1. Impact of war on finance and the economy

2. Summary of main issues How did the war affect government spending? How did government increase its income? How were trade and industry affected? How much damage was done to the British economy?

3. Government spending It cost around £3.85 million a day to keep the war going. By 1917 government spending amounted to 60% of Gross National Product (GNP) In 1813 (height of Napoleonic wars) it was only 7% Government borrowing increased the national debt from £650 million to £8,000 million Glossary – key term. Gross National Product It is a measure of a country’s wealth. It is the annual total value of goods produced and services provided at home in Britain and in trade with other countries.

4. Government income 1.Increased borrowing From banks in Britain and USA – amounted to 2/3 of capital raised NY banking firm JP Morgan financed war materials bought from US suppliers Late 1915 – loan of $5,000 million. Resulted in greater dependence on USA (war cost $5mil per day and $2mil of this was raised in USA) People were persuaded to buy war bonds Glossary – Key term War bonds Loans from individuals or institutions to the government. They were to be paid back at the end of the war with interest, so they were promoted as a form of saving

5. Government income 2. Increased taxation Amounted to 1/3 of govt. income during war Chancellors of the Exchequer raised income tax as follows: - Lloyd George (1914-15) – from 9d in the pound to 1s 6d in the pound - McKenna (1915-16) – raised to 3s 6d in the pound and introduced tax on excess profits - Bonar Law (1916-18) – raised to 6s in the pound and excess profits tax raised to 80% By 1918 over 6 million more people were paying income tax LINKS Social impact of income tax – more people have to pay. Upper and middle classes affected by excess profits tax. LINKS Political effects of war are also shown. 3 different chancellors during wartime – shows upheaval within cabinet. Also goes from Liberal chancellor (1914) to Conservative chancellor (1916) which demonstrates growing strength of Conservatives.

6. Trade Traditional export markets blocked off Many imports became unavailable or more expensive Attacks on shipping by German U-boats meant cargoes were lost at sea.

7. Trade - Analysis of the long- term impact Would result in even greater dependence on the USA (links to previous issue of US loans and financiers) Countries which had been major purchasers of British goods before 1914 would have to be self- sufficient during the war due to blockades. They developed their manufacturing industries and stopped buying from Britain. Move away from free trade as restrictions and tariffs were put on foreign imports. LINK Political issues – Liberals’ traditional belief in free trade was undermined and would divide and weaken the party further

8. Industry Growth in industrial output during war, but this was “unnatural growth” (Lynch) Staple industries already in long-term decline (foreign competition from USA and Germany) British industry had not adapted to new trends Use of old-fashioned production methods left manufacturers with high overheads, which kept prices high Resulted in falling demand for British goods LINKS to and exacerbated problems with overseas trade Glossary – Key term Staple industries Traditionally strong British industries, eg textiles, coal, iron, steel, ship-building.

9. Damage to the economy In Dec 1916 a secret letter to King George V warned that Britain faced bankruptcy and complete reliance on the US “By 1918 interest charges on the National Debt amounted to £325 million p.a. The entire government expenditure for 1913 was only around £170 million” (Simon Schama, 2006) During WW1 the British incurred debts equivalent to 136% of the country’s Gross National Product. (Michael Lynch, 2008.) WW1 “hastened a decline that had already begun” – (Michael Lynch, 2008)

10. Judgements War brings about turning point in economic relations with USA Economy causes significant shift in politics and society War is devastating to economy in short-term, but was arguably more damaging in the longer- term