The IMF crisis
In 1976 the Labour Government, led by James Callaghan, was grappling with a new and significant crisis in the economy. On 28 September the Chancellor, Denis Healey, announced that he would be applying to the International Monetary Fund (IMF) for a loan of nearly $4 billion. The conditions of the loan were likely to necessitate deep cuts in public expenditure – a particularly difficult prospect as Cabinet had already agreed a round of cuts in July. In 1976 Healey adopted a policy of limiting the money supply which came to be seen by some historians and commentators as a move towards the economic policies of Thatcherism.
Numerous Cabinet meetings were held in October-December 1976 to discuss the terms of an IMF loan. The crucial meeting was on 1 December when Tony Benn, Secretary of State for Energy, presented his paper ‘The real choices facing the Cabinet’, in which he argued for an alternative economic strategy, including reflation and import quotas. There was a lively discussion, but Benn’s proposals were rejected, and the Government went on with acceptance of the loan. Consequently, there were increases in taxation and public spending cuts.