Editing Hugh Gaitskell (section)

=== 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>