Thinking the unthinkable
Christopher Booker
In recent days I have often thought back to a phrase that was used by Harold Wilson in July 1975. Introducing the 16 Package', he warned that, if the measures did not stick, Britain would be 'engulfed by a catastrophe of unimaginable proportions'. It was pretty melodramatic language, even for Mr Wilson. But the curious thing is that the phrase was scarcely picked up by the press. Certainly no one bothered to elaborate in detail just what the then Prime Minister might mean by such an apocalyptic utterance, ifindeed he meant anything at all.
But there were a few hundred people in Whitehall and the Government who were aware of at least one reason why Mr Wilson might have used such stark imagery at that time. In the autumn of 1974, as Britain's inflation approached 20 per cent, the Treasury had commissioned a confidential assessment by a number of experts as to the possibility and likely consequences of a catastrophic run on the pound, some time in the second half of 1975. The resulting report was supplied to Wilson by the Cabinet Office in January 197.5. It indicated that, in the event of a serious withdrawal from sterling, Britain's foreign trading partners might eventually refuse to sell us anything, except in return for goods or hard currency. If the collapse was sharp and sudden enough, Britain's foreign trade might even come to a complete standstill. The country would be deprived of all its imported fuel, half its food and the raw materials which supply a large proportion of our export trade. Industry and transport would come to an almost complete stop, for as much as three months. Newspapers would cease publishing, there wOuld be power cuts for most of the day, and most people would simply stay, presumably shivering and starving, at home. The likelihood of a collapse in sterling sufficient to bring about such a nightmare-fantasy sometime in the latter half of 1975 was estimated by the panel of experts to be 2 to 1 on.
I first heard of the existence of this improbable-sounding report in June 1975 when, with a colleague, I was attempting to put together an hour-long TV documentary on Britain's economic future. We had been inspired to our project by the quite terrifyingly eerie mood which had developed in Britain during the previous few months. Wage settlements had soared to nearly 30 per cent. Public spending and borrowing were going through the roof. The whole illusory edifice seemed to be resting simply on the mountain of sterling which had been invested in London over the previous year by the OPEC countries. And now, for the first time since the beginning of 1974, Britain's rate of inflation was beginning to pull seriously away from that of other industrialised countries. Clearly the chances of a massive withdrawal from sterling were becoming higher day by day. And yet, in the press and on television, there seemed almost a conspiracy of silence. In May and early June the country seemed almost entirely preoccupied with the referendum campaign and the antics of Mr Benn. Despite the fact that by the middle of May the pound was already under pressure, Mr Wilson blithely dismissed any talk even of a crisis, let alone of the need for measures to forestall one. What on earth was going to happen to the country ?
What interested us above all was the complete absence of any public discussion of a catastrophe which, to informed foreign observers at least, now seemed almost inevitable. We therefore decided to make a television film in which we would attempt, with the aid of a number of experts, to 'think the unthinkable', to explore and spell out as clearly as possible the course which the disaster facing Great Britain was likely to take.
To a certain extent we were knocked off course ourselves by those curious, panicstricken weeks at the beginning of July, when in fact the very crisis we had been anticipating began to break, and Messrs Healey and Wilson managed hastily to cobble together their 'f6 Package' with the unions. Simply in terms of reducing the pressure of wages on inflation, it seemed as though they had bought the country a breathing space for perhaps a year. But it was even more clear that the price of the bargain was that little or nothing would be done about the vast public sector borrowing requirement (which had risen from zero in 1970 to f 11,000 million, or one-eighth of the entire gross national product). In other words, the proqlect of ultimate disaster remained.
The scenario we finally assembled therefore ran as follows. Sooner or later, despite the 'Social Contract', the patience of major sterling-holders would run out, and the pound would begin a really catastrophic slide to well below two dollars. We would borrow from the IMF, but it would be nowhere near enough (even at that time in 1975 our maximum drawing rights were only half of one year's government deficit). Eventually we would reach the point where any further lending, however it was organised, would only be forthcoming on two conditions, however tacit. The first would be an almost complete freeze on wages, however fast prices continued to rise (implying a quite serious reduction in Britain's standard of private consumption). The second was a balanced budget within two or three years at the outside in other words, a cut in public spending of some £10,000 million, or 20 per cent.
At this point we called on a succession of experts in various fields, such as education. local government and welfare, to indicate what a 20 per cent cut might actlially mean in practice. I shall always remember the picture of catastrophe they unfolded to us in that stiflingly hot office-doubling-asstudio. One of the most eloquent was the Finance Director of Croydon, Noel Hepworth, who in a flat, authoritative Yorkshire voice explained just how surprising1Y heavily the cuts would have to fall in certain areas, when you remembered all the things, such as debt charges, which cannot be cut. It might mean the sacking of 100,000 teachers; probably little or no new house building at all; cuts of up to 30 per cent or more in town hall staffs. A large, jovial man from the BMA painted the graphic picture of a Health Service stripped down to little more than the supply of emergency services, while many hospitals closed altogether. Eventually Joe Rogaly of the Financial Times discussed, as a disaster 'of Weimar dimensions', the ultimate unthinkable possibility of cuts in unemployment benefit, as the numbers of unemployed rose so far into the millions that there would simply money to pay them.
Having outlined some of the implications of a 'final bargain' with Britain's creditors along these lines, we then asked two of the more outspoken left-wing trade union leaders, Clive Jenkins and Ken Gill, how likely it was that such a package would win any union co-operation. Of course they laughed it to scorn. Finally, with Peter Oppenheimer, we briefly discussed what might happen next. By that time, even we had reached the limits of 'thinking the unthinkable', and amid mentions of wall be no
tion government, a siege economy and severe rationing, our scenario petered out. We did not even get so far as Mr Healey's 'rioting in the streets' (although let it be recalled that, in the summer of 1975, Mr Healey was then holding up as the unthinkable alternative to his package the prospect of 'crawling to the IMF').
Nevertheless that is the position we have now reached, fourteen months later. It has all been entirely predictable. To the rest of the world, to the IMF, to foreign bankers like the admirable Mr Stanislav Yannussevich who appeared on BBC 2 on Monday night, Britain's plight is starkly, rationally SImPle. We have been living beyond our means, at their expense. And now it must stoP. We have only two choices—to produce more, or to consume less. And since, in the Short term, we can neither produce more, nor raise taxes any further, as Mr Yannussevich said, that can only mean one thing. Whatever means we deploy to reduce our overseas trading deficit (by import controls, or whatever), we shall first and foremost have to balance our budget—in other words, eLtt out public spending by up to £11,000 Million, at whatever sacrifice.
Of course our politicians have refused to face up to this fact for so long that they are now in the position where they simply dare not say what they know. After Manila, Mr Callaghan and his colleagues can no longer b.e in any doubt as to just how grave the situation has become. They know that Mr Healey's pathetic cuts earlier in the summer, equivalent to less than a year's interest on our current borrowings, were a mere fleabite. They know that a 11 per cent lending rate is a mere toy, in terms of raising what is required. They know that the £2,300 million we are now calling on from the IMF bears `',nlY a derisory relation to £11,500 million. alut even now, as they back inch by inch cl. own the slope, with the IMF increasingly implacable on the one hand, and the left ,ing and the unions taking refuge in tantasies about import • controls on the Other, they still cannot finally accept that wir Wilson's 'unimaginable catastrophe' is 11°W staring us all in the face. If there is one thing which is going to make that catastroPhe when it comes even more unpleasant than it might have been, it is the extent to which the British people have simply not be. en Prepared for it—not just by the politiel.ans, but as much by the press and teletv151°11• If ever there was a need for the media Justify their claims to social responsibility iuY telling the truth it is now. Firstly by asking every politician and trade union leader n sight the simple question, 'How is the in1°HeY going to be raised ?', to which there °f course no longer any plausible answer. :kild secondly, as the inevitable corollary, by eN.131°ring as publicly as possible every conceivable way in which public expenditure „an. be cut by the requisite amount. It is 'n°Ing to have to happen, either by agree
ellt or by force majeure.
Crash "‘t least, while we are waiting for the 1, We might as well discuss it.
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