Britain's humiliating exit from the European exchange rate mechanism (ERM) cost taxpayers £4bn, according to confidential Treasury documents released yesterday under the Freedom of Information Act.
John Major, the Prime Minister at the time of Black Wednesday, disclosed last night that he wrote a resignation letter to the Queen but was talked out of sending it by "one or two" very senior colleagues. "The truth of the matter is, I have never been sure whether that was the right decision to have taken," he said.
The disclosure of the Treasury papers has prompted a row, with the Tories accusing Labour of trying to use the Act to embarrass them while holding back sensitive papers about Gordon Brown's current economic forecasts.
Britain joined the ERM during Margaret Thatcher's premiership in 1990, pegging sterling to other European currencies, but crashed out on 16 September 1992. The Tories' opinion poll ratings crashed too - and have not recovered.
The 200 pages of documents about the fiasco disclosed a net "opportunity cost" of £3.3bn and said the Government also lost £800m in reserves trying to prop up the pound between April and September. But the losses were smaller than expected. They have previously been estimated at up to £27bn.
Mr Major admitted the ERM episode was "politically very damaging" to the Tories but insisted that it was "essential for the creation of the economic stability that has subsequently existed".
The former prime minister attacked the "lies" spread last week, when The Times reported that he and his former chancellor, Norman Lamont, were trying to block release of the papers. Mr Major said: "There is something cruelly wrong with the way the Act is operating when it is possible for people to disinter, at will, episodes that they think will embarrass the previous Conservative government, when matters that are of current importance to the electorate are blocked day after day after day."
Publication of the documents was brought forward after an astonishing leak to the BBC of an internal Treasury report on whether sensitive parts should be withheld. This prompted further Tory claims of "dirty tricks", but the Treasury insisted the report was out of date and had been sent by mistake.
The leaked report showed that the full documents spoke of "open warfare" between Mrs Thatcher and Mr Major when he was her chancellor. One Treasury official said the ERM exit might "well be a blessing in disguise" even though it weakened the Government's authority and national morale. It revealed Treasury fears that disclosing its economic forecasts in 1992 would fuel Tory demands for the release of today's Treasury growth forecasts and internal assessments about whether Mr Brown would breach his fiscal rules.
Lord Lamont said: "The Labour Party is in no position to make political capital out of the ERM, a policy they supported strongly. One of the papers released states Gordon Brown's opposition to devaluation helped to sustain Britain's membership of the ERM."
The Treasury papers suggest that when the crisis broke on Black Wednesday, ministers would have been better off withdrawing immediately rather than draining Britain's reserves. They also show that the Treasury's forecasts were "spectacularly wrong" when Mr Major pushed Mrs Thatcher to join the ERM. If officials had known, they "might well have either delayed sterling's entry into the ERM or have contrived a significantly lower rate of entry".Reuse content