At a press conference held at the Treasury on December 15 1976, the chancellor of the exchequer, Denis Healey, seemed to be sharing the nation’s anguish. He had just announced a package of swingeing public spending cuts in an emergency mini-budget. The headline in The Sun the next day was “Britain’s Shame”.
That autumn had seen a collapse of confidence in sterling. On September 28, Healey, due to fly out to a finance ministers’ conference in Hong Kong, had to abandon his trip at Heathrow because the markets were so nervous, go back to the Treasury and apply to the International Monetary Fund for a loan. From October to December the government negotiated tensely with the IMF, which demanded £2.5bn cuts in government spending in return for a $3.9bn loan.
The IMF crisis has become part of British political memory. For the Thatcher government of the 1980s, it was rivalled only as a moment of national ignominy by the winter of discontent. And it is often cited today by ministers – for example, by George Osborne in his recent speech at Bloomberg – as they stress the importance of cutting the deficit and maintaining the confidence of the markets. Britain, the mantra goes, must never again become a charity case.
The reality is more complicated. The situation at the end of 1976 was not uniquely dire. The government had already made two applications to the IMF at the end of 1975, with far less publicity, and the balance of payments had been in much greater arrears then. Healey later claimed that the Treasury had grossly overestimated the public sector borrowing requirement, the key figure used during the IMF crisis, and that if he had been given accurate figures, he would not have had to ask for the loan. He also said that accepting the IMF’s strictures was a “Pyrrhic defeat”, forcing him into the proto-Thatcherite fiscal stringency he wanted to practise anyway.
But in 1976, just as in 2010, few Britons understood this language of exchange rates and public spending figures. What was really significant was the crisis’s symbolic elements: Healey’s volte-face at Heathrow, caught by the TV cameras, the arrival of the anonymous IMF team in the UK on November 1 and the “shame” of the mini-budget. As often with the markets, what everyone thought and felt was just as important as the economic reality.