Winston Churchill Is Appointed Chancellor Of the Exchequer

Winston Churchill is justly admired for his lonely advocacy of rearmament in the 1930s, but as Chancellor of the Exchequer in the 1920s he was an equally staunch and eloquent critic of arms budgets, particularly those of the Royal Navy.

Motivated by a desire for funds to reduce taxes and increase social spending, as well as a sincere belief that no enemy could or would challenge Britain's strategic position in the foreseeable future, Churchill campaigned vigorously for strategic complacency and against naval expenditure throughout his tenure as Chancellor. He promoted the formal assumption that any war was at least ten years away and he strenuously opposed Admiralty plans for warship construction, naval aviation development, and a Singapore naval base. The result was a seriously weakened Royal Navy in the following decade when Churchill demanded a more assertive British foreign policy.

Winston Churchill's Budget of 1925 has become infamous for returning Britain to the gold standard, at a fixed rate of $4.80 to the pound.

The aim was to restore Britain's position at the centre of the world's financial system. It is now argued that the high rate made British industry uncompetitive and prolonged the slump.

Alan Clark, the Conservative MP and biographer of the Conservative Party, argues that Churchill had his reservations, but the lack of alternative economic advice left him no choice.

Even Liberal economist John Maynard Keynes, who later criticised the fixed exchange rate, was convinced the move was inevitable.

Churchill was appointed Chancellor of the Exchequer in 1924 under Stanley Baldwin and oversaw Britain's disastrous return to the Gold Standard, which resulted in deflation, unemployment, and the miners' strike that led to the General Strike of 1926. His decision, announced in the 1924 Budget, came after long consultation with various economists including John Maynard Keynes, the Permanent Secretary to the Treasury, Sir Otto Niemeyer and the board of the Bank of England. This decision prompted Keynes to write The Economic Consequences of Mr. Churchill, arguing that the return to the gold standard at the pre-war parity in 1925 (£1=$4.86) would lead to a world depression. However, the decision was generally popular and seen as 'sound economics' although it was opposed by Lord Beaverbrook and the Federation of British Industries.

Churchill later regarded this as the greatest mistake of his life. However in discussions at the time with former Chancellor McKenna, Churchill acknowledged that the return to the gold standard and the resulting 'dear money' policy was economically bad. In those discussions he maintained the policy as fundamentally political – a return to the pre-war conditions in which he believed. In his speech on the Bill he said "I will tell you what it [the return to the Gold Standard] will shackle us to. It will shackle us to reality."