History of England 1-6

During the Sixties, the Labour government had tried desperately to ensure full employment while keeping down inflation. Wilson had attempted a six-month price and pay freeze, but it had not answered. Between 1964 and 1979 there had been no fewer than eight incomes policies, and all had run aground. The centre could not hold when the periphery was under assault. Healey’s attempted rescue of the economy was testament to his remarkable agility and persistence. Thanks to his efforts to curb public spending, deeply unpopular though they were, inflation fell from 29 per cent to 13 per cent in under nine months. The fragility of sterling, however, was a matter that none could ignore. The government employed every resource to prevent its collapse, but the world was unconvinced. Appearances were still against the pound. The Bank of England spent almost all its reserves in propping it up, but it seemed set to equal the dollar. What could be done? There was the eccentric proposal offered by Tony Benn that Britain become a ‘siege economy’, placing tariffs on imports yet somehow still able to export freely. Other members of the cabinet knew that there was no recourse left but an appeal to the highest financial authority in the world, the International Monetary Fund. The crisis came when Denis Healey, arriving at Heathrow to fly to the United States, was told of the pound’s collapse. His place, he saw, was at home. He drove back to Westminster. And so the United Kingdom, once the world’s banker, had to doff its pride and beg money of its allies.

For that is what it amounted to. The IMF was funded largely by the United States and Germany, which made absurd the suggestion of Anthony Crosland that it could be blackmailed by threats of Britain withdrawing its foreign military commitments. Britain was in no place to make demands. The IMF team, when it arrived on 1 November 1976, was composed of several nationalities, but there could be no disguising the fact that the spirit informing their mission was American. It was clear to the IMF that Britain would not only need a thorough spring clean; it would have to throw out many objects of sentimental value. It had been usual for such loans to be renewed indefinitely, but no such latitude was extended to the feckless British. A December date was fixed and a rigorous programme of spending cuts demanded. For a loan of almost £4 billion, it seemed to the IMF scarcely unreasonable. And yet the British proved to have some fire in their bellies still. At a moment of seeming impasse, Callaghan picked up the telephone in front of the chief negotiator, and threatened to call the president if no leeway was offered. Was it pure bravado? Perhaps, but it had the desired effect and the loan was agreed.

Despite the fact that matters turned out remarkably well, it was a sombre prime minister who addressed the Labour party conference in 1976. He had begun to undergo a change of heart, one too subtle and incremental to be called a conversion, but it must have seemed a shift of tectonic proportions to the delegates in Blackpool. After paying tribute to Harold Wilson, who perked up from a somnolent doze when he heard his name, Callaghan began to dismantle the post-war consensus. ‘Mr Chairman and comrades,’ he said. ‘No one owes Britain a living, and … we are still not earning the standard of living we are enjoying. We are only keeping up our standards by borrowing and this cannot go on indefinitely.’

Amidst all the agonizing about inflation, deflation and disinflation, Callaghan had found the wound. Those to the left of the party, like the young Dennis Skinner, were aghast that questions of ‘productivity’ could be mooted at all, but Callaghan was unmoved: Britain had been singing for its supper rather than earning its keep. Here was an old socialist speaking, and he was impatient of fecklessness. The world the people of Britain had known could no longer be justified: ‘That cosy world is gone.’ His tone was dull and gravelly; he relished the words no more than did his listeners.