Cabinet papers released on Janaury 1 under the 30-year rule cast new light on the devaluation of the pound in 1967.

It was the biggest crisis to hit the Prime Minister, Harold Wilson, and his first Labour government during its six years in office.

Wilson risked a government split and fell out with the Bank of England when devaluing the pound.

Letters and minutes of government meetings, routinely published after 30 years, showed that Prime Minister Harold Wilson faced opposition from senior ministers, including his deputy, George Brown, over the devaluation.

A letter from Bank of England governor Leslie O'Brien attacked the government for ignoring the recommendations of the International Monetary Fund to cut public spending.

He said the package of spending cuts and credit controls which accompanied the devaluation of the pound from $2.80 to $2.40 on November 18 was "little more than half of what was recommended by officials after a very careful review and assessment."

Wilson's government was forced into cutting the value of the pound because of a massive trade deficit.

Wilson: risked government split

It hoped higher prices on imported goods and controls on hire-purchase would mean consumers would spend less and firms sell more goods abroad.

George Brown said he was "doubtful" enough was being done and said he would "push against my will to oppose the thing."

Other ministers also criticised the measures as too harsh.

Letters to foreign heads of government revealed what a painful decision Mr Wilson had had to make.

"Each of us has shrunk from having the tooth pulled," he said in a letter to US President of the time, Lyndon Johnson, adding the accompanying spending cuts were "an exceptionally ghoulish package of further measures."

Finance minister James Callaghan resigned shortly after the devaluation, saying he had to go on a "point of honour."

Afterwards, Wilson admitted the government had not been sufficiently apologetic in delivering the news. He famously told the public that the "pound in your pocket" would not be affected.

The legacy of the devaluation helped shape the modern Labour Party. Since winning power in May, the Labour government has stuck to tight spending plans and cut some benefits to try to prove that it is economically prudent.
 

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