Some Bad News, Minister…
Labour came to power confronted by economic choices which would torture it in office and come close to destroying it for good when it was finally defeated at the end of the seventies. From the first weekend in October 1964 when Wilson, his Chancellor Jim Callaghan and the other senior ministers picked up their briefing papers, appalling dilemmas stared them in the face. On the face of it, the economy was not doing so badly. Inflation was still low, though rising. Unemployment was relatively low. Productivity was respectable, though falling behind Britain’s competitors. Strikes were a problem. Britain’s falling share of world markets was a problem. But these were all issues voters might have expected a fresh, vigorous, forward-looking new government to be able to grip. A darker story was laid bare in the official briefings. Britain under the Tories had been wildly overspending. It was living on borrowed money. Britain’s balance of payments was eyed with increasing worry and suspicion by its creditors, the Americans above all. Longer term, the only solution was for the British economy to become more successful, growing faster without sucking in inflation. Labour had ideas about that – more investment, more planning, a better educated workforce. But this would take time. And there was no time.
When Callaghan arrived in Downing Street on the Friday evening after the election, his predecessor, the easy-going Tory Chancellor Reggie Maudling, is said to have passed him on the way out, stopped with his coat on his arm and apologized: ‘Sorry to leave such a mess, old cock.’ He wasn’t talking about the furnishings. Callaghan’s Treasury officials presented him with 500 typed pages, arranged into forty-nine sections. They showed that the deficit the Tories had left him was far worse than previously thought, some £800m and that he would have to begin with a programme of savage spending cuts and tax rises. Even then the pound, still a world ‘reserve’ currency, would be under constant pressure. This was bad enough. Labour had been elected promising a more generous welfare system, better pensions, spending on schools and much more. That was immediately in jeopardy. Prized national projects including the supersonic airliner project jointly developed with the French, Concorde, were under threat of being axed. The Governor of the Bank of England, Lord Cromer, regarded by Labour ministers as a Tory reactionary, was quickly insisting that the deflationary squeeze must be tighter still and that other pet Labour projects such as the renationalization of steel must be dropped. He only desisted when Wilson warned him that, in that case, he might have to hold an immediate election on the theme ‘who governs Britain?’ – familiar later on, but in the 1964 context meaning, elected politicians or bankers? It was hardly surprising that the new team felt shocked and somehow betrayed. Callaghan, who had lost his Baptist faith years before, began to pray again.
Cuts and tax rises apart, there was one other obvious policy choice, which was to devalue the pound and in effect try to start again. Initially devaluation was entirely ruled out by Wilson, Callaghan and Brown who met privately on the Saturday following the 1964 election. They saw it as humiliating for Britain, cruel to poorer nations keeping their money in sterling, and possibly deadly for the Labour Party which was still saddled with the memory of devaluation in 1949. Beyond that, buffeted by the pressures on the pound and the brusque demands to cut and to tax, their only answer was – more planning. As we have seen the Conservatives had already been taken by the idea. Beeching’s brutal reshaping of the railways had been an early example of the new ruthlessness. Meanwhile ‘Neddy’ had begun work three years before Labour came to power. Industrialists and trade unionists were sitting round large tables, creating working groups and setting plans for growth – in exports, personal consumption, government spending, capital investment. Under Maudling, the Tories had also tried voluntary restraint in prices and incomes and a National Plan.
This was all meant to be French. In the early sixties, Paris was in vogue among the politicians, just as Parisian philosophers, film-makers and singers were in vogue among the beatniks in their black turtlenecks who frequented the coffee bars a mile north of Westminster. France’s system did not use production quotas or targets like the Soviet bloc. Instead ‘indicative planning’ meant the state directing money and materials into particular industries, regions and products, while obliging French banks to invest in new factories and techniques. This had begun in the shattered post-war nation of 1947 under the brandy merchant’s son and father of the EU, Jean Monnet. Fifteen years on, France was connected by new rail and road systems, her town planning seemed radical and effective compared to the mess of British cities, and from jet fighters to cars, engineering to plastics, she appeared more technologically successful than her old adversary. But Britain did not have the crisp centralism of the French political elite, nor the self-confident young technocrats being churned out of the new system of elite education created by President de Gaulle’s post-war revolution, the enarques. Britain had mutually suspicious captains of industry and union barons, plus a few economists and a highly independent, rather anti-manufacturing City. Under the Conservatives cheerful growth figures were duly agreed, and bore absolutely no relation to what then transpired. There were no levers.
It might have been thought that Labour, preparing for power, would have taken note. Nothing of the sort. George Brown, after swallowing his bitter disappointment at failing to become Labour leader, was soon dreaming of a dramatic new role for himself as knight commander of the British economy. The Tories’ trouble, he told the Labour conference, was that they didn’t really believe in planning, which was why it was not working. Faith was needed, said Brother George. Whether or not it still moved mountains, then faith would at least move factories and output figures. It was the same vague, cheerful, fairies-in-the-garden faith in science and professionalism articulated by the wartime planner Harold Wilson. Yet professionalism, never mind science, was sadly lacking. Brown wanted to run a new ministry which would oversee everything, dominating even the Treasury. Like many Labour people he believed that the Treasury was rigidly conservative and therefore to blame for economic failure. As he later wrote, ‘we were all…expansionists at heart.’ To take on the self-confident Treasury, as well as the Bank of England and by implication the City, might be regarded as rash. To succeed it would certainly need wily and careful preparation. Yet in a hurried, amateurish way the home policy committee of the Labour Party drew up its plans in 1963 to create a new department to run the economy. This would be known variously as the Ministry of Economic Expansion, the Ministry of Production, and eventually the Department of Economic Affairs, or DEA. No single document was ever produced giving details of how the DEA would work; its relationship with the Treasury; or its ultimate powers. The final agreement to go ahead with it was completed by Brown and Wilson late at night in the back of a taxi during the short journey between a London hotel and the Commons. Brown later conceded with uncharacteristic understatement: ‘I think it is a pity that we didn’t produce a “blueprint” setting out precisely what we wanted to achieve.’
Meanwhile over at the Treasury some of the brightest minds were planning how to frustrate Brown’s intended coup. In scenes which might have come from the post-1980 television satire Yes, Minister, a new dividing line was drawn through the building which left George Brown’s DEA with a scattering of empty rooms and almost no staff. To find out about the economy Brown’s newly appointed private secretary, Tom Caulcott, had virtually to steal the key economic briefing papers and smuggle them to Brown at his home. Many of the key staff Brown had hoped to use in the DEA were hurriedly switched to jobs in Downing Street or the Treasury itself before he could get his hands on them. In this stiff-collared boycott of facts, people and equipment, Caulcott even had to snatch a typewriter. Bullying and hectoring, Brown would eventually get his department up and running. In a blaze of energy he would then write another and more detailed National Plan. Yet without the oversight of taxation and spending controls operated by the Treasury machine his authority was not based on much beyond personality. Increasingly desperate, Brown went charging off round Whitehall on unexpected and often tempestuous personal visits, storming at other ministers. Breaking Whitehall protocol, he insisted on a private phone line that went directly to his desk, avoiding his private office. But the civil service is harder to beat than that. Caulcott simply arranged with the Post Office to have Brown’s phone bugged. And to ensure his private office knew when he was setting off on another personal mission, they had a discreet buzzer attached to his door which would alert them as he left so he could be followed.
Unaware, Brown drew together the usual industrialists, trade union leaders and civil servants and hammered out proposals for a British economic miracle, more detailed than the Tory version, but equally lacking in levers. His first move was to create a ‘Declaration of Intent’ committing both sides of industry to voluntary wages and prices controls and within his first year he had a full-blown National Plan, with economic planning councils set up across Britain. One sympathetic biographer called this ‘a huge personal achievement, the result of working immensely long hours, breaking every convention to get his own way and successively bullying and charming and ultimately exhausting those whose support he required’. There was much shouting at officials, much searching for key documents hidden by the Treasury, which had by now taken to calling its would-be rival the Department for Extraordinary Aggression. The trouble was that by the time Brown’s deal-making marathon had been completed, the economy was in such trouble voluntary controls were impossible. The Treasury had squeezed the DEA into irrelevance before it properly got going.
Crossman, the cabinet minister and diarist, was worried as early as December 1964 at the absence of economic strategy as the pound came under increasing pressure. Both Callaghan and Brown were routinely describing the situation privately as desperate; Labour’s promises to its supporters, including pensioners, were already impossible to fund. Crossman recorded: ‘The pound is still being nibbled away and I feel the cabinet isn’t very firm or very stable because the central leadership isn’t there, the sense of priorities, the sense of grip that you need. Yes, we’ve got a remarkable man in Harold Wilson and a good man in George Brown…But what we still lack is that coherent, strong control which is real policy.’ Roy Jenkins, later to become Chancellor himself, recorded a similar assessment. So long as the pound remained expensive compared to the dollar, ‘there was hardly an event in the world which did not produce a British currency crisis. And the only way of dealing with such a crisis was a new package of hastily approved deflationary measures which seemed bereft of any strategic framework.’ This left the DEA a marooned and rudderless creature once the cuts had destroyed its growth targets. Brown was moved to the Foreign Office in 1966 and the department was passed around until eventually it came under the personal control of Wilson, an idea that came to him in the middle of the night after he had been woken by his adored but delinquent labrador, Paddy. That did no good, and the DEA died.