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Loss, Cost, and Effort Involved in These Episodes

Following the format of previous chapters, Table 7.1 is a summary assessment of how the fiscal squeeze episodes discussed in this chapter rate in terms of the three qualitative elements of intensity of squeeze discussed in Chapter One.

The revenue squeeze begun by the Heath Conservative Government seems to have involved non-trivial losses, if only because it came on top of non-fiscal austerity in the form of high inflation and unemployment accompanied by wage caps. The state machinery was certainly heavily engaged with handling strikes (as in the 1920s period) and related issues of regulating trade unions, but fiscal issues more narrowly do not seem to have exposed it to more than moderate effort. Political costs to the incumbents seem to have been fairly high, in that the government found itself squeezing spending and raising taxes (albeit mostly on non-core voters) in what turned out to be the run-up to an election and at least went against the spirit of the Party's 1970 manifesto pledge to cut rates of surtax.

Table 7.1. A qualitative classification of imposed loss, political cost, and state effort associated with 1970s fiscal squeezes

Low

Moderate

High

Overall classification

1973-75. Squeeze Type: Hard Revenue

Conservatives, 6/1970-2/1974

Loss

[1], [2]

[3]

High-Mod

Cost

[1]

[1], [2]

High -Mod

Effort

[1], [2]

High

Labour, 2/1974-10/1974

Loss [3]

[2]

[1], [2]

Moderate

Cost [4]

[1]

Moderate

Effort

[1], [2]

[1]

Moderate/high

Labour, 10/1974 onwards

Loss

[1], [2]

Moderate

Cost [2]

[1], [2]

Moderate

Effort

[3]

[1]

Moderate

1976. Squeeze Type: Hard Spending/Soft Revenue Labour, 10/1974 onwards

Loss

[1]

[1]

High/moderate

Cost

[1], [2]

Moderate

Effort

[1]

Moderate

1977-78. Hard Spending—Labour, 10/1974 onwards

Loss

[1]

[1]

High

Cost

[1]

High

Effort

[1], [3]

High

Note: Numbers in square brackets refer to categories in Table 1.2, ChapterOne.

For the first Labour revenue squeeze, imposed losses seem to have been at least moderate, given the heavy extra taxation commented on by Joel Barnett (albeit with some of it falling on non-core voters, and offset in part by extra spending on food subsidies). The exertions required of the government machine also seem to have been at least moderate, but the political costs to the incumbents seem to have been relatively low, with those revenue squeezes in part foreshadowed and at least not ruled out by the Party's 1974 election promises.

As time went on in the subsequent stages of the Labour squeezes, those political costs arguably rose as it became less possible to blame the squeeze on the previous government and the losses imposed seem to have risen as well through effects such as fiscal drag and extra taxes on items such as petrol. But the 1977/78-1978/79 hard spending squeeze seems to be a clear case of high loss or effort on all three of the qualitative elements of fiscal squeeze intensity.

That was the first substantial reduction in civilian spending for two decades and differed from the 'two years of hard slog' post-devaluation Jenkins squeeze of 1968-69, discussed in Chapter Six, both in the depth of the spending cuts imposed and in their composition. As we saw in Chapter Six, the Jenkins squeeze had focused heavily on cutting defence, while in this episode defence was cut only lightly and the cuts therefore fell on civilian spending, excluding current spending on social security but including several items that had figured prominently in Labour's 1974 manifestos.[1]

Further, while the Jenkins squeeze of 1968-69 was certainly far from conflict-free, this episode witnessed a deep political crisis going along with a financial crisis, involving both a leadership contest following a sudden prime ministerial resignation and a battle running over nine months or so between rival views of how to deal with a fiscal crisis, further splitting a fragile and divided party barely able to muster a majority in Parliament for its legislation.

  • [1] The Chancellor noted: 'Almost all of the spending cuts ran against the Labour Party'sprinciples, and many also ran against our campaign promises' (Healey (1990: 401)).
 
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