Electoral and Other Consequences
In both the Butler squeeze of the mid-1950s and the Callaghan squeeze of 1964-67, the incumbent government concerned managed to reap overall electoral credit and convincingly win the post-squeeze election, even though other factors undoubtedly came into play in both cases. In contrast, the Heathcote-Amory/Selwyn Lloyd tax squeeze of the early 1960s and the Jenkins revenue and spending squeeze of the late 1960s were followed by electoral defeat for the incumbents.
The difference in electoral outcomes between those two sets of squeezes partly fits with a pattern of 'exogenous shocks' in the sense of outside pressures on the currency cutting across the 'normal' electoral cycle of fiscal squeeze and relaxation discussed in the first chapter, in which parties in government seek to raise taxes and/or cut spending early in their electoral term and reverse that position as the next election approaches. The 1950s Butler revenue squeeze was concluded early enough to be followed by a preelection giveaway budget in 1955, a tactic the Conservatives successfully repeated in 1959—a 'political business cycle' effect that can partially explain the Conservatives' re-election in 1955, and contrasts sharply with the much more muted pre-election giveaway in 1964 following the revenue squeeze of the early 1960s.
On the Labour side, however, the Wilson Governments had to face the voters in 1966 and 1970 after pressures on the currency cut across the normal 'political business cycle', but with very different electoral outcomes. In the first case, it decisively won the election after only seventeen months in office with spending increases but no significant tax giveaways to moderate its revenue squeeze (and consequently had to place heavy emphasis on diverting the blame to the the previous government and on the machinations of 'Gnomes of Zurich' international financiers). In the second case it lost the election after imposing 'two years of hard slog' that included cutting back on promised spending increases. So those electoral outcomes only partly fit 'political business cycle' expectations, but they are also consistent with the 'asymmetrical punishment' suggestion in Chapter One that if other things are equal, right-of-centre parties might experience more electoral punishment for tax increases, while left-of-centre parties might experience greater electoral punishment for spending cuts.
The longer-term consequences of these episodes are again debatable. Even though the Labour Party lost the 1970 election, and political scars were certainly left by the 1968-69 fiscal squeeze that continued to show in left-right divisions in the Party in the 1970s, there was no breakaway party as in 1931, and the Party returned to government under the same leader less than four years later, albeit with a much more left-wing manifesto. On the policy side, the most obvious consequence of the Butler squeeze of the 1950s was the abandonment or scaling back of food subsidies and of other measures associated with wartime planning such as strategic reserves and storage systems. The 1968 spending cuts led to the accelerated abandonment of much of the visible trappings of a global or imperial defence power 'East of Suez' (though it might be argued that, as with the Geddes cuts of the 1920s, these military assets may have been outdated for the strategic era that was to come and their abandonment did not in fact prevent future military involvement in the Middle East).
Another policy legacy of this era was the adoption of NHS prescription charges, at first by the Conservatives and later by Labour (albeit with a raft of exemptions that narrowed the effect of such charges), which remained in force, in England at least, under the two subsequent Labour Governments. Means testing was also applied for the first time in this period by a Labour Government to Family Allowance welfare payments, with increases for those at the lower income levels but not for standard rate income tax-payers— arguably a forerunner of the 'Child Benefit Tax Charge' introduced for higher rate taxpayers in the early 2010s.
In general, what the episodes discussed in this chapter bring out is that fiscal squeezes do not have common political consequences in terms of postsqueeze credit and blame, even when those squeezes have a broadly similar background (in this case of recurring balance of payments deficits and currency management problems). Blame politics really did matter in those electoral outcomes, in the extent to which incumbents could plausibly deflect blame to predecessors or outside forces ('Gnomes of Zurich') and in the extent to which they could align fiscal and electoral cycles.