Pass notes: 1930 and 1979

PASS NOTES 1930

The Prime Minister: Ramsay MacDonald

The Chancellor: Philip Snowden

The economic background: It was six months since the Wall Street crash. The greatest economic depression in modern history was beginning. The outgoing Tory government had left a budget deficit of nearly £15m. With unemployment rising, the trade unions were clamouring for public projects to create jobs.

Economic guru in the background: John Maynard Keynes. But his big idea that governments should spend their way out of recession by running up a deficit and using borrowed money to create jobs had not caught on.

The Chancellor's philosophy: Though he was a Labour MP, Snowden was really a Victorian liberal who could have sat comfortably in Margaret Thatcher's cabinet. He believed in free trade and that governments should not spend more than they could raise in taxes. Manufacturers were terrified that he would abolish tariffs when other countries were raising them.

The Chancellor wanted to: Balance the books. He was furious with his Conservative predecessor, Winston Churchill, for overspending.

So he: Raised income tax by 6d (2.5p) to 22.5p in the pound; increased tax on beer and petrol; slashed the defence budget, and left import duties in place.

The result was: Unemployment went up and up. That, of course, made it all the more difficult to balance the government's books. So Snowden proposed to cut unemployment benefit. At that point, the Labour Party split. MacDonald and Snowden kept their jobs by going into coalition with the Tories and it took Labour 14 years to get back into power.

Snowden said: "As long as I hold this office, the country shall pay its way by honest methods."

His official biographer: "He was raised in an atmosphere which regarded borrowing as an evil and free trade as an essential ingredient of prosperity."

PASS NOTES 1979

The Prime Minister: Margaret Thatcher

The Chancellor: Geoffrey Howe

The economic background: Britain had been through the "Winter of Discontent" marked by strikes by council staff and others. The new government avoided a repetition by giving public employees a 25 per cent pay rise. Since 1976, Labour had ruthlessly cut public spending,which fell from 50 per cent of GDP to 45 per cent. The Tories fought the election with the slogan "Labour Isn't Working" – referring to the 1.1 million unemployed.

Economic guru in the background: Milton Friedman, US Nobel laureate, was a "monetarist" who argued that "inflation is always and everywhere a monetary phenomenon". Cut the money supply, by cutting government borrowing, and you beat inflation.

The chancellor's philosophy: Having long been a mainstream Conservative, Howe was a late but zealous convert to monetarism.

The chancellor wanted to: Reduce income tax to give people more incentive to work, and cut public borrowing.

So he: Cut the top rate of tax from 83p to 60p in the pound, and the standard rate from 33p to 30p. Having created a hole in government finances, he filled it by increasing VAT from 8 to 15 per cent.

The result was: Howe pushed inflation up to 17 per cent. To reduce it, he raised interest rates from 12 to 17 per cent. Unemployment went up by 836,000 in 1980. But after about three years, Thatcher and Howe had cut government borrowing and had inflation under control and could reduce interest rates and eventually cut government spending.

Howe said: "We cannot go on avoiding difficult choices."

His opponent, denis healey, said: An attack by Howe was like "being savaged by a dead sheep".