Abstract
The aim of this chapter is to reappraise three perspectives that exist in relation to the Heath premiership and economic management. First, the chapter considers whether the Heath premiership betrayed the liberal economic ideas implicit within the Selsdon agenda (agreed upon by the Conservatives when in opposition) via a number of high profile U-turns in economic policy once in office. This common assertion is challenged via analysis of Competition and Credit Control (CCC), which is argued to have made a significant contribution to the erosion of the Keynesian consensus vis-à-vis economic management. Second, the chapter examines the Heath governments supposedly poor record in tacking inflation. comparing it to that of the Thatcher era. Third, the chapter scrutinises the macroeconomic objectives of the Heath administration contextualising its disappointing economic performance.
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Notes
- 1.
The ‘Selsdon Declaration’ emerged from a meeting of the Conservative shadow cabinet held in February 1970 at the Selsdon Park Hotel, Croydon.
- 2.
Two economic policy U-turns, in particular, are cited as examples. The adoption of Keynesian fiscal policy at the 1972 Budget to secure a higher economic growth rate and the Industry Act 1972, which allowed the Heath Government to provide an unprecedented level of financial assistance to British industry.
- 3.
Monetary policy instruments have undergone several iterations since experimentation with the CCC. Bank Rate, at the outset of the post-war era, established the rate at which the Bank of England would lend to the banking system in exchange for security. Bank Rate was replaced in October 1972, with the introduction of the MLR. After 25 May 1978, the MLR was set by an ‘administrative decision’ by the Chancellor of the Exchequer akin to the post-war Bank Rate. The MLR was then suspended on 20 August 1981 and was replaced with the Minimum Band 1 Dealing Rate—the minimum rate at which the Bank of England would deal in Open-Market Operations (OMOs) for securities that fell within band 1 (maturity of 1–14 days). In total, there were four bands, and the bank ‘influenced interest rates by its reactions to offers’ from discount houses, aiming for a specific level. Falling largely outside of the scope of this chapter was the move to a Repo Rate in 1996, before the arrival of the Official Bank Rate in 2006 (Bank of England 2019a). Notwithstanding the various technical differences involved in these monetary policy instruments, the intention of each was to wield indirect influence over credit creation by manipulating short-term market interest rates. Although not historically accurate, in the interests of simplicity and to avoid confusion, the chapter uses Bank Rate in its discussion of monetary policy prior to October 1972 and MLR thereafter.
- 4.
The assertion that public expenditure and government borrowing drives monetary growth was a peculiarity to what would become the British rational expectations’ school of monetarism (Jackson 2012). Reducing public expenditure as the means to balance the budget and lower national debt would become the cornerstone of the Thatcher Government’s medium-term financial strategy to defeat inflation and secure price stability.
- 5.
All subsequent figures for the minimum lending rate are taken from the same Bank of England data set.
- 6.
The Counter Inflation (Temporary Provisions) Bill was given successive readings in Parliament throughout November 1972 before receiving Royal Assent and passing into law on 30 November. The outcome of the Counter Inflation Act has been described as ‘an unprecedented peacetime expansion of government intervention into the British economy’s basic price mechanism’ (Wade 2013: 113).
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Silverwood, J. (2021). Competition and Credit Control, Monetary Performance, and the Perception of Macroeconomic Failure: The Heath Government and the Road to Brexit. In: Roe-Crines, A.S., Heppell, T. (eds) Policies and Politics Under Prime Minister Edward Heath. Palgrave Studies in Political Leadership. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-53673-2_5
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