The government had funded the war effort largely through borrowing, and had acquired an inflated national debt. Also, millions of people from the armed forces and associate industries needed to be reintegrated into society and the economy. In 1919, the Minister of Reconstruction, Sir Auckland Geddes, recommended the adoption of a 'social policy' to prevent unemployment. As trade expanded, however, the British economy experienced a boom. Unemployment was negligible and it briefly appeared that a positive unemployment policy would be unnecessary. The boom broke in August 1920, and thereafter unemployment rose rapidly, reaching nearly 2.5 million in 1922, with close to 15 per cent of the labour force unemployed.
A committee on unemployment was set up in August 1920. It recommended road building schemes and other public works as a means of absorbing surplus labour. Subsequently, the government established the Unemployment Grants Committee (UGC) in November 1920. This committee allocated grants to local government for public works. Subsidised emigration to the colonies was a further means deployed to reduce unemployment.
Unemployment became concentrated in 'necessitous areas', in large towns and later in areas of heavy industry. Towards the end of 1921, following recommendations from the Treasury, the government agreed that £10 million should be allocated for public works to relieve unemployment in areas that had been particularly badly affected. The Goschen Committee was set up to consider unemployment relief loans to Poor Law authorities and local authorities.
Government economic and financial strategy, however, contradicted the relief of unemployment. The Treasury wished the country to return to the gold standard, which required deflationary measures and cuts in government spending. Increases in the bank rate caused decreases in wages and prices, while unemployment continued to rise. From 1921, the Committee on Public Expenditure recommended sweeping cuts in government spending and was criticised from several quarters, including the British Federation of Industries.