The Welfare State under Threat

Abstract

Despite its historic achievements, the welfare state in Britain — as elsewhere — was widely perceived to be in crisis in the mid 1970s. The immediate causes were economic. The quadrupling of oil prices after the Arab-Israeli war of October 1973 so accelerated the underlying annual rate of inflation that it reached the unprecedented level of 27 per cent in 1975. Simultaneously, a slowing down in the rate of economic growth and an actual fall in GDP in both 1974 and 1975 pushed the number of people out of work, for the first time since the war, to above one million and to a peak in 1976 of 1.5 million. This denied the government the rising revenue it required to meet increasing demands for welfare — not least from the unemployed themselves — and, in the ensuing ‘fiscal crisis’, forced it to borrow more heavily. This in turn undermined foreign confidence in sterling so that the value of the pound fell, for the first time ever, below $2 and then plunged rapidly to $1.55. The response of successive governments to these disasters was to implement a series of public expenditure cuts; to impose, after November 1975, cash limits on all expenditure programmes in order to ensure the effectiveness of the cuts; and finally, in the battle against inflation, to abandon reflationary demand management and thus the postwar commitment to ‘full’ employment. The ‘party’, as Anthony Crosland warned local government in 1975, was truly over.¹