Great Depression in the United Kingdom 287291 225698271 2008-07-14T23:29:53Z DisillusionedBitterAndKnackered 7397251 wording. Those are not all cities. {{expert-subject|History}} This article deals with the effects of the '''[[Great Depression]]''' of the 1930s - also known as the '''Great Slump''' - on the [[United Kingdom]]. ==Background== The Great Depression of 1919&ndash;22 broke out at a time when [[United Kingdom of Great Britain and Ireland|Britain]] was still far from having recovered from the effects of the [[World War I|First World War]]. [[Economist]]s [[Harold Cole]] and [[Lee Ohanain]] show that [[economic output]] fell by 25% between 1918 and 1921 and did not recover until the end of the Great Depression<ref> Cole, Harold L. and Lee E. Ohanian, "The Great U.K. Depression a Puzzle and a Possible Resolution" in Kehoe, Prescott (2007)</ref>, arguing that the United Kingdom suffered a twenty-year great depression beginning in 1918. Relative to the rest of the world, economic output declined mildly in the U.K. between 1929 and 1933. A major cause of financial instability, which preceded and accompanied the [[Great Depression]], was the debt that many European countries had accumulated to pay for their involvement in the [[Great War]]. This debt destabilised many European economies as they tried to rebuild during the 1920s. Britain had largely avoided this trap by financing her war effort largely through sales of foreign assets. Britain had a net loss of £300 million of foreign investments, less than two years' investment on a pre-1914 average.<ref>A. J. P. Taylor, ''English History: 1914-1945'' (OUP, 1990), p. 123.</ref> The largest material loss during the war was in the [[British Merchant Navy]], which lost 40 percent of its merchant fleet to the [[U-boat]] attacks (but this was replaced soon after the war).<ref>Ibid, p. 122.</ref> Along with loss of assets through enemy action, such divestiture reduced British investments abroad by around 20% by 1918. The resulting loss of foreign earnings left the British economy more dependent upon [[export]]s, and more vulnerable to any downturn in world markets. But the war had permanently eroded Britain's trading position in world markets through disruptions to trade and losses of shipping. Overseas customers for British produce had been lost, especially for traditional exports such as [[textiles]], [[steel]] and [[coal]]. The 1920s saw the development of new industries such as the [[motor industry]] and the electrical goods industry, but British products in these fields were not usually sufficiently advanced to compete in world markets against foreign competitors possessing more up-to-date plants, and so British products largely served the domestic market. The traditional industries which formed the bedrock of Britain's export trade (such as [[History of coal mining|coalmining]], [[shipbuilding]] and steel) were heavily concentrated in certain areas of Britain, such as the [[North of England]], [[South Wales]] and central [[Scotland]], while the newer industries were heavily concentrated in southern and central England. Altogether, British industrial output during the 1920s ran at about 80-100%, and exports at about 80% of their pre-war levels<ref name="Unemployment in Britain Between the Wars"> Constantine, Stephen. (1980) ''Unemployment in Britain Between the Wars'', Longman, ISBN 0-582-35232-0</ref>, so there was little chance of Britain being able to amass enough capital to restore her overseas investment position. ==The Gold Standard & the General Strike== From about 1921, Britain had started a slow economic recovery from the war and the subsequent slump. But in April 1925 the [[Conservative Party (UK)|Conservative]] [[Chancellor of the Exchequer|Chancellor]], [[Winston Churchill]], on advice from the [[Bank of England]], restored the [[Pound Sterling]] to the [[gold standard]] at its prewar [[exchange rate]] of 4.86 US dollars. This made the pound convertible to its value in [[gold]], but at a level that made British exports more expensive on world markets. The economic recovery was immediately slowed. To offset the effects of the high [[exchange rate]], the export industries tried to cut costs by lowering workers' wages, provoking the [[UK General Strike 1926|General Strike]] of May 1926<ref>[http://news.bbc.co.uk/1/hi/events/budget_99/budget_briefing/279928.stm Budget blunders] bbc.co.uk</ref>. The industrial areas of Britain spent the rest of the 1920s in [[recession]], and these industries received little investment or modernisation. Throughout the 1920s [[unemployment]] stayed at a steady one million. ==Economic Crisis and the Labour government 1929-1931== In May 1929 a minority [[The Labour Party (UK)|Labour]] government headed by [[Ramsay MacDonald]] came to office with [[The Liberal Party (UK)|Liberal]] support. This was only the second time a Labour government had been in office (they had briefly been in office in 1924), and few of the government's members had any deep knowledge of [[economics]] or experience of running the economy. MacDonald's Labour Party was not [[radical]] in economic thinking, and was wedded to the orthodoxy of [[Victorian era|Victorian]] [[classical economics]] with its emphasis on maintaining a [[balanced budget]] at any cost. In October 1929 the [[Wall Street Crash 1929|Stock Market Crash]] in [[New York]] heralded the [[Great Depression]]. The ensuing American economic collapse shook the world: World trade contracted, prices fell and governments faced financial crisis as the supply of American credit dried up. Many countries adopted an emergency response to the crisis by erecting trade barriers and [[tariff]]s, which worsened the crisis by further hindering global trade. The effects on the industrial areas of Britain were immediate and devastating, as demand for British products collapsed. By the end of 1930 [[unemployment]] had more than doubled from 1 million to 2.5 million (20% of the insured workforce), and exports had fallen in value by 50%. Government revenues contracted as national income fell, while the cost of assisting the jobless rose. The industrial areas were hardest hit, along with the [[coal mining]] districts. London and the south-east of England were hurt less. In 1933, 30% of [[Glasgow|Glaswegians]] were unemployed due to the severe decline in heavy industry. Under pressure from its Liberal allies as well as the Conservative opposition, the Labour government appointed a committee to review the state of public finances. The [[May Report]] of July 1931 urged [[public sector]] [[wage]] cuts and large cuts in public spending (notably in benefit payments to the unemployed) to avoid incurring a budget deficit. This proposal proved deeply unpopular within the Labour Party and among its main supporters, the [[trade union]]s, which along with several government ministers refused to support any such measures. The [[Chancellor of the Exchequer]], [[Philip Snowden]], insisted that the Report's recommendations be adopted to avoid incurring a budget deficit. In a [[memorandum]] in January 1930, one junior government minister, [[Oswald Mosley]], proposed that the government should take control of [[banking]] and exports, as well as increase [[pension]]s to boost purchasing power. When his ideas were turned down, he resigned. He soon left Labour to form the [[New Party (Oswald Mosley)|New Party]], and later the [[British Union of Fascists]]. ==The National Government== The dispute over spending and wage cuts split the Labour government: as it turned out, beyond recovery. The resulting political deadlock caused investors to take fright, and a flight of [[capital]] and [[gold]] further de-stabilised the economy. In response, MacDonald, on the urging of [[George V of the United Kingdom|King George V]], decided to form a "[[UK National Government|National Government]]" with the [[Conservative Party (UK)|Conservatives]] and the [[The Liberal Party (UK)|Liberals]]. On [[August 24]] MacDonald submitted the resignation of his ministers and led his senior colleagues in forming the new National Government. MacDonald and his supporters were expelled from the Labour Party and adopted the label "National Labour". The Labour Party and some Liberals, led by [[David Lloyd George]], went into opposition. The Labour Party denounced MacDonald as a "traitor" and a "rat" for what they saw as his betrayal. Soon after this, a [[General Election]] was called. The [[united Kingdom general election, 1931|election]] resulted in a Conservative landslide victory, with the now leaderless Labour Party winning only 46 seats in Parliament. After the 1931 election the national government became Conservative-dominated, although MacDonald continued as [[Prime Minister]] until 1935. ===Emergency measures=== The new national government, with the Conservative [[Neville Chamberlain]] as Chancellor, immediately instituted a round of [[wikt:draconian|draconian]] cuts in public spending and wages. Public sector wages and unemployment pay were cut by 10%, and [[income tax]] was raised from 4s 6d to 5s in the pound<ref>Taxes raised in the Finance (No. 2) Bill, passed into law in October. See copy of the bill in ''The Times'', September 19, 1931</ref> (from 22.5% to 25%). But these measures were [[deflation]]ary and merely reduced purchasing power in the economy, worsening the situation, and by the end of 1931 unemployment had reached nearly 3 million.<ref name="Social Conditions in Britain 1918-1939"> Constantine, Stephen (1983) ''Social Conditions in Britain 1918-1939'' ISBN 0-416-36010-6</ref>. Because of the [[gold standard]] there was nothing to stop a flight of gold. At first the government tried to stop the flight by introducing punitive [[interest rates]]. But in late 1931 the government was finally forced to abandon the gold standard, and immediately the exchange rate of the [[Pound Sterling|pound]] fell by 25%, from $4.86 to $3.40. This eased the pressure on exporters, and laid the ground for a gradual economic recovery. Also, in 1932 Chamberlain introduced tariffs on imports at a rate of 10% on all imports except those from the countries of the [[British Empire]]. ==Britain in the 1930s: a nation divided== Although the overall picture for the British economy in the 1930s was bleak, the effects of the depression were uneven. Some parts of the country, and some industries, fared better than others. Some parts of the country such as the [[South Wales Valleys]], experienced mass unemployment and poverty, while some areas in the [[Home Counties]] did not. ===The South and the Midlands=== Although in [[London]] and the [[South East England|south east of England]] unemployment was initially as high as 13.5%<ref name="Social Conditions in Britain 1918-1939"/>, the later 1930s were a prosperous time in these areas, as a [[suburban]] house-building boom was fuelled by the low interest rates which followed the abolition of the gold standard, and as London's growing population buoyed the economy of the [[Home Counties]]. The south was also the home of new developing industries such as the electrical industry, which prospered from the large-scale electrification of housing and industry. [[Mass production]] methods brought new products such as electrical [[cooker]]s, [[washing machine]]s and [[radio]]s into the reach of the [[middle class]]es, and the industries which produced these prospered. Nearly half of all new factories that opened in Britain between 1932 and 1937 were in the [[greater London]] area. <ref name="Social Conditions in Britain 1918-1939"/> Another industry that prospered during the 1930s was the British [[motor industry]]. For cities that had a developed motor industry such as [[Birmingham]], [[Coventry]] and [[Oxford]], the 1930s were also a boom time. Manufacturers such as [[Austin Motor Company|Austin]], [[Morris Motor Company|Morris]] and [[Ford Motor Company|Ford]] dominated the motor industry during the 1930s, and the number of cars on British roads doubled within the decade. British [[Agriculture]] also flourished in the 1930s. ===The North and other industrial areas=== The [[North of England]] however was a quite different matter. The north was the home to most of Britain's traditional heavy industries such as [[coal mining]] in [[Yorkshire]] and [[Nottinghamshire]], [[shipbuilding]] on [[Tyneside]], [[steel]] in [[Sheffield]] and [[textile]]s in [[Lancashire]] which were heavily [[export]] orientated. The north bore the brunt of the depression, and the '30s were the most difficult time in living memory for people in these areas. The north was hit so hard in the Great Depression because of the structural decline in British industry. Staple industries such as coal, steel and shipbuilding were smaller, less modern and efficient and over-staffed compared to continental rivals. In the [[North East England|north east]] (including [[Sunderland]] [[Middlesbrough]] and [[Newcastle-upon-Tyne]]) this was especially so. The north east was traditionally a major centre of the shipbuilding industry. The Depression caused a collapse in demand for ships. Between 1929 and 1932 ship production declined by 90%, and this in turn affected all the supply industries such as steel and coal. In some towns and cities in the north east, unemployment reached as high as 70%. Among the worst affected towns was [[Jarrow]], where unemployment led to the famous [[Jarrow March]], in which unemployed workers marched 300 miles to London to protest against unemployment. The [[North West England|north west]], a traditional centre of the textile industries, was also hard hit, with places such as [[Manchester]] and [[Lancashire]] suffering a slump. South [[Wales]], a centre of the coalmining and steel industries, was also devastated by the depression where towns such as [[Merthyr Tydfil]] and [[Swansea]] had unemployment rates reaching above 25% at certain times<ref name="Social Conditions in Britain 1918-1939"/> . The industrial belt of central [[Scotland]], also a major shipbuilding centre in [[Glasgow]], was also hard hit by the slump. In these areas millions of unemployed and their families were left destitute, and queueing at [[soup kitchen]]s became a way of life. A government report in the mid 1930s estimated that around 25% of the UK's population existed on a [[subsistence]] diet, often with signs of child [[malnutrition]] such as [[Scurvey]], [[Rickets]] and [[Tuberculosis]]. In his book ''[[The Road to Wigan Pier]]'', [[George Orwell]] described life for the unemployed in northern England during the depression: "Several hundred men risk their lives and several hundred women scrabble in the mud for hours... searching eagerly for tiny chips of [[coal]] in slagheaps so they could heat their own homes. For them, this arduously-gained 'free' coal was more important almost than food." ==The welfare state during the 1930s== In the 1920s and 1930s Britain had a relatively advanced welfare system compared to many of the industrialised countries. In 1911 a compulsory national unemployment and health insurance scheme had been put in place by the [[Liberal Party (UK)|Liberal]] government of [[H. H. Asquith|Herbert Henry Asquith]] (see [[Liberal reforms]]). This scheme had been funded through contributions from the government, the employers and the workers. At first the scheme only applied to certain trades but, in 1920, it was expanded to include most manual workers. <ref name="Unemployment in Britain Between the Wars"/> However, the scheme only paid out according to the level of contributions made rather than according to need, and was only payable for 15 weeks. Anyone unemployed for longer than that had to rely on [[poor law]] relief paid by their local authority. In effect, millions of workers who had been too poorly paid to make contributions, or who had been unemployed long term, were left destitute by the scheme. With the mass unemployment of the 1930s, contributions to the insurance scheme dried up, resulting in a funding crisis. In August 1931, the 1911 scheme was replaced by a fully government-funded [[unemployment benefit]] system<ref>[http://www2.rgu.ac.uk/publicpolicy/introduction/historyf.htm rgu.ac.uk]</ref>. This system, for the first time, paid out according to need rather than the level of contributions. This unemployment benefit was subject to a strict [[means test]], and anyone applying for unemployment pay had to have an inspection by a government official to make sure that they had no hidden earnings or savings, undisclosed source(s) of income or other means of support. For many poor people this was a humiliating experience and was much resented. ==Slow recovery== Following Britain's withdrawal from the gold standard and the devaluation of the pound, interest rates were reduced from 6% to 2%. As a result, British exports became more competitive on world markets than those of countries that remained on the gold standard. This led to a modest economic recovery, and a fall in unemployment from 1933 onwards. Although exports were still a fraction of their pre-depression levels, they recovered slightly. Unemployment began a modest fall in 1934 and fell further in 1935 and 1936, but the rise in employment levels occurred mostly in the south, where lower interest rates had spurred the house building boom, which in turn spurred a recovery in domestic industry. The North and Wales remained severely depressed for most of the decade. In severely depressed parts of the country, the government enacted a number of policies to stimulate growth and reduce unemployment, including road building, loans to shipyards, and tariffs on steel imports. These policies helped but were not, however, on a sufficiently large scale to make a huge impact on the unemployment levels. ==Rearmament and recovery== From 1936 onwards the National Government followed a policy of mass rearmament in the face of the rise of [[Nazi Germany]]. This provided the economic stimulus that finally ended the depression. By 1937 unemployment had fallen to 1.5 million, from where it fell even further. The mobilization of manpower following the outbreak of [[World War II]] in September 1939 finally ended unemployment. ==Consequences of the Great Depression== Following the end of [[World War II]], the majority of the British people, and particularly the [[working class]] and returning servicemen and women, did not want a return to pre-war Conservative economic policies, which they blamed for the hardship of the 1930s, and there was a mood for widespread social change. At the [[United Kingdom general election, 1945|1945 general election]], to the surprise of many observers, [[Winston Churchill]] was defeated by the [[UK Labour Party|Labour Party]] headed by [[Clement Attlee]]. The Labour government presided over the foundation of a comprehensive 'cradle-to-grave' [[welfare state]], and founded a universal, tax funded [[National Health Service]], which gave treatment according to need rather than ability to pay. The Labour government also enacted [[Keynesian]] economic policies, to stimulate the economy to create [[full employment]]. These policies became known as the "[[post-war consensus]]", and were accepted by all major political parties. This post-war consensus lasted until the late 1970s when it came under attack from the Conservatives led by [[Margaret Thatcher]]. ==References== * Aldcroft, D. H. ''The British Economy. Volume 1: The Years of Turmoil, 1920-1951'', Wheatsheaf.(1986) * Booth, A. and Pack, M. (1985) ''Employment, Capital and Economic Policy in Great Britain 1918-1939'' Blackwell. * Bowley M. (1947), ''Housing and the State 1919-1944'', Allen & Unwin. * Broadberry S. N. (1986), ''The British Economy between the Wars'', Basil Blackwell. * Buxton, N. K. and Aldcroft, D. H. (1979) ''British Industry between the Wars: Instability and Industrial Development, 1919-1939'', Scolar Press. * S. Constantine, ''Unemployment in Britain Between the Wars'' (1980). * A. Crowther, British Social Policy, 1914-1939 (1988). * Roderick Floud and Donald McCloskey (eds.), ''The Economic History of Britain since 1700'' Cambridge University Press. * Garraty, John A., ''The Great Depression: An Inquiry into the causes, course, and Consequences of the Worldwide Depression of the Nineteen-Thirties, as Seen by Contemporaries and in Light of History'' (1986) * Kehoe, Timothy J. and Edward C. Prescott. ''[http://www.greatdepressionsbook.com Great Depressions of the Twentieth Century]'' Federal Reserve Bank of Minneapolis, 2007. * George Orwell, ''The Road to Wigan Pier'' (1937). * Richardson H. W. (1967), ''Economic Recovery in Britain 1932-39'' , Weidenfeld & Nicolson * Richardson H. W. ( 1962), "'The basis of economic recovery in the 1930s: a review and a new interpretation'", Economic History Review. * Robbins L. (1934), ''The Great Depression'', Macmillan. * Skidelsky R. (1967), ''Politicians and the Slump: The Labour Government of 1929-33'' Macmillan. * J. Stevenson, and C. Cook, ''The Slump'' (1977). * A. J. P. Taylor, ''English History: 1914-1945'' (OUP, 1990) ==Notes== <references/> {{Commonscat|Great Depression}} {{GreatDepr nav}} [[Category:Great Depression|United Kingdom]] [[Category:Economic history of the United Kingdom]] [[Category:Social history of the United Kingdom]] [[Category:1930s in the United Kingdom]]