The War is Over
At the end of the second world war Britain was victorious. Its Empire and associated Commonwealth directly or indirectly controlled 30% of the world’s land mass. From a balcony in Whitehall, Churchill roused the nation with the words “Advance Britannia!” and “God save the King!”.
However, Britain’s finances were in dire straits. It had exhausted its gold reserves by late 1940 in order to buy American and Canadian weapons. In 1941 when the Lend-Lease program came about the UK and other allies were given a financial lifeline. It was a program that saw the US provide the UK with $31 billion for arms and supplies in the form of a loan which the UK softened with assets such as leases on military bases around the world.
This all came crashing down in August 1945 when Henry Truman announced the end of the program. By July 1948 the bill had been calculated at $98 million. Furthermore, In a paper written by Grahame Allen in 2007 he states that “The UK owed £4.2 billion to creditors abroad, its £2 billion overdraft facility with the world’s most powerful nation was cancelled at a stroke, while its income from overseas investments and exports had been halved since before the war”.
For the sake of modern comparison, $1 billion is the equivalent of $18.5 billion in today’s purchasing power and £1billion would be the equivalent of roughly £58 billion.
In the face of such financial turmoil the new labour government went into a panic. Truman had acted well within legal rights by terminating it, yet nobody in the British government had anticipated the move.
So from dire straits Britain was moving unavoidably towards bankruptcy. In the words of the Chancellor Hugh Dalton, Britain was now found itself in “an almost desperate plight”.
The War Debt
It was at this point that, then Prime Minister, Clement Atlee turned to John Maynard Keynes. He instructed Maynard Keynes to travel to the US and negotiate a gift. A financial grant that would save the UK economy. A generous recognition of Britain’s war effort.
This was wishful thinking. John Maynard Keynes did not come back with a gift. Instead he came back with a $3.75 billion dollar loan. It was repayable at 2% per annum over 50 years. Repayment would start in 1950 with the aim of the last instalment being due in the year 2000.
Furthermore, Britain also secured a C$1.185 billion loan from Canada in March 1945 to be repeated over the same time frame and at the same rate of interest (2% and 50 years).
Public Opinion
His efforts divided opinion. Some felt that he had sold out the British economy for years to come and others noted it as remarkable and stating that had negotiations failed it would have meant the almost certain failure of the British economy.
The Daily Express wrote on the 7th of December 1945 that Britons should “Reject Them!”. They argued that “it is the duty of the citizens to look beyond the immediate advantage and to consider whether this plan serves the long-term interest of ourselves [Great Britain], the United States and the world”
However, The Times ran an article on the same day. They commended the government saying it had made “a courageous step”. The article also cited that the “possibilities of Anglo-American co-operation [were] of greater substance than the considerable risks which [were] undoubtedly involved in the agreement”.
On the whole reception was cautiously optimistic. Most contemporary sources suggest there was great reward but risk that should not be scoffed at.
International Influence and the Welfare State
Britain also had another problem. It was a fading world power that had just taken a load of money from its successor and everybody knew it. Despite this it was very politically important that the influence over what was left of the empire, the commonwealth and the so-called sterling zones was maintained.
Running in direct opposition to this, Labour had just been elected on a mandate for huge increases to welfare and infrastructure investment.
There was now a huge and growing gap between the UK’s spending and its income from exports. By 1947 the loan from America and Canada had been almost entirely spent.
Britain once again looked to America for aid especially with the looming prospect of repayment just over the horizon in 1951.
The Marshall Plan
Despite the loans, Europe and the United Kingdom were not recovering at the United States’ desired speed. On the 28th of April 1947 US Secretary of State George C. Marshall addressed Americans via radio and concluded with a stark review. He felt they were in no state to stave off the perceived threat of Soviet communism.
“The patient is sinking while the doctors deliberate. Action must be taken without delay.” – George C. Marshall
His proposed solution was $13.3 billion of US money designated to the rebuilding of Europe. Of that sum roughly $12 billion was a grant and the remainder a loan. It was made available to all European states and of those who were offered it, sixteen got involved.
The plan wasn’t universally popular. – Brigadier General Calvin Dewitt Jr wrote in a note to Marshall “Reverse your Marshall plan to help the U.S.A first – fight the communists here first”. His sentiment was shared among many in the US who felt they had given enough to Europe and that the US shouldn’t be giving handouts.
The largest of these was the United Kingdom. Claiming around 26% of the overall fund the UK took roughly $3 billion.
Post Marshall Aid
So Britain received its second piece of aid in 3 years. Rebuilding the economy was the priority and as it should be because in 1951 the USA would be back again. And this time they would be taking money, not giving it.
