The Great Depression in the United Kingdom also known as the Great Slump, was a period of national economic downturn in the 1930s, which had its origins in the global Great Depression. It was Britain's largest and most profound economic depression of the 20th century. The Great Depression originated in the United States in late 1929 and quickly spread to the world. Britain did not experience the boom that had characterized the U.S., Germany, parts of the British Empire with Canada and Australia in the 1920s, so its effect appeared less severe.H. W. Richardson, "The Economic Significance of the Depression in Britain," Journal of Contemporary History (1970) 4#4 pp. 3–19 in JSTOR Britain's world trade fell by half (1929–33), the output of heavy industry fell by a third, employment profits plunged in nearly all sectors. At the depth in summer 1932, registered unemployed numbered 3.5 million, and many more had only part-time employment. However at the same time, from 1929 to 1933 employment dipped only to 94.9% relative to 1929 employment metrics and recovery was seen as early at 1933 (numbers are across the entire country, and unemployment did double over this period relative to 1929 metrics). The positive trend continued across real national income and wages. New houses built increased by 33% from 1929 to 1933, while profits, prices, export volume and value, and imports volume and value dropped. Overall, while all these metrics were concerning to parliament and businessmen along with devastating industrial regions, the common person especially in areas around London did not experience major hardship and even prospered.
Particularly hardest hit by economic problems were the industrial and mining areas in the north of England, Scotland, Northern Ireland and Wales. Unemployment reached 70% in some areas at the start of the 1930s (with more than 3 million out of work nationally) and many families depended entirely on payments from local government known as the dole.
Background
The Great Depression of 1929–32 broke out at a time when the United Kingdom was still far from having recovered from the effects of the First World War. Economist Lee Ohanian showed that economic output fell by 25% between 1918 and 1921 and did not recover until the end of the Great Depression,Cole, Harold L. and Lee E. Ohanian, "The Great U.K. Depression: a Puzzle and a Possible Resolution" in Kehoe, Prescott (2007) arguing that the United Kingdom suffered a 20-year great depression beginning in 1918. Relative to the rest of the world, economic output declined mildly in the UK between 1929 and 1934.
Heavy industries which formed the bedrock of Britain's export trade (such as coal mining, shipbuilding and steel) were heavily concentrated in certain areas of Britain, such as northern England, South Wales, Northern Ireland and central Scotland, while the newer industries were heavily concentrated in southern and central England. British industrial output during the 1920s ran at about 80–100%, and exports at about 80% of their pre-war levels.
Gold standard
From 1921 Britain began a slow economic recovery from the First World War and the subsequent slump. But in April 1925, the Conservative Chancellor of the Exchequer, 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 to one pound. This made the pound convertible to its value in gold, but at a level that made British exports more expensive on world markets. The price of gold was over-estimated by 10–14% leading to coal and steel as an export becoming less competitive. The economic recovery immediately slowed. To offset the effects of the high exchange rate, the export industries tried to cut costs by lowering workers' wages.
The industrial areas were in recession during the rest of the 1920s. These industries received little investment or modernization. Throughout the 1920s, unemployment stayed at a steady one million.
Economic crisis and the Labour minority government
In May 1929, a minority Labour government headed by Ramsay MacDonald came to office with Liberal support. This was only the second time a Labour government had been in office (they had briefly been in office in 1924). 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 classical economics with its emphasis on maintaining a balanced budget at any cost.
In October 1929, the Stock Market Crash in New York heralded the worldwide Great Depression. John Maynard Keynes, who had not predicted the slump, said, "There will be no serious direct consequences in London. We find the look ahead decidedly encouraging."
Doomsayers on the left such as Sidney and Beatrice Webb, J. A. Hobson, and G. D. H. Cole repeated the dire warnings they had been making for years about the imminent death of capitalism, only now far more people paid attention.Overy, Twilight Years, ch 2 Starting in 1935 the Left Book Club provided a new warning every month, and built up the credibility of Soviet-style socialism as an alternative.
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 tariffs, which worsened the crisis by further hindering global trade. The British Empire lowered tariffs, known as Imperial Preference, while raising them against the U.S. and others.
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 (from 12% to 20% of the insured workforce), and exports had fallen in value by 50%. During this time there were little to no unemployment benefits, so this mass unemployment led to many of Britain's population becoming impoverished. 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 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 ("dole") to the unemployed) to avoid incurring a budget deficit. The sense was that the deficit was dangerous and had to be reduced; the proposal was to meet £24 million by increased taxes on the rich, and £96 million by economies, of which £64 million would come from unemployment relief.A.J.P. Taylor, English History (1965) p 288 This proposal proved deeply unpopular within the Labour Party and among its main supporters, the trade unions, 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 take control of banking and exports, as well as increase pensions to boost purchasing power. When his ideas were turned down, he left Labour to form the New Party, and later the British Union of Fascists.
National Government
The dispute over spending and wage cuts split the Labour government: as it turned out, beyond recovery. The political deadlock that resulted caused investors to take fright, and a flight of capital and gold further de-stabilised the economy. In response, MacDonald, on the urging of King George V, decided to form a "National Government" with the Conservatives and the Liberals.
On 24 August, 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 1931 general 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 was Conservative-dominated, although MacDonald continued as prime minister until 1935.
Emergency measures In an effort to balance the budget and restore confidence in the pound, on 10 September 1931 with Philip Snowden still as Chancellor, the new national government issued an emergency budget, which immediately instituted a round of cuts in public spending and wages. Public sector wages and unemployment pay were cut by 10%, and income tax was raised from 4s 6d up to 5s on the poundTaxes raised in the Finance (No. 2) Bill, passed into law in October. See copy of the bill in The Times, 19 September 1931 (from 22.5% to 25%). The pay cuts did not go down well, however, and resulted in a non-violent "mutiny" in the Royal Navy protesting the pay cut.
These measures were deflationary and merely reduced purchasing power in the economy, worsening the situation, and by the end of 1931 unemployment had reached nearly 3 million.Constantine, Stephen (1983) Social Conditions in Britain 1918–1939 The measures were also unsuccessful at defending the gold standard, which the National Government had ostensibly been created to defend.
The flight of gold continued, however, and the Treasury finally was forced to abandon the gold standard in September 1931. Until now the government had religiously followed orthodox policies which demanded balanced budgets and the gold standard. Instead of the predicted disaster, cutting loose from gold proved a major advantage. Immediately the exchange rate of the pound fell by 25%, from $4.86 for one pound to $3.40. British exports were now much more competitive, which laid the ground for a gradual economic recovery. The worst was over.Peter Dewey, War and progress: Britain 1914–1945 (1997) 224-32Diane B. Kunz, The battle for Britain's gold standard in 1931 (1987).
Also, in 1932 following the Ottawa Agreement, Neville Chamberlain, who had become Chancellor after the 1931 election, introduced tariffs on industrial and agricultural imports at a rate of 10% on all imports except those from the countries of the British Empire. The introduction of tariffs caused a split in the Liberal Party, some of whom, along with Phillip Snowden, withdrew support for the National Government.
During the recession 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 brightest spot was in home building. From 1926 through 1939 over 200,000 new houses were built every year, with the peak reaching 365,000 in 1936.B. R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics (1962) p 239 Many suburban districts in London and other cities were built at this time, and Brighton shows many signs of more "high deco" home architecture.
The South and the Midlands