Wilson inherits £800m deficit from Tories
CABINET SECRETS OF 1964: Stephen Ward and Stephen Castle review files n ow in the public domain
Monday 02 January 1995
The papers show that on the day Labour took office, 16 October, senior officials were setting up an emergency meeting between Mr Wilson, his First Secretary of State for Economic Affairs, George Brown, and his Chancellor of the Exchequer, James Callaghan.
A Treasury memorandum noted that Mr Callaghan was briefed later that night on the burgeoning economic crisis inherited from the Tory government. The Treasury estimated that the country was facing a balance of payments deficit of £800m in the current yearand £450m the year after.
A crucial meeting between Mr Wilson, Mr Brown and Mr Callaghan took place the next morning, a Saturday. It appears that they alone agreed there would be no devaluation of the pound to get out of the crisis.
Devaluation at that point could have forestalled many of the Government's subsequent problems - it was forced to devalue two years later anyway. Mr Wilson was committed to maintaining a strong pound and realised devaluation would mean the end of many of Labour's spending commitments.
When the new Cabinet assembled for the first time the following Monday, there was no mention of devaluation. Instead the record shows Mr Wilson congratulating his ministers on their election victory, before Mr Brown began spelling out their grim inheritance.
At the next Cabinet meeting, three days later, Mr Brown offered his remedies: a 15 per cent levy on non-essential imports, a £70m package of tax relief for exporters, and a prices and incomes policy.
On 3 November, Mr Wilson, Mr Callaghan and Mr Brown agreed to put 6d on income tax, 6d on a gallon of petrol and to introduce capital gains and corporation taxes. The measures went down badly in the City and sterling was soon under intense pressure.
Faced with a run on the pound, Mr Wilson finally bowed to the markets and on Monday 23 November interest rates went up by 2 per cent. But it was not until the next day, when it was announced that 11 foreign central banks had agreed to lend Britain £1,080m, that the slide was finally halted.
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