One of the governments solutions to its economic problems was to increase taxation on the wealthy to protect those on lower wages .For the highest earners the tax rate went up to 83%,but for those on low incomes, pensions increased and social security payments went up. They also needed to increase exports and so encouraged private industry to make investments and increase their outputs. However private industry faced increased taxes, higher national insurance payments and higher charges from nationalised industries. Lack of demand for goods only put a bigger financial strain on companies and this led to cutbacks in production and the laying off of workers. This resulted in deindustrialisation with an increase in unemployment of 3,000 per month. The government had to adopt a more Capitalist approach; the new policies increased the exploitation of the workforce and led to job insecurity. The Labour government could not control inflation, which resulted in the erosion of the value of welfare benefits, the rise in unemployment or the failing economic growth. Interest rates continued to rise and it was difficult for the unions to keep to their agreed wage controls. Strikes broke out as nurses demanded a 30% pay rise, other hospital workers took industrial action and there was continuing problems with the car industry. Britain was seen as the ‘sick man of Europe’ These problems were not unique to Britain, like other countries it relied on the actions of outside groups for investment such as, international bankers, oil producing countries and foreign governments.
The government’s main priority was to protect its currency but to carry this out it had to impose public spending cuts and anti-inflation policies to keep up the value of the pound. The effect of this was a cut back in the government’s social reform program. In an attempt to stop more job losses the chancellor changed policy by reducing the subsidies to companies and relaxing price controls which had been part of the social contract. It was forced to sell off its profitable shares in companies such as British Petroleum, to pay its foreign debts This led to a fall in support for the government. The government was forced to take out a loan with the International Monetary Fund to borrow their way out of trouble.
In March 1975 the defeated Conservative government held a ballot for the election of the party leader; this was won by Margaret Thatcher. Although this pleased the Labour party, who did not see her as a major political threat, she had very strong views on the economy and the role of government. Mrs. Thatcher was in favour of a move away from the traditional Conservative politics of Social Democracy to a pro-Free Market Economy. This policy was against government intervention or attempt to regulate industry and she was extremely critical of Labours economic strategy and attacked the State and inefficient public industry.
Although the governments anti inflationary policies had some effect and there was a slight improvement in the countries economic situation, this was not enough to stop the move away from government support. .At this time the media especially the newspapers were overwhelmingly anti-labour and anti-union, especially the Sun which was under the management of Rupert Murdoch. Margaret Thatcher made full use of the media, to get across the Conservatives policies. She made use of expert opinion by using think tanks and encouraged party participation through fundraising events and political action groups. Thatcher was always ready to exploit photo opportunities and made sure that conservative ideas dominated the media. In June 1975 the Labour government suffered by-election losses to the conservatives; this was to continue as the government was unable to control the economy.
Division in the party was caused by Britain’s membership of the European Economic Community. Many of the Labour MP’s, especially those with a more left wing view, felt that EEC membership was costing the country too much, damaging to Britains economy and would result in a shift in political power towards Europe. A change of Leadership in Germany and France helped the government to renegotiate the conditions of Britain’s membership. After several meetings Callaghan was able to report an agreement had been reached which would allow a reimbursement of contributions, and concessions in Britain’s trade with New Zealand. When this package was presented to parliament it gained overwhelming support from the Liberal and Conservative parties which carried the vote. However it was rejected by a majority of Labour MP`s. When the referendum took place on June 5th 1975 the country voted 2-1 in favour of the new terms. The result was to show the Conservatives in a positive light as the party looking to the future and expanding markets. Labour was seen outdated and tied to left-wing isolationist views.
In March 1976 Harold Wilson shocked the cabinet by his resignation. Although he claimed that this was because he was now sixty years old, there was a damaging rumours that he was being investigated for a previous scandal. Callaghan had been warned previously that Wilson was going to retire and he was prepared for the leadership contest. Callaghan’s main opponent was Michael Foot who was seen as left wing and with radical views. The party supported Callaghan who had more conservative views, although he still retained strong Trade Union links. He had the most cabinet experience and was seen as a safe pair of hands. Labour support continued to decline and in March 1977 it had again become a minority party. Labour was forced to enter a pact with the Liberal party. The Liberals agreed to support the government in return for a voice in the government’s legislation program. However the pact did not stop a continuing loss of support for the Liberals with a move of votes to the conservative party. There was also continuing opposition from the Labour back benches and in the summer of 1978 the pact was abandoned.
After some stability with the Lib/Lab-pact there was an improvement in the governments handling of the economy. The government was at last receiving decent revenue from North Sea Oil and was able to reduce its debt. Labour had recovered some credibility with the voters and it would have been a good time to call an election. Callaghan was relying on the success of his pay policy to show that the government had at last got its economic strategy right. He had hoped to restrict the public sector pay claims to a 5% rise. However he had failed to consult the trade union council and the policy was rejected. To prevent speculation the Prime Minister in a broadcast stated that he would not call an election until 1979. Any attempt to stick to the pay policy was abandoned; workers had had enough after four years of pay restraint. Some workers pay was so low they would have been better off on welfare benefits. The income policy was seen as unfair and did nothing to close the gap between rich and poor. When the government was forced to give in to the demands of the tanker drivers for a 14% rise, the doors were open to mass industrial action from sewerage workers to media employees. This led to the ‘Winter of Discontent.’ The Prime Minister was discredited and shown as out of touch with the country when he denied to the press that any crisis existed. The media had a field day with the Suns headline ‘Crisis? What Crisis?’ The government continued to loose seats to the conservatives. Labours problems were increased when the results of the Devolution referendum showed that although the Scots had voted yes they did not have the required majority. The S.N.P. withdrew its support and passed a vote of no confidence. Callaghan was forced to call a general election for May 3rd.
In conclusion the election was lost by the failure of the left to deliver its promises of social reform and redistribution of wealth. The Labour government was over optimistic about their ability to control the economic situation they inherited. They came to power during a world wide recession which also affected many other countries. This meant there was no market for exports and the economy suffered. Labour came to power with a minority government this coupled with the divides in the party had an effect on their ability to implement policy. Their administration was not all bad, for the poorer in society housing and welfare support had improved. For the majority of the parliament the Unions stuck to wage restraints and the economy was beginning to recover. However the Labour party failed to get this message across to the majority of voters. Television coverage dominated the campaign leading up to the 1979 election. The Conservatives exploited this to reinvent themselves as the party of modernisation and pro-enterprise while emphasising the failures of the left. However it was these failures that were the strongest influences on voting behaviour and resulted in the change in government.
Bibliography
Childs. D, Britain since 1945 ‘A political History’ (Routhledge: London, 2001)
Hall. S & Jacques .M, Politics of Thatcherism (Lawrence and Wishart Ltd : London 1983)
Hennessy. P & Seldon. A, Ruling performance ‘British government from Attlee to Thatcher,’ (Basil Blackwell Ltd: Oxford, 1987)
Thompson. W, The Long Death of British Labourism, (Boulder: Colorado USA, 1993)
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