Unemployment in Britain: A History of the Recent Past
Britain has had a unique economic history. As the first nation to industrialise, it became the leading world economic power and hub in which global trade and finance flowed through, but was slowly eclipsed in terms of political, military and economic power by its former colony, the United States. In this spirit, it led the charge into the modern welfare-state after the Second World War and implemented Keynesian economic planning principles in their fullest. It was smooth sailing economically speaking and the social contract was happily signed by most. This post-war consensus began to unravel by the 1970s, with an extreme rise in unemployment that changed the social contract and composition of the economy. The United Kingdom had three specific spikes in its unemployment rate that happened in the 1980s, the 1990s and 2010, in addition to a future one potentially resulting from COVID-19. They represented deep cuts into British jobs, with which came drastic changes. Britain had to adapt to the new economic circumstances and each spike called for a shift in the public attitude leading Britain to where it is today.
By the 1970s, there was trouble on the horizon in Britain and its Labour government was forced to ask the IMF for a loan to cover its expenses. Inflation was spiking, Treasury forecasted large borrowing requirements, growth was slowing down and the market was losing confidence. The members of the Labour government debated heavily amongst themselves on the necessity of asking for the loan versus finding financing through other methods, which only exacerbated the tensions amongst the internal factions. Ultimately, they took the loan. It is now known that the Treasury grossly overstated the required borrowing figure. When Britain went Bust by Richard Roberts is a good overview of this particular crisis. This incident led to a crisis of faith in the government, its economic policies and helped paved the way for Margaret Thatcher’s election victory in 1979. She won on a platform that was drastically different to Labour’s and was bent on undertaking a monetarist approach to the economy, to defeat inflation, change the welfare state and restore Britain to sound financial footing according to her view. Inflation was not thoroughly defeated until the mid-90s, yet Thatcher and her government did radically change the British economy.
However, the 1970s in Britain were not as bad as public memory remembers, and the average British family continued to see rises in disposable income. Unemployment was not at particularly high levels, most likely thanks to union membership, though inflation was continuously pushing upwards. This was not a sustainable plateau. Politically things had to change, and they did with the entrance of Thatcher’s Conservatives.
Thatcher and her Conservatives won in 1979 and began their reform of the British economy. They faced down the unions after the Winter of Discontent and were able to legislate their restriction. They also began restructuring the British economy from the mixed-economy of the post-war years towards a more market-friendly position. This included decreasing regulatory legislation regarding financial services, privatising a variety of state enterprises such as British Petroleum, British Airways and more. These policies, regardless of their necessity, created a far larger unemployment crisis then what was experienced beforehand in the UK. The unemployment rate peaked halfway through Thatcher’s 11-year reign in 1984/5 and remained at these relatively heightened levels throughout. This only further highlights the structural change that was happening in the UK at the time, and the loss of previously untouchable jobs in favour of the more globalised services sector the UK is known for today.
This unemployment peak coincided with the changing of the British economy and social contract. Britain with its privatisation push and deregulation of certain industries found itself leading the new way forward alongside the United States on the social contract of the 90s and 2000s. It would be one that was more market-oriented with the mantra that the government should stick to its business of regulation and even then, only lightly, to let business run the show and define what is worthwhile for investment. It also showed the shift of Britain away from manufacturing further into services, which can be seen through the differing unemployment rates for men and women at the time. Men would be more likely to find themselves within heavy industry, where they could join unions, or in other jobs that required manual labour. Women would be more likely employed in the service sector, which escaped Thatcher’s ire.
Thatcher was ultimately pushed out in 1990 by her party due to her opposition to the European project of integration. She lost control of her cabinet and the Tories chose John Major to replace her as Prime Minister. Under his leadership, the UK tipped into a recession that only worsened over the course of 1990, deepened in 1991 and finally began to relieve itself in 1992. Unemployment was on the upswing again and Britain was facing change once more.
1992 was also an election year for the United Kingdom. John Major and his Tories pulled off a surprise victory after trailing Labour in the polls, but they did not get to enjoy their victory for very long. The infamous Black Wednesday event occurred on September 16th, 1992. This episode occurred in a period of time when Britain was still engaged in the European Exchange Rate Mechanism (ERM), which bonded its monetary policy and exchange rate to float within a specific band of all other European Union currencies, but most importantly the Deutsche Mark. To combat currency speculators and to appreciate the Pound Sterling against the ERM, the Bank of England increased interest rates further, suffocating the already crippled British economy and pushing the unemployment rate higher. George Soros, the most famous speculator, along with many, believed that the situation would not hold and therefore continued to punish the Pound Sterling through short selling. This behavior proved to be too much for the United Kingdom and Major was forced to withdraw from the ERM. This withdrawal was etched into the minds of many Britons and helped fanned the flames of anti-EU rhetoric. This incident indeed set the stage for the future political battles on European membership. However, the withdrawal from the ERM did allow the Bank of England to solely focus on dealing with the economic situation in Britain rather than ensuring that the currency was in the right range. The British economy finally started to recover and begin booming, combined with steep declines in the unemployment rate. As the economy heated up, money was rolling in and Britain was on the forefront of the globalisation surge. The weakening of the welfare state was forgotten for now, as Britain as a whole was enjoying the fruits of this upswing. New Labour was elected during this period of time and continued to govern until 2010. The economy was humming along, Tony Blair and his government were committed to modernising and patching up Britain’s social infrastructure while keeping the country open to the world. Furthermore, Gordon Brown was introduced into the Chancellery of the Exchequer and then reached the office of the Prime Minister. Brown led the implementation of major reforms into Britain’s economic management system such as the independence of the Bank of England and a new financial regulatory agency.
This period changed again with the financial crisis of 2008. Once more, Britain was to enter a new era.
The Great Recession affected every economy, and Britain was no different. Britain experienced bank failures, such as the collapse of RBS, which required massive government funding, alongside the freezing up of credit amongst other economic ills. The British unemployment rate spiked up in ways not seen since the mid-80s and early 90s. Fear was in the air, like it was for every nation. No one knew when the good times would be back. Gordon Brown was Prime Minister at the beginning of the crisis and led massive fiscal stimulus to combat the effects of the recession. An election was held in 2010, and resulted in a a hung parliament that left Brown without political manoeuvrability and ultimately led him to resign his position. The Conservatives then returned as the majority party of a coalition with the Liberal Democrats. The new Prime Minister was David Cameron, the man who had set out to modernise the Conservative party and would ultimately lead Britain out of the European Union. Cameron set Britain about on its new era taking a drastically different road than Gordon Brown. Once in office, Cameron and his Chancellor, George Osborne, launched a severe austerity programme that has only begun to retreat in British finances today. They enact huge spending cuts to a variety of social programmes, hollowing out the British welfare state in the name of reducing the government deficit and getting Britain on sound financial footing. This programme was felt by all, and affected in particular the most vulnerable. The British economy began to add jobs in 2013 and would continue to decrease the unemployment rate into new levels leading in 2020. However, the change had come, and the damage was done. Britain would be on the austerity budget for the next decade and its social infrastructure truly hollowed out. The haves and the have-nots were being pushed further apart by the forces of globalisation and by the aftermath of the financial crisis, with no welfare state to attempt to push them closer again. British society became increasingly polarised on certain issues such as membership of the European Union. Certain politicians kept egging on the British public to blame the European Union for its troubles, claiming that without the cost of membership, Britain would be free from its austerity programme. There was no effective talk on the benefits of the Union, and civil society made a push for a referendum. David Cameron ultimately called one and the rest is history.
Each dramatic spike in unemployment in Britain set the stage for the next era of British society and economic management. With COVID-19 ravaging the world’s economy, forcing many businesses to close, and laying bare the inadequacies of certain social infrastructure, one can only imagine the final employment cost. Britain is very much on the edge of its next era and it will require new ideas and new efforts to make it a success.
