The Economy

There was a deficit of £750 million.

There was an international fear that labour would devalue the pound as in 1931, and 1949.

There was a run on the pound as foreigners withdrew their money from London.

The IMF was willing to lend £1,000 million, but the government took measures to rectify this.

There was a shift in the UK's economy as manufacturing industries were shrinking, whilst service and financial industries were expanding. This caused the trade unions to be a particular problem as it usually for the manufacturing industries.

The government was spending too much on defence, and not enough on industrial development, which was similar to the problem of 1951 to 1964.

Unemployment was starting to increase.

To reduce inflation.

To increase exports by making British goods more competitive.

To pay off overseas debt.

The car industry was the most important industry to Britain post-war, which Britain dominated in until the mid 1950s, due to the impact of war on Europe and Japan. However, after this, British annual output was behind West Germany and Japan. The Economist magazine claimed that British factories needed between 67% and 132% more labour than West Germany to make identical prioducst. By 1966 the car industry made up 7.5% of manufacturing output.

By the late 1960s, British cars had a reputation for poor reliability. Foreign cars used in Britain made up 5% in 1964, 31% in 1973, and 62% in 1979.

The decline of British Leyland is one of the key examples. In 1968 it was Britain's largest car producer, and the world's fifth largest. It produced 1 million cars, 40% of the UK total, but by 1991 this figure had declined to 400,000.

By 1964, James Callaghan, the chancellor of the exchequer, borrowed heavily from the IMF to replenish Britain's decreasing gold reserves, which were being used to cover the deficit left by the conservative government, which was £750 million. The IMF loan was for £1 billion (£1,000 million).

This was introduced in 1964 by the DEA (Department of Economic Affairs) and was led by George Brown. The National Plan aimed to stimulate industrial production and exports by encouraging cooperation between the government, employers, and trade unions, through projecting economic growth of 25% during 1964 to 1970, at a yearly growth rate of 3.8%. However, yearly growth rate was 2.2%, which was less than the conservatives had managed between 1951 and 1964. It also aimed towards voluntary pay restraints, to avoid inflation and 'stop-go' policies of the 1950s.

Despite setting grand targets, these were not met and the DEA was quietly abandoned by 1967. The DEA did not have the united support of government as the DEA was virtually in competition with James Callaghan, the chancellor, and the rest of the Treasury. Others blamed the fact that Brown could be impulsive and inconsistent, and others blamed the old-fashioned and anti-labour civil servants at the Treasury and the Bank of England who they felt undermined Brown's efforts, by refusing to pass over papers and even tapping his phone.

In 1966, the Prices and Incomes Board was set up in an attempt to keep down inflation through regulating wages, by effectively freezing them. This also allowed for the government to cut public spending.

Harold Wilson's attitude towards this policy disappointed the left of the party and angered the trade unions, which had hoped a labour government would bring them benfits not lectures on their need to be responsible and shore up the capitalist system. The leader of Britain's largest union, the TGWU, Frank Cousins, whom Wilson had made his minister of technology in 1964, resigned over the creation of the Prices and Incomes Board.

Callaghan then raised the bank rate by 0.5%.

The fact that

It highlighted the fact that Harold Wilson tried to keep key personalities and the labout party united, rather than picking the best people for the job. In response to this, George Brown was moved to the ministry of foreign affairs in 1966.

Nonetheless, the National Plan gave the electorate what they wanted in terms of commiting to modernisation by labour within their party, since the ministry of technology was created through the National Plan. This helped labour in increasing their majority in the 1966 general election.

The labour government had to approach the IMF for another loan. Wilson blamed the trade unions as troublemakers, further breaking down the relationship between the government and the unions. Wilson claimed that the government was 'blown off course by the Dockers' strikes'.

The outbreak of war in the Middle East in 1967, which affected oil supplies.

A major national dock strike in 1967 which affected the balance of payments.

A deficit of £300 million had been predicted for 1967.

Unemployment had doubled in the past 12 months.

Labour made defence cuts and introduced hire-purchase restrictions and higher interest rates, raising them from 6% ot 8%, in order to ensure that spending by the public decreased. £400 million in public spending cuts were also carried out. This infuriated the public as their standard of living suddenyl decreased.

These policies, along with devaluation, were deflationary policies that looked little different from the 'stop-go' policies of the previous conservative governments. This caused people to question whether Labour was the 'party of modernisation'.

Weeks after devaluation, the EEC application by Harold Wilson's government was rejected. The application had been mainly took forward due to the poor economic situation of the country. Having the application rejected on the hard heels of the devaluation crisis made the government's economic policies look futile.

Roy Jenkins, as chancellor of the exchequer in 1968, raised taxes by £923 million, and tightened up government spending in all areas of the economy, by making a cut of £750 million. There was also a rise on the duty of cigarettes, alcohol and petrol.

These tough measures were given top priority for improving the balance of payments. These measures worked as by 1969, Jenkins had achieved a balance of payments surplus of £387 million.

The rise on duties and taxes disappointed the Labour Party supporters as it hit the working class the hardest, which caused the government to become unpopular with the electorate. Nonetheless, the fact that a surplus had been achieved gave labour the hope that they would win the general election in 1970.

This was first carried out in 1963, but by 1969, the length of railway lines was reduced from 13,000 miles to 9,000 miles.

The two classic economic solutions were deflation or devaluation, but Wilson nor Callaghan wanted to do either.

Deflation would support the value of the pound and prevent inflation. But deflation was the old 'stop-go' approach that the Labour Party was determined to break away from. There were also fears that it would stop the Labour Party from reaching its manifesto as the 'party of modernisation' through extra spending on welfare and technology.

Devaluation would make imports more expensive and help exporters by making British goods cheaper in other countries. This would in turn help the balance of payments. But devaluation would not only make Britain look weaker in the world, but also Britain as it would have to scale back global commitments. Wilson also feared that the Labour Party would gain the reputation as the party of devaluation.

Wilson was therefore convinced that problems could be solved by careful planning and management, such as through the National Plan.