Treasury Bounce 2010


One of the tragedies of the failed New Labour experiment is that it was always based on a repudiation of all historical precedent. Alistair Darling seems to be feeling the pinch of this somewhat. He has attacked the Tories for fiddling the figures to make it appear that government borrowing over the next period will be higher than it actually is, and to pretend that the rate of growth will be lower, all in aid of their plan to slash away at jobs and public services.

I recently came across a very instructive lesson from history, from the notoriously dark decade of the 1970’s, a decade we are repeatedly warned against returning to. As Andy Beckett makes clear in ‘When the lights went out: What really happened in the 1970s’, whenever the seventies are evoked we are shown a certain very partial picture, painted in stark and ominous Thatcherite tones, of what happened. We all know that in 1976 the prospects for the economy were so bad that Britain had to go ‘cap in hand’ to the IMF. But Beckett uncovers a darker and more complex picture of what went on.

Callaghan did indeed enter very lengthy negotiations with the IMF, which had recently shifted from its original remit to adopt what we now know to be a harsh neoliberal line. In return for the loan it demanded huge cuts in public services. The Prime Minister himself, along with his increasingly rightwing Chancellor Dennis Healey had already been implementing a series of cuts to public spending in response to a series of runs on the pound and was not entirely averse to more. But he did manage to bargain the IMF, which initially demanded cuts of 4.5 billion, down to less than half that amount. He had quite a job getting it through cabinet, with Tony Benn in particular resolutely opposed. But the figures seemed to speak for themselves: with a loan due to be paid back to a number of countries by the end of December, the Bank of England would be left with only two billion in the kitty, and in the event of further speculative attacks on the currency, the country would be bankrupt.

The cuts were carried out and the prospect of bankruptcy narrowly avoided; so far, so familiar. However, the story has a sting in its tail. When the Public Sector Borrowing Requirement was announced six months later, it was as if the crisis had never happened. In direct contradiction with what the Treasury had predicted would be the case, the PSBR was not 10 billion, as had been thought, but 5.6. The emergency IMF loan, and the cuts upon which it had been conditional, had been unnecessary.

How had Sir Humphrey and the gang got it so very wrong? The answer is, they hadn’t. Here we learn of a ‘hallowed Whitehall tactic known affectionately to all insiders’ as the ‘Treasury Bounce’, as a Whitehall insider is kind enough to explain:

‘You can’t manage the economy tightly over a long period. You only get a chance once every decade to get the economy under control. What you need is a crisis that frightens ministers into accepting [your ideas]. … It’s what we call the Treasury Bounce.’

Here we find a very resonant echo of what Naomi Klein would write about in ‘The Shock Doctrine’: a crisis designed and manufactured in order to push through changes in public policy which would otherwise be politically unacceptable.

Callaghan’s Government paved the way for Thatcher’s attacks on public services and jobs. In much the same way, in 2009-10 New Labour were already talking of the urgent need for massive cuts, once again serving up a steaming platter of public sector spending reduction for the Tories to feast upon, allowing them to carry out “a fundamental reassessment” of the way government works. The kinds of cuts that are being planned for a huge range of government services are of the kind that never heal. If only Alistair Darling was able to read we might not have found ourselves in this dismal situation.

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