The COVID-19 Window

Recessions come in all shapes and sizes.

If you’re a baby boomer, you’ll remember the double-dip recession of the mid-1970s, in the midst of the oil shocks and the stagflation crisis. Millennials will remember how the 2008 downturn came to pass, with the dreaded credit crunch, the bailouts and a prolonged period of recovery that was barely underway when a new shock hit the world economy.

COVID-19 makes it a near certainty that a new recession has already started, with some of the latest estimates saying the UK will see a GDP contraction of 10 per cent in 2020, before bouncing back with an equally strong rebound in the following year or so.

Most recessions are caused by policy failures of one kind or another; often too much demand for not enough goods, or too much money chasing a limited amount of resources. In the mid-1980s, Thatcherite Chancellor of the Exchequer Nigel Lawson famously fuelled an unsustainable boom which resulted in a painful bust that took many years to recover from.

In the post-war era, numerous governments battled to keep unemployment low, while stopping inflation from eroding the value of the Pound. A more neoliberal consensus emerged by the 1980s, focusing more on inflation, with unemployment simply allowed to rise to record levels, all in the aim of keeping inflation low.

However, we now appear to be at an inflection point where inflation is no longer the enemy, but deflation. Having had a political conversation entrenched with the idea that a little bit of unemployment was seen as a necessary evil to keep prices steadier, communities have been hollowed out and key industries weakened.

With an economy undergoing massive changes and record numbers of people facing a many years on the dole, it’s no wonder that politics became so polarised.

The COVID-19 crisis has arguably exposed the flaws in the post-Thatcherite economic model, and opinion polls appear to suggest that the British public are happy to see a change in the way the economy is run. As recently as 2016, a majority of Britons thought the government should raise taxes and spend more, something which hadn’t been since the mid-2000s, according to the 34th edition of the British Social Attitudes survey by NatCen Social Research.

Even so, some remain highly suspicious of incurring greater levels of public debt in order to salvage the economy, a phenomenon which has a tendency to flare up with each economic crisis.

The false austerity narrative

The modern proponents of austerity most-likely cite an influential 2010 paper by economists Carmen Reinhart and Kenneth Rogoff, Growth in the Time of Debt. The paper, published in a non-peer-reviewed edition of the American Economic Review, argued that allowing national debt to reach over 60% of GDP could cause a country’s potential economic growth to decline by two percentage points, or be completely cut in half if debt breached 90% of GDP.

In 2013, it was found that the paper contained a number of errors, with the authors revealed has having been selective about certain data points, which implied higher debt would lead to economic growth. In actual fact, there are examples of nations which managed high public debt burdens which managed to notch up a high rate of growth: countries such as Australia, Canada and New Zealand in the years following World War Two.

The UK endured roughly a decade of belt-tightening from 2010-19, before the Conservatives started to increase government spending again last year. This is evidenced by an increasing government debt even before COVID-19 had hit, and a net contribution to GDP growth, as the UK see-sawed from Brexit deadline to Brexit deadline.

The case for spending

One of the biggest arguments in favour of more public spending and investment from here is the record lows in government bond yields. Yields on gilts with a maturity up until seven years are actually negative, meaning bond holders are going for these slices of the national debt in the knowledge that the investment will not actually give them a return of any kind for its duration.

No doubt that the billions of pounds in quantitative easing by the Bank of England will have depressed yields artificially, but even so, there is also an outpouring of demand in assets deemed to be more risk-off, including bonds and gold relative to equities. Also, negative-yielding bonds are a signal from traders that they expect interest rates to be pinned down for a significantly long period of time, possibly even turning negative at some point.

While austerity seems like the obvious solution for some in response to COVID-19, the UK has had experience of a decade-long austerity agenda and much economic growth has been lost as a result. If the incumbent office holders wish to really stimulate the economy, it makes sense to maintain as much support for as long as necessary to avoid the UK falling into a Japanese-style deflationary spiral.

The signal is clear: it’s cheap for the government to borrow to invest and spend, to support the economy through this current crisis. The benefits of intelligent spending could outweigh the decision to slash the budget prematurely, as the multiplier effect allows money to trickle down into the economy, allowing it to to reflate and generate enough steam to allow it to recover to full health quicker. Until the bond markets react adversely and bond yields jump alarmingly, the government should consider this window of opportunity.

The ERM crisis (1992)

Before we delve into the ERM crisis, let’s recap, by pointing out some key characteristics that the previous crises in this series have all seemed to share.

1.) The Pound slides during times of crisis - no going back to the heights of the Victorian era

2.) Inflation often posed a problem during each crisis - not necessarily because of devaluation

3.) The party in government suffered some kind of backlash, either through electoral defeat or the ousting/departure of the incumbent Prime Minister

4.) British productivity is far weaker than elsewhere

With these points in mind, let’s examine the UK’s entry and chaotic exit from the ERM.

Thatcher - Rise and Fall

In the last post, we explored the end of the stagflationary crisis of the 1970s, which saw the rise of Margaret Thatcher. The new Thatcher government broke with the post-war consensus (full employment), forging a new one based around price stability.

Unemployment stopped being viewed as a social evil that had to be avoided, and seemingly became a sacrifice that had to be made, in order to bring inflation back down again. The policy was criticised for doing irreparable damage to the social fabric in industrial areas as a result of high unemployment

Simply put, the 1979-81 recession didn’t have to be as deep as it was, but the government thought short-term pain was the only way to ensure long-term gain.

Splits within the Labour opposition in 1980-81 led to the party losing MPs, who went on to form their own party, the SDP. The SDP ultimately won 7 million votes in the 1983 election, but due to the structure of British political election arithmetic, they barely won a handful of seats.

Labour’s crisis enabled the Tories to try and capture disaffected voters with enticements such as home ownership and the prospect of privatising industries, to enable the ownership of shares. The consequence of this was an increasing reliance on credit, a booming stock market, and a new generation of Brits seeking to make their fortunes.

For a time, the Conservative government seemed relatively stable. Mrs Thatcher avoided an assassination attempt when the IRA bombed her hotel during the 1984 Conservative Party conference in Brighton. A miners’ strike in 1984-85 failed to cripple the government in the way it might have done in the previous decade.

The Conservatives had won a larger majority in 1983, and won a third victory under Mrs Thatcher in 1987, as the economy began to boom. Mrs Thatcher’s Chancellor of the Exchequer, Nigel Lawson, slashed taxes in 1987, allowing the economy to surge.

The government believed the 1980s recession had raised productive capacity, allowing the economy to boom for longer without inflationary pressures building up. This was effectively a precursor to a future Chancellor’s claim that boom and bust was a thing of the past. How wrong this would prove to be.

The Lawson boom had proven to be yet another bubble, and Lawson was forced to raise rates to stop inflation getting out of control. Due to personal differences, Lawson ultimately left Number 11, replaced by a fairly unknown man called John Major.

By 1989, Mrs Thatcher was losing the qualities that had earned her the unwavering respect of her parliamentary colleagues. Cabinet ministers grew increasingly concerned about the direction the government was heading in.

The ERM

In her final weeks in Number 10, Mrs Thatcher’s government oversaw the UK’s entry into the Exchange Rate Mechanism (ERM). This meant that the UK had entered a system in which European currencies moved around in a price corridor. The ultimate goal was to co-ordinate them all, so that they would ultimately merge with the Deutsch Mark, to form a single European currency.

Mrs Thatcher had become increasingly Eurosceptic in her final years as Prime Minister, concerned that the European project was beginning to usurp the power of individual member states. Her Euroscepticism combined with her crusade to introduce a new Poll Tax, one of the most controversial policies of the 20th Century.

Within a month of the UK entering the ERM, Mrs Thatcher faced a leadership challenge from former Cabinet minister Michael Heseltine, and despite winning more votes than her rivals, she didn’t win enough to remain secure. Convinced by colleagues that her power was ebbing, she resigned. John Major ultimately entered the fray, as an apparent successor, and succeeded her.

However, John Major was far from the heir to Mrs Thatcher. By November 1990, the UK was in the grip of a new recession. The Japanese economy was reeling from the bursting of a property bubble, sending shockwaves across the world. The UK, locked into the ERM, was limited in how much it could ease monetary policy, as this risked causing the Pound to fall out of the ERM price corridor with the Deutsch Mark.

By 1991, the economy began to grow again, and despite continuing economic malaise, Major managed to secure a fourth election victory for the Conservatives in 1992, with over 14 million votes. Labour leader Neil Kinnock, who had led the opposition since 1983, had believed he had a chance of winning, but the 1992 defeat was crushing, and he resigned, succeeded by John Smith, a shadow Cabinet minister.

The Conservatives seemed to have seen off the opposition, but this was when the real crisis began. Norman Lamont was now the new Chancellor, but the crisis that followed would ensure that his tenure at the Treasury was a short one.

The economy remained weak for the duration of 1992, but the government didn’t want to risk ERM membership by cutting interest rates too suddenly. By the early 1990s however, it became easier for speculators to sway sentiment in the currency markets.

The Pound faced intense speculative pressures as summer turned to autumn, particularly as investor George Soros had been expecting the Pound to sink. He began to build up a significant short position in Sterling, leading up to September 1992. According to Soros, UK entry into the ERM was wrong-footed, as the Pound was overvalued, and that it would have to devalue.

In mid-September 1992, Soros broke cover, selling $10bn of Sterling holdings from his fund. The Major government, trying to save face, initially tried to protect the Pound and maintain ERM membership. To do so, they believed the Pound had to remain elevated, so they spent millions of Pounds worth of reserves, but to no avail.

The Pound tumbled, and the government briefly hiked interest rates as high as 15% to keep it in the ERM corridor, but soon reversed the decision, keeping rates where they were. Senior Cabinet ministers, including Major, Lamont, Michael Heseltine, Kenneth Clarke and other colleagues convened, to find a solution. They ultimately decided an exit from the ERM was the only viable option.

Italy, also a member of the ERM, had seen the Lira breach the price corridor at the same time as the UK, but ultimately managed to remain in an adjusted form of the ERM, in which the corridor was broadened. The UK exited the ERM, but never returned. Pro-Europeans viewed the exit as a humiliation, whereas more Eurosceptic people viewed it as a liberating moment for Britain.

Voters made up their minds relatively quickly. A sitting government had just tried and failed to protect the Pound from currency speculators. As a result, the UK had ended up crashing out of the ERM, signalling a shift in policy they hadn’t expected to make, at a time when unemployment remained close to 10%. Voters vented their frustration, with the Conservatives crashing in ensuing opinion polls.

Disunity over ever-increasing unity

Major’s government lost a great deal of support from the public, following the ERM crisis, and never recovered. Despite winning 14 million votes in 1992, the Major government had a miniscule majority of 18 seats. This left Major vulnerable, if his MPs should decide to rebel against any policy of his. This ultimately came to pass in 1993, with the ratification of the Maastricht Treaty in Parliament.

As many as 22 backbench rebels, from the increasingly vocal Eurosceptic wing of the party, received encouragement from Mrs Thatcher, and did everything they could to sabotage the ratification of this new treaty, that would embolden the European Commission, and oversee the formal establishment of the European Union.

Maastricht was the roadmap towards increasing integration in Europe, in a way that inflamed tension within the Conservative Party. Eurosceptics, who had always been present within the party, now refused to fall in-line and believed the project was a threat to British sovereignty, eroding the power of member states, in their opinion.

The Maastricht Treaty was ultimately ratified, but not without caveats for the UK. The UK would not be part of the currency union, along with a number of other structures. Major had managed to ensure the UK remained close to Europe, but not quite as close as it could have been. Even by doing so, the Conservative Party was still fractured.

Major grew weary of rebellion, leading him to decide to resign as party leader in the summer of 1995, offering his critics to challenge him for the leadership directly. John Redwood, then-Secretary of State for Wales, jumped at the opportunity, resigning his post to run against Major. However, Redwood ultimately failed, setting the Eurosceptics back for years. 

Major was able to retain his support among his own MPs, remaining in office as PM and party leader. However, the Conservative Party was now riven with divisions, and Labour was now increasingly viewed as a suitable alternative party of government. Labour was briefly shocked by the sudden death of leader John Smith in 1994. 

The party mourned Smith's untimely passing, but the party was now less riven by divisions, having apparently learnt its lesson after over a decade in the wilderness. Tony Blair ultimately succeeded Smith, seeking to reach out to disaffected voters through political triangulation. Blair sought to seek a third way in British politics, and Labour enjoyed a sizable poll-lead over the Tories for the remainder of the 1990s.

The 1990s were a watershed moment for Eurosceptics. They believed the UK was hurtling towards an ever-increasingly complicated union that was no longer deemed suitable for UK purposes, in their eyes. 

Alan Sked, a lecturer at the LSE, had founded the Anti-Federalist League in 1991, but by 1993, he assembled with like-minded individuals, to form a new force, UKIP, the UK Independence Party. Its sole ambition: to ensure the withdrawal of the UK from the EU.

The Stagflation Crisis (1970-83)

In a single decade, Britain was led by four Prime Ministers, it went to the polls four times and experienced two of its worst recessions since the Second World War. That was the decade that was the 1970s.

Edward Heath, Prime Minister in 1970-74

Open Media Ltd. [CC BY-SA 3.0]

The surprise victory of Edward Heath and the Conservatives in 1970 was just the first of many unexpected moments in the 1970s. Heath was keen to make his own mark but ultimately followed the post-war consensus model when faced with crisis, as his predecessors had done since the war. 

His government faced its first shock, when new Chancellor of the Exchequer Ian Macleod died unexpectedly in July 1970. Anthony Barber was chosen to succeed Macleod, and held the role for the remainder of Heath's premiership.

The stagflation crisis of the 1970s was unprecedented, not just in post-war history, but British history entirely. Number crunchers at the Bank of England have a rough idea about the history of inflation (at least in England) going all the way back to the Middle Ages. Before the 1970s crisis, inflation had been more of a multi-generational phenomenon, as there had been great inflation in the 1500s, possibly due to the discovery of gold and other precious metals in the New World, which would hav flooded the economy with a fresh supply of money.

Another price surge had happened around the time of the French Revolutionary and Napoleonic Wars, and again during WWW1 and WW2. These surges had been followed by long periods of price deflation, and so in the long run, prices tended to revert back to an average level eventually. The 1970s inflation crisis was unique, because prices rose on an enormous scale, and the price level never fell back in the aftermath. In that way, we are still living with the impact of this surge in prices today.

Inflation in the 1970s would rise to levels not seen since the 1920s, when fascism began to spread across Europe, and there was a fear that a sustained period of high inflation or hyperinflation would ultimately lead to civil unrest. The unions, which were already uneasy over pay policy in the 1960s, were far more potent in this new decade, bringing the economy to a halt on numerous occasions.

Heath inherited an economy that had a trade surplus, but unemployment was rising. Initially, Heath's government muddled through, but felt forced to act, when unemployment rose above 1 million people by 1972. A strike in early 1972 was a taste of things to come, demonstrating how mass strikes had the potential to hit the economy and bring a government down onto its knees. It is this point where Heath began to follow the post-war consensus model. Chancellor Barber slashed taxes and spurred an easing of credit in 1972-73, bringing about a pre-election boom.

In January 1973, Heath managed to achieve what Macmillan and his other predecessors had failed to do: attain British membership into the European project. Britain formally entered the EEC as it was called, the European Economic Community. Harold Macmillan had made an application for British membership in the early 1960s, but Charles de Gaulle had vetoed this. By 1973, Georges Pompidou was President of the French Republic, and he was more accomodating.

The decision was controversial in Britain, but not in the way you would expect. In the early post-war era, the Conservatives (especially under Heath) were keen on closer ties with Europe, on an economic basis. More left-wing politicians, particularly in the Labour party, were some of the most vocal opponents to EEC membership, and were essentially the Eurosceptics of their day.

Unlike previous post-war booms, inflation was already sitting at elevated levels, and the credit boom took the economy far beyond its capacity, causing a bubble to form. House prices rose rapidly, with inflation following shortly afterwards. Unions grew distrustful of Heath's government, while voters became increasingly concerned about double-digit inflation eating into their pay packets.

The US decision to end the Bretton Woods system in 1971 had led to a global rise in inflation, through food prices and other commodities. The so-called Barber Boom had added fuel to a fire that was blazing out of control. Then, without warning, stirrings in the Middle East turned an awkward situation into a full-blown crisis.

The First Oil Shock

Edward Heath addresses the nation in December 1973, warning of the looming crisis

Just as the Suez Crisis had crippled Anthony Eden's government, the Yom Kippur War of 1973 would do irreparable damage to Heath's. In October 1973, Egypt and Syria led a coalition of Arab states to occupy Israeli territory seized in 1967, with conflict raging in Sinai and the Golan Heights.

The United States supported Israel during the conflict, triggering a strong response from Arabic members of OPEC, the Organisation of the Petroleum Exporting Countries. Saudi Arabia, one of OPEC's most powerful members, made the controversial decision to cut oil production from October 1973 onwards. The move simply led to increased US support being granted to Israel, resulting in the Saudi oil embargo, which spread to a number of other countries aligned with the US.

The outcome was devastating. In January 1974, the price of oil lept from just $3-4 a barrel to $10 per barrel. In modern terms, that's like oil prices of $23 suddenly jumping to $54 overnight. This became the first shock in what became the 1970s energy crisis, the first so-called "oil shock".

In December 1973, to halt disruption in the supplies of oil, gas and coal, Heath announced the introduction of a "three-day week work order", whereby businesses would have to limit their usage of electricty to three days a week, rather than five. Businesses responded by cutting working weeks down to three days. This has since become known as Heath's Three-Day Week.

The conservation of energy became such an issue that even TV broadcasts stared to have cut-off points at night-time. The National Union of Miners voted to go on strike in January 1974, having rejected an offer of a wage rise of almost 17%, a figure which sounds racy compared to the average wage increase of about 3-3.5% nowadays. The British economy shrank in early 1974 at its fastest rate since the post-war recession of the 1940s.

In an attempt to break the political and economic deadlock, Heath opted to call a snap election, in order to appeal to the population in the hopes that a fresh mandate could help him tackle the crisis once and for all. The election was scheduled for February 1974, with the Conservatives running under the slogan, "Who governs Britain?".

When voters were given the choice, they gave a mixed message.

The February 1974 election resulted in a hung parliament, much like in 2010, except Labour won the most votes. The Liberals had surged, in part thanks to their charismatic leader, Jeremy Thorpe. For a short while after the election, Heath clung on to power, toying with the idea of a coalition with the Liberals, but when they demanded electoral reform as part of a coalition deal, Heath rejected the offer, and so the Liberals withdrew.

Heath's government crumbled, he resigned and Wilson became Prime Minister again, but Labour lacked enough seats to form a majority. Labour had run in February 1974 on a socialist platform, promising to undo the policies of Heath's government, but grim economic reality forced him to correct his agenda quickly.

Wilson opted for a snap election of his own in October 1974, narrowly increasing Labour's number of seats, but he was granted a majority of just a single seat, leaving his government vulnerable to collapse, if a single MP should defy him. Wilson's final term was much like his previous one, being hijacked by economic crisis. The Labour government opted to try and reduce inflation through 1975-77 through a pay squeeze and high interest rates.

One of Labour's election pledges had included a referendum on Britain's entry into the EEC. Held in May 1975, the UK voted by a large margin to remain in the EEC. By this time, the Conservatives had undergone a major transformation. In February 1975, Conservative MPs had held a leadership ballot, in which Edward Heath was defeated by Shadow Cabinet colleague Margaret Thatcher.

Margaret Thatcher famously campaigned for continued membership of the EEC, wearing a jumper bearing the flags of EEC members. As her future premiership would show, she would transition towards a more Eurosceptic leaning, but for now, she was far more pragmatic.

The Conservatives returned to the opposition benches, but began to rebuild, and the early roots of Thatcherism were already being formulated, as the stagflation crisis wore on during the 1970s.
Wilson shocked the nation in early 1976, when he announced his sudden resignation as Prime Minister. He denied ill health at the time, but it has since been revealed he was allegedly suffering from the early symptoms of Alzheimer's disease.

When he left Number 10, Wilson granted a number of resignation honours to a variety of people, as indicated in the so-called "Lavender List", a document drafted on lavender-coloured paper by his political secretary, Marcia Williams. Williams, who went on to become Baroness Falkender, passed away just a matter of weeks ago, at the age of 86.

Wilson's departure was followed by James Callaghan becoming Prime Minister, but his short premiership would be dominated by yet more chaos from an unexpected source. As Labour prepared to hold its annual conference in 1976, the Pound faced a fresh wave of speculative pressure, ultimately crashing to a new all-time low. Inflation remained high by this time, and investors were losing their faith in Callaghan to bring it down unless he adopted significant reforms.

Britain eventually capitulated and requested the IMF for a bailout, which was only granted on the condition that the government reduced public spending to reduce inflation. The austerity of the late-1970s was effectively an embryonic form of Thatcherite monetarism. After decades of stop-and-go policies by post-war governments of different stripes, Callaghan's government had run into a major obstacle, and was forced to change tack.

The Winter of Discontent

The 1976 bailout was followed by a brief slowdown in growth, but by 1978, the economy was booming again. Labour had entered into a short-lived pact with the Liberals, the Lib-Lab Pact, but this fell apart after a year, due to disagreements on economic policy. Inflation fell at last, but remained elevated. Callaghan briefly considered holding a snap election in 1978, but jokingly rejected the idea, singing the old song "Waiting at the Church". Labour was relatively steady and in the lead in the polls of the time, yet Callaghan decided not to ask for a mandate of his own.

By the end of 1978, the electoral goodwill evaporated. Industrial unease resumed in the autumn, and strikes returned, leading to the so-called Winter of Discontent, a reference to Shakespeare's Richard III. Graveyard workers went on strike, resulting in corpses going unburied. Binmen refused to collect rubbish, resulting in bin bags piling up.

In early 1979, as the strikes intensified, Callaghan was accused of being out-of-touch, when he returned from a summit in Guadeloupe. He denied the country was sliding into mounting chaos, leading the Sun to run with the headline "Chaos? What Chaos?". The strikes crippled the economy in early 1979, just as they did in 1974. Output fell, and things came to a head in March, when the Conservatives called a vote of no confidence in Callaghan's government. They defeated Labour by a single vote.

With Parliament having no confidence in his government, Callaghan was forced to call an immediate general election. Labour MPs responded by singing the socialist anthem "The Red Flag". In the election that followed, in May 1979, Labour lost power, and the Conservatives won the most seats. Despite the mounting crisis of the day, Mrs Thatcher and the Conservatives won a narrow majority of just over 20 seats.

Rather than follow the policies as laid out in the post-war consensus, Mrs Thatcher was determined to end the stagflation by adopting monetarist economic policies. The Iranian Revolution in the summer of 1979 led to a new oil shock, just as devastating as the previous one, leading to one final spike in inflation. By the end of 1979, interest rates had risen to 17%, their highest level ever, since the Bank of England's creation in the 1690s.

The economy slid into recession by 1980. The UK was now in the unenviable position of having faced not only a double-dip recession in 1973-75, but now it had an even deeper one, less than half a decade later. When unemployment began to hit 3 million, the government was criticised by a large number of economists, who feared Mrs Thatcher's government was dragging the UK into a new great depression. Mrs Thatcher carried on regardless, using the 1981 budget to raise taxes, despite a deep recession.

The Thatcher government held its nerve, despite having enforced policies that led to a collapse in the industrial sector of the economy. By 1981, as I have recorded in a previous post, the Labour party had split and a small group of MPs created their own party, the SDP. The impact of the 1980s recession led to a fall in Conservative support, and at one point, it seemed possible that an SDP government might win the next election.

However, to her great fortune, when the country finally went to the polls in 1983, Mrs Thatcher was granted a second term. The SDP-Liberal alliance and Labour battled for left/centre-left voters, so any kind of meaningful opposition to the Conservatives was split down the middle. The Falklands War of 1982 had undoubtedly given the Conservatives a boost in support, and in 1983, they won a sizable chunk of the vote and an increased number of seats. By 1983, inflation had fallen to levels not seen since the 1967 Sterling crisis. The economy was growing rapidly again, but unemployment remained above 3 million and rising.

Mrs Thatcher had managed to break a cycle her predecessors had been trapped in, but the monetarist policies of 1979-83 did lasting damage to the Conservative party's reputation in old industrial regions. Leaders like Macmillan had lived through the horrors of two world wars, and attempted to ensure full employment, but lived long enough to see the Thatcher government doing away with this notion, in favour of a new principle of price stability.

It seemed not to matter whether employment was high or low now. The level of joblessness became immaterial, but the stability of wages and inflation was a prime focus. As we shall see in the next post, we will see how Mrs Thatcher's final years saw her government lose sight of even this principle, and how her successors did further damage to the Conservative party's economic credentials.

The Sterling Crisis (1967)

Eric Koch / Anefo [CC0], via Wikimedia Commons

How much do you think you know about the UK in the 1960s? No doubt it consists of things such as Swinging London, shillings, the World Cup victory and the introduction of colour television.

It was also a decade of enormous economic and political crisis. In the last chapter of this series on post-war political crises, we saw the end of Eden and the rise of Supermac. Britain was seemingly booming its way out of the Suez Crisis with an Old Etonian in Number 10. As the UK entered the 1960s, you’d be forgiven for thinking things seemed rosy. It didn’t take long for the whole thing to unravel again.

In 1962, another unsustainable boom had led to inflation and a government-introduced credit squeeze. In a highly-publicised by-election in Orpington, the Liberals shocked many by unseating the Tories, who had won the seat with a resounding majority in 1959. Supermac began to lose his magic touch, sacking a third of his Cabinet in one fell swoop. Within a year, John Profumo MP, the Minister for War, resigned in disgrace after being alleged to have had an affair with Christine Keeler, a woman who also happened to be having an affair with a Russian attaché. The scandal sparked concern of a security breach, having been revealed mere months after a Cold War standoff between the US and Cuba in the Bay of Pigs. Supermac resigned in late 1963, succeeded by Alec Douglas Home, a man who had been a member of the House of Lords.

Douglas-Home’s accession to the Premiership caused considerable concern among many, as such a thing hadn’t happened since 1902. Suddenly, Number 10 was occupied by a Prime Minister without his own mandate. That same year, the Labour opposition faced its own succession crisis, following the unexpected death of leader Hugh Gaitskell. His successor, Harold Wilson, had been a cabinet minister of the post-war Labour landslide government, who had resigned in 1950 as part of a split in the party over NHS prescription charges. This mini-split at the top of the party was just the start of a deepening schism that led to what would resign the party to the wildnerness in a matter of decades. For now however, Wilson was in charge.

Within a year of Douglas-Home entering Number 10, he found himself leaving for good, when Labour won a slim majority in the 1964 election. Douglas-Home has the distinction of being the first Prime Minister born in the 20th Century, but Wilson was almost half a generation younger than him and had a knack with appealing to a broader audience. He was often seen brandishing a smoking pipe and spoke of the “white heat” of a coming technological revolution that Britain could play a leading part in. Tony Benn MP (a name to remember in future articles) was appointed Minister for Technology, overseeing the opening of the BT Tower, a landmark designed to showcase Britain’s ambition to rule the airwaves.

Upon reaching office, Wilson faced grim news: the economy was in a deep malaise. A pre-election boom in 1963-64 had proved to be unsustainable and left an enormous trade deficit for the incoming Labour government to contend with. It might sound small to us in 2019, but a trade deficit of £800m was a big deal in the 1960s. While we obsess about GDP nowadays, politicians in the 1960s regularly paid close attention to the UK’s balance of trade figures. 

Released monthly, they provided what many deemed to be a barometer of the UK’s exporting potential. Any data showing a surplus would suggest strong exports and less reliance on foreign goods. A deficit, which became more and more common, suggested a growing weakness in the British economy. Inflation was on the rise again and pressure piled onto Sterling. The industrial sector groaned under tight economic policy, with British workers underperforming their competitors with less productive equipment and an increasingly growing market for cheaper goods from elsewhere.

At the height of the British empire, the British Pound had enjoyed an exchange rate of about four USD to one British Pound. By 1966, this had dropped to $2.80. Labour earned a reputation as a party of devaluation following a slide in Sterling back in 1949. It had blighted Atlee’s government in its final years, and Labour remained out of office for over a decade. By the late 1960s, a Labour government was under tremendous pressure to make the UK’s exports more competitive.

Wilson’s Cabinet refused to accept a devaluation in 1966, instead preferring a deflationary policy to restore the trade balance to a sound footing. This came in the form of a credit squeeze and an attempt to put a cap on wage increases. The measure proved unpopular, and a strike by seamen in 1966 led to the government spending millions of Pounds of reserves to keep the Pound stable. This was a warning of things to come.

By 1967, Wilson’s position on Sterling had become untenable. It was simply not possible for the Pound to remain at such a high level any longer. On a cold weekend in November, the government announced the devaluation of Sterling from $2.80 to the Pound to an all-time low of $2.40 to the Pound, a reduction of over 14%. Interest rates were immediately hiked to 8%, a level not seen since 1914, in order to stop inflation rearing its head.

When Parliament reconvened the following week, the decision was ridiculed and the government was accused of hypocrisy. Iain Macleod, the Shadow Chancellor, reminded Callaghan of a statement made in July 1967, where he had dismissed the idea of devaluation, adding:

“The Chancellor of the Exchequer will know that I am using his own words. He has done all these things. He has broken faith. He has devalued his word. He is planning to bring down the standard of life of our own people. He is an honourable man. Will he resign?”

By month’s end, Callaghan would resign, replaced by Roy Jenkins. The Liberal leader Jeremy Thorpe criticised the devaluation for being poorly-timed and somewhat clumsy. Wilson’s government suffered a sharp decline in opinion polls following this crisis, falling below 30% by mid-1968. Barely a few years in, the government was damned, whatever it did. Wilson opted to wait some time before calling another election. He waited to see how the economy would fare, as Britain came to the end of the Sixties. The economy was deflated further in 1968 with a consumption tax hike but the trade balance improved.

Meanwhile in Wolverhampton

While the economic situation was a sticky mess, another issue became headline news, following an imflammatory speech by an MP by the name of Enoch Powell. Powell, who represented the people of Wolverhampton South West, made a speech at a gathering of West Midlands Conservatives on 20th April 1968. Powell had briefed a journalist beforehand to say he was preparing to make a speech that would make serious waves up and down the country. On the day itself, a camera crew turned up and recorded fragments of his address. It became known as the “Rivers of Blood” speech, for Powell’s apocalyptic prediction that:

“in 15 or 20 years’ time, the black man will have the whip hand over the white man…it is like watching a nation busily engaged in heaping up its own funeral pyre”

Powell was talking about the annual inflow of about 50,000 people a year, and how it would change the country beyond recognition. Britain was actually in the grip of a wave of emigration at this time. Britons left in their thousands, seeking a better life in the US, Canada and beyond. Thousands of people from all over the world were arriving, to drive the buses, tend to the sick in hospitals and help redefine the country in the post-war era. Powell's speech was triggered by debate surrounding the Race Relations Bill, something he believed would penalise native Britons. Powell was fearful of the prospect that by the late-Eighties, Britain could become a country where whites were in a minority, or beaten into submission.

The instant reaction was polarising. Powell was sacked from the Shadow Cabinet by his leader, Edward Heath. Heath had faced off against Powell for the Tory leadership in 1965. Powell had failed to clinch the leadership, but had remained a problem for Heath. His sacking from the Shadow Cabinet marked his official departure from front line politics, but he continued to influence political debate for many years, before his death in 1998.

Wilson ultimately waited until mid-1970 to call an election. Parliament could have remained as it was for another year or so, but Wilson was looking for a fresh mandate. Wilson had consulted his new Chancellor, Roy Jenkins about timings for a possible election, as revealed in this 1970 election interview with David Dimbleby. Jenkins was of the view that the economy would remain on a neutral path between June and October. By the time Wilson called the election, Labour appeared to have recovered in the polls and he expected to return to office and make the most of a stable economy. 

The electorate had other ideas. Labour unexpectedly lost the 1970 election. Wilson suddenly appeared to have lost control of events. The UK took a turn to the right, just as the US had done in 1968, when voters chose Richard Nixon to go to the White House.

The blame for Labour’s defeat is tricky to pin down. For some, the devaluation was the culprit, as voters may have judged Labour for failing to run the economy competently. Some claim a release of poor trade balance data on election day itself may have swayed voters. Others believe Enoch Powell’s comments on immigration two years before had helped sway the election in Heath’s favour. Whatever the cause, the outcome was clear. The public had voted Labour out of power, and now they faced the stark reality of opposition as Britain entered the Seventies. The next time the public went to the polls in 1974, the mood would be drastically different.

Brexit Stalemate Continues

This week's vote by MPs on the Prime Minister's deal has generated a lot of buzz but very little progress. Just over two months to go, but no sign of a breakthrough. The deadlock continues...

Theresa May's Brexit proposals are experiencing something of a death by a thousand papercuts. Her so-called Chequers deal was met with resignations from her Cabinet in a mere matter of hours. A much-anticipated vote on the deal was originally pencilled in for December, but the Prime Minister realised the numbers weren't on her side, opting to delay it until the new year.

When the vote finally came, Mrs May's government suffered the largest defeat on a vote for a sitting goverment since records began. An eye-watering 432 MPs rejected Mrs May's offer, compared to just 202 supporting. As the Speaker would say, "the Noes have it, the Noes have it". In previous eras of political history, such a defeat would have likely led to the resignation of the Prime Minister, but in the post-referendum world, such a defeat seems like a mere statistic. Labour leader Jeremy Corbyn tabled a motion of no confidence in the government, but Parliament resoundingly rejected it. Lib Dem leader Vince Cable has since stated that his MPs would not support such a vote again, accusing Mr Corbyn of playing games.

Mrs May invited MPs of all parties to consult her about thoughts on Brexit, but Mr Corbyn abstained from taking part, urging Mrs May to take the so-called No Deal option off the table. As a quick reminder, the No Deal option would see the UK exiting the EU on March 29th with no fixed agreement, requiring the UK to fall back onto WTO rules on trade. It is a preferred option for many Eurosceptics, but critics deride the idea, believing it will result in unnecessary economic turmoil.

What next?

The so-called "Meaningful Vote" this week was the government's attempt to seal the withdrawal process, and has its roots in a constitutional law case at the Supreme Court (known as the Miller Case), which resulted in a number of national newspapers deriding the Supreme Court for ruling in favour of Gina Miller and a number of other claimants.

Parliament's decision to snub Mrs May's offer has been met with rejoicing in some circles, as some believed it never went far enough or that Brexit shouldn't even be happening. Mrs May succeeded in uniting Remainers and Brexiteers against herself, as she tried to forge a third way that seemed to defy political gravity. Mrs May might seem somewhat more secure in her position, considering that her own party's MPs are unable to trigger a new leadership ballot until next December and that support for another No-Confidence vote is weak.

However, her failure to convince MPs to go along with her deal has fundamentally undermined her authority, and although she remains Prime Minister, she is compelled to oversee the conclusion to the Brexit process in the next few months, whether it results in the UK leaving or exiting the EU.

The next big crunch time moment for the government comes on Monday, when Mrs May is expected to unveil her Plan B to Parliament, after they compelled her to. Parliament was concerned that Mrs May would try to run down the clock, so the next few hours will be an indication of Mrs May's abilities to improvise.

A second referendum remains distant as an option at present, as the parties attempt to perform a complicated dance around voters, attempting not to tread on anyone's feet. According to a new poll, voters seemed to have moved towards the idea that the UK should actually remain in the EU now. As the clock ticks down, it becomes increasingly likely that unresolved disputes in Westminster will probably result in Article 50 being extended.

Such a move would trigger the return of former UKIP leader Nigel Farage to the political arena. In an interview on BBC News, Mr Farage announced that he would seek to stand in the European Elections, something that the UK might actually have to hold if Article 50 is indeed delayed past the end of March 2019.

Any perceived attempt to delay, derail or ultimately dissolve Brexit will result in some kind of reaction from the Eurosceptic wing of the electorate, but it might not necessarily be from the most obvious place. Mr Farage publicly quit UKIP in 2018, and is widely regarded by some as the face of Brexit. Watch this space for a potential new Eurosceptic party.

Midterms 2018 roundup

Gage Skidmore (CC BY-SA 2.0) via Wikimedia Commons

The Midterm elections are over. Americans have had their say for the first time since the 2016 Presidential election, electing members for the House of Representatives and the Senate. Pundits talk of blue or red waves, and experts speculate about the ramifications, but what is the state of things?

1.) The Democrats may have seen their best midterm gains since Watergate

It's not unusual for the incumbent party to lose seats in the House of Representatives in the midterms. The Democrats lost an eye-watering 63 seats in the 2010 midterms, something that undermined President Obama for the remainder of his first time. One of the many things that resulted from this gridlock was the debt ceiling crisis the following August, when the US ultimately lost its top-notch credit rating with one of the leading agencies. The Democrats lost another dozen seats in 2014, before gaining half a dozen in 2016. This time round, the Democrats may have gained at least 30 seats, which would be the biggest gain for them since 1974, the year President Nixon resigned over the Watergate scandal.

The precise numbers won't be known for a while, but we know for sure that the Democrats won the popular vote in the House of Reps. This suggests the blue wave scenario came true.

2.) The Senate eludes Democrats, and may remain so for a little bit longer

The House of Reps, which are the US equivalent of a lower house, flipped to the Democrats, but the Senate, or upper house, remains under Repblican control. In fact, the Democrats lost 3 senate seats, in a Senate race that was among one of the hardest for them to fight in many long years. It sounds like a small amount, but given the size of the Senate, each seat has a bigger proportional significance. The Senate matters, as it will prove crucial in the selection of Supreme Court justices.

As we saw with the Kavanaugh nomination in recent weeks, the Senate ultimately plays the most important role. Why did the Senate vote play out the way it did this year? In large part, it was the timing. The Democrats had to defend 26 seats this time, compared to just 9 for the GOP. Very unlucky for the Democrats, in other words. Based on the timings for future votes, some have even remarked that the Senate could remain under Republican control until 2022.

3.) The economy didn't matter as much as people thought

The American economy has been growing continuously since the middle of 2009, when it emerged from the global financial crisis. Growth has been quite decent by post-GFC standards. The US economy's trend growth rate is probably around 1.5-2% or so, and the economy has enjoyed a growth spurt of around 2.5-3% under Trump. As a result of this buoyant economy, the official level of unemployment has dropped to 3.7% , a level not seen since 1969. Wage growth is picking up, to about 3.1% according to some metrics. Much of this success has been due to a tax cut introduced in December 2017.

The stock market is Trump's favourite barometer of success. It has been somewhat turbulent in 2018, but has managed to hit all-time highs on a number of trading sessions. The boom in stocks has generated massive sums of money like a money printing machine, and Trump is keen to boast this as a sign of better things to come. The awkward reality is that a small number of average Americans own stocks. The average worker in the US is still earning less than they did in 1978, in real terms. Trump fed off the discontent of Rust Belt communities to reach the White House in 2016. Now, he's fallen into the trap of taking all the credit for the irrational exuberance on Wall Street. Trump has taken credit for the boom. If the trade war with China does deliver a blow to growth, Trump will find himself having to explain the bust.

The Trump administration seems to have adopted the mantra of the Clinton era of the late 1990s (it's the economy, stupid) and seeks to trumpet any positive statistics for all their worth, but it risks ignoring other issues that voters actually care about. A case in point is this: in an exit poll on the eve of the the 2018 Midterm elections,  over 40% of voters cited healthcare as the most important motivation behind their vote. Only 21% thought the economy was a leading concern.

4.) Trump's relationship with the media is at rock-bottom

Over three years after Mr Trump descended that escalator in Trump Tower, a plethora of catchphrases and Orwellian terms have entered the public consciousness. "Fake news", "alternative facts", "the swamp" and "enemies of the people", to name a few. President Trump has had one of the most acrimonious relationships with the press, and it's unlikely to change anytime soon, as evidenced by this clip above.

When confronted by the press over his party's losses, Trump speculated about how division in Washington might actually benefit him more, as if the whole thing was some kind of calculated PR move than an actual expression of democracy. Behind closed doors, he is most likely frustrated by things not going his way, and his short temper, as evidenced by the spat with CNN's Jim Acosta and a few other journalists in the press conference reveals the insecurity he is probably sensing after this experience at the polls.

President Trump is in a unique position, as his Presidency is directly influenced and shaped by its own echo chamber, Fox News. Fox News has existed since the mid-1990s, and its drip-feeding of conspiracy theories and its dosage of neo-conservative commentary over the years has given it a sizeable fanbase, mostly among ageing white Americans. Fox News has an increasingly antagonistic relationship with its media rivals, and this is spilling over into the Presidency. Trump has unwavering faith in Fox News, and openly lambasts the rest of the media, or in his words, the "mainstream media".

Trump's alleged appetite for television has thrown up an intriguing theory, as suggested here. Could Trump's usual 6-9am daily burst of Twitter activity be related to the fact that the Fox News show "Fox & Friends" airs during that 3-hour slot?

5.) The GOP of Lincoln and Reagan is dead

An intriguing phenomenon has occurred in US politics since the 20th Century. Politics has undoubtedly become increasingly polarised, and much of this comes from the GOP drifting further to the right. As evidenced here, Republicans elected to the House rapidly became very conservative, while the Democrats have slowly become more liberal. As a result, an ever-widening gulf has merged in American politics. Some have fallen through the gaps, feeling a sense of political homelessness, as the party they spent most of their life working to build disintegrates and changes into something unrecognisable.

The late John McCain was a classical example of this. Ten years ago, he was the man the Republicans chose to lead them into the 2008 elections against Barack Obama. Within a decade, McCain was locked in a war of words with President Trump while dying from brain cancer. Trump had incensed many for suggesting McCain wasn't a war hero as he had been captured. In one of his final acts as a Senator, McCain sabotaged Trump's 2017 attempt to dismantle Obamacare. McCain went to the grave without an apology from Trump for his remarks.

Republican President Abraham Lincoln oversaw the abolition of slavery in the US. In the 1984 election, President Reagan campaigned for re-election under the slogan "morning in America", as the economy emerged from the era of stagflation in the 1970s. It used to be optimistic once. In contrast, Trump has painted a bleak picture of America, as we saw in his inauguration speech. Gone is the hopey-changey era. He focuses on the decay in society, talking of corruption, fomenting distrust of institutions including the media, and scare-mongering, by claiming that a rising tide of illegal migrants is threatening to burst across the borders at any moment. The so-called caravan serves as an example.

Dissent within the party is risky. The party's Senators and Representatives have more of less gone along with the programme so far. Ted Cruz, for example, got into a war of words with Trump during the GOP candidate primaries, but he is a loyal servant of the Trump cause now, at least in public. Voices of opposition have been microscopic needles in a haystack.

The party has fallen onto a default setting of promoting the idea of lower taxes and an overly-simplistic/traditional view of American society, rallying around Trump as the party's saviour. It's unclear what solid foundations will remain when he goes. The current administration's economic policies are certain to leave the US with a high debt burden with no plans to pay for it, and the party's social outlook ignores the reality that America is more diverse than ever before, but it doesn't intend to accommodate to other ways of thinking. This should be ringing alarm bells.

The Suez Crisis (1956-57)

Anthony Eden, Prime Minister (1955-57)

Suez: the forgotten crisis. In our Brexit-obsessed 24-hour news era, it just isn’t that interesting to think about 1950s Britain. Black and white television, the end of rationing. Those are probably some of the things you think about if you cast your mind back to that era. The Suez crisis was possibly one of the most pivotal moments of the decade, and yet it is one of those historical events that seems to pass most people by.

In the 1950s, the Conservatives were riding high. Churchill, Britain’s wartime leader, had been able to stage the mother of all comebacks in 1951, having been swept out of power by the Labour landslide of 1945. Six years of post-war inflation and continuing rationing, plus a devaluation of the Pound, ushered in a period of entrenched Conservative rule from 1951 onwards. The Korean War dominated headlines in 1950-53, but with the Cold War in progress, conflicts like the Korean War had a habit of coming to a standstill, as superpowers turned their attention to different parts of the world.

By 1955, Churchill had retired from the political stage, having started his political career as a Liberal in the 1900s. The welfare state, including the NHS, remained in place, almost a decade after it had been put in place. Churchill had come to accept the actions of his predecessors, and entered retirement after a long and eventful life in politics. Anthony Eden, Churchill’s Foreign Secretary, emerged as the man to lead the Conservatives into the 1955 general election.

By this time, the Conservatives had managed to unwind rationing and the economy was enjoying something of an economic boom. Unemployment had fallen to a low of 1% (that’s right) and wages were soaring at a rate of 6.8%. However, a concerning trend was starting to emerge - a trend that would bring an end of the cosy post-war consensus of governments. Stagflation was starting to rear its head, even in 1955.

UK workers were less productive than French, German or Japanese ones. Infrastructure was stifling growth, and booms were unsustainable. Britain was slowly losing its empire, and its political elite was dominated by a generation of men born during the reign of Queen Victoria. The “sick man of Europe” moniker has its origins in this period, as the country was starting to drift along in the economic slow-lane, outpaced by more dynamic neighbours on all sides.

High wages and low productivity were resulting in an increasing rate of inflation, putting pressure on Sterling. Eden managed to secure victory in the 1955 general election, largely as a result of the boom, but as his premiership progressed, stagflation became embedded in the economic picture, impeding his government’s progress.

By 1956, Eden’s government was presiding over a weakening economy. Growth was ebbing away and his Chancellor of the Exchequer, Harold Macmillan, was raising interest rates, to prevent inflation rising further. One of the worst ways for a government to enter into a crisis is when it is distracted by economic weakness. Eden literally couldn’t afford to make a mistake in 1956.

Meanwhile in Egypt

The Suez Canal

The Suez Canal was, and still is, one of the great transport routes on the planet. Its existence allows cargo ships to move from the South Indian Ocean, through the Red Sea and up into the Mediterranean, sparing a costly journey around Africa. By the 1950s, the canal was a lifeline to the global economy, which was becoming increasingly dependent on a steady flow of cheap oil.

In the early-1950s, Britain was attempting to ameliorate relations with Egypt by ending British rule in Sudan, on the condition that Egypt would surrender its control over the Nile Valley region. By 1954, Britain had agreed to slowly withdraw British troops from the canal region in phases. Ultimately, the aim was for the canal to fall under the jurisdiction of the Egyptian government by November 1968. At least that was the original idea. History had other plans.

In Egypt, change was in the air. 1956 was a year of political upheaval for the country, as it had drafted a new constitution, in which it was decided that the people should be led by a single-party system. Gamal Abdel Nasser became President of Egypt in June 1956. Just four years before, the people had overthrown the monarchy, establishing the Republic of Egypt.

Major shifts in the running of nations were watched with great interest at the height of the Cold War by the likes of Washington and Moscow. Any sign of upheaval abroad was of great interest. Both sides were anxious to ensure that developing countries followed their model of development, and each new hotspot risked being the battleground to a proxy war, or worse: a war to end all wars.

The United States was gearing up for a Presidential election in 1956. It entered into the Suez crisis under the leadership of Republican President Dwight “Ike” Eisenhower, a five-star army general who had served as Supreme Commander of the Allied Expeditionary Forces in Europe during the Second World War. America had entered into the post-war world in an ideal position. It was now the richest country on the planet, and had overseen the reconstruction of Europe (through the Marshall Plan).

In 1955, the UK, Iran, Iraq, Pakistan and Turkey opted to sign up to an agreement that would later be dubbed the Baghdad Pact, an agreement that effectively served as a means of containing the USSR and preventing it from making incursions into the Middle East. Nasser was concerned by the pact’s apparent Iraq-centric bias, resulting in him taking an anti-Western stance from 1955 onwards.

In his eyes, the Baghdad Pact was a mere extension of Western colonial ambitions, a means to meddle in the development of developing nations. Egypt’s signing of an arms deal with Czechoslovakia, a Soviet-bloc state, in September 1955 raised alarm bells in Britain. Nasser was signalling that Egypt no longer required the West to arm itself. Britain and her allies perceived Egypt to be edging ever closer to the Soviet Union with each passing minute.

In mid-May 1956, Nasser decided to recognise the nascent People’s Republic of China, a country that had only existed as a Communist state since 1949. Nasser’s actions angered the United States; Eisenhower believed Nasser had done this as part of a broad plan to play the West against the Soviets and he moved to cancel US funding for the construction of the Aswan Dam, a structure Egypt was planning to build in order to ensure the industrialisation of its economy.

The move was made known on 19th July 1956. Eisenhower’s logic behind this move was to force the Soviets to come to Nasser’s aid in paying for the Dam instead, which had the potential to put a strain on the USSR financially, owing to the monumental cost it would require to build.

Just a week later, on 26th July 1956, Nasser gave a televised speech in which, through the use of a codeword, he ordered the seizure and nationalisation of the Suez Canal. Upon uttering the name “Ferdinand de Lesseps” (the man who built the canal), Egyptian forces stormed into the Suez Canal Company headquarters and nationalised it. Shipping by Israel was blocked from moving through the Canal, as well as being blocked through various other routes.

The move sent shockwaves throughout the world. It seemed to come out of the blue. By this time, Eden was in the midst of an addiction to a powerful painkiller, drynamil, otherwise known as “purple hearts”, following a botched medical procedure in 1953. The drug was eventually banned in 1978, and many consider its side effects to include hallucinations, paranoia and becoming disconnected from reality.

Eden had grown increasingly suspicious of Nasser, and now that the canal had been nationalised, his worst fears appeared to have come true. The seizure of the Canal risked cutting off Britain from supplies of oil, and risked economic meltdown in his eyes.

In the early days after the nationalisation, the groundswell of public opinion appeared to support some kind of response, but interestingly, some were more cautious about what this response should be. Labour leader Hugh Gaitskell went as far as to compare Nasser to Hitler, before changing his tune. By August, Gaitskell was keen to ensure that Eden would not intervene militarily, and believed Eden’s reassurances on the matter. Stressing the importance of the UN Charter (barely a decade old at the time), Gaitskell wanted to make sure any response by Britain was rational and not open to condemnation by the international community.

However, concerns mounted that, if the blockage continued for another couple of years, with a dwindling supply of fresh oil, in the words of Ambassador Sir Ivone Fitzpatrick: “Our gold reserves will disappear…the Sterling area will disintergrate…”. Despite this threat, the US seemed unwilling to get involved, and yet it became clear that any overt move by Britain to intervene in Egypt, to reclaim the canal, would risk condemnation from the US and the rest of the international community. Thus, a secret pact was born.

The French Fourth Republic was in its final days by the time the Suez Crisis had started. France was led by a series of unstable governments, prone to collapse. Violence had flared up in Algeria, and its Prime Minister, Guy Mollet, was determined not to lose influence over developments in Egypt. Mollet’s views were shared by much of the French public, and by 29th July 1956, the French Cabinet had agreed to take military action against Nasser, in agreement with the Israelis. The French extended an invitation for Britain to join in the intervention if Eden wished.

Between July-October 1956, the US tried and failed to implement initiatives to de-escalate tensions between the key players, and the UK and France grew closer in their determination to act, when it appeared that the Americans were offering no willingness to act themselves. An informal meeting between Chancellor Harold Macmillan and President Eisenhower in September 1956 did much to muddy waters over the whole matter.

Macmillan was under the impression that the US wouldn’t oppose the toppling of Nasser. In actual fact, the US was vehemently opposed to any act of aggression against Egypt. Such aggression would simply reinforce the archaic notion that the West hadn’t gotten over its imperialist tendencies.

Eden went into the Suez crisis, wrongly assuming that French-British military action would be tolerated by the States. Britain’s motivations for intervention centred around it perceiving Nasser’s actions as a form of obstruction. By cutting the Suez Canal off, Britain would lose prestige. It would look as if Britain had not only lost its empire, but also its control of trade routes and access to power supplies.

The French were convinced that Nasser had played a role in destabilising Algeria, and wanted to act in order to prevent any of its other North African territories being destabilised by him. Israel entered into the conflict, hoping to restore access to trade routes. Israel was also concerned about Egypt as an increasingly militaristic actor, and sought to use an intervention to strategically weaken it.

Tory backbenchers grew increasingly restless about the situation in 1956, with many seeing stark parallels with the Chamberlain government’s appeasement of Hitler in the late 1930s. It wasn’t until October 1956 that members of the British, French and Israeli governments met in secret, to establish a clear strategy to handle Nasser’s canal seizure. Assembling in the town of Sèvres, these figures organised an invasion plan where Israel would attack first, by sending troops to the Sinai. Britain and France would wait before sending in their troops, using them to secure the canal under the pretext that they had come to separate the warring Israeli and Egyptian troops. The plan was dubbed the “Protocol of Sèvres”.

Each country retained a copy of the protocol, signed in French. It wasn’t long before news of the agreement was leaked. Within four days of the signing, Israel initiated the first stage of the conflict, sending its air force over the Sinai. Paratroopers were dropped into the region with air support, to counteract Egyptian air force attacks. Phase Two kicked in on 31st October 1956, when the British and the French ordered Egyptian and Israeli forces to stand down.

Operation Musketeer (or Mousquetaire) began in earnest, with the British and French air forces bombing the Egyptian air force, doing great damage to it in the process. The domestic response back in Britain was severe. Labour leader Hugh Gaitskell took to the Commons despatch box during the first fiery debate on Suez, on 1st November, saying: “Is the Minister aware that millions of British people are profoundly shocked and ashamed…that British aircraft should be bombing Egypt, not in self-defence, not in collective defence, but in clear defiance of the United Nations Charter?”. The Hansard entry for the debate records that an MP was heard shouting “fascists” during this segment of Gaitskell’s address, highlighting the mounting tension in Westminster.

The 1st November debate almost descended into an all-out brawl. Gaitskell was incensed that the Prime Minister had spent months claiming no action would be taken against Nasser, only to launch an all-out bombing campaign without any prior warning. Public opinion was quite negative by the time the bombing began. An anti-war march on 4th November assembled at Trafalgar Square, with as many as 30,000 people taking part, ordering Eden to resign immediately.

The Labour Party became firmly anti-war as a result of Eden’s actions, and the BBC offered Gaitskell airtime to address the nation with his views about the mounting crisis. The BBC was facing a dilemma with Suez. In WW2, the threat of the Third Reich was obvious and the BBC was sure about how to cover events.

In 1956, the BBC was aware of the public's anger and the opposition party's position against the government, and ultimately decided to reflect the divisions in society. This move greatly angered Eden. As a sign of how insecure Eden’s government had become over the public perception of the crisis, it briefly considered punishing the BBC in some shape or form, which would have likely led to full government control over its editorial stance. The BBC would face similar backlash in the early 2000s, at the height of the War on Terror saga. In the end, no action was taken against the BBC.

The international response to the crisis was immensely negative. The US was contending with the fallout from a Soviet incursion in Hungary at the time, and the Suez Crisis simply made the West look hypocritical. The US had been lecturing the Soviets about interfering in Hungary, and then Britain went and undermined them by just inflaming tensions in the Middle East. This gave the Soviets something to crow about. The Saudis reacted to the intervention by turning off the oil taps to Britain and France, to cripple them economically. In Pakistan, the British High Commission was burnt to the ground by a crowd of angry protesters.

Eisenhower, disappointed by Britain’s behaviour, opted to punish Eden for his actions. The US began to exert its immense financial power on Britain, effectively crushing it to bring an end to the crisis. When Britain sought financial aid from the IMF, the US managed to deny them access to funds. Eisenhower also threatened to order the US Treasury to sell British government bonds. The UK government risked fiscal disaster, as the move would have resulted in bond yields soaring, something that Eurozone countries suffered from at the height of the 2011 Euro Crisis. At a time when Britain’s debts were immense and its economy was weak, it couldn’t afford to antagonise the people who now held the purse strings.

In Downing Street, a political power play was in progress. Chancellor Harold Macmillan was confirming to the government that the US wasn’t bluffing about selling UK bonds. Macmillan is also alleged to have overblown the whole thing, speculating that it might cause the Pound to crash and drain the Treasury’s reserves, for the UK to suffer systemic disruption of fuel and food, and for the economy to effectively grind to an absolute halt. It is likely that Macmillan was using his position to over-exaggerate the situation in order to force Eden out of office.

The Suez Crisis was just the first of many post-war crises that could have quite possibly triggered WW3. The Soviets indicated they would have to intervene to protect Nasser, possibly launching missiles at France, Britain and Israel. Eisenhower knew that if the Soviets came into direct confrontation with members of NATO, he would no-longer be able to serve as a neutral player and would be obliged to enter the fray as a NATO member, to directly confront the Soviets. History now tells us that the Soviets are unlikely to have actually had the technology to make good on their threats, but at the time, their threats had to be taken seriously, as the technology behind the threats was unlike anything seen before.

On 2nd November, a US-backed resolution was passed by the UN General Assembly, calling for an immediate ceasefire, the withdrawal of combatants behind clearly-defined armistice lines, as well as an arms embargo and the re-opening of the Suez Canal. Britain didn’t comply until 6th November, when it finally announced a ceasefire. Forces weren’t expected to fully withdraw from the fray until December 1956, and by the spring of 1957, the Canal was finally re-opened, almost a year after the whole crisis had begun.

Eden’s political fate was now sealed. In the midst of this firestorm, Eden opted to take a holiday in Jamaica, and just two days after he announced a ceasefire, he survived a vote of confidence in Parliament. His health spiralled in the ensuing weeks, and a consensus formed that he had misled Parliament, the country and the world at large. He was condemned by some for going into Egypt, and he was condemned by some on his own side for pulling out through the ceasefire before even reaching his objectives. Eden’s Jamaican holiday simply allowed Macmillan to cement his position back in Westminster, and by the time Eden had returned from holiday in December, his days in office were numbered.

Government papers from 1956 were declassified in 1987, revealing that the Cabinet had been fully aware about plans for the operation on 23rd October, but Eden had defiantly claimed to Parliament that his government had no foreknowledge of any planned Israeli invasion. On 9th January 1957, Eden resigned on health grounds, and Harold Macmillan succeeded him as Prime Minister. Macmillan or “Super Mac” as some would dub him, would lead the country for the next six years. The economy would soften in 1958, but he led the Tories to yet another electoral victory in 1959, on the back of yet another economic boom.

Macmillan would claim during his tenure that Brits had never had it so good, and the people would believe him. He performed an electoral miracle for the Tories, and the blame for Suez was firmly lodged at Eden’s door. Eden would live well into his eighties, passing away in 1977 after a battle with cancer. Macmillan’s premiership would usher in a period of decolonisation; the countries that once made up the British Empire started to gain independence, and as the UK sought to recover lost ground economically, it allowed people from the Commonwealth to emigrate to the UK to boost the labour force.

The Suez crisis wasn’t the cause of Britain’s 20th Century decline, but simply a symptom of it. The age of empire was long gone and the decline in British influence arguably started in the 1920s, when Britain emerged from WW1. America was calling the shots now and it had no time for a country like Britain stirring up trouble in the Middle East during a tense period in geopolitical history. Suez was a turning point. To paraphrase someone, Britain had lost its empire but hadn’t found a role yet.