70 years on and UK still mistakenly looks for economic miracle cure | Larry Elliott
In her 70 years on the throne the Queen has been served by 14 prime ministers and 22 chancellors of the exchequer. She has seen the country become wealthier and healthier despite five significant recessions. In 1952, the economy was dominated by manufacturing and powered by coal. Seven decades later, the pits have all closed and Britain is primarily a service-sector economy.
The past 15 years have been the toughest of the Queen’s reign. Two deep recessions have provided the bookends to a period of extremely weak growth and flatlining living standards. Inflation is the highest it has been in four decades and the immediate prospects for the economy are poor.
That said, much has changed for the better since 1952. People live longer, work fewer hours, travel more widely and enjoy the benefits of 70 years of technological progress in everything from improved medical treatment to mobile phones. Only the well-off had TVs, washing machines and fridges in the early 1950s.
One thing that has not changed is the search for the magic ingredient to make the economy more dynamic or – to put it more accurately – to turn the clock back to its former glory under another long-reigning monarch, Queen Victoria.
There has been plenty of experimentation. When Queen Elizabeth II came to the throne in early 1952, the postwar Labour government had just lost power and been replaced by the Conservatives, led by Sir Winston Churchill. There was, however, no great rolling back of Labour’s nationalisation programme and so difficult was it to tell the difference between the economic policies of the new chancellor (Rab Butler) from that of the old chancellor (Hugh Gaitskell) that the centrist approach became known as Butskellism.
In many respects, the 1950s were a good decade in which the dole queues of the 1930s were replaced by full employment, relatively low inflation and rising consumer spending power. The problem was that if Britain was doing well, other countries were doing better – in some cases a lot better. By the end of the 1950s envious glances were being cast across the Channel at the much higher growth rates in West Germany, France and the Netherlands.
And so, the search for the miracle cure began. The 1960s saw French-style indicative planning and a national plan come and go. By the early 1970s it was hoped joining (what was then) the European Economic Community might do the trick. By the end of that decade, Margaret Thatcher’s answer to Britain’s economic malaise was a dose of monetarist shock treatment: control of the money supply and public spending restraint to bring down inflation.
After that, the UK joined the European exchange rate mechanism in 1990 only to leave it two years later, Tony Blair gave the Bank of England the freedom to set interest rates in 1997, and David Cameron said austerity was needed to repair the damage caused by the financial crisis of 2007-08. Brexit and Boris Johnson’s levelling up agenda are simply the latest in a long series of supposed panaceas.
From this jumble of initiatives, some tentative conclusions can be drawn. The pivotal period for the economy in the past 70 years was the long 1970s, which began in 1969 with Harold Wilson’s aborted In Place of Strife legislation to reduce the power of trade unions and ended with the defeat of the miners in 1985. It wasn’t just that the power of organised labour was smashed; it was that finance supplanted manufacturing as the economy’s driving force.
Few of the chancellors since 1952 have actually changed the economic narrative all that much, and even then not always in a helpful way. Some – such as Denis Healey and Alistair Darling – never had time for much more than crisis management. And there have been plenty of crises to deal with: the US threat to pull the plug on sterling over Suez in 1956; the devaluation of 1967; the arrival of the International Monetary Fund in 1976; Black Wednesday; the near collapse of the banks in 2008; the global pandemic of the past two years.
The more successful chancellors have had the good fortune to get the job as the economy has been recovering. That was true of Nigel Lawson, who replaced Sir Geoffrey Howe after Thatcher’s first turbulent term in office, and Ken Clarke, who followed Norman Lamont after he became the fall guy for Black Wednesday. The subsequent decade and a half was the longest period of uninterrupted growth since the Industrial Revolution.
Britain tends to move quickly from a sense of national gloom to a premature belief that the country has finally “cracked it”. The years leading up to the financial crisis were one example of that, when there was a failure to rein in the speculation rife in the City and the property market. Another was the late 1980s, when a strong recovery from the recession earlier in the decade was allowed to balloon out of control.
Getting the big picture right – setting interest rates at the right level and having a competitive pound – clearly matters but so does getting the small stuff right. Over the years, too little attention has been paid to the supply side of the economy, in part because the long lead times for policies to work sit uneasily with the demands of the electoral cycle for instant results.
The message from other – more successful – economies is clear and has been clear for the past 70 years. Identify the structural weaknesses of the economy, which in Britain’s case includes over-investment in domestic property and under-investment in almost everything else. Put in place the right policies to remedy the problems. Then stay the course.