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A Long Road

Just a month following the results of the 1945 general election, on 6 August 1945, the Enola Gay dropped the most consequential bomb in human history on the Japanese city of Hiroshima. This was followed 4 days later with another bomb on Nagasaki and just 6 days from the second bombing, on 15 August 1945, the Empire of Japan surrendered to Allies. The Second World War was over, and Winston Churchill would take his rightful place next to US President Truman as the leader of the victorious Western Allies.

By September, it was clear that caretaker ministry that had been set up by the Prime Minister just before the general election would need to be reshuffled to meet the new demands of peacetime. Although several ministers, especially National Liberals who had lost their seats in the general election, would see reassignment, the most important change would be the creation of a new Ministry of Housing and Local Government.

Winston Churchill summoned the young former intelligence officer responsible for crafting the Tory policy many credited with winning them the election, who had been elected to Parliament for the first time during the recent election, to tell him that he’d like him to carry out his policy in government. “Mr. Powell, you have committed us to something grand. You had better deliver on it.” Enoch Powell accepted the challenge of his life, replying simply to the Prime Minister, “It will be a long road, but I am ready to build it.”

Third Churchill ministry, September 1945

Prime Minister and Minister of Defence: Winston Churchill

Chancellor of the Exchequer: Oliver Stanley

Foreign Secretary and Leader of the House of Commons: Anthony Eden

Home Secretary: Sir John Anderson

Minister of Housing and Local Government: Enoch Powell

Colonial Secretary and Leader of the House of Lords: Viscount Cranborne

Dominion Secretary and Lord Privy Seal: Lord Beaverbrook

Secretary of State for India and Burma and President of the Board of Trade: Leo Amery

First Lord of the Admiralty and Minister of Information: Brendan Bracken

Minister of Education: Rab Butler

Minister of National Insurance: Osbert Peake

Minister of Agriculture and Fisheries: James Henderson-Stewart

Minister of Labour and National Service: Harold Macmillan

Minister of Health: Henry Willink

Secretary of State for Scotland: Viscount Muirshiel

Secretary of State for War: Sir James Grigg



Meanwhile, negotiations were underway in Washington. John Maynard Keynes, the celebrated economist who had spearheaded the financing strategy of the British war effort, was leading the negotiations. The aim of the negotiations was to deliver a loan to the United Kingdom on massively improved interest rates, which could then be used to finance the rebuilding of the British economy. Churchill himself intervened in these negotiations on several occasions, writing to the United States President, “Britain and the whole of the British Empire stand ready to fight alongside the United States in the next great peril of our age - the scourge of Communism sweeping through the world. Even now, Stalin is preparing the countries of eastern Europe to fall into her brutal grip. Britain is ready to stand shoulder to shoulder with you. But, my God, we need help to do it!”

On hearing that the United States were not prepared to go over $3.75bn in the loan and wanted the convertibility the pound sterling, far from Keynes’ initial expectations of a $5bn grant, the Prime Minister decided that it was time for a visit to his wartime ally, as a show of goodwill and the brotherhood between the British and American people, forged by ties of blood and war, and also to kick the Americans in the shin for being, as Churchill saw it, unscrupulous in taking advantage of Britain. Arriving at Shangri-La in Maryland on 5 October 1945, Prime Minister Churchill gave a short statement to an enthusiastic group of American reporters, before going inside to speak with President Truman.

“Look, Harry, I came here two years ago at the height of the war in Europe. I spoke with your predecessor, Franklin. Franklin knew and understood what was at stake then. We are brothers, America and Britain, but we have run the bloody bottle pretty dry in this war, but I don’t think it’s quite right for a brother to slit the other brother’s throat in exchange for a drink of water! Now, if you’re not going to budge on the amount you’re willing to spare us, at least drop this blasted demand for me to kill the bloody cow just for a single steak! Time, Harry, we need bloody time!”

Truman was slightly bemused. Thinking to himself, “Why do these Brits always feel so entitled to our damn money?!” But, immensely respecting the man who had stood alone against Hitler, he said he’d have a word with the Treasury to see what could be done.

By December, the negotiations were complete. The United Kingdom had secured a loan of $3bn, and, thanks to the intervention of the Prime Minister, and much to Keynes’ immense satisfaction, the hard demand for sterling to become a fully convertible currency was dropped. Britain would commit itself to “free money exchange over time”, but would not be immediately forced to open her exchange controls. In exchange, the parties reiterated their commitment to removing trade barriers which now existed between the United States and the whole of the British Empire, a market ripe for American companies to enter.

Although a smaller loan in dollar terms, this was a momentous triumph for the United Kingdom, and one that was not well understood at the time. This would allow British industry to retain an extremely privileged position within the British Empire, for as long as exchange controls were allowed to insulate the Sterling Area, the strength of the pound could be defended. Churchill and the British negotiators assured dubious US negotiators that Britain wanted to see a day in which the pound could be fully convertible, but simply couldn’t agree to such a fast transition. If the United States wanted a strong partner against communism in the coming storm, Britain would need to be trusted. It is reasonable to wonder whether the American government would have placed such trust in a government of Socialists. Churchill had saved the nation from what, in the words of Keynes, would have otherwise been a financial Dunkirk.

Churchill returned to cabinet and told an ecstatic Chancellor of the Exchequer the news. Most of this money would be earmarked for defence spending, but Britain would have the financial headroom to make good on the Tory promises in the general election. The Chancellor would release the first peacetime budget of Churchill's first peacetime ministry in April 1946.