Excuses are being made for the current crop of idealistic, Labour-voting young, on the grounds that ‘they aren’t old enough’ to remember what a Labour government is like. But there’s no excuse for not knowing the history of your country, whatever your age. So let’s take a quick trip down memory lane, to the last two periods when the British people were unwise enough to elect a Labour government.
In fairness, Harold Wilson’s Labour government of 1974 inherited a dismal economic situation from the Conservatives. Edward Heath’s incompetence had left a legacy of rising inflation, rising unemployment, falling productivity and increasing union militancy, caused by his bungling attempts to rein in the power of the unions. The miner’s strikes, the 3-Day week and the OPEC oil crisis of 1973 had all put the British economy under severe strain. The February 1974 election resulted in a hung parliament, with Labour forming a minority government. A second general election in October that year, gave Labour a tiny majority. The public widely believed that in contrast to Heath, Wilson somehow knew how to ’do business with the unions’ and could provide some sort of political stability after more than two years of turmoil.
In fact, Wilson was already into his ‘Walter Mitty’ phase of unreality. Economic and financial policy was trusted to left-wingers, Employment Secretary, Michael Foot and Industry Secretary, Tony Benn, together with the new Labour Chancellor, Denis Healey. In essence, any client group that was affiliated in some way to Labour was to have whatever they wanted. ‘Doing business with the unions’ meant little more than inviting Jack Jones, Len Murray and co. for beer and sandwiches at No.10 each week to pick up the cheque for that week’s pay rises. Labour used public funds to create more Labour voters by a huge expansion in public sector employment. In 1974/75 public spending increased by 35%, with a further 25% increase in 1975/76. Over the decade, the number of public sector workers rose by 800,000, while private sector employment fell by nearly 1 million. In four years, local government spending rose by 40%.
Labour’s plans were to be funded by swingeing tax rises; in Healey’s words, ’to squeeze the rich until their pips squeak’. The basic rate of Income Tax was raised to 33%, the top band was raised to an eye-watering 83% and Corporation Tax raised to 52%. Tax on investment income was raised to a record 98%. As well as printing more money, Labour borrowed huge sums; £8bn in 1974/75, rising to £11bn in 1975/76; equivalent to about £90bn a year today. (Is this beginning to sound familiar ……?)
Even if Britain’s economy had been in good health Labour’s spending spree would have been demanding enough, but in the financial mess left behind by Heath’s government, it was disastrous. Private investment collapsed and the rich fled abroad, taking their money with them. Britain’s GDP fell for two consecutive years as productivity declined and the trade deficit grew. In March 1975, the FT Stock Exchange index fell to an all-time low of 146 points. By the end of the year, firms were going bankrupt in the Companies Court every 45 seconds. In April 1975 inflation reached 33%, higher than Italy or Turkey and five times more than the European average. With wage rises averaging 30%, the unions made even more excessive wage demands, most of which were granted in full, fuelling yet more inflation. Industrial productivity declined; by the end of 1975 over 1 million were unemployed; soon to reach nearly 2 million under Wilson’s successor James Callaghan. Not for nothing was Britain known as ‘The Sick Man of Europe’.
When Wilson finally realised the game was up and retired to his Isles of Scilly bungalow in April 1976, Britain was on its knees. The country was to all intents and purposes, bankrupt and could only be kept going with a massive loan from the International Monetary Fund. One of Wilson’s chief advisors, Bernard Donoghue, summed up the mood:
‘Britain is a miserable sight. A society of failures, full of apathy and aroused only by envy at the success of others. That is why we will continue to decline. Not because of our economic and industrial problems; they are soluble, but because the psychology of our people is in such an appalling state. Meanness has replaced generosity. Envy has replaced endeavour. Malice is the most common motivation …..’
It was left to Wilson’s successor, James Callaghan, to try and clear up the mess. First he had to deal with the IMF, whose ’bailout’ for Britain came with a stringent package of public spending cuts (‘austerity’ was unknown; in those days it was called ‘living within your means‘). Naturally this triggered a further round of turmoil with Labour’s union paymasters as Callaghan struggled to get wage increases and inflation under control, culminating in the disgusting scenes of the so-called ’Winter of Discontent’ (1978 – 79), when dead bodies lay unburied and uncollected rubbish was left to rot in the streets.
The great Socialist spending splurge was over; both it and the British people had been tested to destruction and something fundamental had to change.
(With thanks to ‘Seasons In The Sun – The Battle for Britain 1974 – 1979’,
by Dominic Sandbrook, Penguin, 2013)