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.