The 'Stop-Go' Squeezes of the 1950s and 1960s

Background: The Period in Perspective

This chapter explores four 'stop-go' squeezes of the 1950s and 1960s under Conservative and Labour Governments. In Chapter Two we identified a double soft squeeze in the early to mid-1950s, a short-lived revenue squeeze in the early 1960s and two further squeezes (the first revenue-only, the second a hybrid of spending and revenue) in the middle and later 1960s. As Chapter Two showed, both the spending squeezes were modest compared to the episodes of the 1920s and 1940s and the revenue squeezes were all slightly more modest than that of 1931 in terms of revenue increase relative to GDP. Nevertheless, some of these squeezes (particularly the 'Butler' episode of the mid-1950s and the Labour squeeze after devaluation of the currency in 1967) represented real political effort, as we will show later.

All these squeezes occurred in conditions of low unemployment and during a time when a fixed exchange rate system for currencies established by international agreement in 1944 resulted in recurring balance of payments pressures on the UK in the face of low productivity growth, inflation, and weak export performance. So, as with the post-World War II Labour squeezes discussed in the previous chapter, fiscal policy at this time was heavily concerned with containing domestic demand and inflation and not just with financing government expenditure, such that the pressure for squeezes tended to come from balance of payments deficits as much as from budgetary deficits.[1]

  • [1] See Rollings and Middleton (2002);McCombie, Thirlwall, and Thompson (1994). There weresurpluses on the primary balance during this period, though all four squeezes were preceded bybudgetary deficits.
 
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