There’s talk this is 1976 all over again. That’s when Jim Callaghan went cap in hand to the International Monetary Fund for a hefty bailout.
The £3.6billion the Labour PM got back then was a tidy sum, but wouldn’t go far today. Chancellor Rachel Reeves needs £40billion to make ends meet.
Callaghan even looked at scrapping the UK’s Polaris nuclear deterrent to pay for the loan, secret Cabinet papers later revealed.
It was either that or withdraw Britain’s 56,000-strong British Army on the Rhine, but the Cabinet Secretary Sir John Hunt thought that would be worse.
He told the PM in a briefing paper: “Abandoning the deterrent, or at least scrapping its improvement, would cause much less concern to our allies,” wrote Sir John.
“It would leave France as the only nuclear power in Europe, which would be unwelcome to most members of the alliance: and it would be seen as proof of Britain’s definitive disappearance as a major military power.
But it would be preferred by all our partners to a withdrawal of BAOR.”Callaghan appealed to his friend, the US President Gerald Ford, due to leave office within weeks, to broker a more palatable deal with the IMF.
The PM wrote: “The question is Gerry, who is going to be out of office first, you or me?” As it turned out, the PM stayed put, as did Polaris and our soldiers in Germany.
It showed what a master political juggler Callaghan was. But the loss of public confidence led to Margaret Thatcher winning the 1979 election.
Talk of an IMF bailout is bunkum. Rachel Reeves is clearly softening us up for an almighty hike - Nigel Nelson
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The notion that history is repeating itself nearly 50 years later is nonsense, though that hasn’t stopped opposition leaders jumping on the bandwagon to sprinkle a little fear around.
Reform UK leader Nigel Farage said the economic situation was like “the 1970s all over again”, while Tory boss Kemi Badenoch pointed to the surging cost of government borrowing to rubbish Labour’s “economic mismanagement”.A couple of economists helped provide them with ammunition.
Andrew Sentance, a former member of the Bank of England’s Monetary Policy Committee, said: “Unless policies are reversed, we are heading for an economic crash.”
And Professor Jagjit Chadha, until recently head of the National Institute for Economic and Social Research, claimed Ms Reeves faces financial problems “as perilous as the period leading up to the IMF loan of 1976".
Things aren’t great, but they’re not that bad. And the necessity for another IMF bailout is for the birds. In 1976, inflation the previous year had reached almost 25 per cent.
It is now 3.8 per cent. True, that’s almost double the Bank of England’s target, and it will probably go up to four per cent next month, but that’s still a sixth of what it was half a century ago.
Interest rates in 1976 were 15 per cent. Now they are more than two-thirds lower at four per cent, and likely to drop further, though the rate at which they do may slow.
The pound was plunging against the dollar. Now it is expected to reach $1.39 over the next twelve months, up from $1.34.And there were other factors then that do not exist now. Israel’s Yom Kippur War triggered an oil crisis which hit Britain particularly hard, and although the Middle East is hardly a haven of peace nowadays, there is no reason to think that will happen again.
The disastrous 2022 Liz Truss mini-budget of £45billion of unfunded tax cuts brought some stern words from the IMF, but we were still a long way from bailout territory.
In a slap across her wrist, it said: “Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture.”
Rachel Reeves is clearly softening us up for tax rises in her Autumn budget, but there’s one word for the prospect of an IMF rescue. And that word is bunkum.