Editing Hugh Gaitskell (section)

=== Rearmament and European Payments Union ===
By the second half of 1950 the western powers were caught up in a major rearmament drive. The outbreak of the [[Korean War]] in June 1950 at first threatened US loss of South Korea (which was seen as vital for the defence of Japan), and by the autumn threatened to escalate into a general war between the US and Communist China. There were also very real worries that the Soviets might invade western Europe (which was unarmed, with strong communist influence in many countries) and that the US would not help Britain if she did not help herself. The crushing of democracy in Czechoslovakia had been as recent as 1948. In August 1950 the British defence budget was hiked from £2.3bn to £3.6bn (a total over a three-year period); at this stage it had appeared that the US would be willing to help foot the bill.<ref name="Dell 1997, p.143-4">Dell 1997, p.143-4</ref>

In September 1950 inflationary pressure was worsened when the [[Trades Union Congress|TUC]] voted to end the existing two-year wage freeze, although there was no wage explosion just yet. It was difficult for the Treasury to take tough measures given the government's small majority and the likelihood of another election soon.<ref name="Dell 1997, p.143" />

Gaitskell thought balance of payments problems should be solved not by realignments of currencies but by asking surplus countries like the US and [[Belgium]] to inflate their economies (so they would import more). He was attacked for this by the US Secretary of the Treasury [[John Wesley Snyder]] and [[Camille Gutt]] (former Belgian finance minister and now managing director of the [[International Monetary Fund|IMF]]). Dell argues that Gaitskell did not realise that other countries had their own domestic problems.<ref name="Dell 1997, p.141">Dell 1997, p.141</ref> In September 1950, with Britain's balance of payments now in surplus, Gaitskell negotiated British membership of the [[European Payments Union]], meaning that instead of bilateral clearing, European currencies were to be convertible against one another even if not against the US dollar. Previously dollars had been needed for trade within Europe. Until then Gaitskell had shared concerns that some countries might stay in permanent deficit and thus effectively use their neighbours for free borrowing, or conversely that Belgium's surplus would enable her to suck gold and dollars from Britain. The EPU lasted until sterling was made convertible in 1958.<ref>Dell 1997, p.132, p.142</ref><ref>The USA had been pushing for such a measure as a precursor to European federalism. Cripps thought it would be a threat to the [[sterling area]] and claimed in February 1950 that it would prevent Britain from preserving full employment by restricting imports (the latter charge might have been true of a customs union but was untrue of a payments union). Cobbold (Governor of the Bank of England) was suspicious of EPU, and saw it as a return to the Gold Standard of the 1920s or of the pre-1914 era.[Dell 1997, p.132, 142]</ref>

Although Gaitskell had until recently thought Bevan an inevitable future leader for the Labour Party, by the 1950 Party Conference (2 October)  ''"[[The Daily Telegraph]]"'' political correspondent guessed correctly that he and Gaitskell were already fighting a proxy battle for the future leadership.<ref name="Campbell 2010, p204" />