Much of the twentieth century has been for Britain a period of declining economic efficiency. At the beginning of this century about 30 per cent of the urban population was found to be living below the poverty level. In 1906 a Liberal-Labour coalition which dominated the House of Commons passed several bills allowing for free school meals for children and old-age pensioners. Laissez-faire liberalism was dead and the foundations of the welfare state were laid. In 1911 the National Insurance Act gave workers insurance during illness and unemployment. By 1914 the population of Britain was over 40 million.

World War I began in August 1914 and ended in November 1918. During that time almost one million young Britons were killed. After the end of World War I a Parliamentary Act (1918) extended the right to vote to all men over 21 and to most women over 29. There were conflicts between employers and employees. Trade unions rose in power. In the years 1920-1921 Britain was affected by mass unemployment due to depression, and wages fell. In 1926 the Trades Union Congress organised an unsuccessful general strike. Winston Churchill (then the Chancellor of the Exchequer) accused the unions of a direct attack on Parliamentary government. The unions replied that the strike was an 'industrial dispute over wages' However, the failure of the General Strike taught many working-class people that they must find other ways of achieving their goals.

One of the possible solutions was to support candidates who would represent them in Parliament. Some of the trade union leaders, e.g. Ernest Bevin, decided to follow a policy of co-operating with employers in order to achieve concessions for union members. Bevin was one of the founders of the world's largest trade union, the Transport and General Workers' Union. In consequence, the Labour Party grew in strength and, at the same time, the Liberal Party began to decline. In the 1924 election the Liberals ceased to be one of the two major political parties in Britain. Labour became the main opposition to the Conservatives in Parliament. In the 1929 election the Labour Party won 287 seats. In 1931, the number of unemployed grew to more than 2 million and remained at this level for almost four years. Apart from high unemployment, the housing short­age was the greatest social problem in the interwar period in Britain. Government action was aimed at relieving this problem by building council houses: plain, monotonous buildings but with small gardens, inside lavatories and bathrooms. However, only the better paid workers could afford such houses. The poorest still had to live in slums.

Britain entered World War II on September 3, 1939. Until 1940 little happened on the Western front. In April 1940, after the invasion of Denmark and Norway, Prime Minister Neville Chamberlain, who had boasted earlier that he had saved peace in Europe, had to resign. A new all-party Coalition Government took over with Winston Churchill (1874-1965) as Prime Minister. In August 1940, the Luftwaffe tried to destroy the RAF and the airfields in southern England. The Battle of Britain began.

During most of 1940 and much of 1941 Hitler launched bombing attacks on London and many other English cities. The destruction of property was enormous but the loss of life among the armed forces and the civilian population was much less than in the previous war. It soon became clear that Germany was unable to invade Britain. Over 60,000 civilians were killed by air-raids and from flying bombs and rockets (V1 and V2) in 1940-1941. Britain was helped by troops from many countries, including Polish military units.

In the 1945 election Labour won 393 seats out of 640 in the House of Commons. Clement Attlee became Prime Minister and replaced the war-time hero Winston Churchill.

After the war a comprehensive program of social and economic reform was proposed by the Labour government. It included the nationalisation of several key industries, such as mining and the railways, and the establishment of a National Health Service under which all British citizens were entitled to free medical care. The government took much of the responsibility for the health, employment, housing, education, and pensions of the great mass of the population. The Beveridge Report of 1942 proposed a comprehensive national system of social security, maternity and child benefits. The Education Act of 1944 provided ‘free’ secondary education for all. Each local authority was obliged to provide suitable schools for all children, including the disabled and mentally handicapped. The school leaving age was raised to 16 in 1947. There were not enough teachers, so the government invited people with some education to register for 'emergency' teacher training courses.

In 1946, the National Insurance Act was passed. It was compulsory for everyone working to pay a contribution of 4 shillings 11 pence to National Insurance. In return, the employed could receive a wide range of benefits including sickness, unemployment, retirement, maternity, widow's benefits, and a funeral grant. The National Insurance Act was aimed to provide an acceptable minimum standard of living but in reality benefits were much below it. In 1946 the National Health Act made medical care free for all citizens. The idea of the welfare state was fully developed. The government tried to maintain full employment and began to revive depressed industrial areas such as Wales and central Scotland.

In the postwar period Britain granted independence to most former British colonies. Only the Falkiand Islands, Gibraltar, Hong Kong, Aden, Fiji and a few small islands remained under direct British rule. Britain finally withdrew from the Empire. At the same time Britain began to experience a sharp decrease in productivity while welfare state costs were still rising. A devaluation of the pound followed in 1967. However, the Sixties and Seventies in the UK witnessed a period of reforms which could be compared to the great reforms of the 1860s and 1870s. In 1973, Britain entered the European Common Market. The European Community or Common Market was set up by the Treaty of Rome on 25 March 1957. Its main aim was the abolition of all tariffs between member states and a common external tariff on trade with other countries, the blending together of tax systems, social policies, control of agriculture, etc. Although living standards rose in Britain, other Western countries were more advanced with higher wages, longer holidays and better social welfare schemes. The price for the policy of ‘full’ employment was inflation. Peak inflation occurred in 1975. In 1978, the pound was worth only a third of its 1968 value.

In 1979, a new Conservative government under Mrs Margaret Thatcher was determined to cut inflation and increase individual initiative and productivity. It limited the total supply of money and cut government spending. As a result, unemployment rose and reached 3 million in 1982. However, the economic situation of Britain improved, partly due to the fact that the country became self-sufficient in North Sea oil. Although the traditional manufacturing industries suffered a major crisis in the late 1980s, the British economy began to advance and reached a growth rate of 4 per cent in 1987. The City of London again became a world financial centre. The Conservative governments of the eighties and the early nineties continued their policy of privatisation of state-owned enterprises.

Society also began to change in the late eighties. The 'permissive' standards of the sixties and the seventies were gradually replaced by traditional values, such as commitment to work, family life and patriotism. The Conservative Prime Minister John Major, who replaced Mrs Thatcher in 1992, called the people to return to 'basic values' of the British past. The new Labour government under Prime Minister Tony Blair (since 2 May 1997) continues essentially many previous Conservative policies although the devolution of the power of the central government in Westminster to regional governments of Scotland, Northern Ireland and Wales has become a new reality. The Monarchy and Parliament, in spite of criticisms, are still regarded as institutions which embody a sense of continuity in British history. Yet, at the turn of the century, Britain is increasingly a multicultural society.