1964-70 Economy

What was the nature of the economy that the Labour govt inherited in 1964?

Balance of payments — pressure from American creditors
Deficit of £800m from Tories
Labour had to turn to programme of spending cuts and tax rises
Britain's declining share in world markets
Trapped in cycle of "stop-go" economics

What did Jim Callaghan unveil in his 1966 March 1 'Little Budget' ?Why is it significant?

Announced scheme of tax rebates for mortgage holders and also promised the decimalisation of sterling by February 1971

Helped gain support for Labour in run up to 1966 election

Why was Wilson hesitant to devalue the £?

Labour had already devalued the £ under Attlee in 1949

It would ruin the image of the party and £ would lose its prestige

What was the DEA (Department of Economic Affairs)?

Established by deputy leader of the Labour party George Brown to deal with the £800m deficit inherited by Conservatives and the issues of deflation and devaluation

What did George Brown plan to do with the DEA?

Brown set growth targets and decided a national system of 'economic planning council'

Tried to establish voluntary agreement about wages and prices with industrialists, trade unions and civil servants leaders (state involvement)

Aimed to secure the restraint necessary to prevent inflation and bring an end to the stop-go cycles of the 1950s

Why did the DEA fail by 1967?

Competition with Callaghans treasury (lacked united govt support) , Brown was an impulsive drunk.

Wilson in some way responsible for the confusion as he juggled to keep key people happy

Old fashioned Civil servants who were anti-Labour and undermined Brown's efforts by tapping his phone or refusing to hand over papers

Lack of planning — no single document ever produced that outlined the role of the DEA

Why was the £ devalued and when?

1967 — outbreak ofArab-Israeli war affected oil supplies
Major national dock strike in August 1967 affected balance of payments
Devaluation became unavoidable as the £'s value dropped 14% from £2.80 to $2.40

What was the impact of the £'s devaluation?

Damaged Labour's credibility and Britain's prestige
Few weeks later, Britain's application to the EEC was rejected, primarily on economic grounds — made govt's economic policies loook futile

What did Roy Jenkins do as Chancellor?

Used deflationary methods such as raising tax and tightening govt spending
Made govt unpopular BUT by 1969, balance of payments surplus achieved
Inflation still high however at 12%

When was Jenkins appointed to Chancellor (replacing Callaghan)?

1967-70

Why was Britain unable to recover economically, unlike other European countries like France?

French were able to recover from WW2 using 'indicative planning' — state directing money into particular industries and regions, whilst obliging French banks to invest in new factories

Britain had too few economists and sceptical unionists and industry barons who were unwilling to do the same + highly independent, anti-manufacturing city

What policies did Labour drop as a result of economic difficulties/ what projects were at risk of being dropped?

Supersonic airliner at risk of being cut
Labour's promise of generous welfare programme and housing programme jeopardised

When did Wilson set up the Prices and Incomes board and why?

1966 — attempt to bring down inflation

Why did the Prices and Incomes Board clash with the trade unions?

Workers wanted higher wages due to inflation but govt could not provide this

What was the 1966 Sterling crisis caused by?

Partly caused by long and bitter strike by the National Union of Seamen
Exacerbated by 1967 major oaks strike in London and Merseyside

When did Britain see the worst monthly trade defecit in its history?

October 1967

What does 'Run on the £' mean? Why did Britain face one?

A situation in which international investors and market speculators sell sterling and sell sterling en masse, forcing its value down

Britain faced one in 1967 due to dealers around the world selling sterling and bank rate raised to a crisis-inducing 16%

What does devaluation mean?

the reduction in the official value of a currency in relation to other currencies

What was the impact of the July 1966 emergency budget?

Cut back public spending and increased taxes
Seen as turning point for Labour Govt

What were the main cons of devaluation?

Made imports more expensive so fewer people buy foreign goods, more inflation and humiliating on the world stage
Would also mean that Britain's overseas spending would have to be dramatically cut back, as implied by 1953 ROBOT scheme
Unfair to many poorer Commonwealth countries whose reserves were in Sterling

What were the pros of devaluation?

exports cheaper, giving British companies a chance to win back the markets that they were losing

What impact could devaluation have had on the special relationship?

it would force Britain to break with US, allowing them entry into the EEC (would break commitment as devaluation would see Britain pulling troops out of East of Suez, whilst there was conflict in South-East Asia)

When was the Ministry of Technology established?

1964

What was the purpose of the Ministry of Technology?

To deliver on the Labour govt's manifesto promise to modernise and bring a "white heat of technology" to Britain

Why did the Ministry of technology fail?

Wilson govt lacked both financial resources and expertise necessary to produce an economic revolution
Frank Cousins appointed Minister for Technology despite having no Parliamentary experience and Roy Jenkins Minister for Aviation despite having no scientific expertise

What was the national plan?

Led by George Brown when in the DEA — devised the National Plan in collaboration with union leaders and industrialists to reach agreements on wages and prices in order to curb inflation

What was the prices and incomes policy?

Government intervention to set limits on price rises and to call for wage restraint in negotiations between unions and employers

Aimed to work with unions, employers and industrialists to achieve this

what was the impact of the prices and incomes policy?

Alienated the Labour left and trade unionists as Wilson as actively working against their best interests
Frank Cousins eventually resigned — further divisions within Labour Party

Resulted in various trade union strikes

Seamen's and Docks Strikes 1966

Lasted 7 days and disrupted economy

Unions aimed to secure higher wages and reduce working week from 56 hours to 40 hours

Dock strikes again in 1967 — Liverpool and London

Targeted major ports

Britain's exports decreased as a result and this heightened the balance of payments deficit

1968 - Roy Jenkins asked IMF for a loan. How much was the loan and what was its significance?

Loan was $1.4 billion which was the biggest loan Britain had ever requested

What were the key proposals of Jenkins' 1968 budget?

Raised the Selective Employment Tax
Raised petrol duty
Restored NHS prescription charges (which Wilson had abolished in 1964)
Introduced a special "one-off" charge on personal incomes over £3000

What were taxes raised by in total in the 1968 budget?

Tax's raised £923 million total