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Summary A-level edexcel history, britain transformed theme 1 b 3responding to economic challenges
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concise notes of theme 1 chapter 2 britain transformed notes, responging to economic challenges
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1- post-war boom, crisis and recovery, 1918-1939Overview
● There were both booms & busts in this period.
● Heavy Industry was hit hard – e.g. shipping, mining, steel, iron. The industry’s production methods were
old and outdated. Therefore they couldn’t compete with foreign competition.
● Unemployment – 10% of population (1921-38) and stayed high in areas where there was mainly heavy
industry e.g. Wales & Tyneside.
● BUT - Unemployment decreased due to demand for new consumer goods. So light industries became
more prominent in GB e.g. tyres.
Legacy of WWI
- War over a large period of time = more resources
- Loans from the USA
- U-boat attacks (merchant shipping) - 40% attacked
- Cost of war £3.25 billion
- Loss of men - 750 000. These men would have been essential to economic output.
- Value of the pound was not set against the gold standard so money was printed off
- By 1920 the total British debt was £8 billion, in that year the government's annual budget was £800
million but £300 million was debt repayments.
- Inflation increased to 25%
- Technology is being used more in manufacturing e.g. car manufacturing, aircraft industry
Gold standard - before the war the value of the pound had been decided by the fixed exchange rate called the
gold standard. Being on the gold standard meant that the price of British exports stayed high, which made sense
when the economy was booming but made life difficult when the economy was struggling.
- The war led tothe suspension of the gold standard but churchill reintroduced it in his 1925 budget
- The exchange rate in 1925 was £1 to $4.85
- Interest rates had to be kept high to appeal to foreign investors
- Businesses found it difficult to borrow money and take on new workers.
- Businesses wanted to leave the gold standard so that exports would be cheaper
- In september 1931 the bank of england was forced to not use the gold standard as interest rates were
already high and would have to increase in order to prop up the value of the pound
- By leaving the gold standard britain was able to recover from the great depression more easily than
other countries.
Recession 1920-1921 - greatest slump experienced in britain prior to 1929
- By 1921, 2 million unemployed, areas like south wales and tyneside were deeply depressed because of
the collapsed coal and ship building industry
cause
- Deflation- gov spending cuts of 75% between 1918-20, raised interest rates to 7%, by the end of the
decade debt had risen from 120% of gdp to 160%
- Loss of export trade- global economy no longer dominated by britain, several new foreign manufacturers
and financial competitors who had taken advantage of the disruption caused by the war.
- Underinvestment- britain industries suffered from long-term underinvestment allowing competitors to
gain advantage and britain to not produce as much
- Industrial relations- in order to prevent a general strike in 1919 DLG bought off british workers in main
industries with generous pay and working hours - they were unwilling to lose these conditions when
times became tough.
Attempts to solve economic problems
DLG believed they had to wait for the economy to resolve on its own and they had little choice. He advocated a
policy of spending cuts and less government spending cuts known as retrenchment.
The geddes axe- 1921 DLG appointed sir eric geddes to implement greater cuts in public expenditure. DLG
hoped tax cuts would stimulate the economy. Cuts in military, health, welfare and housing budget iin 1922-23
, Protectionism - britain adopted free trade in the previous century
Free trade Protectionism (tariffs)
- Free trade means that domestic industries - Protectionism is the policy of adding tariffs to
have to compete with foreign competitors certain goods that are imported into a
- There are no import taxes on foreign goods country. It helps to protect domestic
so british manufacturers have to make sure industries that are struggling from
their products are sold at the lowest possible competition by making the goods more
prices in order to attract customers expensive. This protects the profits of
- British businesses can trade in other domestic manufacturers.
countries without the threat of protectionist - The downside to protectionism is that it
tariffs being imposed prevents consumers from having access to
- Free trade means that more competitive cheaper goods and it can result in other
foreign businesses can out-compete british countries applying tariffs to british exports in
ones and force them into bankruptcy. This retaliation.
can lead to unemployment and poverty
particularly in areas heavily dependent on
one industry
1924. January – October - Ramsey MacDonald & the economy
- Ramsey campaigned on the issue of unemployment – criticised Baldwin’s failed attempt to bring the
numbers of the jobless down.
- He did not want the Labour party to be too radical with socialist ideas & he wanted the middle- classes
to feel they had nothing to fear from Labour.
- Therefore he did not increase:
1. Spending
2. taxation
- Unemployment: 1921-29 from 12% to 6.5% but increased to 8% in 1925
- Inflation: 1920 – 21 from 15% to 1%
1924. November - Baldwin & the economy
- Winston Churchill was made Chancellor; he re-introduced Britain to the Gold Standard in 1925. This
was a mistake. Sterling was valued at the price of gold. This meant GB exports would stay high but not
good in a recession for the manufacturers. It was re-introduced by Churchill due to:
1. £ decreasing bad for GB prestige
2. Economy could not be built on making things easy for manufacturers.
- Exchange rate = £1 to $4.85 so overseas investors put money into GB banks as interest rates were
made to be kept high. This was bad for GB manufacturers, it would also mean people in Britain who
borrowed money would find it too expensive. This would then in turn impact unemployment.
1929. The Depression
- Global trade reduced by 66% over the next 5 years
- GB exports decreased by 50% = 1/3 Gross National Product. This was bad for coal, iron & steel,
shipbuilding & cotton industries (heavy industry)
- Where these industries were based the workers lived in very poor living conditions, due mass
unemployment .
- 1921 = 1 million unemployed
- 1930 = 2.5 million unemployed
- Big decline in tax revenue
- BUT you have to LIVE so people applied for financial assistance.
- GB economy shrank by 5%
1929. Labour’s response.
The Chancellor thought unemployment benefits should come from taxing the wealthy & corporate profits. But
profits slumped &the wealthy concealed income and so the unemployment benefit became unsustainable.
Keynes suggested spending on public works. A rumour spread about the 1931 budget being unbalanced & this
would lead to an increase in borrowing. USA banks began to panic & sold £ for other currencies. So the
government proposed to cut unemployment assistance by 10%. Value of $ became stable but the poorest were
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