Bunhill: Bitter days of 1967 revisited

LAST WEEK'S devaluation brought back bitter memories of the last time a British government was forced into a corner after a couple of hectic days in the currency markets.

In late 1967, devaluation had seemed inevitable - some would say the pressure was mounting after Harold's Wilson's knife-edge victory in October 1964, and it had certainly been intense since June 1966. But the press was muzzled and the contingency plans for the unsayable were locked in a safe in the Treasury, the code known only to a bright young mandarin, Peter Jay.

The drama started on Wednesday 15 November after trade figures that the late Richard Crossman, then Leader of the Commons, described as 'ghastly' - though the gap, at pounds 107m, looks pretty piffling today.

By the next day the Cabinet knew the game was up, and the Treasury prepared an economic package to accompany the devaluation - one so hastily improvised that the Cabinet had to jot the measures down as the Chancellor, James (now Lord) Callaghan, set them out to his colleagues.

But the government had to cope with a private notice question put down by Robert Sheldon, now chairman of the Commons Public Accounts Committee. Sheldon asked about the rumours of devaluation and a possible dollars 1bn loan from the IMF.

After telling his colleagues that he would brazen it out, Callaghan refused to deny the stories, saying merely: 'I did not start the rumours and I do not propose to comment on them.' This set the cat among the pigeons and the government spent an estimated pounds 1bn of foreign reserves in an attempt to stop the run on the pound the following day.

Sheldon was naturally depressed at the unfair accusations that he had hastened the inevitable. But no minister had dared tip him off for fear of a leak. So at 9.30pm on the Saturday, Callaghan announced a 14.3 per cent devaluation of sterling against the dollar, from dollars 2.80 to dollars 2.40.

That was followed the next evening by Harold Wilson's infamous broadcast in which he assured a sceptical public that 'the pound in your pocket has not been devalued'.

Those hoping for a drop in interest rates should note that the 1967 devaluation was accompanied by a stern economic package: the bank rate rose from 6 1/2 per cent to 8 per cent.

This time, the package may be different, but some parts of the pattern may be repeated. Lamont-watchers should note that on the Monday following the devaluation, Callaghan put up a stout defence of his policies. He did not resign as Chancellor until 10 days later, swapping jobs with the Home Secretary, then Roy Jenkins. Today's Home Secretary, Kenneth Clarke, is favourite for the succession this time.

Lamont could well echo the words Callaghan used to Crossman in 1967: 'The only point of devaluing would be the package we could lay down . . . a chance to teach the people of this country what a fool's paradise they've been living in . . .'

(Photographs omitted)