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 came out of the war owing more than it ever had, borrowed dollars from America to keep going, gave up the promise attached to that loan inside five weeks, and cut the value of the pound in 1949.
The health service opened in July 1948 and cost far more, at once, than anyone had forecast. Two years later Britain began the largest peacetime rearmament in its history, which pushed up the price of everything it had to buy from abroad and put the payments problem of the 1940s back on top of the government.
It ends with two governments from opposite parties agreeing, within a year of each other, that the money could not be spent, while the charges imposed to help raise it stayed in law.
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
The most expensive new thing Britain had ever started opened on 5 July 1948. The National Health Service was free to anyone who used it, at the moment they used it.
Parliament had passed the law almost two years earlier, on 6 November 1946, and the hospitals passed to the state on the day the service began. In the same years the state took coal, the railways, electricity and gas into public ownership too.
The service supplied over five million pairs of glasses in its first year, at a cost of £32 million.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Anyone could now see a doctor, or collect medicine, without paying at the door. Where did the money come from?
For scale. The law had received Royal Assent on 6 November 1946, so the country had waited twenty months between Parliament agreeing to the service and the service opening.
The health service had been forecast to cost £134 million a year, and it cost far more than that from the start.
The forecast was built on how much treatment people had bought when they had to pay for it, which was the only evidence there was. Once the price of asking was nothing, people who had gone without for years came in at once, and they came in for the cheap things as well as the serious ones. Spectacles and dentures were the clearest case: five million pairs of glasses in the first year. The demand that had been there all along became visible the moment it stopped costing anything to show it.
The people who wrote the forecast had no measurement of how much medical treatment a country would ask for once the price of asking was nothing. The forecast covered England and Wales; the cost covered the whole of Great Britain.
Glasses alone came to £32 million in the first year, against a forecast that had been written for the whole service.
The health service was now in every argument about what the country could afford, because the difference had to come out of something else.
The forecast was £134 million a year. What did the health service actually cost in its first full year, 1949 to 1950?
For scale. The following year, 1950 to 1951, it cost £474 million.
In 1950 Britain began the largest programme of rearmament it had ever attempted in peacetime: £4,700 million over three years.
A country that orders a great many aircraft, tanks and shells at once needs the same steel, copper and machine tools that its factories were using to make things to sell abroad. Two buyers now want the same materials, so the price of those materials rises, and Britain had to buy most of them from other countries. Paying more for the same imports while selling less abroad is what put the country back into difficulty over payments.
Put it another way. Think of it like two builders bidding for the last load of bricks in the yard: neither of them gets more bricks, and both of them pay more.
Ordering that many weapons at once meant competing for the same steel and machine tools the factories were using to make goods to sell abroad.
Of that total, £1,250 million fell due in 1951 to 1952 and about £1,500 million in 1952 to 1953, at the prices of 1950.
Buying that much, that fast, pushed prices up. How fast were prices rising in Britain in 1951?
For scale. Prices had risen 3.1 per cent in 1950, and 2.8 per cent the year before that.
On 22 March 1951 the Cabinet was asked to charge patients for dentures and spectacles, to save £13 million.
Three weeks after this Cabinet, on 10 April 1951, the Chancellor told the Commons what he was doing. The health service estimates “must be brought within a total of £400 million, which, for the time being, would have to be a ceiling”. The charges were how the estimates were brought inside it: he put their yield at “about £25 million in a full year”, and at £13 million in the financial year 1951 to 1952. The estimates still allowed “some £7 million above last year”, so the health service was not being cut. It was being held to a number.
The Cabinet is the group of senior ministers who take the government's decisions together. It was being asked to take money from the newest and most popular thing the government had built, to help pay for weapons.
The minister who had built the health service told them, in the Cabinet's own minute, that “he would be obliged to resign from the Government”.
You are in the Cabinet on 22 March 1951. The Chancellor wants £13 million by charging patients for dentures and spectacles, and the minister who built the health service says he will go if you agree to it. What do you do?
The Cabinet imposed the charges. They went into law in April 1951 under the National Health Service Amendment Act, which brought in charges for dental and ophthalmic care.
What followedThe minister who built the service resigned, and so did one of his colleagues the following day. Neither the Chancellor nor the Cabinet could know on 22 March whether the defence money the charges were helping to pay for could be spent at all.
Three weeks later the Chancellor told the Commons why. The health service estimates “must be brought within a total of £400 million, which, for the time being, would have to be a ceiling”.
Thirteen million pounds is the smallest sum on the board you have just read, and it is the one the government fell out over.
Aneurin Bevan, who had built the health service, resigned, and made a statement to the Commons on 23 April 1951.
Harold Wilson, President of the Board of Trade, made his own statement the next day, on 24 April. He said the Budget rested on “a re-armament programme which I do not believe to be physically practicable with the raw materials available to us”.
Bevan told the House that people had spent two weeks saying he was “quarrelling about a triviality”: spectacles and dentures.
Bevan told the Commons what he thought he had actually resigned over. What did he say it was?
For scale. He put the saving beside the year's spending: “The Chancellor of the Exchequer in this year's Budget proposes to reduce the Health expenditure by £13 million”, and “only £13 million out of £4,000 million.”
A general election in October 1951 put the other party in. On 6 December the new Prime Minister, Winston Churchill, gave the Commons his account of the arms programme he had inherited.
He had found Britain “committed to an expenditure in the present year of up to £1,250 million” under the £4,700 million programme. A further £1,500 million was committed for the year after, at the prices of 1950.
Bevan had told the House on 23 April that the same programme was already dead. The two men agreed about almost nothing else.
The charges on dentures and spectacles stayed. The money they helped to raise was for a programme both sides of the House had now said could not be carried out that year.
Churchill had opposed the outgoing government on almost everything. What did he tell the Commons about that year's £1,250 million?
For scale. Bevan had resigned in April over a saving of £13 million made to help pay for that programme.
Module 2 of 6 in What the Pound Cost — 1945 to 1976
When the health service opened
5 July 1948What it cost in its first full year, against a forecast of £134 million
£447 millionin 1951, with rearmament under way
9.1%What the Cabinet fell out over
£13 millionThe programme Bevan told the Commons was already dead
£4,700 million over three yearsThe ceiling the Chancellor put on health service estimates
£400 millionThe health service cost more than forecast from its first year. The weapons it was cut to pay for were never all built.
[1] What the health service was: House of Commons Library, The National Health Service at 70. Mackley, 5 July 2018. The service was “free for all at the point of delivery and financed through general taxation”, with Royal Assent to the founding Act on 6 November 1946 and the service opening on 5 July 1948. Reused as the content model's opened locator: the Commons Library blocks an unattended fetch.
[2] The forecast, what it actually cost, and 1951 prices: House of Lords Library, The National Health Service. LLN-2018-0073. The original forecast £134 million; 1949/50 £447 million; 1950/51 £474 million. A separate Lords Library briefing of 8 December 2023 carries the Korean rearmament shortages, the price rises and inflation at 9.1 per cent in 1951, and the National Health Service Amendment Act 1951 introducing charges for dental and ophthalmic care. Reused as the content model's opened locator: the Lords Library blocks an unattended fetch.
[3] The Cabinet of 22 March 1951, and the glasses: The National Archives, Attlee’s Britain and Fifties Britain. Cabinet Conclusions of 22 March 1951, PREM 8/1480: the saving of £13 million sought by charging for dentures and spectacles, a Budget of over £4,000 million, Defence Estimates of £1,250 million and defence production of £510 million, and Bevan verbatim that “he would be obliged to resign from the Government”. Also over five million pairs of glasses supplied in the service's first year at a cost of £32 million. Reused as the content model's opened locator.
[4] Why Bevan resigned, in his own words: Hansard, Commons, 23 April 1951, Mr. Aneurin Bevan (Statement). Fetched and read twice, the second time for the words character for character. Col. 36: “I say therefore with the full solemnity of the seriousness of what I am saying, that the £4,700 million arms programme is already dead.” On the charges: “you have been saying in the last fortnight or three weeks that I have been quarrelling about a triviality—spectacles and dentures.” And: “The Chancellor of the Exchequer in this year's Budget proposes to reduce the Health expenditure by £13 million—only £13 million out of £4,000 million.”
[5] The second resignation: Hansard, Commons, 24 April 1951, Mr. Harold Wilson (Statement). Vol 487, col. 228, fetched and read twice: the Budget was “based on a series of Estimates which included a re-armament programme which I do not believe to be physically practicable with the raw materials available to us”. Date and speaker confirmed on the second read.
[6] The programme, and what could be spent of it: Hansard, Commons, 6 December 1951, Defence. The Prime Minister, Mr Winston Churchill, col. 2601, fetched and read twice: “I found on taking over that, under the increased programme of £4,700 million, we were committed to an expenditure in the present year of up to £1,250 million, and, in 1952-53, on the basis of 1950 prices, which have since been exceeded, to a further £1,500 million.” And: “We shall not, however, succeed in spending the £1,250 million this year, and some of the late Government's programme must necessarily roll forward into a future year.” Column confirmed on the second read.
[7] Why the money was sought from the health service: Hansard, Commons, 10 April 1951, Budget Proposals and Economic Survey (National Health Service). The Chancellor, Mr Hugh Gaitskell, fetched and read twice, the second time for the words character for character. Col. 851: the Health Service estimates “must be brought within a total of £400 million, which, for the time being, would have to be a ceiling”. Col. 852: “The yield of these charges is put at about £25 million in a full year and £13 million in 1951–52”, and the estimates were to “allow a slight increase in expenditure on health—some £7 million above last year”. THIS IS THE ANSWER TO THE QUESTION THE MODULE OTHERWISE RAISED AND LEFT OPEN: why the health service and not some other line. Both reads agreed on wording and column.
[8] How fast prices were rising in the years either side: Office for National Statistics, series CDSI, Retail Prices Index: Long run series: annual percentage change. Read twice on 2 September 2026, identical both times, off the series' own data endpoint. Annual percentage change: 1949 2.8, 1950 3.1, 1951 9.1, 1952 9.2. The 9.1 for 1951 is the figure the Lords Library gives, from the statistician who publishes it, and 1950's 3.1 is what the reader now has to reason from. NOT USED: the index levels in the sibling series CDKO, because turning an index into a rate is a calculation this pipeline does not make.
[9] The 1951 crisis: Gresham College, The National Health Service Crisis, 1951. A public lecture on the 1951 crisis, carried by the content model as a standalone account of the charges and the resignations. 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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