Not only did the Treasury fail to warn the Government that the size of the balance of payments deficits made a devaluation of the pound inevitable if it stayed at its artificially high rate within the ERM, but, judging by the speeches of the Prime Minister and the Chancellor of the Exchequer at Brighton, it has given the Government no clear advice on how to put matters right now.
In Mr Blackaby's day the Treasury advised the government on how to manage demand by what became known as the skilful use of the brake and accelerator so that disastrous balance of payments deficits were avoided while the economy grew. Its success can be measured by the fact that there was no devaluation of the pound between 1949 and 1966, although the pre-election booms were followed by emergency budgets.
As Mr Blackaby points out, running a monthly balance of payments deficit of pounds 1bn was bound to lead to disaster. How can one have confidence in a treasury and government that ignored this simple fact and believed that membership of the ERM made balance of payments deficits irrelevant and traditional management of demand unnecessary?
12 OctoberReuse content