Harold Wilson, the Bank of England and the Cecil King ‘coup’ of May 1968

I: Wilson, Cromer and the City

One anniversary which has come and gone this year without much comment is the attempted 1968 ‘coup’ orchestrated by Cecil King against the Labour government of Harold Wilson. The plot was provoked by collapse of confidence in Wilson in the media (led by King’s Daily Mirror), finance, industry and the wider public. King’s idea was that the Queen’s cousin, Lord Mountbatten, would take over at the head of an Emergency Government, backed up by the Monarchy and the armed services. The lack of comment probably owes something to the circumstances of the events, which are still a little obscure, and something to a general belief that King’s enterprise was the work of a deluded maverick.

Whatever the truth of the Cecil King coup, it is hard to maintain that King himself was a lonely figure at this time. He had powerful supporters and contacts, and several of these were key City figures, including senior officials at the Bank of England. These men were in a position to do real damage to the government: there was, as they say, ‘history’ here.

In 1968 Wilson’s relations with the City had not been good for some time. In 1957 the intention of the Bank of England to raise the Bank Rate had leaked out to a small number of senior merchant bankers, apparently during the course of a grouse shoot. The story then made the press. There were accusations of ‘insider dealing’, and the government set up a tribunal to look into the affair. The result of this investigation was something of an anti-climax, but Wilson, who was Shadow Chancellor, was not impressed, and argued that the whole episode revealed that Britain’s financial destiny was in the hands of an amateurish public school old-boy network. Wilson’s criticisms were not forgotten or forgiven by leading City types such as Lord Cromer (Baring Brothers and from 1961 Governor of the Bank of England).(1) For Cromer, Wilson was a provincial upstart who did not understand the historic importance of the City of London in the British economy. It derived its wealth from financing, servicing and insuring the international movement of goods and capital and from promoting the use of the pound sterling as a trading and reserve currency. During the 1950s it was estimated that the international use of sterling contributed about 10 per cent of the national income,(2) and by 1964 there were over £4 billion of sterling balances – equivalent to about one-eighth of the GNP – held in London by overseas governments, banks, companies and individuals.(3)

The clash of values and personality between Cromer and Wilson became obvious very quickly after Labour narrowly won the October 1964 election. Labour inherited a serious balance of payments deficit from the Conservatives, but attempted to press ahead with its plans to modernise the British economy, invest in the public services and improve welfare benefits for the less well off (notably pensioners). When confidence started to collapse on the foreign exchange markets within a few weeks of Labour taking over, Cromer tried to persuade Wilson to abandon the spending programme upon which Labour had been elected. Wilson told the Governor that he was not going to allow a democratically elected government to take orders from central bankers, and threatened to float the pound and call a general election on the theme of the people versus international finance. The last thing Cromer wanted was a fall in the sterling-dollar parity of £1 =$2.80, since this would lead to an exodus of money out of London. Therefore, forced into a corner, Cromer mobilised a credit package worth $3 billion from the leading industrial states (known as the Group of Ten).(4)

The November 1964 crisis made for a rocky start to Wilson’s relationship with Cromer, and things did not improve. There were further clashes between them in the summer of 1965 and in March 1966. Undoubtedly the March 1966 episode was the most bitter of them all. It took place on 10 March, against the background of a general election, with Labour trying to improve on the narrow overall majority it had won in 1964. There was some bear market speculation against sterling, started by a group of Hamburg bankers, who had noticed that the Bank of England was refusing to support the sterling-dollar rate when the pound was being sold in the markets: instead, it was letting the exchange rate take the strain. Cromer called on Wilson, told him there was clear evidence of failing confidence in sterling in the markets, and insisted (with the somewhat unenthusiastic support of the Chancellor, Jim Callaghan) on a rise in the bank rate. Wilson, who did not believe the situation was very serious anyway (he attributed the nervous climate in the City to ‘electionitis’), refused to sanction this. Wilson accused Cromer of dragging the Bank, and sterling, into an election campaign. The issue would go to Cabinet but no support for the Governor would emerge there. Cromer said that he would not be able to refrain from recommending to the Court of Governors that the rate should rise. Wilson then threatened to use the Treasury’s powers of direction over the Bank to veto such a move. When Cromer pointed out how bad this would be for sterling once the news had emerged, Wilson replied that the news would not emerge since the Official Secrets Act would be invoked. He urged the Bank to intervene to buy sterling on the spot and forward market, and said he would ask the US financial authorities for support.(5) Once again, Cromer decided to climb down. The ‘crisis’ fizzled out well before the end of the election. (In fact the Bank actually gained £2m from traders buying the currency on the very next day: as Alec Cairncross, the government’s Chief Economic Adviser, had seen, Cromer ‘had over-played his hand.’)(6)

Cromer resigned from the governorship after completing one five year term in July 1966. He was replaced by the more emollient Leslie O’Brien, and for a time surface relations between the Labour government and the Bank improved. However, O’Brien and his colleagues always doubted whether Labour was capable of taking the kind of measures (which for them involved cuts in public spending programmes and a firm limit on wage and salary increases) likely to generate confidence in the exchange rate on the part of foreign holders of sterling; and after sterling was finally devalued on 18 November 1967 there was a major breakdown of trust in the government within the Bank. This time one of the key figures was Cecil King, Chairman of the International Publishing Corporation (IPC), which owned over two hundred newspapers and magazines, including the Labour-supporting Daily Mirror. King’s personal enthusiasm for Labour, and his willingness to use the Mirror to campaign for it in the 1964 General Election, led to him being nominated by Wilson for membership of the Court of Governors of the Bank of England in the hope that he would act as a counterfoil to the more orthodox figures such as Cromer. It is, however, clear from King’s diaries that by the time of the devaluation 1967 he had ‘gone native’, and shared the pessimism of senior Bank officials

II: Crisis of Confidence

The catalyst for this new turn was a disagreement between the Bank and the government about the measures needed to support the devaluation of sterling (from £1=$2.80 to £1=$2.40). The package included a 2% rise in the Bank Rate and hire purchase restrictions, complemented by tax rises and spending cuts designed to reduce demand by between £400m and £450m. This was seen as the first stage of a programme for producing a balance of payments surplus worth £500m by the end of 1969. The second part, involving further deflationary measures, would be introduced in the Spring Budget. This approach was greeted with dismay by O’Brien, who argued in November that more needed to be done immediately, otherwise it would not be clear to the markets that the government was serious enough about reducing demand in the home market and transferring resources to production for exports.(7) A few weeks later he was pressing his case: sterling was already under pressure in the markets and unless the government acted very soon there would be no return of confidence to the pound, and sterling would struggle to hold the new parity. Since a devaluation to a new fixed rate would be unthinkable (there not being enough resources, in terms of reserves and foreign credit to support it), it would be necessary to consider whether or not a sterling float was now inevitable (and the direction would be downwards).(8) Whereas the November devaluation was intended to provide the basis for new policies designed to ‘get our position right’, a further slide in sterling would mean ‘a total and explicit failure of policy’.(9)

The Government was not in fact inactive. From the devaluation onwards it had been committed to what it called a ‘Switch of Resources Strategy’, designed to rebalance the economy by reducing the activity of the home market in favour of exported growth.(10)This had been the intention since October 1964, but despite some promising results, the process had clearly take too long to satisfy the markets. It is true that in the first weeks after devaluation Treasury ministers, including the outgoing and incoming Chancellors, Callaghan and Jenkins, had argued that there was no need for precipitate deflationary action on the domestic front. There was already (so the argument went) slack in the economy (unemployment was over 2.3 per cent, unusually high by the standards of the 1960s) which could be turned over to production for the export market. The Budget was the time for any further action: by that stage it would be possible to forecast the likely growth of domestic output for the period up to 1970, and adjust it if necessary with taxation rises and expenditure cuts. This, however, was the line that had damaged confidence, and both Jenkins and Wilson became worried about the possibility of another crisis. The urgency of the situation was underlined when it became clear that the economy was now actually expanding fast, possibly by as much as 4.5 per cent in 1968, thanks to steps which had been taken to increase demand back in the summer of 1967, when it seemed as if the main issue was rising joblessness and slow growth. In December both Prime Minister and Chancellor, therefore, set to work on a programme of public spending reductions, with the clear intention that this would be complemented by a tough March Budget. A White Paper announcing details of some dramatic cuts was released in the second half of January. These included the historic commitment to withdraw from a military presence east of Suez by 1971, as well as decisions to reintroduce NHS prescription charges and to postpone the raising of the school leaving age.(11)

Wilson and Jenkins had seized the initiative so that the post-devaluation macroeconomic strategy could proceed free from crisis. The White Paper was well received in the OECD, as being of ‘major political significance’.(12) But papers in the Bank and the Treasury make clear that there was throughout the winter of 1967-68, a clear ‘credibility gap’ between the government and financial opinion within the City, including the Bank of England.(13) The disillusionment was also expressed in Cecil King’s diaries, which show that the newspaper magnate was part of a network including Lord Cromer, Maurice Parsons (Deputy Governor of the Bank, and, according to Roy Jenkins, a ‘sour and unbalanced’(14) character), Maurice Allen (Executive Director) and the US Ambassador in London, David Bruce. King’s record of his meetings with these figures shows him consistently engaged in the circulation of worst case scenarios for the British economy. Indeed, members of the group tended to reinforce each other’s opinions: thus on 4 January Parsons told King that the likely external deficit for 1968 would use up half of the loans raised by the UK to ‘shore up sterling’, which would mean there would be no resources left with which to defend the exchange rate; that foreign trade would have to be conducted in dollars or some other foreign currency; and that in such circumstances it was quite possible that unemployment would rise to three million. The present crisis was as grave as that of 1940 – but there was ‘no Winston Churchill waiting to take over’.(15)On 19 January King noted that ‘a further devaluation was expected; six days later Maurice Allen said that the ‘chances of…….devaluation in February were fifty-fifty’; and David Bruce told King that he expected another devaluation, which would ‘affect the whole world’, though it might take until June to develop.(16) Meeting Tony Benn on 6 February, King embarked on a diatribe ‘full of doom and gloom’. He predicted that ‘a second devaluation was possible this month, was likely during the next three months, might be postponed until the summer, but was certain this year’, quoting in his support the City in general and Cromer and David Bruce specifically.(17) Meanwhile Cromer told King on 13 February that he did not expect the country to reach Budget day (19 March) without ‘the collapse of the pound’.(18)

These very pessimistic opinions were relayed across the Atlantic to US Treasury Secretary Henry (‘Joe’) Fowler, who reported the opinion within the City of London that ‘a new financial crisis may occur in March’, and that the UK was ‘likely to float the pound’.(19) Fowler himself was sceptical about the accuracy of this information, but this did not apply to Charles Coombs, at the Federal Reserve Bank (FRB) of New York. Since 1961 Coombs had been responsible for all Treasury and Federal Reserve operations in the gold and foreign exchange markets, and as such had been central to operations designed to support the pound in the New York foreign exchange markets, as well as to raise short and medium term credits for the UK reserves. He developed excellent contacts with senior Bank of England officials such as Roy Bridge (his opposite number) and Deputy Governor Parsons. Coombs was convinced that the new, post-devaluation sterling parity was ‘untenable’, and he was against any further support for the pound.(20)

Given Coombs’s attitude, and the prevailing view of Bank of England Governor O’Brien that either spot or forward market buying of sterling to hold the rate was wasted money,(21) and of his senior colleagues that the new rate was unlikely to hold, the pound was highly vulnerable to speculative pressure. It is therefore interesting that King chose this moment to embark on a provocative mission to France. Peter Stephens, the Mirror’s man in Paris, who met King in France in February 1968, gave a full account of what followed in a letter of July 1969 to the Mirror Group Managing Director, Hugh Cudlipp. (Cudlipp surely knew most of the story but seems to have wanted a statement for the record.) Stephens reported that King continually ran down the British government: he went around saying quite freely that the British monthly gold and foreign exchange reserve figures were designed to mislead the world about the true state of the country’s resources, and warned of a financial crisis and a second sterling devaluation – all this to senior French press and political figures at a time when the Gaullist government was keen to unseat the pound and the dollar from their positions as the world’s major reserve currencies. Stephens was so concerned by King’s indiscreet behavior, by his ‘obsessional desire to get rid of Wilson’ and by his dismal memory (King would often repeat points several times during the day, having forgotten that he had already mentioned them), that he went back to London to see Cudlipp in person. While he was there, the pound slumped on the foreign exchange markets, and this was attributed to ‘alarmist rumours coming from the Continent’.(22) This was extraordinary behaviour from a member of the Court of Governors of the Bank of England; the pattern of events indicates that King was attempting to stoke speculation against the pound to provoke the crisis he and his colleagues had predicted.

After Tet

In March the situation facing sterling deteriorated, as forecast. But although there is no doubt that the pound was vulnerable on the exchanges, the cause of the latest crisis lay outside the UK. Following the shock of the Tet offensive in Vietnam, when Viet Cong forces had for a time succeeded in reaching Saigon and even penetrating the US Embassy compound, pressure on the dollar had mounted. By early March it was being sold in favour of gold at the price of $1 = 35oz, which the US had guaranteed since the 1944 Bretton Woods Agreement. Indeed, it was the confidence that the US would always be able to redeem dollar liabilities in gold which had allowed the country to build up external deficits in the 1960s. But now doubts about how long this could be sustained were developing. The French had been instrumental in this campaign for several years, and the events in Indo-China seemed to support their view that the American international financial position was not a sustainable one. A powerful demand for gold ensued on the world’s financial markets.(23)

Sterling was caught up in this as holders sold it for dollars which they were then able to turn to gold. The Bank then moved into the spot market to buy sterling with its foreign exchange resources. There was a massive drain on the British reserves, which diminished by almost 50 per cent in the first two weeks of March alone. Frightened by the scale of selling, the Bank then adopted the non-interventionist line foreshadowed in O’Brien’s December correspondence with Jenkins, allowing the pound to fall to its floor level and stepping in only when it looked as if this might collapse. Between late on Wednesday 13 and Friday 15 March even this practice was abandoned by the Bank and, in New York (where sterling fell to $2.3740 on 15 March), by the Federal Reserve. This was greeted with disbelief and dismay by the Treasury and the government. The policy was questioned by Cairncross and by Financial Secretary to the Treasury, Harold Lever.(24) There were also clashes on this subject (on 14 March) between Jenkins and the Governor, and again the following day between Sam Goldman of the Treasury and Nicholas Kaldor, the distinguished economist who had been a government economic adviser since October 1964, on the one side, and Deputy Governor Parsons on the other. Parsons was asked what had happened to an agreement between the Federal Reserve and the Bank of England that the latter would buy sterling in New York once it fell to $2.38. He denied all knowledge of such an understanding. Governor O’Brien then told Jenkins that ‘the present parity of sterling could not hold’ and he would therefore have to let sterling float.(25) This was unacceptable to Wilson and Jenkins, who authorised civil servants to begin to work on a contingency plan called ‘Operation Brutus’. Under Brutus sterling would have been floated – but the extent of the fall would be minimised by the suspension of convertibility and blocking of the sterling balances.

Wilson considered Brutus to be not just a contingency plan but a ‘blackmail’ tactic, designed to extract an American-led multi-lateral support package for sterling by forcing them to focus on the consequences of failing to do so.(26) Bank of England Governor O’Brien, however, feared the bluff would be called and told Jenkins that ‘suspension of convertibility would be far more serious for the City than floating’, while ‘a blocking operation would not in any way be feasible in the short run’.(27) Both Wilson and Jenkins said they were worried that, if the gold-buying spree failed to stop, defence of the new sterling rate on Friday 15 March would cost the reserves ‘something of the order of £300 or £400 million’ and even then the parity might not be sustainable.(28) On Friday 14 March, the London gold market was closed in response to a request from the Washington, where there was now real anxiety that gold-dollar convertibility would either have to be suspended, or the dollar devalued against gold, a step which would undermine the international creditworthiness of the USA.

The gold market had to be shut, since leaving it open risked not just the end of dollar-gold convertibility but a new devaluation of sterling into the bargain. The government, which had looked at the possibility of allowing sterling to float in November 1967, had rejected the scenario at that time on the grounds that it might well be counterproductive, provoking retaliation and a large-scale move out of the sterling balances. They were clear that the consequences of a float now would be even worse: there were insufficient reserves to manage one. The Treasury calculated that there was actually a negative reserve position of minus £881m:(29) in other words there was gold and foreign exchange but the amount was vastly outweighed by the sheer size of sterling liabilities. A floating currency would be in breach of Britain’s obligations to the IMF. As a result the country would forfeit its drawing rights there and would have no access to support for the currency. This was why blocking and inconvertibility were unavoidable: in their absence a floating pound would sink ‘to successively lower levels’,(30) leading to an unprecedented move out of sterling and the chaotic ending of the sterling area itself. Jenkins warned his colleagues of the likelihood of a return to the 1930s, when the collapse of confidence worldwide had led to a contraction of trade and the dislocation of the system of international payments. At the same time the downward plunge of sterling (a rate of £1 = $1.75 was thought to be feasible, 27 per cent below the $2.40 level and 37.5 per cent below the pre 18 November level of $2.80) would cause the retail price level to ‘get out of hand’.(31) The impact on import prices of such a large drop in the exchange rate would be likely to provoke a wage–price spiral, and ‘management of the domestic economy would become very difficult’.(32) As Wilson’s personal economic adviser remarked, this would be a ‘political catastrophe of major proportions’:(33) the government’s new macro-economic strategy, designed to restore confidence in sterling and about to be announced in the Budget, would be wrecked. The only action Britain could take in these circumstances would be to implement Operation Brutus, with its controls, which would mean opting out of the post-war liberal international trade and payments system and returning to a 1940s-style siege economy. It was this prospect which led the Bank to favour a sterling float, in the teeth of opposition from Ministers and Treasury civil servants and notwithstanding the dire consequences it expected to flow from such action.

Wilson’s ‘blackmail’ worked

In the end it was necessary neither to introduce Operation Brutus nor floating on its own. Wilson and Jenkins wanted to secure external support for sterling and for their new economic strategy, and threatened that that in the absence of help the country would have to take drastic unilateral action.(34) Both the Americans and the Europeans became convinced of the real danger that there would be an uncontrolled downward float of sterling, sparking off a series of further devaluations. The Americans were especially anxious about what would happen to the dollar-gold relationship if the floating and blocking of sterling was introduced.(35) Wilson’s ‘blackmail’ worked. They therefore agreed to a support package, and Britain’s standby credit facilities were raised to $4050m, which included $1175m of new support. $700m of this was provided by the USA ($500m coming from an expansion of the Federal Reserve Bank swap facility), the rest by the Belgium, Italy, the Netherlands, Switzerland and West Germany. The crisis passed and Jenkins was able to present his Budget without the extra shock of Plan Brutus.

The deflationary Budget, which raised £923m in new taxes (36) (mostly indirect), was well received in the House of Commons, the press, and in the financial community. Peter Jay in The Times warmly approved, while the paper’s financial editor argued that ‘what investment managers and the City were waiting for was a “sound”, conservative Budget. And this is what they have.’(37) The reaction was favourable enough to lead to a Bank Rate reduction of 0.5 of a percentage point on 21 March. There was a warm international reception, too, with ‘relief and satisfaction’ being expressed by the OECD. (38) The EEC Six called the Budget ‘courageous’, with the European Commission forecasting a British balance of payments surplus by the end of the year.(39) The IMF was said to have been ‘extremely gratified by the Budget, which fulfilled – and perhaps exceeded – all that Britain was expected to do restore payments equilibrium’. Sterling rallied strongly, and the stock market responded positively.

III: The ‘coup’

Sterling was to experience further difficulties in 1968, notably in November, as a result of speculation about the possibility of a devaluation of the franc and a revaluation of the deutschmark. But the government did not again experience a crisis of the intensity of the one in March. What had made it so dangerous and difficult had been not just the threat it had posed to Labour’s macro-economic policy but the deep dissatisfaction it reflected about the both the execution and trajectory of its strategy on the part of the Bank of England. It brought the conflicts and disagreements which had been present since devaluation to a head. And, despite the return of confidence in Labour elsewhere, especially on the continent, the political climate remained febrile. The November devaluation and the resultant fears about its consequences for the cost of living combined with a general sense of impending disaster (cultivated by a hostile press) to undermine Labour’s position with the electorate. By the spring of 1968 it lagged over 20 per cent behind the Conservatives in the polls. In the Bank of England, Cecil King, Maurice Allen and Maurice Parsons believed that a combination of strikes, exiguous reserves, and excessive Government spending was leading the country to ‘disaster’.(40)

The mood of anxiety and disillusionment was felt by members of the royal family, especially Lord Mountbatten, as well as in the higher echelons of the military establishment who contemplated the end of Britain’s days as a great power. Mountbatten met Cudlipp at the end of April and discussed the possibility of an Emergency Government being formed. He stressed how important he believed the Daily Mirror would be to any national revival. The two men talked in terms of Coalition Government, which would include figures from all parties (Mountbatten included Barbara Castle, but Cudlipp told him this was inconceivable).(41) It was this meeting which led to the infamous rendezvous between King and Mountbatten on May 8. Here King went beyond the terms of the Cudlipp-Mountbatten conversation. He began by expressing his pessimism about the government, made his now familiar prediction of imminent economic collapse, and then argued that the resultant ‘chaos’ would have to be tackled by the armed forces, under the direction of the Crown (to which they owed their allegiance). Mountbatten could be the head of this new administration: as a member of the Royal Family and a nationally respected figure with experience as a serving member of the armed forces (including a spell as Chief of the Defence Staff), he would be the link between the Palace, the military and the people. Mountbatten’s reaction is not entirely clear, but the meeting appears to have ended inconclusively.(42) Whether encouraged or not by Mountbatten, King then ensured that the Mirror published a front-page leader, ‘Enough is Enough’, calling for Wilson’s resignation. The story appeared on 11 May, timed so that it ran the day after Labour had suffered a set of abysmal local election results. It was Wilson’s lowest point, and the situation was made worse by another run on sterling, which King had deliberately tried to engineer so that any remaining confidence in the Prime Minister would vanish.(43)

There was no rassemblement against Wilson and the Labour government. The economic situation stabilised. The balance of payments figures started to improve, albeit somewhat erratically at first. There was no rioting on the streets. Cecil King was forced to resign from his post as Chair of the International Publishing Corporation. The government recovered in the polls and only narrowly lost the 1970 General Election, leaving the incoming Conservatives a very large balance of payments surplus and a growth rate expected to reach at least 3 per cent per annum in 1970-71.(44) The post-devaluation economic strategy had worked, and in retrospect the ‘Cecil King coup’ looks like an anti-climax.

It would, however, be a mistake to see the event in such terms, as Dorril and Ramsay have already argued.(45) King was not a lone maverick, but part of a cabal whose roots were in the Bank of England, and which had lost all confidence in the Wilson administration’s ability to manage the economy and society, let alone in its capacity to maintain Britain’s position as an international financial power. By the spring of 1968 this group included senior figures in the armed forces, who added dismay at the coming retreat from east of Suez and the ending of Britain’s great power status to the general climate of pessimism. Within these circles there was a good deal of sympathy for King’s arguments, and a willingness to intervene in the political situation, against the government but in favour of maintaining order and reversing national decline.(46) The gravity of what was being considered was revealed when former Times Deputy Editor Louis Heren stated, in an Encounter article of January 1982, that during the course of investigating the ‘coup’ story he and his colleagues had come across some ‘disturbing rumours’. Martin Furnival-Jones, Director General of MI5 from 1965 to 1972, told Heren that, although some of these rumours may have involved no more than ‘loose talk by gin-sodden generals’, they were taken seriously enough to be ‘investigated by the security services’.(47)

IV Britain’s social democratic moment

The King affair can be viewed on three levels. First of all, it was evidence of the poor relations between Wilson, in particular, and senior figures in the City which had been evident from the moment the Prime Minister had clashed with Cromer in the autumn of 1964. Secondly, it reflected an ongoing conflict between the government and the Bank of England about the proper priorities of macroeconomic policy. Thirdly, and most significantly, it was the expression of an historic fracture in British society between the forces of industrial production on the one hand, and the financial and services sector on the other. This division had been identified as long ago as 1910 in a Sociological Review article, ‘The General Election: a Sociological Interpretation’, by the liberal-socialist economist and sociologist, J. A. Hobson, who had written of ‘two Englands’. These were ‘Producers’ England’ and ‘Consumers’ England’. The first was centred on manufacturing industry and to be found in northern England, parts of the Midlands, south Wales (sic) and southern Scotland (sic). It was non-conformist in religious observation. The predominant social classes were composed of provincial industrialists (mostly Liberals) and the organised working class whose main political home was at that time starting to shift from the Liberal to the Labour Party. The second based its wealth on the financial sector centred on the City of London. It was made up of ‘large numbers of well-to-do and leisured families’ whose incomes derived from investments, handled by City firms, overseas or in the UK. Dependent upon them were consumer and luxury trades, and service industries such as the law and private education. These were people who had a material interest in the free movement of capital, the global role of the City and the international status of sterling as (then) the world’s leading reserve currency. They tended to be Anglican, vote Conservative, send their children to the public schools and Oxbridge and to live in the London suburbs and the Home Counties.

By the second half of the 1960s much had changed since Hobson’s essay in 1910: most fundamentally, the pound was second to the dollar, there was a welfare state and full-time state education for all to the age of 15, and the extremes of poverty and wealth characteristic of Edwardian Britain no longer existed. But the Conservative Party and its allies retained both their connections to the City and their commitment to its economic internationalism. Its core voters were still linked to finance, the service sector and light industry. They continued to live mainly in Home Counties England and sent their children to the public schools. Labour, on the other hand, still represented ‘Producers’ England’. The coalition which had brought Wilson (a nonconformist northern meritocrat) to power in 1964 and 1966 was rooted in manufacturing industry, the unions and in a growing middle class salariat educated in the grammar schools. Geographically, its electoral home remained much the same as in 1910. It believed in wealth creation – but through the production of useful goods to be sold in the market place rather than as a result of the manipulation of money. It distrusted the old British establishment and sympathised with Wilson’s attacks on the incompetence of the ‘old school tie brigade’.

The historic fracture

Seen in this light, the Cecil King coup can be taken as an ‘epiphenomenon’, in other words ‘a secondary phenomenon accompanying another and caused by it’.(48) In this instance the causal phenomenon was the historic fracture between Producers’ England and Consumers’ England. Wilson understood this, and lashed out at the latter in a famous speech in Newtown in July 1968. Here he attacked:

‘….a hostile and embittered Establishment, a deprived Establishment, soured by deprivation of office and power, which they had been brought up to believe were theirs by divine ordinance. An Establishment which does not scruple to misrepresent or to distort, an Establishment which is prepared to appeal to those who use money to make money, to do their dirty work for them….It is power they are after. Power, place and the social cachet which means so much to them. We sought and won power, we hold power and we will, when the time comes, seek and win again in order to create a Britain which ensures to all the people of Britain, the workers by hand and by brain, whoever and wherever they may be, the full fruits of their labours. We know and they know what is at stake….’(49)

In the end Wilson narrowly lost the 1970 General Election. Yet he and the Labour Party emerged in better shape from the aftermath of the King coup than the plotters. In less than four years time they were back in power. Moreover, as Middlemas pointed out, the government did not suffer a leadership crisis in 1968.(50) Nor did it grow tired like the Tories in 1963-64, or Labour in 1950-51. Indeed by 1968-69 it had developed ‘a machine for a powerful and generally coherent policy for industrial change’ based on rationalisation, investment in science and technology and in education and training. All this was underpinned by a process of ongoing review of how industrial sectors were adapting to the need to produce exports and save imports, conducted by both sides of industry, and the government itself, through the National Economic Development Council and the Economic Development Committees which monitored progress in each sector. By March 1970 the combination of large external surpluses (£554 million in 1969, with an even more sizeable one expected for the current year (51) and expectations of sustained growth running at 3 per cent had led the OECD to declare that Britain was ‘no longer a problem country’.(52)

Producers’ England

The Conservative victory in 1970 cannot disguise the fact that King’s ‘coup’ was in fact followed by the temporary hegemony in Britain of Producers’ England. The period from 1964 became Britain’s social democratic moment as politics was transformed into a contest between two major parties committed to industrial modernisation, with both unafraid of using the power of the state to promote economic planning and growth. It would take something more deeply rooted in the politico-economic traditions of Consumers’ England than Cecil King and his network (as well as suicidal behaviour on the Left and in the unions) to start the counter-revolution.

Scott Newton is Reader in Modern British and International History at Cardiff University.

Notes

1. See Stephen Dorril and Robin Ramsay, Smear: Wilson and the Secret State (London, 1991), pp. 78-9.
2. Alan S. Milward, The European Rescue of the Nation State (London, 2000), p. 389.
3. Scott Newton, ‘Wilson and Sterling in 1964’, Lobster 49 (2005), p. 14.
4. Ibid. pp. 12-13.
5. A full account can be found in The National Archives (henceforth TNA) PREM 13/851, ‘Note of a meeting at no. 10 Downing Street, 9 March 1966’.
6. A. Cairncross, The Wilson Years: a Treasury Diary (London, 1997), entry for 15 March, p. 121.
7. TNA PREM 13/1447, letter from O’Brien to Callaghan (Chancellor of the Exchequer), 17 November 1967.
8. Bank of England OV 44/140, letter from O’Brien to Roy Jenkins (now Chancellor), 12 December 1967.
9. TNA T312/2549, paper by McMahon (Bank of England) on ‘The question of planning for floating’.
10. See for example TNA PREM 13/2138, ‘Economic strategy post devaluation: switch of resources into exports’.
11. Roy Jenkins, Life at the Centre (London, 1991), pp. 220-8; Harold Wilson, The Labour Governments, 1964-70 (London, 1971), pp. 479-486.
12. TNA T277/2052, meeting of OECD Working Party no. 3, 31 January 1968.
13. Michael Oliver and Arran Hamilton, ‘Downhill from Devaluation: The battle for sterling 1968-72’, Economic History Review, August 2007, p. 489.
14. Jenkins, Life at the Centre (see note 11), p. 253.
15. Cecil King, The Cecil King Diary 1965-70, (London, 1972), p. 170.
16. Ibid. pp. 170-1
17. Tony Benn, Office without Power: diaries 1968-72 (London, 1988), p. 29.
18. King, Cecil King Diary, (see note 15) p. 175.
19. Foreign Relations of the United States 1964-68, volume VIII, document 180, memo from US Treasury Secretary Fowler to the President, 7 February 1968.
20. Oliver and Hamilton, ‘Downhill from Devaluation’, (see note 13) p. 491.
21. Both the Financial Secretary to the Treasury, Harold Lever, and the Chancellor’s Economic Adviser, Michael Posner, had repeatedly complained to the Bank about this – see TNA T318/201.
22. Confidential letter from Peter Stephens to Hugh Cudlipp, 2 May 1969, HC 2/8, Cudlipp papers, Bute Library, Cardiff University.
23. Scott Newton, The Global Economy 1944-2000. The Limits of Ideology (London, 2004), pp. 94-7.
24. Cairncross, Treasury Diary (see note 6), entry for 15 March, p. 285; Dorrill and Ramsay, Smear, (see note 1) p. 178.
25. TNA PREM 13/2051, ‘For the Record’, 16 March.
26. TNA PREM13/2051, note of a meeting on 17 March 1968.
27. See TNA PREM 13/ 2051, ‘Note for the Record’, Balogh to PM of 16 March, and TNA T318/191, ‘Sterling below $2.38 in New York’, minute by Goldman of 19 March.
28. TNA CAB 128/46, note of a meeting at no. 10 Downing Street, 1.15 a. m., 15 March 1968.
29. Oliver and Hamilton, ‘Downhill from Devaluation’, (see note 13) p. 490.
30. TNA CAB128/46, C. C. (68) 21st Conclusions, 15 March 1968.
31. TNA PREM13/2051, ‘Top Secret note for the record’, 16 March 1968.
32. TNA PREM 13/2051, memorandum by the Treasury on ‘Contingency Planning: Annex on the consequences of floating’, 16 March 1968.
33. TNA 13/2051, memo by Balogh: ‘International Monetary Crisis’, 14 March 1968.
34. Wilson, The Labour Governments (see note 11) p. 512; Robert Solomon, The International Monetary System, 1945-1976 (New York, 1977), p. 121.
35. TNA T267/21, Treasury Historical Memorandum on The International Gold Crisis, p. 19.
36. Jenkins, Life at the Centre (see note 11) p. 242.
37. ‘A bullish budget for equities’, The Times, 20 March 1968.
38. ‘Severity pleases OECD’, The Times, 21 March 1968.
39. ‘Courageous Budget say the Six’, The Times, 22 March 1968.
40. See King, Cecil King Diary (see note 15), entry for 18 April, p. 189; and Bank OV44/124, Parsons to Governor, 16 May 1968.
41. HC 2/4, Letter to King, 29 April 1968, Cudlipp papers, Bute Library, Cardiff University.
42. HC 2/6, Cudlipp’s record (for his memoirs) of the meeting between Mountbatten and King (with himself and Sir Solly Zuckerman in attendance) of 8 May, 1968, Cudlipp papers, Bute Library, Cardiff University.
43. Dorril and Ramsay, Smear! (see note 1) p. 182.
44. Peter Jay, ‘3 pc growth in economy forecast by Treasury’, The Times, 18 March 1970.
45. Dorril and Ramsay, Smear! (see note 1) p. 183.
46. Private information.
47. A full draft of this article can be found in HC2/7, Cudlipp Papers, Bute Library, Cardiff University. Furnival-Jones’ comments were disingenuous. C.f. Peter Wright’s comments in his Spycatcher p. 369: ‘Feelings [inside MI5] had run high in 1968. There had been an effort to stir up trouble for Wilson then…’
48. Definition from the Merriam-Webster online dictionary.
49. Wilson, The Labour Governments, (see note 11) pp. 543-5.
50. Keith Middlemas, Power, Competition and the State, volume 2. Threats to the Postwar Settlement: Britain, 1961-1974 (Basingstoke, 1990), p. 216.
51. Roger Middleton, The British Economy since 1945 (Basingstoke, 2000), Table II.3, pp. 150-1.
52. Peter Jay, ‘UK “no longer a problem country”’, The Times, 6 March 1970.