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“The gravest economic crisis since the end of the war”

What can we learn from Britain’s three-day week?

John Hawkins 10 June 2020 1338 words

Crisis measures: hairdressers using battery-powered head lamps in a Chatham salon during Britain’s fuel crisis. Watford/Mirrorpix via Getty Images

Governments around the world have responded to the coronavirus pandemic in ways that can truly be described as unprecedented. But if we were to travel back, like police detective Sam Tyler did in Life on Mars, to the Britain of 1973 — a world he likened to a different planet — we would be struck by a significant precedent for a government-ordered partial lockdown of the economy.

The saga began towards the end of that year, when the management of the country’s coalmines rejected a pay claim by the miners’ union. The miners banned overtime, which dramatically reduced the supply of coal to power stations and threatened the country’s electricity supply. Compounding the energy woes was the recent decision of the oil-producing OPEC countries to cut supplies to Britain and other countries they believed were supporting the Israelis in the Arab–Israeli war.

The day after the overtime ban began, Conservative prime minister Ted Heath declared a state of emergency, warning of “serious difficulty for every factory, for every farm and for every family in this country.” By early December, the chancellor of the exchequer was warning cabinet that “the country is now facing the gravest economic crisis since the end of the war.” The forecasts were so dire that he was unwilling to put them in writing.

On 12 December an exhausted Heath addressed the nation about this “grave emergency,” warning that “we shall have a harder Christmas than we have known since the war.” Britons, he said, must “close our ranks so that we can deal together with the difficulties.” (He did, however, persuade the Queen to drop a reference to her “deep concern” about Britain’s “special difficulties” from her Christmas message.) In the same month the government resorted to limiting industrial and commercial electricity use to just three days a week.

The stand-off between miners and management continued into the new year, with strikes reducing coal production to near-zero between 10 February and 11 March 1974. By then, the government had introduced specific measures to reduce energy use. The speed limit for cars and trucks was cut from seventy to fifty miles per hour. Heating on commercial premises was restricted. Police returned to walking the beat rather than driving. Ministers sternly advised citizens to brush their teeth in the dark and share baths (by which they probably meant bathwater). Petrol was rationed, streetlights turned off and children sent home from school. Amid panic-buying, some shops ran out of toilet paper. The Australian high commission was deluged with enquiries about emigration.

With both sides increasingly intransigent, the apocalyptic rhetoric intensified. The vice-president of the National Union of Mineworkers threatened “massive action, the like of which has never been seen in this country before.” Heath declared that the government would not yield to the “brute force of industrial power” and stressed that the three-day week would “prevent essential services from being placed in jeopardy” and ensure “a reasonable level of industrial activity.” Without the restrictions, a government official warned, “we face the most savage power cuts ever known in this country or indeed the world.”

Workers affected by the cutbacks could claim two days’ unemployment benefit a week. No special measures were adopted to assist employers.

Labour MP Tony Benn’s diary recorded that political meetings were being held by candlelight. One factory restarted a waterwheel last used in 1737. Some office workers wrapped themselves in blankets. Many pubs were closed, and television networks stopped broadcasting at 10.30 each evening. With many people left at a loose end, it’s little wonder that the birthrate was higher in October and November 1974 than in the same months of the following year.

The three-day week remained in force from 31 December to 9 March, concentrating its economic impact in the March quarter of 1974. The Confederation of British Industry initially estimated that the output of firms fell by around 20 per cent in January, which would suggest a fall in quarterly output of 10–15 per cent. Shortages of many materials and components were widely reported.

In the event, though, production declined much less than expected. Industrial production fell by 7 per cent in January, was flat in February and rebounded by 3.5 per cent in March and a further 5 per cent in April. By May, it had regained its October 1973 peak. (This showed “how inefficient five-day working must have been,” quipped journalist Andrew Marr.)

Economists now believe that Britain’s real GDP contracted by 2.7 per cent in the March quarter of 1974. While less than expected at the time, it is still the sharpest contraction on record (for now, at least!).

Social security benefits meant that household incomes fell less than working hours or production. Despite (or perhaps because of) the scenes of queues outside shops, consumer spending fell by only 1 per cent during the quarter — less than the fall in real incomes — which implies that people reduced their savings to pay for their day-to-day needs. But some discretionary spending — on durable goods and cars, for example — fell very sharply. With consumption falling less than output, retailers’ inventories ran down significantly.

Once it was clear that sales had held up better than expected, the Bank of England judged that the impact of the three-day week on companies’ financial positions was less than originally feared. Businesses nonetheless slowed their investment plans, and the rate of new home commencements in the private sector fell by more than a fifth in the March quarter, partly because of shortages of building materials.

The reported unemployment rate rose only a little, from 3.4 to 3.6 per cent, partly because many companies were reluctant to lay off workers and partly because many of those who did lose their jobs — including the million-plus who applied for the unemployment benefit — didn’t think it was a good time to look for work.

In the midst of the turmoil, Heath called a general election on the theme “Who governs Britain?” Three weeks later, the electorate responded, “Not you.” Harold Wilson’s Labour Party formed a minority government, the mining dispute was soon settled and the three-day week came to an end. When the new government brought down its budget on 26 March, the expansionary impact of higher pensions was offset by increases in taxation.

The Bank of England reported that output rose in the June quarter of 1974 but “did not entirely reverse the reduction which occurred in the first.” Real GDP rebounded by just 1.4 per cent in that quarter — with consumer spending increasing only slightly — and by just 0.6 per cent in the September quarter. It didn’t regain its June quarter 1973 peak until the end of 1976.

Looking back, the British experience might suggest that economies don’t necessarily shrink as much as expected during a lockdown. Perhaps firms and workers are more adaptable than some economists assume. But the three-day week also suggests that economies don’t simply “snap back” to pre-crisis levels of activity after a major shock of this kind.

Of course, the three-day week is by no means a perfect analogy with the current situation. It was a supply shock, depressing the output of goods and services, whereas the coronavirus has produced a demand shock as well. Even once cinemas, gyms and dining venues, for example, fully reopen in coming weeks, customers may remain wary for many months. And the three-day week was restricted to Britain, whereas the current pandemic, and its downturn, is global.

Even after Australian domestic demand recovers, demand for our service exports (notably international tourism and education) is likely to remain subdued. With the global economy weaker, both the volume and prices of Australian exports will be adversely affected for some time. More stimulus is likely to be needed, and for longer, than would have been desirable in Britain in 1973.

Back on television, the three-day week was quite possibly the inspiration for the mid-1970s sitcom The Good Life, in which Richard Briers and Felicity Kendal played a couple trying to live a self-sufficient lifestyle on their suburban block. We’ll find out in a year or two whether the coronavirus leaves a similar imprint on Australian screens. •

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