In 1976 I attended my first Labour Party conference as a raw, young delegate from the Hayes Constituency Labour Party. It was the notorious Blackpool conference at which the chancellor, Denis Healey, stormed into the conference hall to a reception of cheers and boos to announce that the economy was in such a deep crisis that he was off to the International Monetary Fund to plead for a loan to prevent a collapse in the value of the pound.
Confidence in the Callaghan government had evaporated in the global financial markets creating a nightmare sterling crisis. Although Tony Benn mobilised the left around his “Alternative Economic Strategy”, Healey accepted a $3.9bn loan from the IMF but the accompanying conditions included cuts in government spending, tax increases and interest rate rises.
The experience of that crisis was burned into my political psyche. When I became shadow chancellor in 2015, the memory of the 1976 debacle and the painful years running up to the eventual defeat of Callaghan by Margaret Thatcher never left me.
Very early on in Jeremy Corbyn’s Labour leadership, the media ran story after story predicting that our expansionary economic programme would cause a self-defeating run on the pound. I made it clear that I didn’t believe this would happen but that we would be scenario-planning for all eventualities. Some commentators then argued that this was a major faux pas, inferring that we had accepted a sterling crisis was inevitable.
This was far from the case because the scenario-planning I undertook was spending hour after hour in the City talking to asset managers and investment advisers asking the question: “What would cause a run on the pound and how do you prevent it?”
The response was always the same: the markets do not like surprises. They want a degree of certainty and predictability. They may not like or agree with your policies but as long as they know what you are doing and someone is in control they will live with them.
On that basis I toured the City, regularly visited the Bank of England, and set out our policy programme in some detail, including the costings and funding sources. They knew, like it or not, what we would be doing in government. I was not surprised that we established a modus operandi.
Last week it became clear almost instantly that the new Chancellor had not prepared the ground for the most radical right-wing budget in recent history. There is a significant difference between pulling rabbits out of a hat and delivering a high-voltage electric shock.
The scale of the, effectively unfunded, tax cuts stunned many on the Conservative backbenches. Forecast additional borrowing of £72bn this year alone caused a loss of nerve even among the Tory old hands. The grotesque unfairness of cutting the taxes of millionaires when wages are being restrained spooked many Conservative MPs from the so-called Red Wall seats.
The fact the Chancellor refused an offer from the Office for Budget Responsibility to publish an economic assessment gave the impression that Kwasi Kwarteng was hiding from reality. It simply reinforced the belief that the mini-budget was a massive gamble based more on ideology than economic science.
Continued assurances from the Chancellor that there is no need to worry and that everything will be alright on the night because economic growth will rescue us rang hollow as the Bank of England confirmed we are already heading for recession. It also became starkly obvious that war had broken out between the Chancellor and the Bank as fiscal policy was contradicted by monetary policy.
This fiasco has been created because Liz Truss and Kwarteng are among the last adherents to neoliberalism left standing. Just when most thought that the neoliberal experiment of the last 40 years had been seen to fail and had been cast into the dustbin of history, the calamity that was Boris Johnson gave the Conservative Party membership the chance to elect a leader ideologically committed to one more heave.
The fear now is that we may be witnessing a rerun of the IMF intervention as the Bank demands fiscal austerity and imposes interest rate rises that cause a deeper and longer recession. We may also soon recall the story of the Callaghan government which stumbled on for three years, eventually to lose office, divided and exhausted.
Although the Truss administration’s catastrophic combination of incompetence and zealotry could provide Labour with an election victory, in the meantime the British people will experience even greater hardship during the cost-of-living crisis.
In addition, Labour must guard against the complacent assumption that the next general election will be won by default. Never underestimate the Tories’ overriding commitment to self-preservation. If Truss’s poll numbers are consistently poor, they will not hesitate to move against her and replace her before the next general election. In fact, Boris Johnson is relying on this to secure his political return, and Rishi Sunak is hoping the party members may now accept that his warnings have been vindicated.
At the beginning of this year’s Labour conference, the delegates sang for the first time in our history “God Save the King”. After last week’s Budget it may have been more appropriate to sing “God save us all”.