Sean O'Grady: Comparisons with 1976 do not stand up to scrutiny

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The Independent Online

There was a television dramatisation of the crucial cabinet meeting; someone wrote a book about it called Bye Bye Great Britain; and it was a trauma that even now sends aftershocks though the body politic.

The IMF crisis of 1976 was the last time Britain was forced to go to an international body for an emergency loan, and it hurt. In a nutshell, Britain was bust: the Labour government was forced to make swingeing cuts; the pound was weak, falling below the $1.50 level for the first time; unemployment stood at 1.5 million, and the wonder was whether the government or democracy itself could survive. The budget deficit now, at nearly 12 per cent of GDP, is almost twice what it was when Denis Healey was Chancellor. So plenty of echoes.

But what happened next? A Lib-Lab pact as Labour lost its Commons majority – after the IMF rescue. On 23 March 1977, the Labour PM and the leader of the Liberals signed a document that began: "We agreed today the basis on which the Liberal Party would work with the Government in the pursuit of economic recovery."

Inflation came down, as did unemployment, the IMF was paid off and sterling revived. After the pact ended in 1978 came the winter of discontent and a collapse into economic anarchy. There may be a lesson there about cross-party co-operation.