Monetary Collapse

The 1970s will live long in the memory of those who were there, not least for the panic and fear of monetary collapse. The British people had long been proud of their democratic traditions but in the mid-70s, it felt as though everything we held dear was on the brink of destruction. Rumours of coups and conspiracies were everywhere, from high politics to popular culture. There was talk of the Russians moving in, the army taking over, of the slow death of British democracy.

Jim Callaghan

The nation’s morale had reached its lowest ebb. Even Jim Callaghan had had enough. As he told the Cabinet during one of their interminable emergency meetings, “If I were a younger man, I’d emigrate.”

Weary of all the doom and gloom, more and more people were leaving Britain for new lives abroad. In fact, emigrants outnumbered immigrants. And it wasn’t just people flooding out of the country. The pound, once the world’s strongest currency and a symbol of British economic Might, Sterling was suffering a worldwide crisis of confidence.

On Friday, 5 March 1976, after three years of steady falls, the value of the pound collapsed as foreign investors rushed to sell their sterling reserves. By the close of business, the pound had fallen beneath two dollars for the first time in history.

Nothing better symbolised Britain’s national decline than the helter-skelter plight of the pound. This was a crisis that lay bare the depths to which the nation had sunk. More than ever, Britain stood defenceless before the fierce judgement of the financial markets.

The crisis hit ordinary people where it hurt, because a falling pound made imported goods more expensive. All those little luxuries were becoming dearer by the hour.

The man on the street was unaware of the horrific implications of monetary collapse, and knew nothing of money markets, but rising prices brought the reality home where it matters.

By September 1976, when the Labour Party gathered in Blackpool for its annual conference, the pound had dropped to just $1.63, the lowest it had ever been.

Denis Healey

The man whose job it was to sort out this mess, Chancellor Denis Healey, was booked on a flight to Hong Kong. But as sterling continued to plunge, Healey cancelled his ticket and changed direction, heading not to the Far East but to Blackpool.

Desperate times called for desperate measures. “The government of Britain took a drastic step today. It asked the International Monetary Fund for a loan of nearly $4 billion”

To save Sterling, Denis Healey asked the IMF for £2.3 billion loan. The biggest bail-out in history. Having approached the IMF, Denis Healey entered the packed conference ballroom to inform his party and the watching world. He was in such a hurry, he hadn’t even had time for lunch. The bureaucratic absurdities of conference protocol meant that as an unscheduled speaker, Denis Healey was given just 5 min to deliver the devastating truth.

Denis Healey “Let me say, Mr Chairman, that I don’t come with the Treasury view, I come from the battlefront.”

Healey knew what his party activists wanted to hear, that the days of heedless government spending would last for ever. But that, he told them, was sheer economic fantasy. The IMF would only save the pound, Denis Healey said, in exchange for deep spending cuts, a bitter pill to swallow for a socialist party.

Denis Healey “It means sticking to the very painful cuts in public expenditure on which the government is already decided. That’s what it means and that’s what I’m asking for. That’s what I’m going to negotiate for and they asked the conference to support me in that task.”

As Healey made his way back through the audience, some of his comrades stood and cheered him, but most didn’t. Most stayed where they were. Many booed him and shook their heads and called for his resignation. The pound had lost a quarter of its value, in this monetary collapse, in just a year. With austerity looming, government expenditure had to be held in check. Debts reduced, spending squeezed. Here in Blackpool, a Labour Chancellor turned his back on a key principle of the post-war consensus, the idea that there would always be more money. This was a pivotal moment in our post-war history. In barely 5 min at the podium, Denis Healey had captured Labour’s looming identity crisis. British politics would never be the same again.

The Land of Beg and Borrow

Margaret Thatcher “The situation of our country grows daily, indeed almost hourly, worse. Under Labour, the land of hope and glory has become the land of beg and borrow”

Monetary collapse meant this once proud nation was forced to go, cap in hand, to the IMF for a loan, a bail-out.

The nation’s fate was in the hands of the money markets and in November 1976, London welcomed the men who could save us or sink us. The IMF sent six international bankers to examine Britain’s books. People were naturally fascinated by the IMF team - an Englishman, an Australian, an American, a German, a New Zealander and a Greek. It sounds like the beginning of some deeply elaborate and incredibly offensive joke, or perhaps the cast of the latest James Bond film.

The IMF team checked in under false names, something Bond would have approved of. These undercover bankers were the most powerful men in the land. For the next six weeks, they played hardball with Denis Healey. Finally, on 16 December, the IMF handed the Chancellor the £2 billion he desperately needed to save sterling.

This is a confidential cable from the head of the IMF, calling on its member states to come to a humbled Britain’s aid. You can only imagine how the fiercely patriotic Denis Healey must have felt as he ran his eyes down the list of names. Belgium, Canada, France, the Netherlands, Sweden and even, of all people, to the tune of 1 billion, Germany. How on earth had it come to this?

The city reacted favourably and as Christmas approached, the pound recovered. After months of agony, Healey had dragged Britain back from the brink of bankruptcy.

At the heart of the IMF crisis was a harsh lesson. This was the moment at which British politics faced up to the raw power of global market forces. But the bitter medicine seemed to work. The pound was revived and the panic was over. The natural order seemed to have been restored.