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The Pound in Post-War Britain — 1945 to 1976
The bill at home
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.
Step 1 of 6
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 question
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.
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 scaleThe 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 scaleThe 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 scalePrices had risen 3.1 per cent in 1950, and 2.8 per cent the year before that.
Module 2 of 6 in The Pound in Post-War Britain — 1945 to 1976
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[1] What the health service was: House of Commons Library, The National Health Service at 70.
[2] The forecast, what it actually cost, and 1951 prices: House of Lords Library, The National Health Service.
[3] The Cabinet of 22 March 1951, and the glasses: The National Archives, Attlee’s Britain and Fifties Britain.
[4] Why Bevan resigned, in his own words: Hansard, Commons, 23 April 1951, Mr. Aneurin Bevan (Statement).
[5] The second resignation: Hansard, Commons, 24 April 1951, Mr. Harold Wilson (Statement).
[6] The programme, and what could be spent of it: Hansard, Commons, 6 December 1951, Defence.
[7] Why the money was sought from the health service: Hansard, Commons, 10 April 1951, Budget Proposals and Economic Survey (National Health Service).
[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.
[9] The 1951 crisis: Gresham College, The National Health Service Crisis, 1951.
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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