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The British Economy 1951-1979

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Sophie Baxter

on 8 May 2014

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Transcript of The British Economy 1951-1979

The Conservatives were lucky that when they came into power in 1951, there were signs of economic recovery
From 1952, economic indicators mostly pointed upwards
Men's weekly wages began to go up
Generous State Subsidies ensured Farmers did very well economically
Massive increase in private savings
In 1955, the Chancellor, Rab Butler made the 'give-away' budget which provided the growing middle class with £134 million in tax cuts
Conservative Governments 1951-1964
Wilson's Labour Government 1964-1970
Heath's Conservative Government 1970-1974
Wilson's Labour Government 1974-1976
Callaghan's Labour Government 1976-1979
Suez Crisis affected the economy
The pressure from the USA exposed the fact that the British Economy was still weak and led to a run on the pound, with the value of the pound rapidly decreasing
The Chancellor Macmillan, knew they had to pull out of Suez to save the financial situation
Macmillan took over in 1957 after Eden resigned
There was an age of affluence, and widespread prosperity and higher standards of living
However, in 1957, there was a major inflation crisis as inflation was rising due to wages running ahead of productivity
There was a danger that the pound would have to be devalued against the US Dollar, which Macmillan's chancellor, Thorneycroft believed should happen, but was faced with great opposition
He proposed dramatic spending cuts in 1958, but was overruled by Macmillan and resigned
The economy expanded again and the budget of 1959 had huge tax cuts of £370 million
Macmillan Part 1
Stop-Go economics characterised the thirteen years of Conservative rule
Trying to balance expanding economy, low interest rates and increased consumer spending (go) and the inevitable overheating of the economy which involved wages and imports exceeding productivity and exports, leading to spending cuts and a higher interest rate to slow down or deflate the economy (stop)
Vicious cycle which was hard to get out of
Stop-Go Economics
There were hopes for radical modernisation of the economy, but they never came to fruition
Despite the Age of Affluence, there was much greater economic growth in Europe, especially West Germany
The European Free Trade Area (EFTA) was created in 1959 but was not able to match up to the European Economic Community (EEC) and so Macmillan tried to join the EEC in 1961 - the stop-go policies were overheating the economy too much and Britain could not break the cycle
A 'pay pause' was introduced in 1961 to prevent wage inflation and Britain asked the International Monetary Fund (IMF) for a loan
The National Economic Development Council (NEDC) was designed to improve economic cooperation but was successful, as was new Chancellor Reginald Maudling
Maudling was so desperate to avoid rising unemployment, he followed a policy of expansion without inflation and tax concessions leading to rising inflation and the balance of payments deteriorating further, leaving the economy in a terrible state for Wilson and the Labour Party in 1964
Macmillan Part 2
Modernisation was a key priority for Wilson's Labour Government when they came into power in 1964
Affluence was not reflected in productivity or growth rates, and the economy was still stuck in the stop go cycle - with prosperity leading to inflation, with pressure on the pound and regular balance of payments crises
Labour was left with a deficit of £800 million
The two obvious options were deflation or devaluation
Deflation was part of the stop go policies Wilson wanted to move away from, but he didn't want to devalue either and wanted policies for economic growth, to catch up with international competitors
In 1964, Wilson and Chancellor James Callaghan made huge efforts not to devalue - didn't want to be the 'party of devaluation'
Immediate Crises
The Department of Economic Affairs (DEA) was created to try and achieve economic expansion
George Brown was head of the DEA but there was overlap with the Treasury and Callaghan which led to confusion
Brown drew up a National Plan but it fell through as it didn't have United Government Support due to the competition with the Treasury
After the 1966 Election the DEA virtually disappeared
In 1966 a prices and incomes policy was brought in to keep down inflation, but there was another sterling crisis in 1966, and in 1967, after strikes from Dockers and Seamen, the government were forced to resort to devaluation, and the pound dropped by 14%
It damaged Labour' credibility and was not helped by the rejection of the entry to the EEC, again vetoed by President de Gaulle
Roy Jenkins replaced Callaghan as Chancellor after he resigned, who used deflationary methods by raising taxes and restricted government spending in all areas, giving top priority to improving the balance of payments
By 1969, there was a balance of payments surplus
Devaluation and Recovery
Selsdon Man set out tough approaches to the economy, like allowing inefficient businesses to go bankrupt and not give state aid
In 1971-2, Heath made a U-Turn when he retreated from the free-enterprise economic principles of Selsdon Man
He bailed out companies such as Rolls Royce and the Upper Clyde Shipbuilders to prevent unemployment
Selsdon Man and U-Turn
After Iain Macleod's death in 1970, Anthony Barber was brought in as Chancellor and introduced tax and public spending cuts
The 'Barber Boom' began with a rapid rise in wage inflation
The Unions were blamed for the steep rise in wages as they were willing to hold the country to ransom through strikes
Stagflation was coined, which described the unusual combination of inflation and stagnant economic growth and unemployment
In 1972, the Miners struck and the severe energy shortages led to a three day week
Economic Crises
In 1973 the Yom Kippur War began which was an Arab-Israeli War
The Organisation of Petroleum Exporting Countries (OPEC) declared and oil embargo and exports suddenly stopped, meaning that the prices for oil rocketed
The National Union of Miners (NUM) suddenly demanded a huge pay rise in late 1973, and the three day week was put into action
Further Crises
The economic situation was dreadful when Wilson came back into power in 1974
His main aims were self preservation and trying to sort out the economic crisis with new chancellor Denis Healy
Situation in 1974
New Chancellor Healy put through two budgets, one in March and then another in July, which attempted to deal with the economic crisis without upsetting the Unions too much
The 1975 referendum about the EEC resulted in a resounding 'yes' vote
It was clear that Britain needed to be in the EEC for its own economic survival
In 1975, the April budget imposed steep rises in taxation and in 1976 tried to limit wage increases to a maximum of 3% leading to divisions in Labour
They saved 'lame duck' British Leyland and it became clear that stagflation was back again
In 1976, Wilson resigned
Trying to recover
In late 1976, Healy went to the IMF and secured an emergency £3 billion loan, in return for making big spending cuts
As North Sea Oil came on stream, the economic situation started to improve
By 1978 there were nine oilfields in production and inflation rates fell
However, in the winter of 1978-1979, there were strikes from Public Sector Workers, leading to the Winter of Discontent
Callaghan's Crises
The British Economy 1951-1979
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