1b: Responding to economic challenges: The response to economic challenge, 1951-79

Conservatives and the post-war economy, 1951-64

  • Conservatives opposed to further nationalisation & wanted an end to wartime rationing & controls over the economy - by 1954 all rationing was over & an economic boom under way.
  • Political consensus between Labour & Conservatives led to Conservatives prioritising:
  • Full employment - gov used Keynesian-style public works schemes when unemployment began to rise & throughout the period unemployment averaged 500,000 (300,000 at lowest).
  • Mixed economy - Conservatives pledged not to increase level of nationalisation, but didn't plan to reduce it either.
  • During the period, Britain retreated from her world role - decolonisation & the end of its empire in Asia & Africa reduced vast expenditure & an influx of hundreds of thousands of new workers from the Caribbean & South Asia brought new energies & skills to the British economy.
  • British treasury realised that colonies cost far more to govern & administer than they were worth in trade, esp. as foreign rivals now dominated trade to Britain's colonies → Britain abandoned most of its colonies.
1 of 8

'Stop-go' economics

  • Key feature of 1954-64 = growth of consumer affluence & ability of people in Britain to borrow & spend more on consumer goods than they had ever before - gov encouraged this spending but struggled to deal with its consequences.
  • Gov relaxed the laws surrounding consumer credit & borrowing but had to employ stop-go economics - adopted measures to slow growth when the economy grew too quickly & then as it slowed, relaxing them to enable it to grow again.
  • Conservatives allowed consumer economy to grow but excessive spending tended to result in a growth in inflation & an increase in imports which led to balance of payments problems - Macmillan deliberately slowed the economy down by raising interest rates & taxes in order to counter this, leading to exports becoming less competitive & resentment from taxpayers.
  • ^ Demonstrated that controlling unemployment & inflation at the same time was impossible & the name 'stop-go' for the policy represented a failure of the gov to develop consistent policies to ensure growth as they tended to increase taxes & interest rates to make it difficult to borrow money to slow things down when the economy grew too quickly, then they would reduce them again after the slowdown to make money easier to borrow.
2 of 8

Managing the economy, 1957-64

  • In 1960 Kapan experienced economic growth of 12% while Britain's was only 4% - concerned the gov.
  • Macmillan believed in 'one-nation' Conservatism where a united Britain could work together to solve common problems & he decided to experiment w/ corporatism to try to stop the economic decline - Corporatists believed that by uniting labour, management & gov, economic goals could be planned & achieved - in 1962 two organisations set up to achieve this:
  • NEDDY (National Development Council and Office) - institution where management & unions could discuss the development of the economy & cooperate. It was assumed they would want to work together because both would benefit from long-term economic growth however NEDDY was unable to enforce ay legal control over either industry or unions & gov hoped both sides would come to voluntary agreements w/ each other.
  • NICKY (National Incomes Commission) - throughout 1950s working days lost to striking increased & level of pay rises demanded by workers grew & some ministers feared that inflation could get out of control unless pay rises were controlled. NICKY was a purely advisory council assembled from economists & industry experts & its role was to give guidance & employers on what the gov considered 'reasonable' pay increases, however it couldn't enforce any of its decisions & unions mostly ignored NICKY's calls for wage restraint. The consumerism of the 1960s was attractive to union members & they wanted to participate, so ignored appeals for wage restraint.
3 of 8

Managing the economy, 1957-64

  • In 1960 Kapan experienced economic growth of 12% while Britain's was only 4% - concerned the gov.
  • Macmillan believed in 'one-nation' Conservatism where a united Britain could work together to solve common problems & he decided to experiment w/ corporatism to try to stop the economic decline - Corporatists believed that by uniting labour, management & gov, economic goals could be planned & achieved - in 1962 two organisations set up to achieve this:
  • NEDDY (National Development Council and Office) - institution where management & unions could discuss the development of the economy & cooperate. It was assumed they would want to work together because both would benefit from long-term economic growth however NEDDY was unable to enforce ay legal control over either industry or unions & gov hoped both sides would come to voluntary agreements w/ each other.
  • NICKY (National Incomes Commission) - throughout 1950s working days lost to striking increased & level of pay rises demanded by workers grew & some ministers feared that inflation could get out of control unless pay rises were controlled. NICKY was a purely advisory council assembled from economists & industry experts & its role was to give guidance & employers on what the gov considered 'reasonable' pay increases, however it couldn't enforce any of its decisions & unions mostly ignored NICKY's calls for wage restraint. The consumerism of the 1960s was attractive to union members & they wanted to participate, so ignored appeals for wage restraint.
4 of 8

Economic problems by 1964

  • By 1964 the gov was encountering serious economic problems:
  • 1963 - unemployment grew to its highest level since the end of the war (878,000)
  • Increased consumer spending increased demand for foreign goods & Britain experienced a balance of payments problem, causing a threat to the value of the £.
  • August 1961 - gov refused to devaluate the £, instead borrowing £714m from the IMF in order to stop it.
5 of 8

Wilson government and the economy, 1964-70

  • Wilson's gov experienced recurring balance of payments deficits, increasing inflation, & the failure of voluntary wage restraint - created an incomes policy that gave the gov legal powers to limit pay claims.
  • National Board on Prices and Incomes (NBPI) was created to regulate pay settlements & was accompanied by the Prices and Incomes Act 1966 which forced a statutory wage freeze for 6 months to curb inflation.
  • The Prices and Incomes Act 1967 allowed wage increases in companies that could prove they were increasing productivity & output.
  • Wilson's belief in technological improvement in British industry saw the creation of the Ministry of Technology in 1964, headed by Tony Benn from 1966 - ministry grew to be one of the largest bodies in gov & one of its main achievements was the creation of the Concorde plane.
  • Industrial Reorganisation Corporation (IRC) promoted efficient practices in industry & offered loans to companies to implement new efficiency measures & also promoted mergers between businesses when it was thought there could be greater economic efficiency. Many of the mergers ended in failure - most famous being British Leyland (Leyland Motors + British Motor Corporation) formed in 1968, which was unable to compete w/ European & Japanese imports & became synonymous w/ poor quality, despite a £25m loan.
  • 1967 - Wilson forced to admit that devaluation would help ease problems in the economy & allowed the £ to be reduced in value by 14% - he claimed to the public that the 'pound in your pocket' would be unaffected, however the decision led Chancellor Callaghan to resign.
6 of 8

Heath government and the economy, 1970-74

  • In 1970 Heath became PM & intended to reject corporatism & embrace free market ideas - he axed the IRC as he argued that it was the role of private businesses to provide the modernisation needed to revive the country & it couldn't be effectively provided by the state.
  • Heath implemented cuts to subsidies to council houses, cuts to free school milk for children, & raised charged on prescriptions - he believed spending cuts & reducing the tax burden on the public would stimulate economic growth.
  • Heath's first budget made cuts of over £330m - he assumed a national spirit of entrepreneurship would result from the cuts & he ended the gov's ability to control or influence prices & incomes by abolishing the NBPI.
  • Heath had not counted on several problems:
  • Mounting inflation across the world as the global economic boom slowed down
  • Britain's problem of inflation which was at 15% after 18 months of Heath's leadership
  • Unemployment, which had risen from 2% at end of 1950s to 6% in early 1970s
  • 1972 - Anthony Barber attempted a 'dash for growth' in his budget w/ massive tax cuts & forecasts of low borrowing - the result was a huge spike in inflation, which was followed soon after by price rises caused by the 1973 oil crisis.
  • Barber tried to cool the economy down w/ public sector pay cuts, which led to union unrest & confrontation w/ the NUM.
7 of 8

New economic thinking and the IMF loan

  • 1975 - Labour Chancellor Denis Healey had begun to challenge Labour's commitment to full employment & believed that pumping money into the economy to stimulate employment was pointless as it led to even greater levels of inflation.
  • By early 1976 the confidence international banks & currency traders had in the British economy rapidly declined due to the rate of inflation & the likelihood of further strikes → value of the £ slumped & gov once again forced to accept loan from IMF.
  • IMF loaned Britain just under £4bn on the conditions that Britain proved it was capable of repaying its debt & was forced to agree to £3bn of spending cuts.
  • When Healey announced the deal at the Labour Party conference he was called a 'traitor' by the left, accusing him of selling out Britain to interests of international finance, however Healey argued that the left was hopelessly unrealistic & Britain was living beyond its means.
  • The left of the party (led by Tony Benn) proposed an Alternative Economic Strategy which argued that the welfare state needed to be protected from cuts imposed by the IMF by:
  • using trade barriers to keep out foreign imports; making Britain economically self-sufficient by gov investment in industry & increased nationalisation; withdrawal from the EEC
  • Benn's 'siege economy' was dismissed by Callaghan as unworkable & unrealistic, arguing Labour moved away from post-war Keynesian consensus & embraced monetarist thinking.
8 of 8

Comments

No comments have yet been made

Similar History resources:

See all History resources »See all Modern Britain - 19th century onwards resources »