Editing Hugh Gaitskell (section)

== Treasury matters ==

=== Devaluation ===
In early July 1949 Gaitskell shared [[Chancellor of the Exchequer]] [[Stafford Cripps]]' worries that Treasury officials were too "liberal" and too reluctant to implement socialist measures.<ref name="Dell 1997, p. 119-21">Dell 1997, p. 119-21</ref> Like Cripps and Dalton, Gaitskell was a devotee of cheap money. Not only were higher interest rates seen as associated with the [[Gold standard]] and the deflationary policies of the 1920s, but the policy preference in the 1940s was for quantitative controls (e.g. [[Foreign exchange controls|exchange controls]] in finance, or rationing of physical goods) rather than the price mechanism. Interest rates, which had been cut to low levels in the 1930s, did not begin to be used as an instrument of policy again until after the Conservatives returned to power in 1952.<ref>Dell 1997, p. 111</ref>

Cripps was seriously unwell and had to go to [[Switzerland]] to convalesce on 18 July; Attlee announced that he was taking over Cripps' responsibilities with three young, financially able, ministers to advise him.<ref name="Dell 1997, p. 119-21" /> Gaitskell soon emerged as the leader of the group, the others being [[Harold Wilson]], [[President of the Board of Trade]], and Douglas Jay, [[Economic Secretary to the Treasury]]. All three had been wartime civil servants.<ref name="Matthew 2004, p.288" />

The young ministers were now in favour of devaluation of the [[Pound sterling]], currently at $4.03. Jay lunched with Gaitskell on 20 July 1949, and they agreed that this would help to reverse the drain of capital out of the UK, that the US was unlikely to help with further [[Anglo-American loan|loans]] or [[Marshall Plan|gifts]] of dollars, that Commonwealth countries needed to be encouraged to buy British goods rather than goods priced in dollars, that there was potential to increase exports to dollar areas, and that if nothing was done there was a risk of reserves running low and a collapse in sterling putting the UK at the mercy of the US. On 21 July Gaitskell, Jay and Wilson met the Prime Minister to tell him that devaluation was inevitable as reserves were still dropping. On 29 July, the Cabinet agreed in principle to devalue, having also been given the same advice in another memo from senior civil servants, [[Edward Bridges, 1st Baron Bridges|Sir Edward Bridges]] ([[Permanent Secretary to the Treasury]]) and the two Treasury Second Secretaries ([[Robert Hall, Baron Roberthall|Robert Hall]] and [[Edwin Plowden, Baron Plowden|Sir Edwin Plowden]]).<ref name="Dell 1997, p. 119-21" />

Cripps returned to London on 18 August to be greeted by two memoranda from Gaitskell. One was a short paper advising a general election that autumn after devaluation. Cripps did indeed make that recommendation to Attlee, but it was rejected. The second paper was ten pages on devaluation, which in [[Edmund Dell]]'s view it is unlikely he actually read. Gaitskell argued that with employment high, the balance of payments in decent shape and inflation a containable problem, the ''only'' problem was shortage of dollars, with US opinion very reluctant to help the UK any more. He recommended spending cuts to keep inflation under control – but did not say how much. He also recommended that sterling initially float within a band of $2.80–$2.60, a proposal discussed with Hall and Plowden. He recommended devaluation by 4 September, but rejected the idea that currencies become fully convertible – in the way that [[John Maynard Keynes]] had advocated at the [[Bretton Woods Conference]] – as this might prevent governments protecting full employment. Dell argues that Gaitskell's memo was full of the impatience of a young man at his elders clinging to office, but that on the other hand he himself had been slow to recognise the need for devaluation.<ref>Dell 1997, p. 122-4</ref> Gaitskell and Wilson met with Attlee, [[Ernest Bevin]] and Cripps at [[Chequers]] on 19 August, and Bevin and Cripps agreed with some reluctance to devaluation. The decision was finally confirmed by the Cabinet on 9 August, although Cripps rejected Gaitskell's plan for a floating band.<ref>Dell 1997, p. 124-5</ref> Devaluation (from $4.03 to $2.80) was announced on Sunday 18 September after a secret Cabinet meeting the day before. Many other countries followed suit, so it was mainly UK trade with dollar-using countries which was affected.<ref>Dell 1997, p.126</ref>

Gaitskell had initially been suspicious of devaluation because it was a price mechanism, but earned the admiration of Robert Hall over this crisis.<ref name="Dell 1997, p.138">Dell 1997, p.138</ref> He accepted the need for spending cuts to help make devaluation work and keep to keep the Americans happy, and thought former chancellor Dalton "rather dishonest" for arguing at the Economic Policy Committee that cuts were not necessary. Cripps, who had implied in his devaluation broadcast that devaluation was an ''alternative'' to cuts, threatened to resign unless cuts of £300m were agreed; [[Aneurin Bevan]] (Minister of Health) in turn threatened to resign as did [[A. V. Alexander, 1st Earl Alexander of Hillsborough|A.V. Alexander]] ([[Secretary of State for Defence|Minister of Defence]]). In the event most of the cuts were to future spending plans except for Bevan's housing budget.<ref>Dell 1997, p. 127-8</ref>

=== Minister for Economic Affairs ===
In January 1950 Gaitskell submitted a paper called "Control and Liberalisation" to the Economic Policy Committee, which he was sometimes invited to attend. He wrote that "On 'liberalisation' we have gone about far enough. But we have done it for political reasons – US and Europe". He was opposed to the convertibility of currencies and non-discrimination between trading partners, both policies which the US favoured. Britain still preferred to encourage trade in pounds sterling within the Commonwealth, and Gaitskell wanted to preserve Britain's ability to avoid downturns like the US downturn of 1948–9, which Britain had largely escaped because of devaluation.<ref>Dell 1997, p.140</ref>

In the [[1950 United Kingdom general election|February 1950 General Election]] the Government were re-elected with a tiny majority. In the ensuing reshuffle Gaitskell was appointed [[Secretary of State for Economic Affairs|Minister for Economic Affairs]], effectively Deputy Chancellor but still outside the Cabinet.<ref name="Matthew 2004, p.288" /> He was made a full member of the Economic Policy Committee.<ref name="Dell 1997, p.136">Dell 1997, p.136</ref> Soon after his promotion he recorded that he often had to stiffen up Cripps, who was not as tough as his public image would suggest, to make sure he did not make too many concessions in negotiations with colleagues.<ref>Dell 1997, p.101</ref>

The level of spending on the new [[National Health Service|NHS]] was already running far in excess of predictions.<ref name="Dell 1997, p.143">Dell 1997, p.143</ref> In November 1949, with the high level of public spending already a problem and under pressure from Cripps, Bevan had pushed an act through Parliament granting the government the power to impose prescription charges, although they were not brought in just yet (Cripps had wanted 1 shilling per prescription, but Bevan had not agreed to this). In the 1949–50 financial year Cripps had allowed £90m of extra health service spending ("supplementaries"). Early in 1950 Cripps backed off from a plan to introduce further charges, this time on false teeth and spectacles, after Bevan threatened to resign, but Gaitskell was put on a committee to monitor Bevan's agreement to a ceiling on NHS spending. The Treasury wanted health spending capped at £350m per annum, although it was willing to accept £392m for 1950–1.<ref>Dell 1997, p.133, 147</ref>

There was already friction between Gaitskell and Bevan. At one meeting, probably 28 June 1950, Bevan had been about to walk out of the room until Attlee called him back. Bevan stopped attending Cripps' Thursday night dinners for economics ministers.<ref>Dell 1997, p.137</ref> After one of those dinners Bevan's old ally [[John Strachey (politician)|John Strachey]], now Minister of Food, rebuked him for attacking Gaitskell, whom he thought "one of the really considerable men of the Government", a suggestion to which Bevan responded with derision, calling him "nothing, nothing, nothing".<ref name="Campbell 2010, p204">Campbell 2010, p204</ref>

=== Rearmament and European Payments Union ===
By the second half of 1950 the western powers were caught up in a major rearmament drive. The outbreak of the [[Korean War]] in June 1950 at first threatened US loss of South Korea (which was seen as vital for the defence of Japan), and by the autumn threatened to escalate into a general war between the US and Communist China. There were also very real worries that the Soviets might invade western Europe (which was unarmed, with strong communist influence in many countries) and that the US would not help Britain if she did not help herself. The crushing of democracy in Czechoslovakia had been as recent as 1948. In August 1950 the British defence budget was hiked from £2.3bn to £3.6bn (a total over a three-year period); at this stage it had appeared that the US would be willing to help foot the bill.<ref name="Dell 1997, p.143-4">Dell 1997, p.143-4</ref>

In September 1950 inflationary pressure was worsened when the [[Trades Union Congress|TUC]] voted to end the existing two-year wage freeze, although there was no wage explosion just yet. It was difficult for the Treasury to take tough measures given the government's small majority and the likelihood of another election soon.<ref name="Dell 1997, p.143" />

Gaitskell thought balance of payments problems should be solved not by realignments of currencies but by asking surplus countries like the US and [[Belgium]] to inflate their economies (so they would import more). He was attacked for this by the US Secretary of the Treasury [[John Wesley Snyder]] and [[Camille Gutt]] (former Belgian finance minister and now managing director of the [[International Monetary Fund|IMF]]). Dell argues that Gaitskell did not realise that other countries had their own domestic problems.<ref name="Dell 1997, p.141">Dell 1997, p.141</ref> In September 1950, with Britain's balance of payments now in surplus, Gaitskell negotiated British membership of the [[European Payments Union]], meaning that instead of bilateral clearing, European currencies were to be convertible against one another even if not against the US dollar. Previously dollars had been needed for trade within Europe. Until then Gaitskell had shared concerns that some countries might stay in permanent deficit and thus effectively use their neighbours for free borrowing, or conversely that Belgium's surplus would enable her to suck gold and dollars from Britain. The EPU lasted until sterling was made convertible in 1958.<ref>Dell 1997, p.132, p.142</ref><ref>The USA had been pushing for such a measure as a precursor to European federalism. Cripps thought it would be a threat to the [[sterling area]] and claimed in February 1950 that it would prevent Britain from preserving full employment by restricting imports (the latter charge might have been true of a customs union but was untrue of a payments union). Cobbold (Governor of the Bank of England) was suspicious of EPU, and saw it as a return to the Gold Standard of the 1920s or of the pre-1914 era.[Dell 1997, p.132, 142]</ref>

Although Gaitskell had until recently thought Bevan an inevitable future leader for the Labour Party, by the 1950 Party Conference (2 October)  ''"[[The Daily Telegraph]]"'' political correspondent guessed correctly that he and Gaitskell were already fighting a proxy battle for the future leadership.<ref name="Campbell 2010, p204" />

=== Promotion to the Chancellorship ===
Cripps, whose health was still failing, had notified Attlee of his intention to resign as [[Chancellor of the Exchequer]] on 26 April 1950. He attempted to resign in the summer but was dissuaded by Gaitskell and Plowden because of the outbreak of the Korean War. He instead went on a long holiday, leaving Gaitskell in charge.<ref name="Dell 1997, p.133">Dell 1997, p.133</ref>

It was now becoming clear that the US Congress was reluctant to help Britain meet the cost of rearmament. Gaitskell visited Washington in October 1950, his first visit there, just before becoming Chancellor. He warned that the [[terms of trade]] were shifting against Britain, and of the costs of rearmament.<ref name="Dell 1997, p.144">Dell 1997, p.144</ref>

In October 1950 Cripps finally resigned as Chancellor of the Exchequer. Dalton proposed Gaitskell for the vacancy. Sir Edward Bridges wanted [[Herbert Morrison]], a political heavyweight; Morrison had been an early advocate of devaluation but did not regard himself as qualified.<ref>Dell 1997, p.135-7</ref> Gaitskell was appointed at the young age of 44, especially unusual as most of Attlee's Cabinet were in their sixties or older. He became the Chancellor with the shortest Parliamentary apprenticeship since [[William Pitt the Younger|Pitt the Younger]] in 1782.<ref>Campbell 2010, p199</ref> As Chancellor of the Exchequer he retained the same control over economic planning which Cripps had had. Both Cripps and Gaitskell insisted that Gaitskell be listed after Attlee, Bevin and Morrison in the official Cabinet pecking order.<ref name="Dell 1997, p.136" />

Bevan was furious at Gaitskell being promoted over him, even though, as Gaitskell correctly guessed in his diary, he probably did not want the job himself.<ref>Campbell 2010, pp.204-5</ref> Gaitskell recorded that Bevan often asserted that Cripps had promised him the Exchequer.<ref name="Dell 1997, p.567" />

The US Chiefs of Staff wanted an even greater increase in the British armaments budget to £6bn over three years, a plan backed by the British Chiefs of Staff and urged on Prime Minister Attlee on his visit to the US in Dec 1950. On his return from Washington Attlee told the House of Commons on 29 January 1951 that the defence budget was to be hiked to £4.7bn over the next three-year period, including a fourfold increase in munitions production. The defence budget was to increase from 8% to 14% of GNP, a proportion exceeded only by the US amongst NATO members. At the peak 2.5m people, 11% of the workforce, would be engaged in defence work.<ref name="Dell 1997, p.143-4" />