The later squeeze episode in this chapter generated political drama at a level at or close to that of 1931. Joel Barnett (1982: 23), the Chief Secretary of the Treasury from 1974 to 1979, argued that the UK experienced special fiscal difficulties after 1974 as a result of Denis Healey's decision to react to the massive oil price hikes of that time by maintaining plans for increased spending and borrowing to cover the gap (in contrast to the spending-cuts policies followed by countries like Germany and Japan in response to the oil price rises). Given that the UK saw virtually no economic growth between 1974 and 1977, Barnett argued, the decision to maintain expenditure necessitated very big tax increases to avoid even larger borrowing. As in previous chapters, we conclude by assessing the squeezes that have been qualitatively described here in the light of the three sets of issues raised in the opening chapter about the politics of fiscal squeeze.
Tax and Spending, Depth and Duration, Blame and Control
As we have seen, the 1970s comprise a number of different episodes of fiscal squeeze, according to our analysis in Chapter Two. One, relatively little discussed, was the revenue squeeze running from 1973/74 to 1975/76, sparked off by a right-of-centre government at the end of a debt-fuelled boom but mostly taking place under a left-of-centre government which chose to raise taxes sharply to allow for an increase in public spending, mainly on housing and welfare.
The later Labour squeezes comprised a combination of a spending and revenue squeeze in 1976/77, followed by a notably hard spending squeeze of 1977/78 to 1978/90, associated with an international bailout of 1976, which involved the deepest cuts in civil expenditure since the 1930s, along with some tax increases. Some elements of non-fiscal austerity applied as well, in the form of historically high interest rates for much of the period, and wage caps of one kind or another (statutory in the case of the Heath Government 1972-74 and part of a 'social contact' between the subsequent Labour Government and the labour unions, but with wage caps set well below the inflation rate for public sector workers in the final squeeze episode).
All three governments in this period sought to lay part of the blame for the fiscal squeezes they enacted on world economic conditions (the oil price hike and the world recession of that time) and the Labour Government in its first term in part blamed its predecessor's financial management for necessitating fiscal correction through steep tax increases. But as in the 1950s and 1960s, all three governments retained direct control of most of the principal instruments of austerity policy (interest rates, the economic forecasting accompanying fiscal changes, and choices over spending cuts and tax rises) rather than seeking to limit blame by passing any of those instruments to arms-length bodies.