Britain's response to the Great Depression

An Introduction to the Great Depression

The period of time between 1929 and 1939 is sometimes referred to as ‘The Devil’s Decade’. Aside from the rise in extremism that took place during the decade, and the commencement of the Second World War; the beginning of the decade is marred by the Great Depression as the Wall Street Stock Market crashed following the post-war industrial boom of the iron and steel, construction, automobile and retail industries in ‘The Roaring Twenties’. 

What caused the Great Depression?

Despite prosperity in the industrial sector, the overproduction in agriculture sparked financial difficulties for American farmers, contributing to the crash of the American stock market. Meanwhile, in the towns and cities of America, people were investing in the stock exchange. Americans loaned a total of US$8.5 billion in order to do so, whilst banks used their clients' personal savings to give out loans and increase profits.

The mass wave of economic optimism led to the Great Depression, as the cycle of borrowing and buying stocks caused the returns on shares to fall, and people to sell their shares en masse.

What effect did the Great Depression have on Great Britain?

Though the Great Depression caused a 15% reduction in global GDP, comparatively in Great Britain, it fell by approximately 5%. Despite the significantly smaller reduction, the British economy was still rocked by the Great Depression as the value of British exports halved – as the USA implemented protectionist policies and imported less – and unemployment shot up to 2.75 million.

Britain’s economic struggles were exacerbated by the collapse of some European banks. By July 1931, Britain had a deficit of £120 million. As the Labour-led government was unable to agree to the measures to take in response to the Great Depression, MacDonald formed the National Government with the Conservatives and some Liberals. 

On August 31st, one week after forming the Government, he was expelled from the Labour Party and replaced by Arthur Henderson as the leader– though he remained Prime Minister. The Labour Party opposed the formation of the coalition government and saw him as a traitor. Meanwhile, the party was accused of ‘running away’ from the crisis with their refusal to cut public spending in order to protect the economy as a whole.

How did the National Government mitigate the effects of the Great Depression?

On the 28th of August, the National Government secured £80 million pounds worth of credits from Parisian and New York banks, allowing Chancellor Philip Snowden to present a budget that revolved around spending cuts and increased taxation. 

However, economic turbulence escalated and was further exacerbated by a naval mutiny in Invergordon on September 15th. Many international investors of the pound sold their shares and government bonds, causing the value of the pound to drop, eventually forcing it off the gold standard on the 21st of September 1931. 

In light of this, Parliament was dissolved and a general election was called. In spite of its troubles, the National government was victorious, earning 67% of the vote in a landslide victory which saw the Labour Party reduced to just 52 seats.

The conservative majority of the National Government favoured protectionism; implementing Customs Duties on foreign imported goods. Tariffs were introduced on fresh fruits, vegetables and flowers. Later, in February the next year, Chancellor Neville Chamberlain, introduced a 10% general tariff on goods, excluding food, raw materials and other select goods. 

A controversy arose following the 1932 Ottawa Imperial Economic Conference as it lead to a breach of free trade due to the emergence of imperial preference among the colonies of the British Empire and resulted in the resignations of former Chancellor Snowden and some Liberal MPs. 

The Special Areas Act, 1934

As people were disproportionately affected by the Great Depression, the National Government passed the ‘Special Areas Act 1934’, giving £2 million to the ‘distressed’ or ‘special’ areas in South Wales, Tyneside, Cumberland and some parts of Scotland where unemployment had reached millions and starvation was a prospect for the workers who were unable to provide for their families. A Government report highlighted the extent of this social issue as they found that around 25% of the British public had an extremely poor diet quality. 

The reason for this disparity is that certain industries were hit harder than others. Namely, the coal, iron, steel and shipbuilding industries. These heavy industries were concentrated in Northern Ireland, Scotland, Wales and the North of England. Hence, there were higher concentrations of unemployment. For example, the unemployment rate in the town of Jarrow rose to 68% when the Palmers Shipbuilding and Iron Company that was based there closed down. Another example was that of the Rhondda Valleys, a large coal mining area where unemployment had risen to above 40%. The situation there got so bad that by 1932, unemployment figures had reached 63%. This contributed to the decline in public spending as taxes went unpaid, and by 1939, 50,000 people had left the area, a significant reduction in the population of 169,000 in 1924. Just for context, the mining industry there never recovered and the Rhondda Valley had a population of just 62,545 in 2011.

Unemployment Benefits & The Means Test

People who were made redundant relied on unemployment benefits. That is until the government introduced the Means Test in 1931 in order to cut costs. This meant that officials would visit families and judge them in order to determine how much they would be given in unemployment benefits. The problem for struggling families was that these benefits could be refused if an older child had freelance or temporary work, the mother was in part-time employment or a grandparent was living in the same home without paying rent. This resulted in many heirlooms and possessions being sold and savings spent in order to support themselves. Some of the major opponents of this Means Test were the Welsh people, including those from the Rhondda Valley.

Recovery from the Great Depression

Later, after withdrawing from the Gold Standard, devaluing the pound sterling, and reducing interest rates, Britain’s exports became more competitive and it's economy began a slow recovery, although it's strong construction industry with booming house production allowed for an earlier recovery.

Sporadic improvements in Quality of Life

While people in certain areas of Great Britain struggled, there were benefits for more affluent people in the 1930s. New mass-produced goods came into production; such as cars, radios, cookers and fridges, sparking economic growth in these modern manufacturing industries.

The introduction of credit allowed people to ‘buy now and pay later’, allowing them to get luxuries that they would not have been able to afford before. With this, there was a drastic increase in car ownership, with 2 million cars sold in 1938 alone. The most purchased car was £100 cheaper than in 1923 as the Austin 7 could be purchased for just £125 in 1936.

Moreover, while 3,000,000 new houses were built in the 1930s, there was also a 1,200% increase in electrified homes. With this, more and more people were attracted to new electrical consumer goods, and by 1937, over half of the households in Great Britain had a radio (including the poorer working-class ones).

This was helped by the falling prices in the Great Depression, and also the reduction in family sizes, which meant there was more money available for the purchase of luxury goods, such as vacuum cleaners, washing machines, radios and televisions, and to pay for leisure activities, like going to the cinema, dance halls, swimming pools and watching football matches. 

There was also a rise in domestic holidays, with seaside towns like Bournemouth, becoming more popular holiday destinations. This was allowed for by the reduction in working hours, and the introduction of paid holidays.

The remaining issue of Hunger Marches

However, many people were still faced with the prospect of unemployment and hunger. Hence, Hunger Marches were organised across the country, in Rhondda, Bristol, and the National Hunger March in 1932.