Topic 2: Economy/Industrial relations (1964-70) Flashcards
3
Describe the economy in 1964
- £750m budget deficit
- £800m balance of payments deficit
- Overvaluation of sterling (£1 = £2.80)
4
Describe opposition to devaluation in 1964
- To combat crises, choices were deflation or devaluation
- Wilson fearful of market devaluation
- devaluation could not succeed without cuts in spending - would abandon party’s promises months after taking office
- Wilson forced to pursue American-dependent economic policy subject to their conditions
2
Describe the causes of the 1964 Sterling Crisis
- Callaghan’s autumn budget kept peldge to increase pensions and abolish persription charges despite huge deficit
- led to crisis in money markets (esp on Gold Reserves)
5
List the measures taken to solve the 1964 Sterling Crisis
- Callaghan and Wilson unified in resisting devaluation
- bank rate raised to 7%
- temporary surcharge on imports
- income tax went up to 8s 3d
- Loan of $300m from US Fed and European Central Banks
3
Describe the economy in 1965
- 30% Capital Gains Tax and Corporation Tax
- Unemployment avg 1.5% (1965-66)
- Market recovers and pound strengthens
4
Describe the economy in 1966
pre-sterling crisis/seamens’ strike
- Balance of Payments Surplus £127 million
- American support crucial
- Prices 9% higher than 1964, but earnings 11% higher
- Lab capitalised on situation and called election for March 1966
2
Describe the DEA
- September 1965, ‘National Plan’ published
- George Brown at helm
2
Describe the ‘National Plan’
- Outlined idea that growth could be achieved through national economic planning
- Set growth rate target at 3.8% per annum - had been achieved in 1963/64
4
Describe the failure of the DEA
- Events in 1964 made target improbable
- No govt plan to restrict incomes or increase productivity
- Brown moved from DEA to FO (after 1966 July Package)
- lost credibility by 1966, abolished 1969
3
Describe Callaghan’s May 1966 budget
- Selective Employment Tax introduced
- Intended to subsidise manufacturing industry with proceeds of service industry
- would boost exports
2
What were the causes of the 1966 Sterling Crisis
- Selective Employment Tax not sufficient to convince markets that sterling was immune from devaluation
- Stimulated by seamens’ strike
3
What were the effects of the May 1966 seamen’s strike
- Damaged exports
- Run on reserves
- Run on exchange rate of sterling
3
What were the effects of the 1966 Sterling Crisis
- Monthly trade deficit doubled
- Cousins resigned (Minister of technology) in protest over income policy
- Internal cabinet pressure from Castle, Callaghan, Brown, etc for devaluation
6
How was the 1966 Sterling Crisis solved?
- July Package 1966
- Britain’s economy would run with larger margin of spare capacity
- Bank rate rose to 7%
- Spending cuts at home and abroad
- Hire purchase restricted
- Complete wage/price freeze
short-term success, long-term failure
spare capacity - available land, labour and capital
4
Describe the effects of the July Package 1966
- National Plan confirmed dead - Brown left DEA
- wages/prices frozen for 12 months
- Economic growth little more than 2% in 1966-67 (half of envisaged National Plan target)
- Balance of Payments surplus (of £127m) for first time in 3 years, before plunging into heavy deficit
short-term success, long-term failure
