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Britain at war

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					  Civilisation et économie britanniques
                                        D’après le cours de Mlle Daniel du 2ème semestre 2007/08



SOMMAIRE
Britain at war (1939 – 1945) ......................................................................................................3
          I. How to pay for the war?...................................................................................................................... 3
                 1)     The performance of the economy .......................................................................................... 3
                 2)     Problems for the future .......................................................................................................... 5
          II.“A fit country for heroes to live in”? ................................................................................................... 6
                 1)     The real cost of war ............................................................................................................... 6
                 2)     A new solidarity ..................................................................................................................... 6
          III. Conclusion ............................................................................................................................................ 7
The Welfare State and the Post-War Reforms (1945 – 1955)....................................................8
          I. Labour at work .................................................................................................................................... 8
                1)    Social reforms ........................................................................................................................ 8
                2)    A state-run economy .............................................................................................................. 8
          II. American Solutions to British Problems ........................................................................................... 9
                1)    The Dollar dependency .......................................................................................................... 9
                2)    The paradox: Labour solutions but Tories’ achievements? ................................................... 9
Never had it so good? (1955 – 1970) .......................................................................................11
          I. The “whingeing” Sixties .................................................................................................................... 11
                 1)   The illusion of growth ......................................................................................................... 11
                 2)   Angry people ....................................................................................................................... 12
          II. Saving Britain's economy .................................................................................................................. 13
                 1)   Somewhat useless efforts ..................................................................................................... 13
                 2)   Some positive yet limited results ......................................................................................... 14
Discontent (1970-79)................................................................................................................16
          I. The contrasted results of the Tory policy ........................................................................................ 16
                1)    The false alternative to Labour management ....................................................................... 16
                2)    Waiting for Europe .............................................................................................................. 17
          II. Hard time for Labour ....................................................................................................................... 17
                1)    The paradox of the 1970s..................................................................................................... 17
                2)    Toward the “Winter of Discontent” ..................................................................................... 18
Thatcher (1979-1990) ........................................................................................................................................... 19




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                                Britain at war (1939 – 1945)
                                      “Blood, toil, tears and sweat”

Britain declared war on Germany in September 1939. It was not a surprise. Neville Chamberlain was Prime
Minister at the time, in 1940. At the beginning, the war was difficult for Britain: mistakes were committed,
battles were lost.
The Bore War (GB) = the Phoney War (US) = la “drôle de guerre”: Germany doesn’t really attack anywhere for
a couple of months. It ends in May 1940, when Germany goes through Belgium to attack France. In a couple of
months France signs a ceasefire. It was a major blow to democracy. Britain remained on her own against
Germany.


I.       How to pay for the war?
How to make enough money to pay for the war? How to cover the cost of the war?

         1)   The performance of the economy
Two opposite ideas:
         Churchill: produce more weapons
         Chamberlain: help the economy because according to him Britain would win the war if it was powerful
          enough economically speaking.
Between 1935 and 1937, the war expenditure had increased: the GDP had been more affected by war
expenditure. In 1935, 2.5% of the GDP was dedicated to the production of weapons. By 1937, 3.8% of the GDP
was dedicated to the production of weapons.
Before the war, economic choices were made by the government; Germany was considered as a threat and
Britain had to be prepared to react.
Once the war was launched, the pressure of the war was the most important problem the British economy was
going to face.
In 1940, Keynes published an essay in which he exposed different ideas to help the British economy go through
the war to peace. For him it was a war of the British economy against German economy.
The influence of Keynes. He completely changed the way economy was considered. He was a scholar. His best-
known book is The General Theory of Employment, Interest and Money (1936). After WWI he had worked in
the negotiations, to decide how much each country should pay. For him, the most powerful state economically
speaking wins the war. He was close to the Labour Party. He wrote regularly in The Guardian, a labour-sided
newspaper, called The Manchester Guardian at the time.
When war broke out in 1940 he became the governor of the Bank of England (official role).
He advocated the idea of a state-controlled economy. He considered that the war would unsettle a balance.
According to the neoclassical economy, there is a natural place where economic events happen: the free market.
It is a symbolic space. The factors of production are perfectly mobile.
Economie classique. Adam Smith, au XVIIIe siècle, a établi des règles économiques qui sont devenues des
postulats. Il a créé l’idée d’une espèce d’espace virtuel qui est le marché. Le but du marché est de créer de la
richesse.
Economie néoclassique. Les néoclassiques partent du même postulat (marché) et considèrent que la perfection de
l’économie n’est atteinte que si le marché est libre. Les facteurs de production (le capital K, c’est-à-dire
l’argent, et le travail L, c’est-à-dire les Hommes) doivent être totalement mobiles. En d’autres termes, l’argent
doit pouvoir être investi n’importe quand et n’importe où (pas de taxes, pas de douane, etc…) et le travail doit
pouvoir être exercé n’importe où (selon cette théorie les délocalisations dont on parle beaucoup aujourd’hui sont
tout à fait normales voire souhaitables, elles rentrent parfaitement dans la logique néoclassique).
Les économistes classiques considèrent que, pour que le marché soit libre, il faut également que les agents
économiques soient parfaitement rationnels (que toutes les décisions économiques dépendent uniquement d’un
raisonnement rationnel).



                                                     2/18
Enfin il y a un système de compensation : c’est toujours le même argent qui circule (il n’est pas créé et ne
disparait pas).
Keynes started with the idea of the free market and studied it until he reached the conclusion that it cannot be
really free. The political power influences economic decisions. For him the idea of a free market is pure theory.
The free market is never really free and war will make it even less free than before. For him the goals of the
economy change during the war: the most important is not the amount of wealth created but the well-being of
people. The state will have to control the market and so it cannot be free.
One of the problems that Britain had to face was that war creates an “inflationary gap”. It is typical of what
happens during a war.




The level of production of consumer goods stagnates or tends to decrease because less people work in factories,
and the prices tend to go up because of the rarity of the goods. The difference between the level of production
and the prices is called the inflationary gap. It makes all prices go up, so the government has to help people to be
able to buy things to live.
For Keynes the inflationary gap is the most important problem the government will have to face. They will have
to make this gap narrower than it is.
Idea of a wartime industry.
Increased state control. There are two main factors on which you can act (2 axes):
        Control of demand (rationing) and offer (restriction of imports)
The state should act on production. The country needs weapons and all the basic goods needed for the
population. It does not need luxury items. Then, the wartime economy focuses on weapons, food and clothing.
The state should intervene on the market and say to the economic agents what they should produce. In other
words, the production should be reorganized at the state level. The state encourages the production of raw
materials, food and clothes. There must be a concentration on production. The state chooses a nucleus farm
that buys all the other farms producing the same thing, absorbs them, and makes a national production of that
product. The nucleus farm is responsible at the state level for the production of this product. They are state-run.
Act on labour: the country needs more people to work more to increase the production. Men were asked to
work longer hours. In 1938, men tended to work an average of 47.7 hours per week; and in 1943, after the
implementation of the Keynesian policy in Britain, they worked 52.9 hours per week. It is a massive increase in
just three years. The country also needs more people working, so women were asked to work. After WWI they
had gone back home. During WWII they went back to work. Before WWII, 30% of women worked; in 1943
45% of women worked.
Reorient production: production of ammunition and weapons for the war.
        Budgetary policy (act on the money in the market)
To decrease the inflationary gap, the state can increase production or try to decrease inflation. Britain faces a
paradox at the time: when war breaks out, the country is too wealthy, there is too much money going round
(inflation happens because some people can afford very expensive products; if nobody can afford it, there is no
inflation). Keynes tells the British government that they have to get rid of that money: £500m have got to be
taken from the market (= amount of extra wealth on the market).
The state did forced savings. That is to say that they told people they had to save money. The forced savings
accounted for about £200-300m. The state said people could lend the money to the state (bounds). This money
does not really disappear. It goes back to banks and the state that can invest on useful things, for the common
good (production of weapons for instance).


                                                       3/18
Increased taxation: about £200-300m were taken by taxation. It increased directly and indirectly. Allowances
were reduced and direct taxation increased massively. Between 1939 and 1941, the level of taxation increased
twofold. Between 1942 and 1945 it doubled again. => The state has got more money.
Some impressive results
The results of that policy were seen in 1942-43. They were very impressive. The GDP increased by 17%
between 1938 and 1945. The policy is a success.
Food. British agriculture has been made more efficient: the lands used for agriculture (arable lands) increased by
50%. The wheat production increased by 81%.
Weapons. The production of weapons is massive as well. It became completely industrial. The ammunition
output was multiplied by 4 between 1939 and 1941. Between 1941 and 1944 it was multiplied by 2.
The Keynesian policy was surprisingly efficient. At the time the British economy was very liberal. The policy
was accepted as a necessity. The Prime Minister when Keynes’s policy was implemented was Churchill, a
Liberal. He understood that it was a necessity in time of war to accept those rules (difference with Thatcher who
was against state-control on the economy).

       2)     Problems for the future
Lend-lease agreement
It was settled between the USA and Britain in March 1941. The cost of war was too important for Britain. The
problem of armament was huge when the war broke out. The effort had not been sustained enough in time (the
increase in production). Britain asked the USA for help. At that time, “Splendid isolation”: the USA was better
on its own rather than with other countries. The crisis of 1929 increased the tendency of the USA to remain on
its own. Roosevelt wanted to help Europe so he tried to explain to his fellow Americans that there should be
some kind of intervention. Hence the idea of the lend-lease.
Roosevelt was re-elected in 1940 partly on the idea that Europe should be sustained.
The lend-lease agreement is a law passed in March 1941, which stipulates that the US president allowed to sell
or lend military equipment against the promise that the equipment would be paid for at the end of the war.
President Roosevelt was allowed to help any country whose security was an asset for the security of the USA.
The law was tailored for Britain but in fact it would help other countries (China, the USSR once attacked by
Germany). It was very efficient: Britain received lots of military equipment. In March 1941 it was more or less
the roughest period of the war. Problem: the provision that stipulated that at the end the money should be paid
back.
At the time no one really thought that all of a sudden Britain would have to pay the money back. They thought
they would have to pay back at the end of the war in Europe AND in Asia. When a cease-fire was signed at the
beginning of 1945 between Germany and Britain, everybody thought that the war would go on in Asia. But in
September 1945, after the bombings in Nagasaki and Hiroshima, the war was over. So Britain faced the need to
pay back. The USA did not give Britain time to pay back. Truman told the British government that there was a
need to pay back. There was a huge debt to settle but Britain had no money to pay it. So Keynes was sent over to
the USA to try to negotiate a loan. He first tried to extend the agreement, but it was a failure and he had to
negotiate a loan. He secured it ($3,000m borrowed in 1945).
=> The lend-lease agreement was positive for the war, but at the end of the war Britain was weakened by the war
and needed to face a massive debt that it would have for a long time.
Rationing
It had an effect on daily life. Paradox: the economic situation was at its worst after the war, not during the war.
In 1945 bread was under rationing for the first time. It was bad news for the British and the British government.
At the time Attlee and the Labour Party had constituted a new Cabinet. Labour was then associated with
rationing, which is a paradox and unfair because they were not responsible for rationing. Some products were
rationed during the war and prices were settled to control inflation. British people did not understand why after
the war bread was not available. They considered that the USA was responsible for the situation, that they had
been betrayed by the USA. The British political personnel in favour of the Americans had problems to adjust to
the reality, to the behaviour of the people.


II.    “A fit country for heroes to live in”?


                                                      4/18
Quotation from David Lloyd George, a Welsh politician, about WWI.
Had the war been useful? Will Britain be able to recover from that experience?

       1)      The real cost of war
The cost of war was really high to pay from Britain. It would affect Britain for decades.
Human consequences of the conflict: 360,000 people were killed directly from the conflict, 60,000 of whom
were civilians. In the whole Commonwealth there were 612,000 people killed (about twice as many as n Britain).
In the first months of war, the civilian casualties were more numerous than the military ones (bombings of
London). For the first time war was on their island. For the first time civilians were killed. It was a huge trauma
for Britain.
Another trauma came from the shock following the discovery of the concentration camps. British were
responsible for the freeing of Belsen. They realized that there was something terrible going on on the continent.
As Germany never invaded Britain, the Jewish community had been protected, yet the pictures of the
concentration camps overflew Britain and shocked the British.
Another human consequence and trauma was the realization of the danger of the nuclear bomb. There was a
strong lobby against nuclear weapons in the 1960s and 70s. It affected not only Britain but Europe generally.
Material consequences of the conflict: destructions were massive because of the bombings. One house out of
7 was destroyed. Roads, firms, factories, etc., were damaged. At the end of the war, about 10% of the national
wealth had been annihilated (which is a lot considering that there had been not invasion). 11.5m tons of ships
were destroyed. The volume of the British fleet (second one in the war) in 1945 was only 70% of what it was in
1939, despite the fact that many ships were built during the war (it was part of the war effort). The British
Empire seemed to be really affected by the war because of the destruction of ships (symbol of the British
empire).
Wartime destruction of physical capital: £1,240m, in spite of the war effort production. Moreover some people
stopped investing (because the government took money and because of the war: people do not invest in
wartime), there was massive disinvestment: over £4,500m.
At the end, it was a victory for Britain, but the war had cost a lot.
The financial burden of WWII was twice as much as the financial burden of WWI, that is to say that it was twice
as expensive.
Midterm consequences of the war: problem of the “sterling balances”. Idea that Britain had to borrow money for
the Commonwealth countries or had agreements comparable with the lend-lease agreement. => huge debt with
Commonwealth countries, a debt in Sterling. Consequences: Britain needed money to pay back, and a moral
consequence: Britain owed something to the Commonwealth countries. It gave the Commonwealth countries a
moral domination over Britain. This problem will become a key problem: these countries will consider that
Britain should pay them back, with money or independence.
The financial problem was made worst with the lend-lease agreement. The state was bankrupt. Keynes had to go
to the US and Canada to try and secure a new loan. He secured a loan of $3,750m from the US and $1,250m
from Canada. It was added to the previous loan and in the two years following the war, Britain had secured a
loan of about $10,000m from the US. When Keynes went to the US, the US did not really want to help. They
were concerned that Britain would not pay back. So they put conditions: Britain had to accept that in 1947 the
Pound would be convertible into dollars.

       2)      A new solidarity
The spirit of the war created a new solidarity. It is the idea of the “Spirit of Dunkirk”: during the first months
of the war, when Germany crossed Belgium and attacked France, troops had to withdraw before German soldiers
and they ended up in Dunkirk. They would have been taken if nothing. But British civilians tool their boats to
help the soldiers, the British and French troops. They saved their lives. This idea of civilian people working
together is the “Spirit of Dunkirk”. Britain was proud of that movement. It appeared as an ideal of solidarity in
society that would be the motto of post-war Britain. The moment of patriotism would have to last after the war.
This same idea appeared after WWI.
The first important moment during the war fed by the Spirit of Dunkirk was the Beveridge Report of 1942. It
was born from a cross-party consensus that British people needed more help from the British government. They
had the right for a certain standard of life. Beveridge was an academic from Oxford. The Conservative Cabinet
assigned him to think about a plan that could help the people and remedy the poverty present in Britain in spite


                                                         5/18
of all the efforts made by the government. The Beveridge Report was published in 1942. It was sold and became
a best-seller: 600,000 copies were sold in a couple of weeks.
Two years later, in 1944, another book was published: Full Employment in a Welfare Society. It has a more
Keynesian approach and puts the state at the center of the system, of all the economy. The state is the institution
that fosters all the measures to help people. It should protect the citizens from all the ills that could happen to
them: poverty, unemployment, etc.
The first measures were taken in 1944, when the victory over the Axe had become clear. Churchill and his
government decided on a plan on urbanism (houses, factories, etc. had been destroyed) that described how the
state should prioritise the reconstruction.
The same year (1944), a bill called the Butler Education Act. Butler was a Conservative MP (nickname: “Rab”
Butler) who worked and studied the problems on education. The British educational system was unfair. It was
very expensive. He decided that British children ought to receive a good education. Education should be made
compulsory until the age of 15. He also decided that secondary education should be made free. He created a
system in three main branches:
      grammar schools: good schools for brilliant students
      secondary modern schools: for normal students
      secondary technical schools: for students with problems, to learn a trade
These three different levels of the British educational system would remain basically the same during decades.
But it failed to become fair (still expensive).
Finally, in 1945, another major measure was passed with the Family Allowances Act. The system of family
allowances was created. Each family would receive 5 shillings per child. The main difference of this system is
that the money is given to the mother. Fathers tended to drink the allowances at the pub. The government wanted
to make sure that the money would be used for the children.
These first three measures were taken during the war for post-war years. The government decided to act for a
better solidarity after the war. The Labour Cabinet implemented most of the measures, in particular those in the
Beveridge Report. But they followed a trend initiated as early as 1944.


III.   Conclusion
Britain was victorious but many problems were to come ahead. Britain appeared as one of the Big Three, but in
reality there was only two Big Two (USSR and the USA). It was a situation similar to the one in France with De
Gaulle. Britain believed that nothing had changed and that the war had strengthened her position as leader of the
world, but it was no longer the case.
The war Cabinet was dismantled in 1945. A “Caretaker Government” under Churchill was responsible for
dealing with the problems of the country between May and July 1945 (election).
The war Cabinet had been made of Conservatives and Liberals. Attlee did not enter the Caretaker Government,
so it was Conservative. During the election Attlee did not feel like he had to be kind to Churchill, as he had not
been part of his government. Churchill was defeated in the 1945 election. Attlee became Prime Minister. He was
the leader of the Labour Party. It was a massive victory for the Labour Party: 400 seats. George VI appointed
Attlee. The Cabinet consisted of men involved in politics: Hugh Dalton became Chancellor of the Exchequer
(between 1945 and 1947), Aneurin Bevan was Minister for Health and Stafford Cripps was President of the
Board of Trade (Ministère du Travail).
Two months after July 1945, it was the end of the lend-lease agreement. It would lead to financial problems.




                                                      6/18
         The Welfare State and the Post-War Reforms (1945 – 1955)
                             “The long and winding road”… to prosperity?

I.       Labour at work

         1)    Social reforms
From the legislation voted after WWI. Try to reform “from the cradle to the grave”: the welfare state should take
care of people during their entire life.
1st measure in 1946: National Assistance. System of laws.
         Retirement system (contributory: you pay your whole life). Available for all people. Reform of 1911
          law. The age limit is brought down to 65. Life expectancy increased. 14% of people is covered thanks
          to these 5 years more (in 1911, only 3% was covered, only people over 70). But the state needs money.
         Creation of the National Health Service. From the Beveridge Report. Free medical service. Bevan is
          responsible for the creation of the NHS. Typical Labour figure (poor background). At the time, the
          whole British system was private. Need to have a public system, to convert GP (General Practitioners)
          into public servants. Problem: how to convince the GPs? Bevan was a great negotiator. He used
          seduction and threat. He had to negotiate with the British Medical Association. The first measure was to
          nationalize all hospitals, and then the whole system. But GPs thought they would lose money. After
          negotiations, it was decided that GPs would be paid by the state but allowed to do some private
          practice. Only in 1948 the BMA accepted and ratified the agreement (it took two years). This success
          was the best card for Labour during the rest of the century.
Problem: many costs. The NHS exceeded by 40% what was thought because more people went to hospitals as at
last they could be cured. But even though the system was never questioned, even by Conservatives.

         2)    A state-run economy
Keynes is considered as a hero after the war because he gave the right advice to the government. At the end of
the war, Labour wanted to go further and to reinforce the power of the state. Even Conservatives thought there
should be a state-run economy after the war for the reconstruction.
Chancellors of the Exchequer :         Hugh Dalton           (1945-47)
                                       Sir Stafford Cripps   (1947-50)
                                       Hugh Gaitskell        (1950-51)
Nationalisations to enhance state control. Same movement in France. The Labour constitution mentions “public
ownership of means of production” (clause IV). When Labour comes to power, they wanted to implement it.
In 1945, the Bank of England is nationalized + remodelling of the BOAC British Overseas Airway Corporation
In 1947 there was a major change: coalmines were nationalised (the coal was very important and there were lots
of conflicts between the mines and the state). The shortages will disappear because the state would invest enough
money.
In 1948, the gas industry is nationalised.
In 1949, Iron and Steel Act: every company linked to iron or steel would be nationalised. But it was voted too
late and as soon as the Tories were back to power, they destroyed the law (failure for Labour).
The electorate agreed with those measures (control of resources justified).. But Labour never managed to show
nationalisations were for people’s good, to show that everyone would benefit from those decisions.
The debt was huge, it increased massively. In 1945 it was worth £13bn; in 1951 £15bn. The shareholders needed
to receive money. The civil servants were paid by the state. => long-term debt.
Rationing. Planification: word that really frighten people. In the mind of the British it is linked with the Soviet
Union. The state should make sure money would be allocated the right way. Herbert Morrison, commission to
study the effects of planification on the British system. Results: should be implemented but slowly, nothing
really strict should be done by the state, but it would be positive. Some goods should be looked after. Bread was
rationed in 1946, staple goods too. People thought it made things worse. In 1947 coal was under ration. People
felt attacked or threatened by planification. It was not a good asset for Labour in 1951. Bread is under ration
until 1954.


                                                      7/18
The tax revolution: needed because the state needed money quickly but it was also the ideology of the Labour.
Idea to redistribute wealth. The British taxation system was completely changed. After the war Labour decided
to maintain high levels of taxation to limit inflation and earn money. In 1946, people who earned more than
£2,000 a year had to pay a 90% rate. In 1947-48, income taxed £1,189 million (twice as much as in 1940).
Labour decided to tax properties. Inherit property taxed. Major consequence: all the people with property could
not afford to keep it. Aristocratic families sold houses and castles. It was a major problem and led to the creation
of a National Trust to buy those houses and maintain them, to convert them into museum… The British
aristocracy just hated Labour for that.


II.    American Solutions to British Problems

       1)      The Dollar dependency
Convertibility of sterling into dollars
The USA was more powerful than the USSR. Resentment from British when the lend-lease agreement was
stopped. But there was still a connexion with the USA. A loan was granted to the UK thanks to Keynes. But the
USA did not really want to give money to the UK without things in return: they asked for the convertibility of
Pounds into dollars. It was a condition for the 1947 loan to be granted and so it was implemented. Problem:
because of the deficit and the welfare state, the rate of the Pound collapsed in July 1947. In August Attlee
decided to suspend the convertibility. They did not respect the agreement. Attlee reshuffled his Cabinet. In
November Hugh Dalton decided upon a plan of austerity to meet the deficit of the budget. It was not really
popular and Hugh Dalton had to resign. After that, Sir Stafford Cripps was Chancellor of the Exchequer.
Marshall aid
Growing tension between Stalin and Truman, linked to the extension of the Communists. The “Iron Curtain
Speech” (1946) = Fulton Speech, made official the tensions. => Elaboration of the Truman Doctrine (1947):
“containment” (endiguement). Financial support to western European countries was a good way to stop
communism. Financial support was given to all volunteering countries between April 1948 and December 1951.
$ 12bn were given or lent to 16 European countries. 26% went to Britain ($ 3bn). Britain could make up for the
deficit. It was crucial for the reconstruction in post-war years.
The 1949 devaluation
Cripps received money from the Marshall aid directly arriving at power. So there was a surplus in the balance of
payment (+ £150m in 1948-49). Without the Marshall aid, Britain could not have been able to recover. Cripps
became sick and was replaced by Gaitskell. He decided to devaluate the Pound in 1949. Parity with the US$:
4.03 US$ = 1£ before, to US$ 2.80 = 1£. Immediate effort: the debt is worth 40% less. It was a success. Cripps
came back but was replaced again by Gaitskell in 1950. The Marshall aid was cancelled before what was thought
thanks to devaluation.
In 1950, there were 50% more exports than in 1947. The UK accounted for ¼ of the volume of manufactures in
the world market. It recovered more quickly than any country in Europe.
One step too far: the Korean War
The British decided than to help the Americans as a thankful measure. In August 1950, Attlee decided to send
troops over to Korea. But the problem of the war is that it is expensive and it was a strain to British budget.
Britain went back to a war economy. The balance between social services and war production was disrupted.
30% of the government total expenditure was invested in the Korean War, 10% of the GDP for production of
weapons. They received no help from the USA. They had to take money from private parts and so increased
taxation. The social revolution faced a turn. Tax: 47.5%. The top rate rose to 97.5%. The fiscal pressure
increased and led to a crisis in the Labour Cabinet: they thought Attlee took the wrong decision. Attlee was sick,
Cripps too, Bevin died => new generation in the Cabinet: Harold Wilson (resigned from the Attlee Cabinet),
Gaitskell, Bevan. In October 1951 there was a general election. The Labour and the Tories reached both 48% but
the Tories won. Churchill was back.

       2)      The paradox: Labour solutions but Tories’ achievements?
Churchill travelled a lot between 1945 and 1951. When he went back to office as Prime Minister, circumstances
were really different than just after the war. He was really old and alcoholic. The Tories will benefit from all the
work from Labour. They were held responsible for the economic success whereas it was from Labour.
Housing


                                                       8/18
Problem of housing: destruction really important + baby boom. It was a major feature of working life. Harold
McMillan, from the department of housing, decided to bring down standards of houses. The overall costs would
decrease. In 1953, over 300,000 houses were built in one year only. Houses were managed by local authority.
General state control respected: houses owned by the state, rented to people. The money was brought back to the
state directly.
End of rationing
Labour had implemented rationing in 1946. 1955: end of rationing. But end of it thanks to Labour measures and
the end of the Korean War. The national income increased. Between 1950 and 1955 it increased by 40%.
Military expenditure was still high because of the Cold War. Tax rates lowered: from 47.5% to 45% in 1954 and
42.5% just before the election.
Decrease of unemployment and Stop & Go
“Rab” Butler becomes the new Chancellor of the Exchequer. He creates the Stop and Go system. He becomes
aware that a good way to influence the economy is to play with bank rates:
        the Stop phase consists in increasing the bank rates so that people leave their money in savings => less
         money in circulation => less inflation but it tends to increase unemployment (less investments, people
         buy less, less things produced).
        the Go phase consists in decreasing the bank rates. If you decrease bank rates, people tend to buy
         things, unemployment tends to decrease but inflation tends to grow (more money in circulation).
Chaque phase vient corriger les méfaits de l’autre : alternance continuelle entre les deux phases. Efficace sur le
moyen terme mais instable sur le long terme.
At the beginning of the 1950s, unemployment tends to grow (about 2.1% at the time). Butler decided to impact
unemployment: Go phase => unemployment decreased to 1.2% in two years. The problem of a 1.2% rate of
unemployment is that it is under the national rate of unemployment, the threshold, under which en economy
cannot work. There are fewer workers than work. So massive immigration was implemented and that will lead to
problems later on (racism, tensions).
The success of Butler in the very first months of his term was quite obvious: the GNP grew by 32% between
1951 and 1955. This is one of the reasons why the Tories would become so popular in the years afterward.




                                                      9/18
                           Never had it so good? (1955 – 1970)
                                    The Legend of the Swinging Sixties

In 1955 Churchill left power to go away. Anthony Eden was the person in charge. There was a general election
in April 1955. Everybody knew that the Tories would win the election, and indeed their vote was about 50%
high. The Labour party was torn between various people. Anthony Eden became Prime Minister.
There is a legend, even today, about the 1960s, which is mostly inaccurate. Indeed in Britain there was poverty,
tensions increased.


I.     The “whingeing” Sixties

       1)     The illusion of growth
The ups and downs of the economy
It is difficult to know exactly what is due to the context and what is due to the management of the Tories at the
time. The Stop & Go system creates instability.
Butler was Chancellor of the Exchequer in the Eden government. In 1955,he implemented a Stop phase because
the currency was very weak.
McMillan was in favour of intervention against Egypt. He was responsible for the Suez crisis, but Eden took the
blame and had to resign. McMillan benefited from it and became Prime Minister. He started a Go phase. That
worked for two years and then in 1957 he decided on a new Stop phase. Small measures succeeded one another.
The government considered that Butler was responsible for the failure of the economy. He was replaced by
David Heathcoat Amory. In 1958 he decided on a Go phase. In that year there was an important budget so there
were massive tax cuts: taxes drop to 38.75% (42% before). That was the lowest rate of post-war years. So all of a
sudden money was available for people to buy things. The economic growth increased massively: +4% in 1959
and +6% in 1960. The success of McMillan as a Prime Minister relies on those figures. That is were the
character of Supermac is born from. It was an unsteady but spectacular growth.
In 1959 McMillan decided to call a new election. Of course the Tories won (fourth election in a row). The
general feeling was the idea that Supermac had really helped people, the idea that life was better. But inequalities
remained more clearly than ever. The trade unions were still powerful (about 50% of the male workers belonged
to a trade union and about 25% of the female work force): idea that there would be tensions, distrust of the
working class for the Tories.
Commonwealth rather than Europe
The way Britain decided to deal with Europe was a strategic mistake. The booming economy reassured the
government: the Cabinet thought that Britain was very powerful because the economy was so good that they
were back in the first ranks of the economies of the world.
There was a conference in Messina in 1955 to decide on the future of European countries. Britain was invited but
Eden decided not to go. Britain missed the opportunity to join Europe at that time. Eden and McMillan thought
that the future of Britain lied in the Commonwealth. Their opinion was based on the fact that the Commonwealth
represented a ¼ of the export trade. They wanted to privilege those countries. The economic relationship with
the Commonwealth countries was very tight, so it was easy for Britain to export to those countries. This
importance of the Commonwealth prevented Britain from realising that the future lied in Europe. That was a
mistake because the importance of the Commonwealth tended to decrease. The British part of the world exports
would increasingly decrease in the following years. The Commonwealth market decreased whereas the EEC
(European Economic Community) was a growing market that would have been another opportunity to export.
So Britain, realising that choosing the Commonwealth was a mistake, tried to compete with Europe creating
EFTA (European Free Trade Association) with countries that refused to enter the EEC (like Denmark). It
revealed a failure. McMillan decided to apply to Europe in 1961 so he changed his Cabinet to have a pro Europe
Cabinet. In 1963 De Gaulle said that he would vote against. It was a complete failure: Britain remained isolated
in Europe.

       2)     Angry people
Many people remained angry although McMillan had said that people never had it so good.


                                                      10/18
An enduring poverty
Poverty had not really decreased as much as it ought to. The Spirit of Dunkirk finally vanished. There were
many people who could not manage to live well. This idea that the welfare state had not really managed to close
the gap between the richest and the poorest was a blow against the Spirit of Dunkirk. The better life seemed to be
out of reach.
It was made more obvious by the fact that sociology had been developed. The world now had several tools that
really could measure the standards of life: the poverty was visible. It was a shock to the British population that
poverty had not really disappeared.
In 1969 a study was published. It revealed that 5% of the British population should be considered as poor in the
1950s (it represented a lot of people). In 1963, in spite of the economic growth, the number of poor was
increasing (5.5%). The idea that the 1960s was a golden age for all people is a mistake. Most of the people in
that situation of poverty are those whom the welfare state should have helped (unemployed, old people, …).
They were left over.
Social inequalities
Social inequalities were made more obvious in the 1960s. Of course the Butler Education Act (1944) helped
people to study, but it still remained that rich people went to university whereas poorer people went to tech
school and quickly looked for a job.
In 1960, 10% of the population owned 80% of the national wealth. The remaining 90% had to share the
remaining 20%. The gap between the two extremes had not been closed up.
The British aristocracy was less wealthy than the used to but they remained powerful and wealthy. Depending on
the family you were born into, life would be different (rich/poor).
Racial problems
It is the booming economy and the unemployment rate that is so low that created waves of immigration. There
were different waves according to the needs of Britain at the time: a first wave from the rest of Europe after the
war, West Indians in 1948, and ten years later (1956-57) Indians and Pakistanis.
50,000 people a year. What creates the problem is that after the 1950s the rate increased: in 1961 360,000 people
entered the country, mostly from India (coloured people). The British felt threatened. Between 1961 and 1962 (in
18 months), 218,000 people entered Britain. In just three years the rate has almost doubled. The British are
feeling even more threatened. The situation is made worse by the fact that immigrants work in certain jobs, like
in transportation, the National Health Service, textile factories. It increases the insecurity felt by British people.
The rhythm quickened so fast that people felt they were overwhelmed by waves of foreigners invading the
country. Immigrants tended to settle in some areas like Brick Lane in London: concentration not only in jobs but
also in towns. It led to tensions although statistics showed no link between immigration and delinquency.
The British society, which used to be very tolerant, became much more radical, especially against Indians and
Pakistanis and in cities with industries, with a high concentration of immigrants.
The government felt something had to be done. In 1962 it passed a law on immigration from the
Commonwealth. McMillan did not want the law to be passed, but in 1962 he gave in considering that they really
needed to regulate these immigration waves. The law stated that from then on immigrants would need a work
permit before entering the country and it made it more difficult from them to make their families come.
The Commonwealth reacted really badly to the law. They felt it was a kind of betrayal. The tensions between
Britain and the Commonwealth became clearer after the passing of the law.
The law did not solve anything. There were still racial tensions in the 1970s.
In October 1964 McMillan called for a general election. The Labour really thought they would win the election
and they did, but the Conservatives’ results were still very high in the country. Harold Wilson managed to win
the election by 1%. The victory would be short-lived because the majority was too tight.
McMillan resigned in 1964 because he thought he was deadly sick. It was a mistake because he survived and
never managed to come back to power. There were general elections in 1964. Nobody really knew what was
going to happen (tense economic situation). Slogan of the Labour Party: “13 years for nothing”. The turn up at
polls was very high. Slight majority for the Labour Party. The Labour government with Harold Wilson seemed
to be one that would be short-lived. After 13 years of continuous Tories government, the Labour Party went back
to power.



                                                       11/18
II.    Saving Britain's economy
The Labour Party had to address the problems the Conservatives did not manage to cope with. The Labour
government tried hard to face the problems. But the way they did would not be very efficient.

       1)     Somewhat useless efforts
The 1964 austerity phase
There was a deficit in the balance of payment. It reached £400m when Wilson got to power. Kind of emergency
clear to everyone. Two solutions: stop inflation or devaluation. Devaluation: if the money is worth less money
the deficit decreases.
Wilson did not want to devaluate and he tried hard to find another way: deflation policy. It was a Stop phase.
The problem was that the Labour members had been hostile to the Stop and Go policy. It was a kind of
contradiction but still the decisions were taken.
Wilson was concerned by trade unions. He tried to negotiate with them, especially with Woodcok (TUC). They
reached an agreement called agreement of Lancaster House in 9 December 1964. It made sure that trade unions
would support his policy of deflation. Setting up of the NBPI (National Board of Prices and Incomes) in
February 1965. It had to study the effects of inflation on the country: how inflation might impact the way people
lived, what was the threshold above which the effect of inflation was negative for the people.
At the same time the bank rates were increased to 7%. The Bank of England imposed a new tax on imports
(15%). The income tax had raised to 41.25%. When the NBPI had been working for a couple of months it had
been established that the good rate of inflation was of 3.5 to 5% of inflation per year.
In September 1965, the Labour Cabinet decided to set up a national plan, which would settle an indicative
planning for the economy. The goal for growth was 4% which is about twice as much as today in France, but it
was not spectacular for the 1960s.
All these measures showed how the Labour Party still believed in Keynesian decisions. There was a kind of
ambiguity. The government thought the state should take the decisions for the people.
The results were not spectacular. In 1966 the inflation was still up to 9%. Yet earnings had increased by 11%. So
people were richer by 2% in 1966 than they were in 1964. People believed that the national plan was a good
thing.
A problem would come unexpectedly from the trade unions. It would show that there was no cooperation
possible.
The Impossible cooperation with unions
Foreign investors could pressure on Labour. Wilson did not really know how to react. he thought it would be a
good idea to call for a new election on 10 March 1966. In 1966 the results were the following ones: the Labour
Party reached 47.9% and the Tories only reached 41.9%. The majority had increased over the first two years of
the government.
More pressure from people: investors want the NBPI to be able to control the demands of employees, especially
wages. The trade unions were opposed to that: they were the people to whom the government should speak. The
TUC wanted the measure to be taken away and put pressure on Wilson.
Strikes started by the National Union of Seamen in the summer of 1966. The strike lasted for 47 days and it
deeply disrupted the flows of imports and exports. Wilson considered that the strike was a provocation because
of the agreement with the TUC. For the first time, the Labour Party seemed to be in contradiction with workers.
Over the same summer, new credit squeeze (bank rates higher) and cut of the government spending. The
austerity phase did not seem to be finished.
The Wilson Cabinet imposed a wage freeze (to stop the inflation in wages). So there was a freeze in prices and
wages. Hostility from workers in about 18 months of government: the workers disliked Labour as much as they
disliked the Tories.
Wilson's economic policy was not efficient enough to prevent inflation. The balance of payment was still in
deficit: £45m in 1965, it reached £294m in 1967 and £296m in 1968. The deficit deepened. It was a major blow
to the promises of Labour.
The weakness of the pound – the devaluation



                                                     12/18
The Chancellor of the Exchequer, Callaghan, decided that there was no other solution than devaluation. The
pound would loose 14% in front of the USD. The new parity was 1£ for 2.4$.
The paradox of the situation was that Callaghan had to devaluate and had to resign after it. He was replaced boy
Roy Jenkins. He was responsible for many measures regarding the way of life (abortion, ...).

       2)      Some positive yet limited results
Improving social welfare
It is really the mission of the Labour Party, what they pretend to do. When Wilson comes to power the increase
in social spendings is impressive. It represented £7m (20% of the GDP).
The population is ageing so the system of the NHS costs more money. Another pervert effect: the NHS begins to
live on its own. It had created the “poverty lobby”: need for poor people to justify the fact that people lived from
the NHS => the machine grew bigger => increase in social spendings.
The government created a social security Ministry to ensure that people receive what they need and there was the
idea that this way the state would be responsible for giving the money so people would not have to beg for the
money. For people poverty had become an institution of Britain. They considered that it was part of the British
culture, that it would not disappear. It was in contradiction with the Labour Party's political position.
The renewed role of the state
Of course the Labour Party was still fed with Keynesian principles. They tried to renationalise industries that had
been privatised by the Tories. In July 1967 the renationalised plants. They created the British Steel Corporation
to rationalise production. Like just after the war, it cost a lot of money to indemnify shareholders. It cost £400m
just for steel nationalisation.
The state also tried to boost research. They invested in the International Computer League in March 1968. From
1967-1968 Britain would remain some kind of heaven for high technologies (biomedical research, etc...). The
state decided to invest and buy shares in those institutions. They were eager that investments were made in the
right fields, that it would improve the situation of people.
There were disparities between regions, so the state invested in poor regions. In 1969 Wilson granted
investments to the poor regions of Britain (Northern England, Scotland, Wales: regions where coal had been
important as a source of energy = Celtic fringes). These regions also are the main regions where Labour was
born, where they have more voters.
The government invested in agriculture. Agriculture was improved over the war and remained really efficient in
the 1960s.
The success of the devaluation
The devaluation was positive in economic terms. In 1969 the balance of payment was back into surplus (£500m).
In 1970 the surplus was worth £800m. Exports were cheaper and imports were becoming more expensive.
Jenkins remained really cautious. In 1969 and 1970 he presented an austerity budget to the House of Commons
(wanted to remain in the Stop phase). A majority of people were in favour of Labour thanks to the economic
results.
Strained industrial relations
The relations of the Labour Party with the workforce did not brighten with the austerity budget. Full employment
had vanished. People thought it was just an illusion, that it would not be part of their lives anymore.
Unemployment rose slowly. After 1965 the figure would always be superior to 600,000 people (it may seem a
low figure but it was a sign that something was wrong at the time). Unemployment became a reality in peoples'
lives. The attitude of the Labour Party changed accordingly. Devaluation was seen as a sign of the incapacity of
government to deal with the economic situation. Barbara Castle (a member of the Labour Party) published a
report called In Place of Strife in January 1969: a policy for industrial relations. She explains what the
responsibility of the state is. The state should control more the trade unions, especially in fields considered as
strategic (energy, transportation). It was a call for the state to be able to prevent strike if necessary (if the security
of the state was threatened). Within the Cabinet there was a gap between Barbara Castle and Callaghan, who was
in favour of trade unions. Wilson was in the middle, in between the two groups. When the text was presented in
the House of Commons, the majority of MPs voted against the text. In June the TUC called an exceptional
congress, the first one in many years. They began by attacking Wilson. Wilson tried to explain the situation and
promised that no penal sanctions would be taken after a strike.




                                                         13/18
But the Labour Party ended up weakened by the crisis because it was obliged to accept the conditions of trade
unions. The worst was probably that this kind of trustful relation between trade unions and the Labour Party was
dead. Their relation would be strained in the years to come.
The government accepted a 10% pay rise as a result of the tension. As a consequence the inflation went up. For
the Conservatives it was the sign that the Labour Party did not know what to do, that Wilson was not strong
enough to prevent strikes.
In spite of all this, the Labour Party had managed to prove that it was able to create growth, to take economic
decisions that were good for the country. They decided to call for a new election in 1970.




                                                    14/18
                                       Discontent (1970-79)
                          Political helplessness in front of economic problems

When Wilson calls for a new election, polls are favourable to the Labour Party but they were wrong. People
thought it would be an easy victory. Only 72% of the voters came on the day of the election (lowest figure since
the war). The Tories won the election with a victory of 330 seats against 257 for Labour (short majority). Labour
failed again to win two elections in a row.
The new Prime Minister was Edward Heath (heath: lande; heathen: païen). Alec Douglas Hume went to the
Foreign Office. Thatcher became Minister for Science.
Heath revealed a true leader although he was not really known before. With the new Cabinet he put into practice
a policy which was a false alternative to Labour.


I.     The contrasted results of the Tory policy

       1)     The false alternative to Labour management
Trials of strength with the unions
There was a campaign on the need to control them. In January 1970 the Selsdson Park Conference took place.
The Conservatives swore to put an end to big government. Idea that the state was too powerful. One of the way
to put an end to big government was to oppose unions. Robert Carr, the Minister of Labour, passed an Industrial
Relations Bill which stated that they would be a judicial court that would deal with the problems related with
unions, a court only for trade unions and industrial matters. Before there was an unofficial rule: all things
damaged during a strike would not lead to court. It was then a major change: the trade unions were now
responsible for damages. The Labour Party and trade unions were against the text but the bill was passed. Robert
Carr stated that the court would only be used for the trade unions that were registered in the court. The trade
unions did not register and so the court was useless. The major change failed.
Problem: the Tories were authoritarian on the subject. Public opinion reversed and a couple of months after the
victory of the Tories public opinion backed the trade unions. It led to an industrial helplessness.
Industrial helplessness
In this context the bankruptcy of Rolls Royce was announced. The company had been a trade mark for Britain
for decades. But the cars were too expensive and there was no market to sell them. The bankruptcy was
announced in 1970. For people, it was the sign that something was wrong in Britain. The government decided to
nationalise Rolls Royce.
A couple of months later, the Upper Clyde Shipbuilders went bankrupt too. Once more the government reacted
by nationalising the Builders.
In 1970-71 there was a strange reality of a Tories government: in the Selsdson Park Conference they swore to
put an end to big government and then they nationalised industries. The Labour Party was eager to point to
public opinion that they could do good things for the country (even Tories wanted to nationalise industries).
The relation with the trade unions deteriorated in 1972. In January the coalminers decided upon a strike. There
had been no coal strike in Britain since 1926. They considered that their wages were too low compared with
other wages. They thought that they should be paid more than other workers because their work was dangerous.
Heath overreacted. He panicked. He decided upon a state of emergency right away. He decided on a three-day
week to use less energy. So people were unemployed for two or three days a week. The problem was that he did
not want any pay rise for fear of inflation that was so high at the time. If coalminers had a pay rise other would
ask for an increase too. But the coal miners decided to remain on strike. There was an heavy pressure on the
government. In the end the Cabinet accepted all the miners' demands (pay rise, holiday, pensions) and there was
a 16% rise in earnings thanks to the strikes. So this was a defeat for Heath's government: they expended big
government and accepted the demands of coalminers.
Incomes policy and the “Barber boom”
(In 1972 one million people were unemployed. There was a need for spectacular measures. The government
resorted to an income policy: combine high growth and lower unemployment. Anthony Barber was then
Chancellor of the Exchequer. The balance of payment was in a record deficit in 1972 (6% of the GDP), so there
was a need to act quickly. The government cut the standard rate of tax revenue in a strong way. It led to what


                                                     15/18
would be called the “Barber boom” (about 7% growth a year). Between 1969 and 1972, the average yearly
growth rate was about 2%. Through the income policy of Britain it reached 7.4% in 1973 (three times as much as
in 1972).
He cut bank rates to 5%. The inflation rate was 10%. So quickly, over one year, your bank rate was negative.
There was less and less money to pay back when people borrowed money. Everybody bought houses (cheap
mortgages). In 1973 the industrial earnings increased by 16%.
1973: the Oil Shock. The “Barber boom” limited the impact of the Oil Shock. The growth did not immediately
decrease. But the balance of payment was back into deficit. The Cabinet was eager to impose a new wage freeze
but the workers and especially coalminers were unfavourable to it. Heath was put in minority in the House of
Commons. He called for a new election in 1974.

       2)     Waiting for Europe
Heath's major achievement was Europe.
The 1966 attempt
There was an attempt from Britain to enter Europe in 1966 but it failed (De Gaulle was not in favour). At the
time most of the foreign policy of Britain concerned America and the Commonwealth. Gradually the
Conservatives began to think that the future of Britain lied perhaps in Europe.
In 1966 the relationship between American and Britain was on the strain because of the Vietnam war. The US
was considered rather negatively by the British. Wilson welcomed Soviet leaders in Britain at the time. In
November 1966 he announced that he wanted to apply to the EEC. In the Commons he gained the support both
from Labour and Conservatives. He went on tour in all EEC countries. But De Gaulle announced his veto in
November 1967. It was a failure.
1973 Health opportunity
In 1969 De Gaulle left power. It was an opportunity for Britain to enter Europe. Heath thought that perhaps it
was a good moment to try and get into Europe. Pompidou might become Britain's opportunity. The
Conservatives launched a campaign in Britain. They were aware that the economic relationships between the
Commonwealth and Britain had increasingly decreased. The campaign revealed very successful: British opinion
was favourable to the application of Britain to the EEC. In May 1971 Heath said that Britain would applied to
the EEC along with Ireland and Denmark (from EFTA). The negotiations revealed successful. On 1 January
1973 Britain entered the EEC.
Unexpected European effects
Implementation of the Common Agricultural Policy (CAP). Britain agriculture was heavily subsidised by
Europe. Agriculture enjoyed this change. Thanks to Europe British farmers would become very healthy.
However the British people still thought that Europe would make things more expensive (would lead to an
increase in the cost of life). The increase of inflation coincided with the entry of Britain in Europe, so in people's
mind it was linked. The prices of food increased spectacularly but much more because of the oil crisis than the
entry of Britain in Europe.
Heath called for a new election in 1973. The European values were at the core of the campaign. The Labour
Party campaigned against Europe. Wilson for instance said that Brussels was too powerful. People were fairly
happy with this turn of events. Heath was associated with the pervert effects of the entry in Europe. So Wilson
was back to power in 1974.


II.    Hard time for Labour

       1)     The paradox of the 1970s
Difficult return of Labour
It was the end of a period that explains the arrival of Thatcher at the beginning of the 1980s. People thought that
Heath would win the election thanks to the “Barber boom”. But Europe would be a burden too heavy for Heath
to bear. the first 1974 election resulted in a very narrow majority for Labour (4 seats in the House of Commons).
All parties knew that within a few months a new election would take place to reassert a majority.




                                                       16/18
The Labour majority increased to 319 seats. The Conservatives had 277 seats. The Labour Party was
disappointed because the polls had announced a broader majority for Labour.
Edward Heath was out of the system. It was the end of his career. He left room for new people within the
Conservative Party.
The limits of Labour is industrial strategy
The pervert effects of the “Barber boom” had put pressure on Heath to ask for a wage freeze. The trade unions
refused. For Labour it was a huge opportunity to show themselves as the party of workers. Michael Foot was a
major member of the Labour Party. He was appointed Secretary for Employment. He negotiated with workers
and agreed to everything. He gave up the idea of a wage freeze and even accepted a pay rise. Industrial earnings
increased by 19% in 1974. It reached 23% in 1975. Only then trade unions accepted the principle of a wage
freeze for the future.
The problem of Labour was that it had no room for manoeuvre because it was considered as the workers' party.
Wilson realised that his economic policy was going into a dead end. It April 1976 he decided to resign and was
replaced by James Callaghan who used to be Foreign Secretary. He would lead the Labour Party into their final
moments until the election of Thatcher.

       2)     Toward the “Winter of Discontent”
From oil to currency, one crisis after another
In 1979 there were massive strikes and massive problems for Labour. The price of oil made by Arabic countries
increased a lot. Arabic countries got money that they reinvested in the London Stock Exchange. So Britain did
not suffer too bad. Moreover an oil deposit was discovered in the North Sea. If oil became too expensive they
could use it. So the shock was compensated (reinvestments + oil deposits).
The Chancellor of the Exchequer was then Dennis Healey. The problem was to manage the crisis before the oil
deposit in the North Sea could be fully exploited, not to have a too huge deficit of the balance of payment
meanwhile.
Economic theories were changing. There was a questioning of Keynes' theories, an awareness of the limits of his
thoughts. Keynes thought that a wage increase would necessarily boost demand. But it was not necessarily the
case (people could put money in the bank). But pay rises necessarily triggered inflation. Monetarist theories: the
more money there is, the more inflation there will be. In 1976 over one million people were unemployed yet the
inflation was of 16%. So the link between unemployment and inflation was not proved.
The balance of payment was in deficit partly because of the Oil Shock. Healey had to apply for a loan to the IMF
because Britain could not pay its debts, it could not live. There was a £1 billion deficit of the balance of
payment. The pound was convertible into dollars and the rate was at its lowest since the war. The IMF agreed to
the loan but on the condition that Britain would cut government expenditures. It mostly applied to education and
housing and was very unpopular because these are the typical fields in which Labour is specialised.
The end of trust between Labour and unions
Unions increased their pressure on the Cabinet at the time because there had been decisions on wage restraints.
The trade unions disagreed with that and accused the government of cutting the standard of living of the British.
Trade unions considered that they had been betrayed by Labour. They gained membership because people felt
threatened. Half of the workers of Britain were part of the trade unions (over 13 million workers). New
members, especially from white collars jobs and the public sector. New type of union membership.
The tension between the government and unions increased steadily between 1976 and 1979. It was so high that
everybody thought the Prime Minister would call for an election in October 1978. But he did not do it. There
was a series of strike which began in 1979 with nurses (threat on the NHS seen as an evidence of the betrayal of
the Labour historical commitments), and then garbage collectors (so there was dirt in the streets). = Winter of
Discontent.
The opinion polls in March 1979 showed that the Tories had a twenty-point lead over the Labour Party.
The Cabinet fell. There was no general election to start with. It fell with a vote of no confidence linked with the
problem of devolution in March 1979. A general election had then to be called. It was obvious for all that Labour
would be defeated. People thought the Conservatives would be able to break the power of trade unions.




                                                      17/18
                                      Thatcher (1979-1990)
She came into power in 1979. The Tories get a 40-seat majority in the House of Commons (not a massive
majority). Thatcher had been MP in 1958 and the head of the Tories since 1975. She was born in 1925. Her
father was a grocer. It was a handicap: she did not go to the best school. As a woman she could not attend those
schools because most schools were for boys only.
She had been influenced by Hayek (The Road to Serfdom), an Austrian with the same kind of life as Friedman.
From the US, he analysed the strong link between economic freedom and political freedom. All her life she
distrusted state intervention. She did not think it would be good for the economy. Other influence: Churchill.
However the major difference between Churchill and Thatcher was that Churchill was in favour of state
intervention.
The Falklands War
Argentina wanted to recover the islands. On them there is only rocks and sheeps. Many people died in the
process. It was a victory for Britain. Argentina still hates Britain because of the Falklands War. Thatcher was
popular after the victory and people thought it was a good way to see that she could be a new Churchill.
Return to Victorian values
Economic policy
New area of the private sphere. There was a major movement: one of privatisation. The government started to
dismember the public sector. They thought that people should be shareholders, that it would be democracy.
British Petroleum (BP) was privatised. It was a strange decision after the Oil Shock because it was a strategic
field. Aerospace, British Telecom, Rolls Royce, British Steel and British Airways were privatised too. All
sectors used to be considered strategic were sold off. The state got the money: £6m for BP, £5m for British
Telecom. But the most spectacular measure is that civil service decreased from 8 million people to 3 million civil
servants. Britain became a nation of shareholders: 9 million people owned private shares of companies. Britain
discovered that capitalism was a great thing. People reacted positively.
What were the limits of Thatcher's economic policy? According to Adam Smith's vision there must be no state
intervention at all and monopolies must be broken. But Thatcher never attacked monopolies. Capital and labour
were not able to move freely. It was one of the main drawback of Thatcher's policy at the time. British Airways
remained the only British aircraft company (competition never happened). It created resentment among British
investors.
The problem of fiscality:
As a liberal Prime Minister she thought that fiscality had to be changed. She decided upon tax cuts on all taxes
that were proportional to someone's income. Income taxes decreased spectacularly over her term. The stae
should not take money from the citizens. The basic rate of taxation got down to 30% (when Labour was in power
it was almost 50%). This meant less money for the state. To counterbalance this, Thatcher increased other taxes
such as the VAT (7 points increase). Modest people would be even poorer, the gap widened. Resentment among
the poorest part of the population. Paradox of the situation: the tax burden increased. The VAT passed from 8 to
15%. => people paid more taxes that before Thatcher.
Idea that the nation is divided between poor and rich. British politicians accepted the fact that she was dividing
the country. It was a trauma for the British. She created a great mover. New Labour could not have been born if
Thatcher would not have been there. Opposition against Thatcher which lived on Thatcher inheritance: music,
cinema, Blair, ...




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