by Benn, Tony
Wednesday 24 November
Decided to dictate a Cabinet paper, with Francis by my side, to be classified as Top Secret, in which I spelled out the choices facing the Cabinet, the dangers of the IMF route and the alternative strategy, ending with a long passage on the problems of implementation.
To the Energy Committee chaired by Merlyn Rees, where the first item was Windscale. A year ago we agreed to the siting of a thermal oxide reprocessing plant for Japanese nuclear waste. I had held it up for some months to allow public discussion, as a result of which it was alleged that the French had been offered the contract. I held inquiry hearings in Windscale itself and in London, and finally recommended to the Cabinet that we go ahead with it.
It is of course a major planning issue and the Cumbrian Council, who are interested in the jobs, approved it, but Peter Shore as Minister of the Environment had the right to call it in for a decision by himself. He wrote a paper for today’s meeting calling it in, although the whole of Whitehall had briefed their Ministers against doing this because it would involve delay.
I described how, on a visit to Tokyo a year ago, I was told that Windscale had had a fire in 1957 and that part of it was not operating yet, something I had never been told by my officials. I said it was not a problem of middle-class cranks versus solid workers. It was the scientific community trying to get its way with political Ministers.
We were discussing the statutory rights of people to have such matters properly looked at, and we should be very careful before we tell a Minister to blank out these statutory rights.
Peter got very hot under the collar and said he was calling it in anyway. Anyway it was agreed that it would go to Cabinet and meanwhile Peter would extend the decision time.
When the history of nuclear power comes to be written, I think this discussion will turn out to be a significant one.
Thursday 25 November
Lazy start. First Cabinet at 10.30. Tribune came out with the 1931 Cabinet minutes which I had dug out in preparation of my case against the IMF loan. The Guardian had a full story indicating that Jim had withdrawn his support from Denis. Things are very difficult at the moment and I’ll keep my head down at Cabinet. I’ll put in my paper and leave it at that. The Guardian story by Peter Jenkins about Callaghan taking over the helm from Denis probably came from Harold Lever, who is a close friend of Jenkins. Peter Jay had an article in The Times based on the 1931 minutes.
When we came to the IMF, Jim said that after the Cabinet on Tuesday, he and Denis had carried out the necessary action. He had sent messages to President Ford and Schmidt, Denis had personally seen Alan Whittome, the head of the IMF’s European Department, then Whittome had been to see the Prime Minister and the Chancellor together. Jim said that the IMF knew about our fear of deflation and we faced a serious dilemma between retaining on the one hand the confidence of the TUC and, on the other, the confidence of the markets. He said that Ford and Schmidt did not want a decision today.
He went on to say that he had met Len Murray on another matter but since Len was a Privy Councillor, Jim felt able to tell him about the situation and the dilemma. Whittome had asked us to look at three scenarios for 1977/78: one was the PSBR at £8.5 billion, another at £9 billion and a third at £9.5 billion.
Jim stated that none of these measures were going to be attractive. All the packages before us would be unpopular but he took the point about extra time for discussion and agreed that we should have two Cabinets next week, using Wednesday for discussion and Thursday for the final decision.
I hoped the real options would be before us on Thursday and not just a Yes or No to the IMF proposals. We had to have broad discussions about the political implications of various courses of action. There were things that the IMF could do to us which we might accept but would involve taking away our seals of office, we would be a government without power. Thatcher would then get in and the people we look after would suffer terribly.
Monday 29 November
Tea with Brian Sedgemore and I told him about the refusal by Jim Callaghan to let him be my PPS and he agreed to let it rest till after Christmas. I’ll get back to Jim then.
Tuesday 30 November
To Michael’s Foot’s room. Jill was there, with Albert, Stan Orme, Peter Shore and John Silkin. We talked about tomorrow’s Cabinet now all the papers have come round, fourteen of them including mine. We talked things through in depth, agreed on tactics and decided to meet again tomorrow night.
Wednesday 1 December
Francis and Frances came for breakfast and I spent from 8 till 9.30 going over the papers for the Cabinet.
We agreed that I must be careful to distinguish myself from Crosland and Healey, hoping that I wouldn’t be called till later in the morning, by which time Crosland and Healey would have knocked each other out, then I’d come in with the alternative strategy, saying what we needed was reflation instead of high unemployment. So we sketched out a line of approach.
Frances came in the car with me to the Cabinet, which was delayed from 10 till 10.30. This made us a bit suspicious. You don’t normally delay a Cabinet of that importance unless there’s some hiccup, and we wondered whether Jim and Denis were having a set-to; in fact when we went into the Cabinet Denis was just coming out, so I think they must have had a talk. Whether it indicated a row or a make-up I don’t know.
When the Cabinet met finally at about 10.40, there were no officials present, a thing that hasn’t happened since Jim has been PM. He said, ‘I want to draw special attention again to the need for secrecy. Some of the press reports have been very damaging and very accurate, for example, the blow by blow account in the FT last Friday called “An Honest Man in a Labour Cabinet”.’ (That must have been a reference to Healey.) ‘I know who gave it to the FT and I shall take the necessary action to deal with the matter when I next have a reshuffle.’ He went on to say, ‘We are in a position where we shall have to rally to the majority view, whatever it is, or it will not be possible for me to go on. We have to remember that we have some critical by-elections coming up.’
Denis said, ‘I’m glad you’ve said what you’ve said because I’ve been the victim of many of these leaks and colleagues who have tried to make themselves out to be heroes at my expense have done themselves, as well as me, a lot of damage.’
At that point, officials were brought in, and Jim called me, shrewdly concluding that it would be better to get me disposed of first. He said he wanted to conclude the general discussion today.
‘Prime Minister, I think we’re all aware that this is a political decision as grave as any in our history, that we cannot really rely on others to help us, particularly Ford, who is a lame duck, or Schmidt, whose view is pretty monetarist in character. I base myself on the telegram that came in after the Socialist Congress in Geneva in which our officials there said that Schmidt had warned about inflation and said that public expenditure not properly financed had been the cause of unemployment. I assume that represented his view. Carter wouldn’t want to get too involved until he becomes President, therefore we have to rely on ourselves and trust our judgement. I entirely share the view that the survival of the Government is in the national interest, but in this context we must consult our partners – the TUC and the Labour Party.’
Jim interrupted me, ‘I perhaps should tell the Cabinet that I have seen Len Murray about something else last Tuesday and I also keep in pretty close touch with Jack Jones.’
‘Well, that’s better than nothing,’ I said, ‘but I want to emphasise this very much indeed, because they’ve put their reputations at risk in supporting us and if we take decisions unacceptable to them, it would not be fair. There are two alternative strategies, the Chancellor’s and mine, and there is a very big choice to make. My paper warns against deflation of any kind, imposed or self-imposed. I have been driven to the conclusion, very reluctantly, and I hope the Cabinet will believe me, that expansion requires protection.
‘In 1974 when we were elected,
I was very keen on our industrial policy, which I played some part in formulating, but I did come to the conclusion that this would not work while our industry bled to death. I simply do not believe that it cannot be made to work. In 1931 the Chancellor warned the Cabinet that import duties or revenue tariffs were not acceptable, and that if we came off the Gold Standard, the standing of living of workmen would fall sharply. Yet two months later, both were done. Someone from that Labour Cabinet subsequently said that we were never told we could do it. Peter’s paper draws attention to the fact that all import controls are legal under the General Agreement on Tariffs and Trade and under the EEC and I think we should seek international support on that basis for that alternative strategy. It would be inexplicable to our movement that we had never even tried on our alternative strategy with the IMF and yet more inexplicable that in order to get the loan we have promised not to undertake that alternative strategy.’
I was subjected for about half an hour to the closest cross-examination. First, Jim asked, ‘Do you think we need the loan?’
I said I would prefer to have the loan rather than not. I reminded the Cabinet of the famous cartoon in 1940 of a soldier after Dunkirk waving his fists and saying, ‘Very well, alone!’ I said that I thought the IMF would help us because it would be in their interests to do so.
Bill Rodgers asked what my policy would do to unemployment, and I replied that although I hadn’t got a Treasury computer to mislead me the one thing that was absolutely clear was that unemployment would rise under existing policy and would get worse under extra cuts. Import controls would substantially improve the unemployment situation. The big difference now was that with unused resources we would not need cuts on the scale forecast by the Cambridge School, of which I am not a member, in order to go for the alternative strategy because these resources could be brought into play.
Harold Lever wanted to know why I thought we could survive politically. If we could get it through the Cabinet, could we get it through the House of Commons? What would our stance be electorally?
My opinion was that nothing would be more fatal to our electoral chances (and I had no crystal ball) than the Party going to the country having laid off employees in the manufacturing industries and in the public-service sector on the grounds that the bankers wanted unemployment to restore confidence. I said it would be much better to present this in a vigorous way. I thought we would get support nationally, even in the House of Commons, and have a far better chance of winning.
I was also asked about exchange controls by Harold Lever. I said I knew very well that the Treasury had a secret emergency plan. I didn’t know the details but it was there and we would need it, certainly in the short run.
Denis said, ‘Yes, but where would you get the foreign currency to fund us immediately if we had exchange controls?’
Jim replied that it could be that new sources of money would become available in the short run for that purpose.
I mentioned the export of capital being on a large scale but they disputed that, saying these were profits made by British firms abroad.
Shirley Williams asked if my strategy was a threat or a real policy. I answered that I’d adopted it reluctantly, I would much rather we didn’t have to do it but I thought it was inescapable. Mrs Thatcher would do it and in a way she would probably find it easier because no one would suspect her of wanting to make it an entry point into a full siege economy. We had to make it clear that we would be prepared to adopt this strategy in order to release the money. It would be absolutely inexplicable if we didn’t try it out.
Peter was called next. He said we had two alternative strategies: the earlier policy had failed and we could either go for deflation or import controls. Denis was for deflation, which would encase us in a two-year tomb. The IMF tranches would come bit by bit; we would be drip-fed to police us and it was all very well to tease and hound Tony Benn, but the alternative policy needed to be looked at properly. Jim wouldn’t accept that I was being teased and hounded – I didn’t think so either – but I suppose that’s how it looked.
Peter’s position was slightly different from mine. He believed we were not paying our way and the easiest way to deal with that was to control imports. As to retaliation, we would have to look at our rights. The GATT and EEC provisions allowed any country to take these protective measures where there was a risk to its currency or to forestall a fall in its monetary reserves – they had almost been written specially for us!
Jim said the fear wasn’t exactly of retaliation but of a possible trade war.
Peter Shore believed the Italians would retaliate, the Americans and the Germans would have no grounds, nor would the Japanese, and he wasn’t sure about the French.
‘What about the small countries? Would they follow suit?’ asked Shirley.
She pointed out the risk of emulation by, for example, Australia, New Zealand and Canada if we took the GATT line and Peter didn’t rule that out because there would have to be another world economic conference quite soon. The world system was seizing up.
Elwyn asked about the mid-term position. We had to return 1.6 billion dollars to the central bank on the 9th, we had to finance the external deficit and we had a £2.5 billion deficit expected next year. How would we deal with the immediate borrowing or were we prepared to risk the bankruptcy of the UK?
Peter said the current account would be dosed in 1977 under his proposals. Second we could push forward the impending dollars repayment for three months. Thirdly we would get the IMF’s backing, but if we didn’t we might have to mobilise our assets and then release them in an orderly way. We would have to guarantee the sterling balances as we had done before.
Jim said he was particularly worried about these survival problems, and Bruce Millan couldn’t understand why import controls were on the basis of now or never.
The third gladiator in the ring, Tony Crosland, began with marvellous arrogance. ‘I think the proposals I wish to put forward will command more support than Tony’s or Peter’s. I want us to stick to our existing strategy. We have had deflation, we have had devaluation, we’ve got a wages policy and it will work. There is no case for a change. New cuts would have a disastrous effect on investment because they’d damage wages policy and destroy confidence.
‘But we live in the real world of expectation and there are two scenarios to consider. One is the £1 billion net cut which is unacceptable, and the IMF won’t really press us for it. If they do, we should resist and threaten a siege economy, or talk about our role in Cyprus or our troops in Germany, or our position in Rhodesia, membership of the EEC, etc. Schmidt and Ford would soon give way.
‘The other alternative is tolerable: to get £1 billion off the PSBR by selling the Burmah oil shares, having import deposits which are a bit deflationary and have political advantages, and to do a presentational job to the IMF by announcing now the cuts we had decided on in July but which have not yet become known, and possibly some extra cuts.’
‘What if the IMF say no?’ I asked.
‘We won’t accept it.’
Denis pushed him. ‘But what if they stand firm?’ Tony believed that they would, but that we would have to defend ourselves.
Stan Orme thought that the market might require even greater cuts than the IMF.
‘They will be real cuts,’ said Tony, ‘but we are going to discuss all of that tomorrow.’
We had a tremendous speech from Roy Mason. He thanked Denis for his courage and imperturbability, his intellectual resilience, his strength and moral fibre, at a time when the country is bankrupt and the Party is at its lowest ebb. He said we’d had the militants of NUPE, the disastrous Labour Conference, the NEC, which was the laughing stock of the country, Transport House, which some people seem to think has 2,000 employees because it writes so many embarrasing reports. There was no buoyancy in the Party.
‘We have to keep the Cabinet and the Party together and Tony Benn at least has a clear alternative. But we can’t survive alon
e. How can we finance and support ourselves? Peter Shore and Tony Crosland are looking for a painless way out.’
On quotas he reminded us of the wrath of the European Free Trade Association when he was President of the Board of Trade. We were the biggest fish in EFTA at that time. Now we were very small fish in the Common Market. Threatening was no use to us now because it would put a brake on world trade and there would be no lubrication to keep it going.
GATT was sympathetic, he thought, but the EEC would react to Tony Benn’s measures by saying they are subsidising us. They would not allow the green pound to remain at its present level, we would lose £500 million a year, inward investment particularly in semi-manufactured goods would be threatened, the protection in inefficient industries would go on and managers don’t want a siege economy. Import deposits were not on, unemployment would rise anyway because of our strategy. ‘After all, why did we nationalise the aircraft industry, the shipbuilding industry, the car industry, if it wasn’t to rationalise them and cut jobs? As to the mining industry, we have put in tons of money to make it efficient and we have to go back to pit closures. Steel was the same. We’ve taken the misery out of unemployment but we’re not taking the credit. What we need are selective investment measures and we try to eliminate the balance of payments deficit, we rally round the tax cuts, we rally round a cut in inflation for our wage policy. We should be emphasising these things.’
I went back to the office, and Frances and Francis and I went over it all.
Thursday 2 December
Slept late, because I didn’t get to bed until 2.30 in the morning.
Cabinet at 10. Parliamentary business as usual, followed by Foreign Affairs. Tony Crosland reported the Geneva Conference on Rhodesia saying that a date for reconvening it in January had been agreed.
We came to the IMF negotiations. ‘We now come to a decision on the quantum,’ started Jim.
