Unemployment was the dominant issue of British society during the interwar years.[1] Unemployment levels rarely dipped below 1,000,000 and reached a peak of more than 3,000,000 in 1933, a figure which represented more than 20% of the working population. The unemployment rate was even higher in areas including South Wales and Liverpool.[1] The Government extended unemployment insurance schemes in 1920 to alleviate the effects of unemployment.[2]
There were several reasons for the decline in industry after the First World War. The end of the war brought a boom. In the shipping industry, businesses expanded rapidly in order to take advantage of the increase in demand. However, the boom was short-lived and this rapid expansion caused a slump from oversupply.[3] Structural weaknesses in the British economy meant a disproportionate number of jobs were in the traditional industries. A combination of a lack of pre-war technological development and post-war competition damaged the economy and the new industries which emerged employed fewer people. At the same time, Britain began to lose its overseas markets due to strong foreign competition.[4] Some have argued that an overly generous unemployment insurance system worsened the state of the economy.[5] The Wall Street Crash in 1929 was responsible for a worldwide downturn in trade and led to the Great Depression.
Apart from the major pockets of unemployment, Britain was generally prosperous. Historian Piers Brendon writes:
As the Government had funded the Great War largely through borrowing, Britain had run up a large national debt. A boom in the economy occurred in 1919 causing unemployment rates to decrease. The boom stopped in 1920 when unemployment began to increase, by the time that the Liberal-Conservative coalition lost power at the 1922 general election, the unemployment rate had reached 2,500,000. A committee on unemployment was set up in 1920 and recommended public work schemes to ease unemployment, this led to the establishment of the Unemployment Grants Committee. As unemployment was not uniform across Britain, it was decided to concentrate schemes in areas of the country that were particularly affected by the economic downturn.[7] However, the government wished, also, to return to the gold standard, a move which would have required cuts in public spending.[7] The Unemployment Insurance Act 1920 extended unemployment benefits to cover all workers who earned less than £250. The "Seeking Work Test" was introduced in 1921, it stated to receive full unemployment benefit there had to be evidence the recipient was looking for work.
The Unemployment Insurance Act 1927 returned to the principle that workers had to contribute to insurance schemes in order to be a part of them. The workhouse system was abolished and replaced with a system of public assistance committeess.
Ramsay MacDonald's Government passed the Development (Loan Guarantees and Grants) Act 1929 (20 & 21 Geo. 5. c. 7).
In 1931, a National Government formed after Cabinet splits resulting from the financial crisis. National Governments would stay in power from 1931-1940 until Winston Churchill became Prime Minister of a Coalition Government during the Second World War.
Local government was reorganised so that local authorities provided school dinners and health services, means testing was introduced and the Unemployment Assistance Board was set up in 1934. Economic measures included the devaluation of the pound and taking Britain's currency off of the gold standard, borrowing also increased. The Special Areas Act 1934 attempted to inject finance into depressed areas and British industry was protected by protectionist measures such as state subsidies and import quotas. The Unemployment Act 1934 increased the numbers covered by unemployment insurance.
There were several examples of unrest during this period, most notably the General Strike of 1926 and the Jarrow March of October 1936. There were also protests against the introduction of means testing and hunger marches organized by the National Unemployed Workers Movement.