economics 1918-79

• total cost of the war was £3.25 billion
• by 1920, british debt is £8 billion
• 750k men died in the war, significantly cutting industrial output
• by 1920, britain was spending £300 million per year on debt repayment
• war results in a negative balance of payments

• due to limits on consumer spending, most people saved up
• they spent this money in 1919 on luxury items, which caused a short boom
• business issue more shares (£65m in 1918 to £384m in 1920)
• however, industries were unable to keep up with the new demand for luxury goods causing the boom to end

debt - the war debt was expensive (£8bn, £300m yearly on repayment, forced to borrow £850m)

• deflation - government cuts spending by 75% between 1918-20, B of E increases interest rate to 7%
  • this meant it was expensive to borrow money so less available, companies start to go under as they cant take out loans, meaning they had to lay people off
• underinvestment - in industry which meant companies were forced to look overseas for goods
• loss of exports - british industries lose their export market due to ww1, other countries take over eg japan, britain falls behind
• industrial relations - DLG buys off workers with pay increases to prevent general strike,creation of 8hr work day resulted in 13% decrease of working hours, but no increase in productivity

• unemployment levels increase to 12% between 1920-21
• by 1921, 2 million people are unemployed, and industrial areas become depressed
• cost of living increased by 25% between 1918-20

ATTEMPTS TO SOLVE

• government spending cuts - 1922 geddes axe cuts in spending on benefits, unemployment, health, education etc from £206m to £182m, taxes raised each year 1918-22
  • contributed to growing unemployment
• government sets a high interest rate to cut inflation and increase value of the pound
  • however high interest rates made people more likely to save then spend
• protectionism - to protect key industries 
  • helped in short term but britain falls behind as investment was not redirected into more advantageous indusries eg. cars, and avoided introducing changes needed to become more competitive long term

OVERALL - unemployment at over 1 million

LABOUR RESPONSE (1929-31)

• caused debate within the government
• introduction of 10% cut in unemployment assistance
  • split the labour party, labour government resigned in august 1931
• only invest in the defence industry

NATIONAL GOVERNMENT RESPONSE (1931-35)

• implemented public spending cuts
  • 10% pay cut for public sector workers
• introduced a means test for unemployment assistance
• special areas act attempted to give direct assistance to areas hardest hit by the depression
• rearmament spurs old industries eg steel and iron into action
  • 15% of unemployed found work here
•  britain leaves the gold standard in 1931
  • foreign investors pour more money into the UK

• leaving the gold standard cuts interest rates from 6% to 2%, allowing more borrowing which leads to an increase in spending and employment
• this leads to a housing boom in which the value of mortgages increases to £636m in 1937
• 279,000 new homes built between 1935-36
• government is able to allowing a degree of inflation which stimulates spending
• national government restructures war debt, making it 25% of tax revenue rather than 40%
• devaluation of the pound makes british exports cheaper and more competitive
• banks become more willing to spend

OUTCOME

• real incomes rise by 19%
• industrial production increases by 40%
• GNP rises by 23%
• exports increase by 28%
• unemployment falls to 8.5%

• the national government were willing to interfere in peoples lives as much as necessary in order to wage total war
• rationing and constriction were introduced almost immediately
• registration for employment was made compulsory in 1941
• government issues around 8.5 million essential work orders, which forced people to do particular jobs
• by 1945, 3.2 million had people had worked in munitions, 4m in other war work, 5.5m conscription to armed forces
• in 1944 the government declares its long term responsibility of the maintance of high employment

• aircraft production increases from 15k in 1940 to 47k in 1944, and between 600-800 tanks per year
• 1939 neutrality act in the US allows britain to pay for goods with cash, but by december 1940 all cash is spent
• 1940 lend lease agreement said britain would get credit from the US with the bill repaid following the war
• american liberty ships bring vital goods to britain which keeps britain fighting eg coal,oil,food 

• british debt to US is over £4 billion by 1945, and are repaying £70 million per day
• economy has contracted by 1/3, trade by 2/3
• many nations which the UK exported to were devastated by the war
• US aid helped american businesses dominate post-war markets
• rationing was reintroduced in 1947 with food shortages

priority - create full employment

• 1946 - coal industry nationalisation act, bank of england act
• 1947 - transport act (railways + buses), electricity act
• 1948 - gas act
• 1949 - iron and steel act

labour - SHORT TERM success, but creates LONG TERM problems

• suez crisis 1956 - britain forced to withdraw after pressure from the USA, national humiliation to britain
• 1950s seen as a period of affluence with increased consumer spending and it was easier for people to borrow money
  • consequences - growth in inflation, increase in imports which led to an imbalance in balance of payments
• illusion of affluence - "you've never had it so good" (macmillan,1957)
• the economist coined the phrase butskellism to sum up the almost identical economic policies of labour and conservatives in the 1950s

• attempts were made to improve planning and increase investment in the 'white heat' of new technology
  • failed to make an impact dur to continuing inflation, unemployment and slow growth
• the department of economic affairs was launched in 1964 under george brown 
  • this devised a national plan to stimulate growth but did not work due to a lack of departmental resources and defined authority
• the ministry of new technology was created, but suffered from the same lack of funding and authority
• labour responds to problems with the same ineffective 'stop-go' measures as conservatives instead of planning 
  • economy does not grow in long term as it is a cycle 
• wilson forced to cut value of the pound in 1967 after trying to buy his way out of economic trouble, meaning he lost his credibility
  • his application for britain to join the european economic committee was vetoed by the french president

• unemployment and inflation boosted by oil crisis in middle east
  • 1973 - OPEC raised oil prices by 70%, by 1974 oil prices had risen by 400%, which contributed strongly to general inflation (as high as 25% in 1976) due to increase in cost of fuel for transport and energy
  • increased cost of imports forced the labour government to cut spending and cap prices and wages
    • this was unpopular with voters and trade unions
• unemployment doubled between 1974-76 to just below 1.5 million
  • these issues and mounting trade union anger led to the winter of discontent