When UK economy failed
Forty years ago Britain faced the darkest moment in its modern economic history. The pound was in free fall on currency markets, the nation’s foreign exchange reserves had been drained, unions held the citizens hostage and there was runaway inflation.
As the Financial Correspondent at the Guardian at the time, it was my dismal task to record the daily disarray on the City’s markets, the collapse of the sterling exchange rate and the humiliating application by the then Chancellor Denis Healey for a huge £3.1bn loan from the International Monetary Fund.
With the help of colleagues I was among the first reporters to detail the loan application.
Later, there would be a battle in Washington over the austerity policies that would be the price of a bailout and tense meetings at the Banque de France in Paris. The IMF was short of cash and had to raise funds under the General Agreements to Borrow (GAB) provided by the ten richest Western economies.
Remarkably one of the main protagonists of these events, the then managing director of the IMF and former Dutch finance minister Johannes Witteveen, was at HM Treasury last night to discuss historian Richard Roberts’ inside account When Britain Went Bust – the 1976 IMF Crisis. It may seem an act of self-indulgence to discuss these events now, but there could not be a greater contrast with post-Brexit referendum Britain. In spite of the grim forecasts of economic meltdown made by the Remain campaign and threats of recession, runaway inflation and market meltdown, the UK economy is proving resilient.
We still await numbers for the final quarter of 2016, but signs are the UK will end the year with 2pc output growth, making it the strongest economy among the G7. Inflation is negligible and the public is asked to feel worried that prices might rise above 2pc next year.
The economic cycle has not been written off and there may yet be a downturn. When it happens, Britain – through the strength of the City, creative industries, services of all kinds, technology and high-value manufacturing – will remain robust. In my last conversation with Denis Healey, at a seminar in Athens, he claimed that the public spending cuts forced on James Callaghan’s Labour government by the IMF were unnecessary and that its sums were wrong. Be that as it may, it provided a political shield for Labour to make changes to the public sector and paved the way for the Thatcher revolution.
Her brutal battles with the unions, end of exchange controls, cuts in tax rates and Big Bang created a more flexible economy, which has been able to deal with oil price shocks and leaving the exchange rate mechanism.
In the aftermath of the Lehman collapse of 2008 and the subsequent financial meltdown, the period was often described as the most catastrophic for a century. In terms of the fissures in the financial system, that is true.
But those who lived through the 1970s will tell you the hopelessness of the British economy then felt much worse.
Grid sell-out
AFTER the Brexit vote it is understandable that Theresa May will not want to stand in the way of the 61pc sale of the National Grid’s gas distribution network to an overseas consortium headed by Australia’s Macquarie and the China Investment Corporation. She wants to show that Britain is open to business.
Shareholders promised a £4bn bribe in the shape of dividends and share buy-backs are not going to rebel. An excuse for not intervening is that the review on the impact of overseas takeovers is not yet been completed. Once again, however, the UK is being bullied into deals which undermine the nation’s economic security by fee-hungry investment bankers who will walk away with millions.
It says something of the short-termism of chairman Sir Peter Gershon, chief executive John Pettigrew and the whole Grid board that they cannot see the long-term opportunity of running the former Lattice gas network in the interests of the UK.
Mrs Thatcher did not lead the ‘Tell Sid’ revolution for vital assets to be seized by state-controlled foreign owners.
Macquarie’s record as an owner of British infrastructure is lamentable. Just look at the hundreds of millions of pounds of dividends at Thames Water spirited off overseas that could have been invested back in UK infrastructure, including speeding up work on the Thames Tideway.
Allowing command and control of gas infrastructure to fall into overseas hands is a calamitous mistake.
Fantasy land
WHEN all else fails, blame the media. That‘s Sports Direct chairman Keith Hellawell’s response to a 25pc dip in half-year profits. He pledges to turn Mike Ashley’s discredited outfit into the Selfridges of sports retailing. Visitors to once elegant Lillywhites at Piccadilly can see Sports Direct has more in common with Petticoat Lane in the East End than a high-end department store. Preposterous.