In 1976 Jim Callaghan’s government was forced to borrow $3.9 billion from the IMF to stabilise the value of sterling. The money was to be used to repay central banks around the world who had helped to prop up the pound and was contingent upon the UK introducing measures to reduce the budget deficit by drastically cutting public spending. The move caused division in the Labour Party, contributed to the demise of the post-war Keynesian Consensus, and helped to pave the way for Thatcherism.
However, it turned out that the government only needed half of the IMF loan and it managed to repay it much more quickly than expected. HM Treasury had given Chancellor Dennis Healey the wrong figures because the government was borrowing far less than was thought. Some believed this was due to some sinister conspiracy perpetrated by meddling mandarins to save the country from Socialism and usher in a return to sound money. The truth was much more mundane. It turns out that the Treasury had simply got its analysis and forecasts wrong. Never attribute to malice that which is adequately explained by stupidity.
