(6)Labour government: Devaluation and recovery, Divisions with the Conservative and the Labour Party

Economic background
1. After the 1966 GE, the government was now staggering from one crisis to another as it wrestled with intractable problems of the British economy.
2. A fresh sterling crisis developed, some in the cabinet accept the inevitable and devalue and use the fall in sterling as an opportunity to boost export
  1. Wilson was against devaluation, he was determined to fight on with the poound pegged at $2.80
3. The initial cause of this latest crisies was a strike by seamen, which hit exports
4. To defend sterling, a savage deflationary package was pushed through in July.
  1. Bank rate were raisted
  2. Government spending was cut
  3. Restrictions were placed on hire purchase
  4. Various tax increases were announced and a £50-limit placed as a foreign travel allowance
5. To control inflation
  1. A Statutory Prices and Incomes Bill was passed,
  2. There was also a one-year freeze on wage and price increases
  3. The result of the Package
    1. National plan ended
    2. DEA was wound up
    3. Sterling received a temporary reprieve and the $2.80 rate was held briefly
    4. George Brown resign then moved to Foreign Secretary
November 1967 - Devaluation
1. The cause of devaluation
  1. A combination of circumstances determined the timing but the root cause was the overvaluation of a currency whose economy was doing less well than its competitors
  2. The outbreak of the Arab-Israeli War in June closed the Suez Canal and harmed British trade, but additional harm was done by a series of dock strikes in London and Merseyside
  3. October 1967 saw the worst monthly trade deficit in British History
  4. Across the world, dealers were selling sterling. The bank rate was raised to a crisis 16%. A key treasury adviser, persuaded first Callaghan, and finally Wilson that sterling would have to be devalued by 14%
2. The result
  1. It was resduec to $2.40. As always Wilson was determined to put a brave face and make the best of it
  2. Callaghan resigned as Chancellor at the end of the month and did a stright swap of jobs with Roy Jenkins
    1. Jenkins was determined to tackle the balance of payments issue and return the national accounts to the black
  3. The result was a period of stringent budgets not unlike those of Stafford Cripps
    1. Governmment spending was cut and reforms like the raising of school leaving age postponed
    2. Taxation was raised to try and cut down the national propensity to consume imports the counrty could not really afford
    3. The sonsumer found that petrol, cigarettes and drink were all cost more and currenct restrictions meant foreign travel became even more difficult to undertake
  4. For a time it seemed to not be working and more plans for further devalutions was drawn up.
    1. However, by autumn of 1969, an upswing in world trade began, a balance of payments surplus was recorded
Conservative Party
1. The new leader
  1. The new leader in 1965 was Edward Heath, openly elected by all Conservative MP
  2. Heath came form a similar social background as Wilson, had been born in the same year 1916, and had attended a grammar school and then Oxford. Macmillan had promoted him to the Cabinet and placed him in charge of Britian's bid to enter the EEC
  3. Health, in contrast to Wilson, was a seriously committed "European", often stiff and unrelaxed, unmarried and came across as humourless and unfriendly.
  4. In the Commons Wilson run rings a round him. Health was a very private person, first-class musician and yachtsman - in this sense diffrent for Wilson, who had few interests outside politics.
2. Consensus Politics
  1. Despite the differences in personality, the two leader shared the "consensus politics" that marked British political life in these years.
  2. Health was sypathetic to the unions and had a notably good relationship with the new leader of the TGWU Jack Jones.
  3. He was likely to give his polices a more free market spin, such as the associated with the Selsdon Park conference in 1970, compared to Labour
    1. It was a meeting with his shadow Cabinet. The Communique issued afterwards gave the impression of a shif tto the right in Conservative thinking
  4. He essentially believed in the welfare state and government management of the economy to deliver full employment
3. Division in the Conservative Party
  1. Enoch Powell
    1. Powell was beginning to question "consensus politics" and had resigned from his position in the Treasury in 1958 in protest against increased public spending
    2. He became an increasingly vociferous critic of the role of government in managing the economy
    3. He opposed nationisation, prices and income policies and seemed to becoming a supporter of an unfettered free market.
    4. The only role for the government was to control the supply of money and its own spending
  2. Maulding (Heath opponent for the leadership)
    1. Maudlign was even more centrist and "liberal" than Heath, opposing view to Powell
Labour Party
1. Divisions with in the Labour Party
  1. George Brown
    1. Possibly his most hostile colleague was the Labour Deputy Leader, George Brown who was deeply resentful of Wilson. Brown was an extraordinary individual
    2. He had come through the trade unions, unlike most of the Cabinet who had come from Universitys
    3. However, all recognised his powerful mind and personality and his very series defects (many alcohol)
    4. DEA - Treasury
      1. The Department for Economic Affairs was headed up by George Brown. It was nick named by the Treasury as the Department for Extraordinary Aggression, this illustrates the leave of institutional rivalry
      2. George Brown resign from the DEA in 1966, it lingered on for a time but was wound up
  2. Union Refrom
    1. A Bitter struggle, in the Cabinet, which ended on the defeat of Castle and Wilson over the White Paper. Callaghan took the lead within the Cabinet in stopping the Bill. Jenkins, an initial supporter, wavered and ran up the white flag
  3. Devaluation
    1. Wilson, Brwon and Callaghan set their face against devaluation, fear the political consequences. They then were persuaded to devalue the pound in 1967

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(6)Labour government: Devaluation and recovery, Divisions with the Conservative and the Labour Party

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