How far was stability and economic recovery in Britain in the 1930s due to the actions of the National Government?

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Background of time period:

  • Britain had suffered in the late 1920s early 1930s due to lasting effects of the First World War and the crash of the stock market in the USA. In Britain ''around eight million people, including dependents, lived on the dole in the worst months of the depression''.(Robert Pearce)
  • The Labour government under MacDonald split in the summer of 1931 over the issue of making more expenditure cuts (including cuts to unemployment benefit) in order to secure loans from New York and Paris. 
  • The division in the Cabinet meant that MacDonald and Snowden were unable to secure acceptance for their proposals. MacDonald went to resign but after the King's instance he instead agreed to head a National Government formed on the 24th August. 

What Actions did the National Government take to help economic recovery?

  • The proposed Expenditure Cuts that split the last government were implemented. (10% reduction in unemployment benefit and government controlled salaries)
  • Devaluation of the pound. Britain came off the gold standard in 1931 and the pound fell in value by about 20%. Davaluing the pound was forced on the government but they soon came to realise the benefits of having a 'weaker' pound. In particular, British exports were cheaper and therefore more completive. 
  • Policy of Low Interest Rate 'Cheap Money' as it was called. Interest rates were lowered from 6% in 1931 to 2% the following year and stayed at this level until 1939. This encouraged the expansion of private enterprise, because the business community was more willing to borrow money when interest rates and thus repayments were low. 
  • Protection- throughout the 1920s politicians had debated whether Britain should abandon free trade and introduction protection. Now a policy was implemented. 
  • After criticism came the government began to focus on helping struggling area. The Special Areas Act was passed in 1935 then revised later tried to encourage people to move out of depressed areas then tries to encourage firms to establish factories in the distressed areas by offering remission of rates, rent and income tax.

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