Before Philip Snowden delivered his final budget, in the midst of recession, he had a fine record as an orator, anti-war agitator and campaigner for votes for women. A weaver's son from Yorkshire, he had a better grasp of economics than possibly anyone else in the Labour Party. He was the first Labour Chancellor and, even in the recession, he had succeeded in reforming the tax system to make the wealthy pay a greater share.
But when he delivered his budget speech on 10 September 1931, he faced a wall of hostility. With his strict Methodist upbringing, Snowden thought it almost immoral to borrow and believed devoutly in free trade. Most of the Labour Cabinet wanted to raise protectionist tariffs and run up government debt to protect employment. Snowden wanted to increase taxes, cut unemployment benefit and reduce salaries of public employees.
Unable to agree, the Labour Cabinet split and Snowden joined PM Ramsay Macdonald in the National Government. Snowden then introduced those measures.
The first and most dramatic reaction came at the naval base in Invergordon five days later: thousands of sailors went on strike over the threat to cut their pay by 10 per cent. The Invergordon mutiny created panic on the stock exchange and a run on the pound, and Britain was forced off the Gold Standard, the development Snowden had tried to avoid.
The impact on Labour was dire. MacDonald and Snowden were expelled and formed a rival national Labour party. In October, MacDonald called a general election, which was a landslide victory for the Conservatives. It was the only election since the introduction of universal suffrage in which one party won an outright majority of the vote.
In November 1967, the Labour government had tried to halt a run on sterling by devaluing the pound. In March 1968, the Chancellor, Roy Jenkins, produced one of the most austere budgets ever. He had given a foretaste in January by announcing spending cuts, hitting the defence budget hard, cutting capital spending, notably the plans for new hospitals and bringing back NHS prescription charges.
Before he delivered the budget, he had to race to a village called Ibstone, near High Wycombe, to visit Barbara Castle at her sickbed and try to persuade her to accept cuts in the transport budget. She reacted – he wrote later – "like a hoarse tiger greeting an intruder who had come to remove one of her cubs".
On 19 March, Jenkins told a hushed Commons: "In the short term we must have a stiff Budget, followed by two years of hard slog". He proceeded to announce tax increases totalling £923m, more than double the amount of extra tax raised in any previous budget. His intention was to convince the money markets and the International Monetary Fund that a Labour government could be trusted to run the economy.
The effect on consumers was grim: demand was suppressed, resources were concentrated in producing goods for export and the cost of living rose by five per cent. But Jenkins did not give way to protests.
Even when a general election was in prospect, in 1970, he refused to produce a giveaway budget. This was very good for Jenkins's reputation, in the long term, but not for the immediate prospects of the Labour Party, which lost the 1970 election.
The Labour government hit its lowest point just after Callaghan had taken over as PM. The biggest cause was the hike in world oil prices in 1973, when the oil producing nations got together as a cartel for the first time. After months of trying to prevent a run on sterling, the Chancellor, Denis Healey, was forced to admit defeat in September 1976 and go to the International Monetary Fund for a £2.3 bn loan. On 15 December, Healey presented an emergency budget to the Commons.
The budget itself was not as great a shock as it might have been, because the Commons and the public were forewarned that major cuts in public spending were on the way. James Callaghan warned the Labour conference that the "cosy world" they thought they inhabited, where "full employment could be guaranteed by a stroke of the government's pen", was gone. The Environment Secretary Anthony Crosland told local government that "the party's over".
Public spending had reached 49.9 per cent of Gross Domestic Product in 1975-76. Healey succeeded in reducing that figure by one per cent a year for five years. He also got inflation down. When Mrs Thatcher came to power, inflation went back up and so did public spending as a proportion of GDP.
Though there were benefits for the economy in the Healey emergency budget, it split the Labour Party between left and right in a way that took a decade to heal and set off a conflict between the Government and trade unions which badly damaged them both and opened the door to Thatcherism.
Sir Geoffrey Howe
Three events defined the first half of Margaret Thatcher's time in office: the miners' strike, the Falklands War and the budget Sir Geoffrey Howe presented to the Commons on 10 March 1981. Britain was deep in recession, inflation was running riot, but the problem that exercised Howe, Thatcher and her economic adviser, Alan Walters, was government borrowing. Their target was to get the Public Sector Borrowing Requirement down to £8.25bn, when it was on the way to £14.5bn. Since the 1930s, almost every western government accepted Keynes' doctrine: that in a recession, governments should pump money into the economy to reduce unemployment.
But Thatcher, Howe and Walters were monetarists. Howe then told a shocked House of Commons he was increasing taxes by £4bn.
Unemployment kept on rising, peaking at over three million. And yet it achieved its goal: by the end of 1982, inflation was down to five per cent, from a peak of over 20 per cent. Even after nearly 30 years, the 1981 budget can still provoke fierce disputes. Margaret Thatcher saw that as her "finest hour" – the economic equivalent of the Battle of Britain, according to Nigel Lawson, a Treasury minister at the time. Kenneth Clarke – though no Thatcherite – thought it was "the finest budget of the 1980s", but Sir Peter Tapsell, an old-style One Nation Tory, believes it was "economically illiterate".Reuse content