Britain, under a Labour government, considered
ditching (giving up) its nuclear deterrent as a way of making crucial savings to
help pave the way for an International Monetary Fund-backed rescue package
during the sterling crisis of 1976, according to previously secret
documents.
The crisis at the highest level of government and the
British lobbying of international allies for assistance are revealed in
Whitehall papers released to the National Archives, under the 30-year rule,
covering the months after James Callaghan became prime minister in April 1976.
he succeeded Harold Wilson who made his resignation announcement on March 16
after grappling unsuccessfully for months with an economic crisis.
The papers reveal the extent of the panic in 1976 as Britain was forced to
go to the IMF to bail out the economy. The crisis was a defining moment,
destroying confidence in Labour’s economic competency and paving the way for
Margaret Thatcher’s rise to power.
The cabinet agreed to request
a ￡2.3bn loan, then the biggest the IMF had made, and demanded massive spending
cuts.
A memo by Sir John Hunt, the cabinet secretary, on
December 5 warned there would have to be a review of defence spending.
He explained that withdrawing from Germany would be strongly resisted by
the US while "abandoning the deterrent or at least scrapping its improvement
would cause much less concern to our allies".
The threat to
ditch the nuclear deterrent came after months of discussions and protracted
cabinet haggling over departmental cost-cutting. The severity of the country’s
problems was spelt out on April 5, two days after Callaghan took office, in a
stark report from Sir John. It said the world had been through the most serious
boom and slump and the worst inflation since the war as a result of the oil
crisis.
"The going is likely to be rough indeed.., we are
sailing in an unknown sea.., there is a serious imbalance in our economy..,
unless action is taken there will be either a continuation of an unacceptably
high level of unemployment or a balance of payments deficit which will be beyond
our ability to finance," Sir John warned.
The ensuing months saw
sterling slide further, forcing the abandonment of the Labour programme of 1974,
and the acceptance that the nation could no longer spend its way out of a
recession, in spite of strong political resistance. Towards the end of
September, Callaghan told the Trades Union Congress conference that things would
never be the same again.
He then rang Gerald Ford, then US
president, whom he regarded as an inevitable broker of an IMF deal. A briefing
note prepared for Callaghan ahead of the conversation underlined Britain’s
precarious poison as well as the threat to international stability; "This week I
have resisted pressure at the party conference... But I cannot be sure of
continuing to do this if our policies are undermined by pressure on the pound
which we do not have the resources to resist. In that case our value and partner
in the western community would be put gravely at risk." In his conversation.
Callaghan spelt out further the political tightrope he was walking, trying to
fight off the left of his party while reaching an agreement with the
international community.
In a letter, Callaghan warned Ford that
without a solution to the sterling crisis "we would be forced into action which
would put at risk this country’s contribution as an ally and a partner in the
western alliance and its value as a member of the international trading
community".
Separately, Callaghan set about lobbying Helmut
Schmidt, the German chancellor, asking for a loan facility, led by the US and
Germany. In November, he called Schmidt, telling him he was going to go for an
IMF deal. This is an extract of the conversation.
Callaghan: ’Tm
going ahead with this. We either conquer or we die.,"
Schmidt:
"... I have told our mutual friend on the other side that in my view the whole
situation comes very near to a Churchillian situation in 1940. I am quite
convinced that you would act with the same amount of vigour. I have no doubt
about it."
While Schmidt was privately sympathetic by the end of
1976 no safety net had been agreed by Germany and the US.
A
month later, the British government considered Sir John Hunt’s advice to scrap
the nuclear deterrent, amid protracted cabinet haggling over cost-cutting. The
cuts turned out to be less than forecast, an IMF deal was brokered--and Britain’
remained a nuclear power into a new century. |
