Economic history · What the Pound Cost — 1945 to 1976
Six steps, about nine minutes, one question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Britain gave up publishing a price for the pound in June 1972, held pay instead, tied wages to prices by law two days before the oil price took off, and spent the winter of 1973 on three days of electricity.
This is where the thing that limits a British government stops being the reserves and becomes the price level. Four institutions publish four different peaks for 1975 and all four are correct.
It ends on the number the Thatcher years open on, and on the weakest evidence anywhere here: one institution, disagreeing with itself.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 6
Ask four institutions how bad the worst year was and you get four answers. This is that year.
Prices in Britain rose faster in 1975 than in any year before or since, and the institutions that measure it publish four different figures for how fast.
The four figures answer four questions. Two are annual averages and measure the whole of 1975. One is quarterly and measures the three worst months. One is monthly and measures the single worst month, on an older index that behaves differently from the one used now. One source states the bridge outright: 27% on the older index is “equivalent to a 25% rate on a modern consumer price index (CPI) basis”. None of the four is wrong. For the run of years around it: 9.2% in 1973, 16.0% in 1974, then the peak, then 16.5% in 1976, 15.8% in 1977 and 8.3% in 1978. Before all of it, 7.1% in 1972.
Put it another way. Think of it like asking how fast a car went: its average over the journey, its average over the worst hour, and its reading at the single worst moment are three true answers to three questions.
Annual averages give two of the four, one is quarterly and one is monthly, and the monthly one uses an older index. They are answers to four different questions.
The single worst month was August 1975, and the years around the peak ran 16.0% in 1974, then 16.5% in 1976 and 15.8% in 1977.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
The Office for National Statistics measures it as an average across the whole of 1975. On that measure, how fast were prices rising?
For scale. The other three: 24.2% from a parliamentary library, about 25% from the Bank of England for the third quarter, and 27% on the older monthly index in August.
On 21 July 1975 the Chancellor told the Commons the would be a flat sum of money rather than a percentage.
A percentage gives most to whoever already earns most. A flat sum gives the same cash whatever the wage, so it raises low pay relative to high pay while holding the total down.
Healey's words: “the limit should be expressed in terms of £6 a week to full-time adult workers up to a cut-off point”.
This is the fourth attempt at holding pay in fourteen years, and the first that gave up on percentages entirely.
The government and the unions agreed on the cut-off point in principle and not on where it should sit. Where did the government want it, a year?
For scale. The unions had wanted the cut-off lower, so that the limit reached less far up the income scale.
A Chancellor once went on television to explain that the pound had been cut. This time there was nothing to explain and not one minister whose job it was.
The pound fell further across 1976 than it had been cut in 1967, and no minister announced it.
A currency with no published price cannot be devalued, because there is no promise to break. It arrives at a lower number in March or September, and no minister owes the House a statement.
Chatham House dates the fall to the seven months from March 1976 to the end of September, when the Labour Party conference began.
The pound had been $2.40 after the 1967 devaluation and $2.00 in March 1976. What was it by that autumn?
For scale. The 1967 devaluation, which took a Saturday-night statement and a broadcast to the nation, moved the pound from $2.80 to $2.40.
Britain could borrow from a bank, from its own people, or from the body other countries had set up for the purpose. It used the third.
Britain borrowed from the on the largest arrangement it had ever made, agreed in December 1976 and approved that January.
Three dates exist and they belong to three events. A think tank dates the agreement to 15 December 1976. Hansard has the Chancellor telling the Commons on 21 December 1976. The Fund's own record of its lending to Britain gives the date of the arrangement as 3 January 1977, with no arrangement dated 1976 anywhere in it. Anyone naming a single date for “the IMF loan” is picking one of three without saying so.
Nothing read for this work can say. The Fund's record gives dates and amounts and no judgement, and the British record is the borrower's own account, made by the government being lent to. The question underneath is whether the borrowing requirement had been over-forecast, so that Britain accepted conditions for a problem smaller than the one it was told it had. Public sector borrowing had run at 5.7% of output in 1974/75 and 6.3% the year after. The evidence goes quiet exactly there.
The Fund's price was a limit on Britain's own at home. Healey's limit covered everything the British state borrows in a year.
His targets, to the Commons on 21 December 1976: “£8.7 billion in the first year and £8.6 billion in the second”. He called the credit “well over twice as large as the next largest in the Fund's history”.
A British government's spending was now set, in public, by a number agreed with a lender abroad.
The Fund's own record of its lending to Britain shows what happened to the money. How much of the arrangement did Britain draw?
For scale. The Fund dates its own arrangement to 3 January 1977, running to 2 January 1979. Its record holds no arrangement dated 1976 at all.
Everything so far has been a story about things going wrong. Here is the part that does not fit it.
Real household income per head rose about 30% between 1970 and 1979, so the people living through this got roughly a third better off.
The measure is what a household has left to spend after tax, adjusted for what prices did. It rose through the worst decade for prices Britain has had.
The shape of the economy changed underneath it. Manufacturing had been 30.1% of in 1970 and financial and business services 17.8%, and by 1979 the gap between them had almost closed.
Without this, the decade reads as a decline, and the figures do not show a decline.
By 1979 these two had almost met. Which was the larger share of British output that year?
A tie counts as correct either way.
For scale. Services were already 56% of the economy in 1970, before any of this.
Go back across the whole of it one more time, to a number that has not appeared yet.
The thing that ended in the 1970s was not the country's income but what capital earned.
It is the weakest-sourced thing in the whole run of six. One institution publishes the rate of return on capital for these years, and it disagrees with itself: its article on the 1960s gives 19.4% for 1967 and its article on the 1970s gives 20.3% for the same year. Both are printed here. Six modules spent showing that institutions disagree, ending on an institution disagreeing with itself. Accurate, and not a tidy ending.
The rate of return on capital is what a pound invested in British business brought back in a year. It is the number that decides whether anyone builds a factory here rather than somewhere else.
One institution publishes it for these years: 20.3% in 1967, 28.8% in 1972, over 35% in 1973, and about 10% in 1975.
The same library gives 19.4% for 1967 in its account of the 1960s and 20.3% in its account of the 1970s. The last figure here is contested inside the body that publishes it.
The rate of return had been over 35% in 1973. Where was it in 1975?
For scale. The same library heads the second part of its account of the following decade “The restoration of profitability”.
That was module 6 of 6, the last in What the Pound Cost — 1945 to 1976
Your score will appear here.
in 1975 on the annual measure, against 24.2%, about 25% and 27%
22.6%The of July 1975, a flat sum for every full-time worker
£6 a weekThe pound in the autumn of 1976, from $2.00 in March
$1.65What Britain drew of the Fund's arrangement, of 3,360 million agreed
2,250 million SDRsManufacturing's share of in 1979, from 30.1% in 1970
23.4%The rate of return on capital in 1975, from over 35% in 1973
about 10%You met four terms in this module
, , ,
Six modules, thirty-three links, and the last figure in it is one the institution that publishes it prints two ways.
[1] One of the four peaks: Office for National Statistics, Changes in the economy since the 1970s. 2 September 2019, fetched and read twice. Verbatim: “Inflation was at its peak in 1975, at 22.6%.” An annual figure. ASKED DIRECTLY ON BOTH READS: this article carries services at 56% of the economy in 1970 and does NOT carry the manufacturing shares or the household income figure that the content model attributes to it. Those are the other two institutions'.
[2] Three more of the figures, including the last one: House of Lords Library, The UK economy in the 1970s. 4 April 2024. Inflation peaking at 24.2%, annual. The pound at $2.40 before 1975, $2.00 in early 1976 and $1.65 in the autumn. Real household disposable income per head up approximately 30% across 1970 to 1979; manufacturing from 30.1% of output in 1970 to 23.4% in 1979 while financial and business services rose from 17.8% to 22.1%. The rate of return on capital 20.3% in 1967, 28.8% in 1972, over 35% in 1973 and about 10% in 1975 — AND THE SAME LIBRARY'S ARTICLE ON THE 1960s GIVES 19.4% FOR 1967. Reused as the content model's opened locator: the Lords Library blocks an unattended fetch.
[3] The central bank's own peak: Bank of England, on inflation in 1975. About 25% in 1975 Q3, a quarterly figure, described as “unprecedented”. Reused as the content model's opened locator: the Bank blocks an unattended fetch.
[4] The highest of the four, and the bridge between them: CEPR, 25% inflation, 50 years on. 23 September 2025, with Chatham House of December 2016 carrying the same figure. 27% on the Retail Price Index in August 1975, a monthly figure, stated to be “equivalent to a 25% rate on a modern consumer price index (CPI) basis”. THAT SENTENCE IS THE BRIDGE: it is the one place in the evidence base where a source states how two of the four figures relate.
[5] Percentages replaced by a sum of money: Hansard, Commons, 21 July 1975, Attack on Inflation. The Chancellor of the Exchequer, Mr Denis Healey, fetched and read twice, then a third narrow read to settle who said the target. Col. 51: “the Government agree with the TUC that the limit should be expressed in terms of £6 a week to full-time adult workers up to a cut-off point with a lower pro-rata limit for part-time workers and juveniles.” Col. 52: “The Government have been able to welcome all the TUC's proposals in this field with the one exception of the cutoff, which the Government believe should be set at incomes of £8,500 a year rather than £7,000.” Col. 51, on the target: the Government “were determined to get inflation down to 10 per cent. by the end of the next pay round and into single figures by the end of next year”.
[6] What the Chancellor told the Commons: Hansard, Commons, 21 December 1976, Economic Situation. The Chancellor of the Exchequer, Mr Denis Healey, fetched and read twice. Col. 485: “I believe that the PSBR in both years will be on the targets I announced of £8.7 billion in the first year and £8.6 billion in the second.” Col. 488: “the normal phasing of the drawings on the $3,900 million standby”, and “the total standby is well over twice as large as the next largest in the Fund's history.”
[7] The lender's own record, opened at last: International Monetary Fund, History of Lending Commitments: United Kingdom. Fetched and read twice, both reads identical, after two earlier sessions concluded the Fund could not be reached at all. Columns: Facility, Date of Arrangement, Expiration Date, Amount Agreed, Amount Drawn, Amount Outstanding, amounts “In Thousands of SDRs”. The row: Standby Arrangement, Jan 03 1977, Jan 02 1979, agreed 3,360,000, drawn 2,250,000, outstanding 0. AND THERE IS NO ROW DATED 1976 AT ALL. An earlier row: Standby Arrangement, Dec 31 1975, Dec 30 1976, agreed 700,000, drawn 700,000. THIS SETTLES THE THREE-WAY DATE DISPUTE — the December dates are British events and January 1977 is the Fund's approval — AND IT GIVES A FIGURE NOBODY HAD BEFORE HAD: Britain drew two thirds of what it arranged. The Fund publishes dates and amounts here and no analysis, so whether the crisis was necessary is still unanswerable.
[8] The December agreement, and the pound before it: Chatham House, Britain's big bailout: December 15 1976. December 2016. Dates the agreement to 15 December 1976, and records that the pound “had fallen from $2 in March 1976 to $1.65 as the Labour Party conference began at the end of September”. Reused as the content model's opened locator.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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