Andy Burnham’s call to reverse neoliberal economic policies, which he traces back to the 1980s, overlooks the complex and often difficult economic realities of the 1970s, a decade marked by significant challenges and transitions.
The 1970s were characterized by an economy dominated by nationalized industries, extensive state intervention, and strong trade union influence, all underpinned by Keynesian economic principles. At the start of the decade, the Conservative government led by Edward Heath unexpectedly secured victory in the 1970 general election. Heath, considered by some historians as one of the last adherents to the post-war economic consensus, believed in maintaining full employment through negotiated wage restraint with trade unions. However, this arrangement began to falter as unions increasingly resisted wage moderation.
Governments across the political spectrum, including those led by Conservative and Labour parties, attempted to impose wage controls through “incomes policies,” relying on centralized trade unions to enforce compliance among their members. Heath introduced a statutory incomes policy in 1972, but the strategy collapsed in early 1974 when miners rejected the policy and initiated a strike. Heath subsequently called a general election, famously asking, “Who governs?” The electorate returned a hung parliament, with Labour as the largest party, but the central question of the decade remained unresolved: whether the country could be effectively governed amidst the power of the unions.
During this period, inflation surged, driven in part by wage increases in nationalized and inefficient industries, while public expenditure continued to rise. The Labour government, which took office in 1974 amid the fallout from the Yom Kippur War and subsequent oil embargo imposed by Arab states, faced additional pressure from rapidly rising oil prices. Unlike many other democracies that responded with austerity measures, Britain and Italy increased borrowing, leading both countries to seek assistance from the International Monetary Fund (IMF).
Denis Healey, then Chancellor of the Exchequer, later acknowledged shifting away from Keynesian policies in 1975, signaling a significant departure from orthodox economic approaches of the previous decades. In 1976, as IMF officials arrived in Britain to oversee financial support conditions, Prime Minister James Callaghan addressed the Labour Party conference, conceding that the nation’s economic difficulties stemmed from living beyond its means—“living for too long on borrowed time, borrowed ideas and borrowed money.”
This admission effectively summed up the economic struggles of the 1970s, with key figures from across the political spectrum distancing themselves from the economic model that had dominated the decade.
Today, Burnham faces challenges reminiscent of those encountered by Callaghan and Healey. Observers note that the choices ahead involve either increasing borrowing or adopting more disciplined economic measures, raising questions about whether Burnham will confront his party with difficult truths or pursue short-term relief through additional borrowing.
Sir Vernon Bogdanor, professor of government at King’s College London, provides this historical perspective, emphasizing the complex economic and political environment that characterized Britain’s experience in the 1970s.