How Did Edward Heath Become An Instrumental Role In Economic Policy

The turn to the market and first changes to strip Keynesian interventionist in Britain was made by the Edward Heath conservative administration in 1970 following their election triumph. They supported a return to liberal Keynesianism, inflation being the primary priority in the conquest. Entry into the EEC and abolishment of Labours industrial policy were the breakthrough areas to focus on strengthening market forces. The financial sector would be used as a means of distributing investment funds, whilst also regulating accretion by pursuing more sound monetary policies. ‘Competition and Credit Control’ was designed to give the control of money a more instrumental role in economic policy. Heath further transferred responsibilities to market forces with interest rates and allocation of money being determined by market forces.
Prices were rising by 7% and wages earnings double. Still in a fixed exchange rate system, Heath faced a sterling crisis just like his predecessors, possibly another devaluation. Taxation was shifted from direct to indirect, further by cuts in some personal taxed encouraged spending and inflation. With ECC
The government introduced the ‘Social Contract’ in an effort to control inflation. A series of income policies, including wage raise limits, guided wage inflation down and caused a fall in real wages. An important outcome as the oil price rise had reduced real income. Contractionary fiscal policy and monetary policies followed, targeting money supply and public sector borrowing requirement. The results were progressive, inflation reduced annually during 1977-78 below 10%. However, despite these improvements, labour still required an expensive £2.3 billion bailout from the IMF to support high budget deficit and concerns over the sterling. Markets speculated the sterling was overvalued and kept selling, leading to the sterling depreciation. Casting doubts on the credibility of the