by Andy Beckett
When Healey got to the RAF base in west London, he found the runway flooded and unusable after a downpour. His plane was grounded for over an hour, and he did not make it into the Blackpool conference hall until 3 p.m. ‘When I came in, they started booing,’ he remembered. For another hour and a half he was not permitted to give his speech. At the previous year’s conference, delegates angry at his cuts in public spending had voted him off the party’s National Executive Committee, so he no longer had the right to jump the queue of speakers at party conferences. Instead, he had to wait, his suit crumpled and his great bullish cheeks red, while the delegates debated the NEC’s call from earlier in the autumn to nationalize the banks. As a succession of speakers condemned the whole structure of modern banking and demanded its replacement with ‘a state monopoly of finance’, the British chancellor and supplicant to the bankers of the IMF took notes and, a little theatrically, put his head in his hands. When his turn came, he had to speak from the floor, not the stage, like an ordinary delegate. And, like an ordinary delegate, he was given five minutes. He rose from his seat with his tie loose and walked to a microphone.
‘I do not come with a Treasury view,’ he began, almost shouting, his voice echoing. There were boos and cheers, then silence. He looked from side to side. ‘I come from the battlefront … The government have decided to go to the IMF … to give us time for our strategy to work. To get Britain to stand on her own feet for good and all … There are some people who would like to stop the world and get off …’ – there were isolated shouts from the hall – ‘… I do not blame them. It has not been an easy world in the last few months … [But] we have got to stick to the policy we have got …’ – there were shouts of ‘a Tory policy!’ – ‘… I am going to negotiate with the IMF on the basis of our existing policies, not changes in policy…’ – now there was applause – ‘… But when I say “existing policies” I mean things we do not like as well as things we do like.’ Healey began to nod his big head rhythmically. ‘It means sticking to the very painful cuts in public expenditure …’ – shouts of ‘No!’ – ‘… It means sticking to a pay policy …’ – shouts of ‘Resign!’ – ‘… And I ask conference to support me.’
There were cheers, boos, hisses and an abortive attempt at a standing ovation. The chancellor walked slowly back to his seat and sat down heavily. Then, adrenalin still surging, he quickly stood up again and threw his arms aloft, waving his notes and spectacles in the air. For several seconds he held the pose like a victorious boxer: both hands waving, shirt cuffs slipping down, shirtfront coming untucked and stomach showing, sweat all over his face, triumph and amazement in his eyes.
That evening, Callaghan went on television and struck a different note about the coming negotiations with the IMF. ‘If we were to fail, I do not think any government could succeed,’ he said, sober as an undertaker. ‘I feel it would lead to a totalitarian government of the Left or the Right.’
A jittery October followed. With the IMF negotiators not due to arrive in London until November, there was plenty of time for press speculation and political tension to build up in Britain. On the 6th, Healey’s still-uneasy relations with Callaghan abruptly worsened, when the prime minister refused to let him raise interest rates to protect the pound. For several hours Healey considered resigning – a potentially fatal blow to such a beleaguered government. But before he could, Callaghan relented. His private secretary informed Healey, coolly, that the prime minister had been ‘testing the strength of your conviction’.
Independently of Healey, Callaghan also tried to find an alternative to an IMF loan and the politically perilous conditions which were certain to come with it. He was on good terms with the German chancellor Helmut Schmidt, and he retained the goodwill of Kissinger and Ford. During October, Callaghan deployed all his careful diplomatic skills, and these three foreign allies offered hints that financial assistance might be forthcoming. But Schmidt was unable to persuade his government, and Ford was unable to persuade the right-wingers in his administration who wanted Britain to change its ways. On 25 October, Callaghan switched to his other negotiating mode – overt menace – and suggested in an interview that Britain might not be able to afford its NATO commitments, such as stationing soldiers in Germany, if a German or American loan was not provided. The threat, however, had little effect other than to irritate the Americans. A week later, on 2 November, any remaining chance of an easy deal with them disappeared when Ford was defeated in the presidential election by Jimmy Carter.
In the meantime, the Conservatives and the British right-wing press were doing their best to make the impending talks with the IMF seem even more ominous. Margaret Thatcher suggested that the Fund could reasonably seek public spending cuts of between £5.5 and £6 billion, or over a tenth of state spending. The Sunday Times reported that the IMF wanted to see the pound devalued to $1.50 before granting a loan. The next day, sterling plunged by seven cents and, despite a denial from the IMF, kept on falling. On 28 October, a Thursday, the exchange rate hit a new low: $1.535. The following Monday, the IMF negotiators arrived in London.
There were six of them. They rejected a suggestion from the Treasury that they hold a press conference, and checked into Brown’s hotel in Piccadilly under assumed names. Brown’s seemed a shrewd choice: it was prestigious but discreet, several Georgian townhouses knocked together in a dark side street. It had been a choice of visiting American presidents in the past, and was not far from the American embassy. It had an interior of rich panels and shadows and, if the press found out who was staying there, multiple exits for guests. Standing among streets full of art dealers and jewellers and dapper gentlemen in taxis, streets that had been rich and seemingly unchanged for centuries, the hotel was also usefully distant – for IMF negotiators who wanted to remain firm during the talks to come – from Britain’s current economic turbulence, and from the Britons who would be hurt by the tough loan conditions the Fund was likely to demand.
And yet in the dour grey autumn of 1976 the negotiators stayed rather longer at Brown’s than they would have wished. Traditionally, a visit from the Fund to arrange a loan lasted about a fortnight. The IMF team would examine a country’s economic data, diagnose the underlying problems, ask the government in question to suggest solutions, and offer a loan when a solution to the Fund’s liking was found. But this time the IMF negotiators spent virtually a fortnight doing very little. On their fourth day in London, Healey met the head of the team, Alan Whittome, and told him that some of the crucial economic figures were not ready yet. Otherwise, for the first week and a half, there was no meaningful contact. The IMF people hung around in their rooms, gave empty updates to their superiors in Washington and worried about whether their telephones were being bugged. Meanwhile, Callaghan and Healey let the Cabinet and Labour MPs know that the Fund was being kept waiting, in order to dignify a little what would follow. ‘The atmosphere in London was tense,’ writes the IMF’s usually deadpan official historian. ‘Negotiations … were protracted.’
Whittome was a bony, upright man of fifty who had been with the Fund since the early sixties. Appropriately, given the intertwined relationship between Britain and the IMF, he was an Englishman. He had a diplomat’s manner, a dry sense of humour and, at least until he joined the Fund, an old-fashioned Establishment background: head boy at Marlborough, war service in the Royal Armoured Corps, degree at Cambridge, and then a successful first career at the Bank of England, where he had risen to deputy chief cashier by his late thirties. It was as if a representative of an earlier, more dynamic Britain had returned to pass judgement on what his country had become. ‘Last night a relative warned: “He is a very tough man who will be very blunt,”’ the Daily Mail reported on 1 November. Whittome had wide experience of arranging loans for European countries, including France in the economic turmoil following the revolutionary events of May 1968. During 1976, he was also involved in loan negotiations with Italy. He did not seem likely to be too intimidated that autumn, t
herefore, by Britain’s needs and difficulties. His second-in-command in London was a frank Australian, David Finch. Other members of the team came from New Zealand, America and Germany – former British colonies, former British enemies. If nothing else, the IMF was a superb arranger of national rematches.
When the Fund and the British government started meeting in earnest, on 10 November, Healey quickly recognized in Whittome another keen mind and untangler of problems. ‘I liked him,’ Healey told me. ‘He was direct and courteous.’ But did he expect Whittome to be tough? Healey let out his snorting, man-of-the-world laugh. ‘Oh yes.’
The IMF had been informed by the Treasury that the official forecasts for the public-sector borrowing requirement for the next two financial years were a huge £10.5 billion and £11.5 billion respectively. The Fund responded by proposing that British state spending be cut by £3 billion in 1977–8 and by £4 billion in 1978–9, drastic reductions of 6 per cent and 8 per cent. Callaghan and Healey responded that annual cuts of £2 billion represented the absolute maximum that they could force the Cabinet, the unions and Labour voters to accept. The Callaghan administration was already effectively a minority government: Labour’s tiny majority at the last general election had been steadily eroded by defeats in by-elections, and in early November the government lost two more. However forcefully the IMF, Margaret Thatcher and the right-wing press on both sides of the Atlantic argued for the salutary effect on Britain of a reduction in public spending, the economic crisis of the mid-seventies was only just beginning to pass, and many of the Britons who relied on state services were not feeling prosperous enough to tolerate cutbacks.
Between 10 and 25 November, the IMF team repeatedly met senior Treasury civil servants. Whittome drank a great deal of whisky with Healey. Callaghan invited Whittome to Downing Street for mid-night chats, and tried to coax him towards a more understanding position. Whittome even met trade union leaders. But the basic disagreement between the Fund and the government remained. Discouraging hints appeared in the press: on 22 November, The Times reported that the talks ‘have not gone as smoothly as had been expected’. Leo Pliatzky, one of the civil servants involved, found Whittome, for all his urbanity and experience, ‘increasingly weary and frustrated’. Late in the month, four of the IMF team went back to Washington temporarily, so poor was the progress in London. Yet the Fund, like Healey and Callaghan, felt that it could not afford politically to shift its position. ‘It was extremely important that the Fund officials not weaken the policies expected of the United Kingdom,’ writes the IMF’s historian. ‘Otherwise the policies expected of Italy might also have to be weakened.’
The British negotiations seemed stuck, gummed up by the range of competing groups they needed to satisfy. And all the while a nonnegotiable deadline loomed nearer. Britain needed the IMF’s money by the end of December, in order to repay the massive loan from the central banks of America, Germany and other rich countries which it had secured over the summer. By late November, even some of the American right-wingers who had previously relished the Callaghan government’s struggles were getting anxious. During the autumn, the chairman of the Federal Reserve Arthur Burns had warned Ford that ‘from an international point of view, it would be catastrophic for Great Britain to go down the drain financially’. The world economy was still delicate after the oil crisis, and Britain was still one of America’s key European allies. On 26 November, another powerful American free marketeer, the Treasury secretary William Simon, went a step further than Burns. He flew to London to rescue the IMF talks.
If Whittome seemed ‘tough’ even to the Daily Mail, Simon was something else altogether. ‘William the Terrible’, as he was known in America, was the son of a rich heir and industrialist who had dissipated his fortune. Simon was left with a stringent work ethic and built a famous career as a bond trader on Wall Street during the fifties and sixties. He came to regard markets in general with reverence, and the seemingly less competitive areas of modern professional life, in particular the ‘cocoon of bureaucratic life in government’, as he called it in his autobiography, with such contempt that in 1978 a polemical book of his about all this had a preface by Milton Friedman and a foreword by Friedrich von Hayek.
Nevertheless, Simon left Wall Street in 1972 to serve in the Nixon and Ford administrations. He made himself the ultra-capitalist conscience of both governments, arguing for cuts in public spending even in the depths of America’s mid-seventies economic crisis. In 1975, most notoriously, he responded to the catastrophic debt problems of the New York municipal government by suggesting that the federal government should exact the highest possible political and financial price for bailing New York out. ‘The city had lived beyond its means for years,’ he wrote afterwards. He told a Senate hearing during the crisis, ‘I would urge… that the financial terms of assistance be made so punitive, the overall experience be made so painful, that no city, no political subdivision would ever be tempted to go down the same road.’
A year later, Simon arrived in London. After New York, Britain had become his favourite example of the damage caused by profligate left-leaning politicians. He was familiar with the work on the subject done by Ralph Harris and the IEA. And he was not feeling merciful. ‘Callaghan came to us pleading for an IMF loan,’ he wrote in his autobiography. ‘Historically, the United States has always been there to assist its (often ungrateful) friends… But there is a difference being a charitable benefactor and host to a parasite.’
Simon’s British visit was only a weekend stopover on his way to an official engagement in Moscow, but at Heathrow that Friday he cut a swaggering figure, especially when compared to the retreating Healey of a few weeks earlier. Officially, Simon’s was a relaxed ‘private visit’: the Sun noted that he arrived wearing red tartan trousers. But he also came with an ‘entourage of 43 people’, the paper reported, including his wife and sons, three secretaries and at least fourteen Secret Servicemen. The following day, he posed for a photo for the Sunday Times in the driveway of the American ambassador’s palatial residence in Regent’s Park. Simon leant on the bonnet of an enormous, shark-like Ford, smiling hugely, hair perfectly parted, pipe in hand, like some Wall Street superman about to go for a weekend drive.
‘It was kind of funny,’ he confessed to the paper two years later, ‘because I dressed in a pair of golf pants. The Press were all over the place and I told them: “I’m just here to see the sights … I thought I might go to the Tower and even do some shopping.”’ The British government also did its bit to maintain the fiction of a recreational trip: ‘Whitehall officials stressed that there was no direct connection between Mr Simon’s visit and … any fundamental disagreement between the IMF experts and the British government,’ The Times reported that Saturday. ‘Mr Simon’s visit is not seen, therefore … as intended to rejuvenate discussions … in spite of [its] timing.’
That afternoon, Simon did go shopping, but that was not his main purpose. Like an increasing number of wealthy Americans in the post-war years, he had a London tailor, Wells of Mayfair. For almost 150 years, Wells had been in the same premises, a deep set of tiled and panelled rooms in a twisting street close to Savile Row. Since the sixties, Simon’s cutter at Wells – the man who shaped his suits – had been a tall, correct man called Richard McSweeney. ‘Bill liked a fairly quiet suit,’ McSweeney told me when I met him, retired and a little husky now, in his small, neat house in the outer London suburbs. ‘Charcoal greys. We used to call it the mid-Atlantic suit. Not quite as fitted as an English suit, not as baggy as an American suit.’ On Saturday afternoons, when McSweeney would lock the door at Wells and work on, alone, Simon was one of the few customers allowed to disturb his seclusion. And so it was on the afternoon of 27 November 1976.
A few days earlier, McSweeney remembered, Simon had phoned him unexpectedly at work: ‘That you, Mac? Bill Simon here. Are you still doing your Lone Ranger act on Saturday afternoons? Can I come next Saturday?’ McSweeney had said it would be a pleasure. ‘
I’ll have two or three other guys with me,’ Simon went on. ‘Is that OK?’
At 3 o’clock that Saturday, the doorbell at Wells rang. When McSweeney opened it, ‘The road was full of black limousines. A great big athletic guy got out and said to me, “I’m accompanying Mr Simon.” Then Bill appeared, shepherding a little group of elderly, heavy and dark-suited men with briefcases.’ McSweeney smiled knowingly at me in his armchair and quoted Harold Wilson’s famous old phrase for foreign bankers: ‘I took them to be the gnomes of Zürich.’
McSweeney went on, ‘Bill said, “I’ve got a bit of business to do with these guys. Can you give us half an hour?” I didn’t know what the meeting was going to be about exactly, but I knew that there was this iffy business [with the pound] – every time we sent a suit to America the price was going up for us – and that Bill was going to be involved in negotiations. Great Britain was nearly broke, and Bill was one of the white knights.’ McSweeney showed Simon and his dark-suited companions to the back of the shop and into a fitting room. The size of a small bedroom, it had a window onto a light well and a heavy door, but no lock. McSweeney squeezed in as many chairs as he could around the fitting room’s table. Then a Secret Serviceman shut the door on Simon and his companions and stood outside, while other American agents took up positions elsewhere in the shop and in the street.
