John Barnes, Historian

© John Barnes

Political Change

Lecture 10

13 December 2002

The Failure of the Wilson Government

Although Labour won only a narrow victory in 1964, it was greeted with a surprising degree of euphoria by Whitehall, press and public. Wilson appeared to have the answer to the institutional and cultural criticisms of the early 1960s and his 1964 manifesto described how the Government would harness the nation's wealth in terms of brains, scientific research and medical discovery, mobilise the resources of technology under a national plan and reverse "the decline of thirteen wasted years." Britain was to outstrip her European competitors through "the white heat of the technological revolution".

The reality turned out to be very different. The country lurched from one sterling crisis to another, culminating in the £'s devaluation in November 1967, and an incomes policy had to be imposed by legislation. Economic growth slowed to a point where the Opposition could jest that Wilson had indeed put an end to "stop-go" but that he had done so by putting an end to the "go". Subsequent revisions to the figures indicate that in fact growth was achieved, but an average of about 2% a year was a far cry from the 4% predicated in the National Plan. It was the latter on which all Labour's spending plans had been built. Savage deflationary packages in the summer of 1966, after devaluation and again a year later were finally to put the balance of payments back into the black, but only after a haul longer and harder than anything predicted by successive Chancellors. And in their last full year in office, the Labour Government came into head-on conflict with their trade union allies over legislation to reform industrial relations and was humiliated. In place of the legislation it had wanted, it could secure only a "solemn and binding agreement" from the Unions to put an end to demarcation disputes. The TUC would not even consent to amend their rules.

Even before this, the Socialist commentator, Paul Foot, penned a brilliant polemic in which he traced the death of Harold Wilson, Yorkshire socialist and moral crusader. The growthman and technocrat survived, punchdrunk from successive economic crises, but in search still of more effective ways to run the capitalist economy. In the meantime growth had given way to economic stagnation and Wilson had sacrificed social justice to a strong pound and had abandoned freely negotiated wage agreements for a wage freeze. The cause was to be found, Foot supposed, in the absence of any comprehensive social purpose in either Industry and Society or Signposts for the Sixties. Wilson had written both policy documents.

What is particularly striking about the 1964-70 Government is not the amount of disapprobation it has received (although that is very considerable) but the ideological range of its critics and the virtual absence of any defence. A surprisingly high number of its critics are or were Labour supporters. Apart from David Walker writing in Ruling Performance, whose revisionism seems more calculated than convincing, only Ben Pimlott and Wilson's official biographer, Philip Ziegler, have made any real attempt to shift opinion in Wilson's favour. Not altogether surprisingly, it has proved an uphill task. The historical consensus on these governments remains that voiced by Kenneth Morgan: "a paradigm of economic failure, social indirection and political paralysis". Morgan likens it to MacDonald's 1929-31 Government as "a major point of reference in charting the inadequacies of British democratic socialism as a programme for power."

Tiratsoo has shown that the Socialist intelligentsia was out of touch with the party's working class support, but this comforting thought needs more than a little qualification. First, it is not likely that left-wing critics would shift their opinion, even if they accepted his evidence. Their concern was for the future of socialism in an increasingly globalised world and they simply could not accept what they took to be a voting machine in support of an "administration claiming no more than to run the existing system more efficiently". They were to shift the party sharply to the left in opposition. Nor was the working class staying loyal to the party. From 1951, with a brief upward surge in 1966, the Labours vote was in secular decline and the process of dealignment and realignment, which followed in the 1970s, hit Labour far harder than it did the Conservatives.

Inevitably those who think Wilson had the game in his hand and threw it away have made him the scapegoat. The most frequently levelled charge is that Wilson should have devalued the pound immediately on taking office and blamed the Conservatives. Beckerman articulates this charge in an account of the Government's economic record and his indictment is echoed by Stewart in The Jekyll and Hyde Years. The economic regeneration of Britain was sacrificed to an absurd attempt to prop up the pound. More recently Ponting has brought the Americans into the act since it was largely at their behest and in pursuit of maintaining a world role that Wilson embarked on this mistaken strategy. An even more serious charge is that the whole business of industrial intervention was bungled. The National Plan was no more than a symbolic gesture and the Government, while it willed the end of industrial modernisation, did not supply the means. "The Plan provided no answers, had no powers, and could only flourish, anti-climactically, as a 'check list of action required' if it was to succeed." Worse still the Government did not exploit its alliance with the producers on both sides of industry to defeat the financial establishment. Wilson's penchant for short-term political manoeuvring and apparent absence of ability to give a strategic lead are invariably under fire, not least significantly in the diaries of a natural ally, Richard Crossman. Other ministers have been particularly forthright. Healey, for example, writes that "Wilson had no sense of direction, and rarely looked more than a few months ahead. His short-term opportunism allied to a capacity for self-delusion which made Walter Mitty appear unimaginative, often plunged the government into chaos. Worse still, when things went wrong he imagined everyone else was conspiring against him. He believed in demons and saw most of his colleagues in this role at one time or another."

In answer to such charges Pimlott deploys examples where Wilson stuck to his guns with great tenacity. One such is his reluctance to devalue, a position to which he stuck with great tenacity, arguably long after it remained sensible to do so. Another, the battle that he fought long and hard for Barbara Castle's trade union reforms, is less convincing because he took up the battle not as one of principle, but to outflank the Conservative enemy. At best this is a political strategist at work rather than a Prime Minister with a coherent government strategy. Other examples, his interest in the problems of underdeveloped countries and his liberalism on race, while well attested, are less than significant for the course of government. On Rhodesia, where his firmness was always boasted, he never considered deploying British forces pre-emptively, and force was ruled out with dismaying speed after UDI. It is clear that there were forces in Southern Rhodesia that would have rallied to the Crown had he acted otherwise. Although sanctions were put in place, the fact remains that Wilson twice sought a political settlement to the evident dismay of much of the Commonwealth, and it is now known that he turned a blind eye to the role of British oil companies in helping Southern Rhodesia escape the full rigours of sanctions. In studying his record, it is hard to avoid the conclusion that under the pressure of events, his approach to problems became increasingly pragmatic. Where once he had proclaimed that Britain's frontier lay on the Himalayas, two years later he acquiesced in the historic decision to put an end to Britain's military presence east of Suez. The pragmatism was tinged also with Micawberism and it is difficult not to agree with Healey (and Andrew Roth) that there was something about him of Walter Mitty when one reads the endless succession of pronouncements during his first three years in office that the British economy had at last turned the corner and that the Government could at last embark on its long-promised leap forward.

Nevertheless the overall record of his Government is far from negligible, ranging as it does from the creation of the Open University (very much a personal project of Wilson's) to the imaginative scheme for paying higher children's allowances to alleviate child poverty, while clawing back the payments from the well-to-do by the use of the tax system. Crossman at the Ministry of Housing devised a "fair rents" scheme in 1965 that sought successfully to hold the balance between the interests of landlord and tenant in areas of housing scarcity. The machinery he established has proved durable. Leasehold reform and a mortgage option scheme, to provide cheaper mortgages, followed under the ministers who followed him. Still more to the point, Crossman pushed up the house-building totals. Although the Government was subsequently forced to abandon its 1966 election pledge to raise the figure to 500,000 built each year, even the scaled down programme topped the 400,000 mark, well in excess of anything achieved by its Conservative predecessors. At Transport Barbara Castle devised Passenger Transport Authorities for the five major conurbations other than London. Subsequently as First Secretary she pushed through the Equal Pay Act 1970, while the Matrimonial Property Act recognised the contribution wives had made to the building up of a family's assets whether working at home or in a job. These were significant extensions of women's rights. In the field of unemployment, redundancy payments and an earnings related supplement helped to cushion the blow of being thrown out of work. At Health Robinson brought in legislation for Family Planning. There was a substantial increase in the proportion of GNP spent on health, which enabled a substantial increase in hospital building and in staffing, together with a revival of the health centre programme. At Education Crosland matched the expansion of University education, agreed by the Conservatives in 1964, with the planned creation of 30 polytechnics in the public sector, creating a binary system, whose disappearance almost a quarter of a century later many still regret.

There were more controversial reforms also. A rather anodyne Race Relations Act was put on the statute book in 1965 at a time when the Government was tightening up on immigration and the provisions against racial discrimination were massively extended in 1968. Less successful was the Caravan Sites Act 1968, devised to help gypsies, but exploited subsequently by travellers of a rather different provenance. At Education Crosland, who was determined to put an end to the grammar schools as socially divisive, chose not to risk legislation. Instead he used his control of local authority building programmes to ensure that all new secondary school building had to fit in with schemes of comprehensive reorganisation (Circular 10/65). Since the school population was still rising, this was an extremely adroit move, and one that fitted in well with the growing middle class disillusion with the selective system. By the end of the decade just under a third of Britain's secondary school population was in comprehensive schooling. However, it has to be added that the move never had majority support. At the Home Office Roy Jenkins not only presided over the abolition of capital punishment, but lent his help to a whole series of private Member bills which legalised abortion and homosexual activity, made it easier to obtain a divorce, and virtually got rid of censorship (blasphemy excepted). Universally applauded by the chattering classes at the time, these measures now attract a more jaundiced eye. Few would now seek to reverse them, but the social consequences are far from universally welcome.

Perhaps the most striking change in the field of social policy, however, was the rediscovery of poverty. It might also be described as the reinvention of poverty, since destitution in the old fashioned sense was virtually unknown and the stigma that attached to National Assistance was partially eroded by its transformation into a scheme for supplementary benefits. Significant steps were taken under this administration to aid the poorest with their rent. However, at the LSE some of Titmuss's disciples, most notably Peter Townsend, were arguing that the so-called poverty line was much less objective than it seemed, that it represented a middle class assessment of the needs of the working class and that what mattered was relative deprivation. Henceforward the target was a moving one, socially determined and virtually impossible to hit. The Labour Government did its best, and was very largely damned by Labour sympathisers for not doing more. The yardstick applied was equality and hence earnings related supplements to unemployment and sickness benefit, which were introduced in 1966, even if desirable in themselves, were a move in the wrong direction. Some of what the Government had hoped to accomplish, for example their minimum income guarantee, was denied by administrative problems. Their most ambitious reform, a fully funded national superannuation scheme, could not be financed and was replaced by a "pay-as-you-go" graduated pension scheme, which in turn was introduced too late to reach the statute book. Other measures, like provision for the regeneration of the inner cities and the creation of educational priority areas, were constrained by inadequate finance and often because the levers available to the Government were inappropriate or inadequate for the job. Some far-reaching steps, the modernisation of local government on the basis of recommendations from the Royal Commission set up by Crossman in 1965, and the restructuring of the Health Service, were again decisions taken too late to be carried through by anyone other than a successor Government. That Government turned out to be Conservative and did things rather differently.

Much that the Government did in the social sphere was vitiated by the failure of the economy to grow as fast as the Government had planned. Thus one can point to a much more rapid growth in the social services than in GNP, a proportionate growth of about a fifth compared with the tenth achieved in the last five years of Conservative Government, but the favourable judgement has to be qualified with the thought that most of this was demographic or "semi-automatic". However, in order to finance an aggregate increase in social service expenditure equivalent to more than a quarter of the growth of GNP at market prices, income tax, national insurance contributions and local rates all had to rise substantially, but the most serious impact came perhaps from the fact that allowances were not in general increased. As it was many of the lower paid were drawn into the tax net and it has been calculated that most families with children were in fact worse off in 1970 that they had been in 1964.

Industrial policy offers another key area in which the verdict has to be "a curate's egg". Pimlott emphasises that while planning for growth was effectively abandoned in 1966, "white heat" remained a central part of the Government's policy. The Industrial Reorganisation Corporation was created in 1966 and was a powerful force for industrial mergers (GEC, for example). The Shipbuilding Industry Act rationalised the shipyards, and the use of investment grants was extended in 1968 by the Industrial Expansion Act. The distribution of manpower was influenced by the introduction of Kaldor's brainchild, SET. But if this was a system of "selective intervention", it can not be seen as a triumphant success. As Coopey makes clear, however, too much attention has focused on the Industrial Reorganisation Corporation. Its record is distinctly patchy and in particular the mergers which led to the creation of BMC failed to create a viable motor industry in Britain. It seems probable that policy was not ruthless enough, although the deficiencies of BMC can also be attributed to the choice of a marketing man, Donald Stokes, to head the firm. However, the "little Neddies" inherited from the Conservatives and brought under the auspices of the DEA did a great deal of useful work to improve the efficiency of British industry, sector by sector, and the nationalisation of the Iron and Steel industry, although undertaken largely for ideological reasons, also proved of considerable importance. Lord Melchett, the merchant banker chosen to head the new corporation, carried through a much-needed rationalisation of the whole industry. Had Peter Walker then carried denationalisation through in the early 1970s, British Steel might well have been in a far better position than it was a decade later. To these success stories, one can add the creation of MINTECH. It is true that its principal architect left the Government in despair over the way its first Minister, the trade unionist, Frank Cousins, conducted the office, but even in his time the Ministry could boast that it had kept Britain in the computer business by bringing together ICL. Under his successors, in particular Tony Benn, the ministry was greatly expanded and was, as Coopey shows, infinitely more successful than IRC.

But the real failures remain those of economic policy. There is very little evidence, however, to suggest that the cause of the failure had anything to do with the initial decision not to devalue. As I argued last week, the evidence does not suggest that the pound was overvalued in economic terms [Cf. Manser; Hagen & White] although there is considerable evidence that the British Government was attempting to do too much itself overseas. In this respect, more might have been done to cut Britain's defences and end the East of Suez deployment far earlier. However, to have acted in this way would have caused a serious rift with Washington and that Wilson would not and perhaps could not risk, given American help over the pound. In fairness to Wilson, one should add that his first Foreign Secretary, the unlucky Gordon Walker, always took the view that given events like the Indonesian confrontation, the decision to abandon east of Suez could have been taken no sooner. That may be so, but it is equally clear that the policy was not a choice, but forced on the Government in the aftermath of a forced devaluation of the pound!

Despite what I have just said, the reluctance to devalue until forced to do so is usually made the central charge against the Government. It is refreshing therefore to find economic historians disputing that judgement. Wilson had rational arguments for his decision and these were reinforced by pressure from the United States designed to ensure that sterling remained a trading currency. The Americans were emphatic that Britain should not devalue, but there were very good reasons to stick with the pound that had far more to do with economics than politics. In other words, the usual belief that Wilson only took his decision because he did not want his party to be labelled the party of devaluation is at best a half truth and the suggestion that it was done to please the United States is true, but seen as a matter of mutual interest. Probably the decisive argument was Balogh's, that devaluation does not solve any underlying problems with the economy.

In the Coopey, Fielding and Tiratsoo volume on the Wilson Governments, Woodward offers a sensible if not altogether coherent analysis of the state of the economy (wrong I think on the balance of payments, right probably that unemployment was too low, right too that faster growth would have helped) and argues that the broad strategy - an emphasis on the long-term and supply side policies, coupled with greater financial stability was right, but that it depended crucially on the balance of payments deficit being easy to put right. Where I differ from Woodward is over the question of whether the Wilson Government would have been right to deflate in 1964 or perhaps 1965. Woodward suggests that the Government would have gained much from the adoption of Stop-Go, but that would have been too cynical a manoeuvre even for Wilson to contemplate. Therefore crucially the success of the strategy rested too much on the success of the incomes policy and that, Woodward suggests, was unlikely to hold. Woodward nevertheless makes a powerful case against using devaluation (Pp82-3) and hints that July 1966 was the earliest that such a step should have come into consideration. It has to be said, however, that it worked only in the context of savage deflation in 1968 and that even so the Government twice came close to being driven into further devaluation. It was certainly not an easy option. One problem with Woodward is that he sees confidence factors as being entirely rational and allows little for the fact that the credibility of the pound may have been called into question by the Government's political rhetoric and ill judged actions.

The Autumn Budget was misconceived and, as we have seen, the subsequent sterling crisis mishandled. The 1965 budget was therefore Treasury dominated (-£150m; credits of $3 billion renewed), but it did not avert further pressure on sterling that summer, necessitating further action. By now Brown had become converted to devaluation. In an important sense Wilson was a prisoner less of his decision to maintain the value of sterling than of his more political judgement that to achieve the Government majority he wanted, he must continue to play up Labour's "appalling" economic inheritance. Since the Conservatives momentarily moved into the lead in the polls in 1965, he may have felt himself justified in this tactical consideration, but it was to prove unnecessary and damaging. The Rhodesian crisis split the Conservative party and allowed Wilson to play the statesman, which he did quite brilliantly. But in any case the mood on the doorstep in March 1966 was that Labour must have a chance to show what they can do.

George Brown at the DEA had created the CBI and brought it together with the TUC. He had secured a voluntary declaration on pay, prices from both sides of industry in April 1965 and had created under Aubrey Jones a PIB, which was markedly effective. But by the time the National Plan was launched on 16 September, it looked increasingly unlikely to be anything other than stillborn. To make matters worse, the Government was under pressure from the Americans to move away from the voluntary principle and had exacted from the TUC an early warning system, which was underpinned by back-up legislation.

In the run up to the March 1966 election, Callaghan allowed himself to promise that the budget would not be deflationary and ostensibly he held to that promise by introducing SET. Views on that tax remain mixed, but its deflationary impact came too late in the year to make any difference to what followed.

The seamen's strike and the sterling crisis. The impact of the French. Callaghan decides that devaluation is the only possible option. Brown squared Callaghan before the crucial Cabinet by promising the necessary deflationary measures and he then played on the Left with the assertion that this was a pro-European plot. When Brown seemed to personalise the issue Wilson was home and dry.

Again the Government's handling of the package leaves much to be desired. Wilson pays a visit to Moscow after announcing that there will be a package, but not what it will contain.

The package is not only savage (bank rate at 7%, a 6 month wages and prices freeze, curbs on hire purchase, spending cuts at home and overseas) but it finally kills the National Plan. Brown resigned, but was persuaded to take the Foreign Secretaryship (presumably with promises of action on Europe). His last action as First Secretary is to push the prices and incomes legislation through the Commons. Again the statutory powers were ostensibly to back a voluntary system, but Cousins jibbed. He resigned to lead a campaign against the policy, but the TUC reluctantly endorsed it and carried the day in conference. The rehabilitation of the external account was now the main objective. Instead of being a positive aid to growth, incomes policy had become a major arm of a deflationary policy.

In retrospect Wilson's victory on the issue looks like an error. Probably the Government should have admitted that devaluation was inevitable and coupled it with the deflationary package. As it was the Government staggered through into 1967, but they were no longer willing to trust the TUC to deliver a voluntary policy. Even though it was backed overwhelmingly by a special conference and received TGWU support, the offer of a new voluntary agreement was dismissed in favour of another six months of severe restraint based on a nil norm (January to July 1967). This was announced in November and in the following March the Government announced that it was again being extended, this time for twelve months. However, the policy really amounted to a delaying tactic and was not really enforced. After a slowdown during the initial freeze wage rates accelerated in 1967 to their pre-freeze rate and this despite a near doubling in unemployment to 2.3% by November 1967.

Nevertheless the Government had relaxed its economic stance and Callaghan went for a "steady as you go" budget, understandable since world trade was slack, but a mistake nevertheless since from April onward the pound again came under pressure.

Although Wilson still spoke optimistically, he may have sensed what was to come. At all events he rejected a fresh agreement with the United States linking support for sterling with remaining east of Suez, endorsed the Defence review, which took the first steps towards reversing that policy & appeared to take seriously an effort to join the EEC.

Although de Gaulle's fresh veto on British entry into the EEC ought to have helped the pound (rumours of British entry had not been at all helpful) seemingly inadequate reserves and massive short-term debt clouded its future. The balance of payments (in the black in 1966) tuned very sour and the deficit reached £600 million in 1967. Wilson blamed the eventual decision on the 6 Day War and the closure of the Suez Canal: others identify a series of dock strikes as the final straw. But the truth was that the pound's situation was quite untenable and there was no dissension when an inner group finally broached the issue in November and devaluation was finally decided upon.

The pound was devalued by 15%, Callaghan resigned and was replaced by Jenkins. The latter made a mistake by not moving immediately to deflationary action. Partly as a result the effects of devaluation were slow to arrive. The deficit in 1968 was practically as bad as that in 1967.

Jenkins took drastic action in January 1968, the major casualty overseas being the east of Suez policy, while at home savage cuts included the postponement of the raising of the school leaving age. The currency markets continued unsettled and in March the gold markets had to be closed. This incidentally led to Brown's resignation over the way the decision had been taken. As Woodward notes there were four sterling crises betwenn devaluation and the spring of 1969, but thereafter the balance of payments finally improved. Although much credit must go to the Chancellor's 1968 successive deflationary packages, Britain and its government also benefited from a revival of world trade.

In the summer of 1968 also the Basle agreements were negotiated, but the balance of payments situation remained desperate. Emergency plans were made for a further devaluation (Brutus, Hecuba) but in the end they did not have to be used.

The TUC had voted down incomes policy the previous November and throughout the year the policy was fast disintegrating. Not only were the Conservatives on the rampage, but the Scottish nationalists took Hamilton. It was against this background that Barbara Castle had to consider the report of the Donovan Commission and Wilson began to think that his only way to outflank the Conservatives would be to take up a central plank of their policy - TU reform.