The recent IMF scorecard on the British economy, produced two years into this Coalition, prompted me to take a look at the comments the IMF made in 1976, two years into a Labour government. At that time, the then-Chancellor, Denis Healey, had to go cap in hand to the IMF for a stand-by loan of nearly $4 billion. That is the equivalent of £12 billion today. To give a feel for scale, that is about the size of the Home Office and DEFRA budgets combined.
The IMF was substantially underwhelmed with Labour’s economic performance. Its blunt assessment of the causes of the crisis in which the then Labour government found itself was summed up in this phrase: “First among these [causes] has been the failure to establish effective control over financial policies”. This is now a phrase which echoes down the years of successive Labour governments.
Contrast that with the latest IMF report which paid tribute to the "substantial progress" towards a sustainable budget delivered by the Coalition's austerity programme. It went on to describe the deficit reduction as "essential" in the medium term. In a now much-quoted comment, the IMF’s Christine Lagarde said;
"When I think back to May 2010, when the UK deficit was at 11%, and I try to imagine what the situation would be like today if no such fiscal consolidation programme had been decided, I shiver,"
This endorsement of the Chancellor’s economic strategy stands in marked contrast to the measures Denis Healey believed the then-government would have to consider to meet IMF requirements to reduce public expenditure. In a Cabinet memo at the end of 1976, he pointed to the prospect of widespread cuts in departmental budgets for health, education, aid, defence and industrial support and also to the cancellation of upratings of social security benefits and public sector pensions. He also went on to say that;
“This would involve a moratorium for a full year of all public sector construction projects not already committed, excluding the nationalised industries but including housing.”
This stands in marked contrast to the Coalition and its national infrastructure plan, which sets out a clear plan for the UK’s infrastructure, a new strategy for coordinating public and private investment and new investment in critical infrastructure projects. The IMF explicitly welcomed the Coalition’s announcement that it will use the credibility of its balance sheet to go further, to boost credit for businesses, housing, and infrastructure.
There is a limit to the extent to which one can draw a comparison between the situation over 30 years ago and that of today. But there are some common themes, including Labour’s inherent financial incompetence. Perhaps just as interestingly, today’s Labour Party should try to bring itself to celebrate last week’s IMF report and start talking up the UK. It was something paradoxically that Denis Healey understood. In a memo to cabinet colleagues he said:
“If negotiations with the IMF are successfully concluded, we shall have obtained international endorsement of the validity of our policies and of the recovery at which they aim. This endorsement in itself should provide an invaluable boost to confidence both at home and abroad.”
Perhaps, however, the most important message which comes out of this comparison is that in difficult financial climates it is the case that while Labour try and fail, Conservatives deliver; it’s as simple as that.