In the 1945 general election the Labour Party, led by Clement Attlee, was elected with a landslide majority, introducing sweeping reforms of the British economy. The welfare state, with a national health service, pensions, and social security was created.
The next 15 years saw some of the most rapid growth Britain had ever experienced, recovering from the devastation of the Second World War and then expanding rapidly past the previous size of the economy.
In the years that followed the Conservative Government precipitated the Suez Crisis, leading to a great fall in the strength of the economy, and from the early 1960s, under a Conservative government this growth began to slow and unemployment rise again. The Conservative Government presided over a ‘stop-go’ economy as it tried to prevent inflation spiralling out of control without snuffing out economic growth.
The Wilson Government had to fundamentally reshape Britain’s world role after inheriting an overstretched military and a £400 million balance of payments deficit, which caused successive sterling crises.
In 1970 the Conservative government was led by Edward Heath. During the 1970s Britain suffered a long running period of relative economic malaise, dogged by severe inflation, strikes and union power as well as inflation; the Conservative Government was unable to halt the country’s economic decline.
In the 1980s, under Thatcher, recession saw unemployment rise above three million. Under the Major Conservative Government in the 1990s unemployment was starting to increase again as another recession loomed. The early 1990s recession was officially the longest in Britain since the Great Depression some 60 years earlier, though the fall in output was not as sharp as that of the downturn of the Great Depression or even that of the early 1980s recession.
It had started during 1990 and the end of the recession was not officially declared until April 1993, by which time nearly 3 million people were unemployed.
Under the Labour Government from 1997 onwards growth rates were consistently between 1.6% and 3% from 2000 to early 2008. During the period since 2010 under the Con/Lib Coalition, wage growth has not kept up with inflation and we will have a large deficit by the end of this year. George Osborne “took a large risk with the economy” when he imposed deep spending cuts in 2010, and the resulting slowdown may have cost 5% of GDP, or £1,500 for every man, woman and child in Britain, according to a new analysis of the coalition’s record by the National Institute of Economic and Social Research. In addition, there is as yet no sign of an upturn in manufacturing’s share of economic activity.
By insisting on cuts in government spending and higher VAT and taxes that could easily have been postponed until the recovery from recession was assured, the government delayed the recovery by two years. Moreover, with the election drawing nearer, it has allowed the pace of austerity to slow, while pretending that it hasn’t.
Now George Osborne is promising, should the Tories win the election in May, to put the country through the same painful and unnecessary process all over again. Why? Why did the government take decisions that were bound to put the recovery at risk, when those decisions weren’t required even according to its own rules? How did a policy that makes so little sense to economists come to be seen by the Con/Lib Coalition as inevitable?
As a result, public investment was cut back sharply in 2010 and 2011 even though Osborne’s fiscal rule that the current budget must be balanced excludes public investment. He is proposing to renew austerity after the election, even though we remain in a liquidity trap and there are serious risks to the recovery. It seems that Osborne’s real priority was, and still is, to cut all forms of government spending, as the deficit was, and I suspect he hopes will remain, a convenient pretext to achieve that aim.