Great Britain: Freeze & Squeeze

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Prime Minister Harold Wilson has twice led the Labor Party to victory at the polls with promises not to engage in the type of "stop-go" economic policies that he accused the Conservatives of using in their economic crises. Yet last week he held up the biggest stop sign of all. In an effort to bolster the sagging pound, Wilson called for a freeze on all wages, prices and dividends in Britain as well as new taxes to squeeze inflation out of the economy.

All spring long, signs of economic troubles had been piling up. Britain's trade gap had continued to widen—by $67 million in June alone. Gold and hard-currency reserves had fallen by $372 million in four months. Inadvertently, Wilson himself had speeded the crisis. Before leaving for his trip to Moscow fortnight ago, he explained to the House of Commons that the new 7% bank rate had been urgently necessary to defend the pound, then went on to add that other emergency measures would come in ten days' time. The warning unnerved investors and sent the pound plunging to $2.78 11/16—its lowest point in 20 months.

Suez-Size Sessions. By the time he got to Moscow, Wilson realized that he could no longer hold off another prompt round of emergency economic measures. Returning to London one morning last week, he called his ministers together for the longest Cabinet session since the Suez crisis. As they discussed measures, reports circulated that Britain's reserves in July alone had fallen by perhaps $1 billion, reducing reserves near a dangerously low $2 billion. Thus, it was in an atmosphere of extreme urgency that he went before a crowded House of Commons with his suggestions for a cure.

Its aim was to reduce domestic demand by $1.4 billion and substantially trim overseas expenditures. In addition to a voluntary freeze on all wages, prices and dividends for the next six months and for "great restraint" for the half-year after that, Wilson:

¶ Raised the purchase tax by 10% on an array of consumer goods, including autos, household appliances, beer, whisky and gasoline.

¶ Increased sharply most telephone and postal fees.

¶ Limited to $140 the amount of money a British tourist may take out of the country annually.

¶ Ordered a $280 million reduction in overseas expenditures for military, diplomatic and foreign-aid activities.

¶ Postponed the investment of $420 million in planned government construction projects.

Taking his case to the nation on TV, Wilson said: "All our history proclaims that in the British people there are deep reserves of strength. We are under attack. This is your country and our country. We must work for it."