INTRODUCTION

During the Second World War Britain was transformed from a predominantly free-market economy into a centrally managed economy as it moved from a peacetime footing to one of full-scale war mobilisation. The transformation is shown in Table 1.1: expenditure on war-related activities increased from around 7 per cent of net national expenditure in 1938 to 53 per cent by 1941 and peaked at 55 per cent in 1943, at which time it totalled £4,512 million. This increase was achieved through substantial negative non-war capital formation and by severely curtailing the growth in the consumption of non-war goods and services. In 1938 the latter had stood at £4,090 million but, despite the rapid war-time growth of the economy, it had reached only £4,526 million by 1943 and its share of net national expenditure had fallen by 32 percentage points. The greater involvement of the state in the economy is also clearly demonstrated by accounted for more than half of the net national expenditure; this transformation was almost entirely due to its increased expenditure on war.

This chapter will examine several issues related to the war economy. Why did the role of the state increase? How did the war affect GDP, productivity and the broad industrial structure of the economy? How did Britain perform relative to other combatant nations? What were the constraints that the war-time economy operated under and how did it deal with them? Did the war have any long term impact on the British economy?