It has happened again. It just took a bit longer this time. Once again, a Labour government has ended up with a run on the pound. Sterling has this week fallen to an all time low against the Euro. Yes, it is lower now than it was the aftermath of Black Wednesday when Britain came out of the Exchange Rate Mechanism. The incompetent mistakes of that time have now been more than matched by Labour.
Since the recent peak in 2007, the pound has tumbled by 21 per cent against the dollar, by a quarter against the Euro and a massive 46 per cent against the Japanese Yen. This gives the lie to the idea peddled by Mr Brown that the recession we are now enduring is all a matter of international problems. The foreign exchange markets are telling us clearly that this crisis is worse here than elsewhere – that the government here got it more wrong than any other major country.
A run on the pound has happened every time Labour has been in power. It is in the party’s DNA. In the previous Labour administration from 1974 to 1979, the pound collapsed against the Deutschemark – from DM6.05 to DM3.89. The time before that, between 1964 and 1970, the pound slumped from DM11.10 to DM8.74. That was when Harold Wilson made his infamous comment that the devaluation did not mean “of course” that “that the pound here in Britain, in your pocket or purse or in your bank, has been devalued”. In that broadcast, 41 years ago, he said that the devaluation would enable Britain to “to break out from the straitjacket” which had previously meant that every time a government had tried to expand the economy there had been a balance of payments crisis. In other words, he was devaluing to stop the cycle of boom and bust.
Now what other politician proclaimed that he was ending boom and bust? Ah yes. Gordon Brown. Only last year he repeated his boast, “we will never return to the old boom and bust”. And just like Wilson, events are showing that either he did not understand what was going on or else he was deliberately misleading us.
We can go back further still. The post-war Attlee government, much revered by the Left, presided over a slump in the value of the pound from US$4.03 to US$2.80. While Germany and France were embarking on post-war economic miracles, Britain was in financial crisis. The only other previous Labour administration (apart from a very brief stint in 1924) was that of Ramsay MacDonald from 1929 to 1931. There was no devaluation in that short time. But the pound slumped the following year when the same man headed a coalition government. So that’s the record. Five Labour administrations, five devaluations.
Why do they do it?
It is simple enough. They spend and spend until they reach the limits of the taxes the British public will bear and the lending that foreigners will provide us with. They spend like Billy Bunter eats – until they burst with it. They are like Dawn French with chocolates or Casanova with girls. They can’t stop themselves. They spend because it is the only answer they have to any problem and, being socialists, they think always that the government can and should deal with all problems.
They do not reflect that the taxes and debts which the spending causes are, themselves, major problems. They are problems that are now putting Britain in a crisis of recession and unemployment.
The German finance minister was right about a lot of things when he criticised the handling of the British economy on Tuesday. But he was wrong about one thing: he suggested that Gordon Brown had suddenly switched to heavy spending. In fact, Mr Brown has been increasing spending ever since 2001. In his first few years as Chancellor of the Exchequer, he followed the financial plans of the previous Conservative government. This was his brief time of prudence. He also raised taxes. So he gave himself a massive war chest.
After this feint towards financial rectitude, he gradually and increasingly reverted to Labour type. Do you remember the budget speech a few years ago when he boasted that he had some money spare? He said he had considered a tax reduction but then decided, no, he would rather spend it.
As a result of all the spending and borrowing, we have now reached the stage where sterling is not trusted abroad any more. Everyone can see how the government is going to have issue a massive amount of government bonds to finance the spending and the very temporary reduction in VAT. Foreigners are not that keen to buy them.
What happens next? Well the history books offer some ideas. When Jim Callaghan was prime minister in the later 1970s, we had to agree to cut public spending before the International Monetary Fund was willing to lend our bankrupt country some money. Hospitals were closed, among other sudden cutbacks.
Harold Wilson said that he decided on the famous 1967 devaluation precisely because otherwise he would have had to borrow abroad and similarly accept instructions on how to run the economy and cut back on spending.
You could say, in this Labour administration’s favour, that “it took longer this time”. Yes, Labour has been in power for 11 years before this year’s run on the pound. It is the best Labour has managed yet. But the only reason they managed it was because the party recognised it was getting a terrible reputation for economic recklessness and that the only way to get elected was to put on a great show of prudence.
Unfortunately, the prudence did not last. Labour went back to its old ways, as it was always going to do. The Labour Party tried, for a while, to reform. But it is like a vegetarian crocodile – sooner or later it reverts to type.
(This is the original draft of an article which appears in today's Daily Express)
Posted by James Bartholomew • Indexed in Off the subject • Politics
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At least Harold Wilson was honest about devaluing the pound: he didn't attempt to repeal the section of the banking act that requires the Bank of England to publish (amongst other things) the quantity of new notes printed that week!
Posted by: Graham Smith at December 12, 2008 06:20 PM
Agree but what are the Tory party doing to highlight Labour's crass policies. There are so many opportunities to counter Labour YET nothing is said. perhpas its because most of the politicians will remain in jobs or move to the HoL and the rest of us will endeavour to remain in a job
Posted by: yarnesfromhorsham at December 13, 2008 01:19 PM
To a degree, the Brown Labour government is actually the Callaghan one in reverse.
At some point the earlier government realised that it couldn't spend its way of its problems.
Callaghan said in 1976 It used to be thought that we could spend our way out of unemployment...that option is no longer available [exact wording may be incorrect]
That Labour government fell when it lost the confidence of its client groups - the trade unions. The result of cutting spending.
Posted by: TDK at December 15, 2008 12:51 PM
The correct Callaghan quote:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
Posted by: TDK at December 15, 2008 01:00 PM
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The pity is that Brown was never seriously challenged by the Opposition: from the time he started his binge they agreed to match his spending plans. Intellectually, they are almost as bankrupt as he, and even now struggle to offer an alternative.
Posted by: Tim Skinner at December 12, 2008 12:36 PM