound from
the Conservatives which could result in devaluation.
George Brown established a new department which proceeded to draft a new National Plan
which predicted a 4% growth in the economy.
James Callaghan, Chancellor of the Exchequer, alongside Brown and Wilson decided to hold the
pound at $2.80 which would mean a constant strain and a certain dependence on the USA for
financial support.
Wilson cleverly managed to maintain good relations with the USA while at the same time
avoiding the commitment of British troops to the conflict in Vietnam.
The first attack on the devaluation of the pound was beaten off with the help of a massive loan
from the USA negotiated by the Governor of the Bank of England on Wilson's orders.
Callaghan tried to cut imports and correct the balance of payments crisis with a temporary tax
on imports and by deflating the economy by putting up income tax to 41.25%.
By 1966, the economy seemed to be in good shape with unemployment still low and living
standards rising.
Soon after the victory of the March 1966 elections, Labour was faced with a fresh sterling crisis
that had developed by `The Seamen Strike' which hit exports.
Roy Jenkins wished to accept the crisis and devalue, using the fall in sterling as an opportunity to
boost exports but Wilson was determined to fight on with the pound at $2.80.
The Emergency Budget was brought in to defend the sterling.
The bank rate was raised, government spending was cut and restrictions were placed on hire
Various tax increases were announced and a £50-limit was placed as a foreign travel allowance.
A Statutory Prices and Incomes Bill were passed to control inflation and there was also a
one-year freeze on wage and price increases.
This spelt the end of the National Plan and George Brown initially resigned but was then
appointed Foreign Secretary.
These economic problems delayed Labour's willingness to help the economy grow and in effect
delayed fulfilling their other promises because government spending was cut in order to help
solve these problems.


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