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1968 Secret History Friday, 1 January, 1999, 22:13 GMT
On the verge of economic catastrophe
Harold Wilson
Harold Wilson's government teetered on the brink of disaster
By Political Correspondent Nick Assinder

Harold Wilson's Labour government came close to launching a financial coup d'etat at the height of the 1968 financial crisis.

1968 Secret History
According to Cabinet papers just released under the 30-year rule, he had drawn up an emergency package, code-named Operation Brutus, which would have meant "a drastic and permanent abandonment of the sterling system as it has been known".

Brian Walden, then a backbench MP, says the "mad plan" would have involved forbidding foreign travel, banning any cash from being sent abroad, effectively seizing pensions held abroad - "a virtual financial coup d'etat".

Andrew Graham, an economic advisor to 10 Downing Street at the time, revealed to BBC Two's Leviathan documentary UK Confidential the full extent of the threatened crisis action.

Large international companies trading in sterling would have been unable to use their balances without a certificate from the government and UK citizens working abroad would have had their sterling bank accounts frozen indefinitely, he said.

'Mad plan'

"When things are very secret, you don't even know who knows. I knew that a few people in Number 10 knew and I knew that one or two people in the Treasury knew. Beyond that, I've no idea."

Mr Walden told the programme: "It's the first time I've learnt about this mad plan. Once the controls had gone on they could never have come off, because every holder of sterling in the world would have dumped it.

"It would have put the Labour party out for a generation, there may well have been riots. Harold Wilson knew all this of course, and the fact that he authorised such a thing to at least be devised at the planning stage shows how very serious the crisis was," he said.

former foreign secretary George Brown
George Brown went after he was excluded from a decision to take an emergency bank holiday to save the economy
The crisis came to a head in March, the year after the government had already been forced to devalue the currency.

Chancellor Roy Jenkins had forced through a swingeing package of cuts, which had brought howls of protests from ministers.

In a memo on 3 January 1968, he told the Cabinet: "Our standing in the world depends on the soundness of our economy and not on a worldwide military presence."

That set alarm bells ringing both within the Cabinet and in the United States. Defence Secretary Denis Healey threatened to resign over the scrapping of the F1-11 fighter and, the papers reveal, President Lyndon Johnson was infuriated by the move.

In a personal message to Harold Wilson, he declared: "I cannot conceal from you my deep dismay upon learning this profoundly discouraging news.

"If these steps are taken they will be tantamount to a British withdrawal from world affairs," he said.

But worse was to come as investors threatened to abandon sterling all together.

On 14 March, things started to come apart. The US asked Britain to close the gold market, there was an emergency ministerial meeting with the Queen and Foreign Secretary George Brown resigned, claiming he had been kept out of the decision making process.

Harold Wilson's turmoil over Brown's resignation is made clear in the newly released Cabinet papers. They show he wrote 17 drafts of his reply to Brown's letter before finally accepting the Foreign Secretary's departure.

By now the economic crisis was at boiling point and, a top-secret memo from the prime minister's economic advisor Thomas Balogh to Harold Wilson on 16 March reveals details of the emergency package being considered.

"Three operations have been considered, Brutus 1, 2 and 3. Any of them could be put into effect on Sunday 17 March evening," it states.

"Brutus 2 and 3 imply a drastic and permanent abandonment of the sterling system as it has been known. They are certainly irreversible."

It was an extraordinary plan and, of course, Harold Wilson never put it into operation. Had he done so there is no telling what the consequences could have been for Britain.

As it was, the economy did finally pull around as Mr Wilson went into the 1970 general election confident of victory. But despite that he lost to Ted Heath's Tories.


Leviathan - UK Confidential
BBC Two Friday 1 January 6.40pm

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