The Chancellors (26): Anthony Barber

Anthony Barber, 1970-74

Conservative, under Heath

Anthony Barber was the son a managing director and a Danish mother. After King Edward VI’s Grammar School, Retford, and Cambridge, he planned to forge a legal career. Then war came. Barber was evacuated at Dunkirk in 1940, and then joined the RAF. Having run out of fuel and bailed out over France in 1942, he was taken prisoner of war. He made several escape attempts: one inspired the film The Wooden Horse, another saw him reach Denmark. In the end, he took a law degree by correspondence course, and then a two-year degree in PPE at Oxford.

He was called to the bar, specialising in taxation. He entered the Commons in 1951. In 1955, he became a junior whip: significantly for the future, the chief whip was Ted Heath. Then, in 1958, he became Macmillan’s PPS. The following year he went to the Treasury: he was economic secretary and then, in 1962, financial secretary. When Home became prime minister, Barber entered the cabinet as minister of health. In the general election of 1964, Barber lost his seat, returning in a 1965 by-election. He was Heath’s campaign manager in the 1965 leadership election, and was made the opposition spokesman on power, industry and trade. In 1967, he was made party chairman. As such, he loyally supported Heath against Enoch Powell, who had a great deal of support among the Tory grassroots.

When the Conservatives were returned to power in 1970, Barber was given the honorific post of chancellor of the duchy of Lancaster, but the key job of negotiating Britain’s entry into the EEC. Fate then intervened: the new chancellor of the exchequer, Iain Macleod died just a month later. Heath recalled Barber, who famously told a friend ‘I hope he’s not going to make me chancellor’.

Though he seemed well qualified for the job, Barber is almost universally regarded as something close to the worst chancellor of the lot. In part, that is unfair, as the key decisions were Heath’s: in Edmund Dell’s words, Barber was ‘in office but not in power’. Heath distrusted the Treasury, and became increasingly reliant on Sir William Armstrong, head of the civil service, who earned the nickname of ‘deputy prime minister’: Heath and Armstrong drew up the 1972 budget that engendered the ‘Barber boom’. Heath appointed Barber precisely because Barber would do his will.

The Conservatives had come to power promising a radical free market led economic agenda, what Harold Wilson nicknamed Selsdon Man. In his 1970 budget, Barber set out spending cuts worth £1.1bn over the next four years, by withdrawing subsidies from industry, cutting spending on housing and welfare. In 1971, he cut income tax by 6d in the pound, and cut the top rate too. Credit controls were eased. Interest rates were not raised. He also announced reforms to corporation tax and the replacement of sales taxes with VAT.

By the ‘seventies, Britain was facing the prospect of stagflation: rising inflation and unemployment. Barber called stagflation ‘a new and baffling combination of evils’ in his 1971 budget speech. That might well indicate that he had no clear idea of how to tackle it: so it would turn out. Furthermore, spending cuts (especially on industry) could cause unemployment to rise; tax cuts, easier credit and low interest rates could do the same to inflation. Then, there was the wage–price spiral. In 1970, the government were forced to settle a national dock strike with an inflationary increase. Robert Carr, at Employment, axed prices and incomes controls: trade unions, facing rising inflation for their members, went for higher wage demands. Though it had no private sector pay policy, the government did have a public sector pay policy, set the formula N minus 1: each year’s settlement should be lower than the previous year.  Famously, the miners’ strike of 1972 saw them demand a 43% rise; they won a wage increase of 21%.

Meanwhile, in 1971, President Nixon had floated the dollar and all the other major economies had to float as well. When a new system of managed currency levels was agreed in Washington, the pound was revalued at $2.60 (it had been devalued to $2.40 in 1967). Meanwhile, concerns over inflation (which had reached 9.5% in 1971, but was falling slightly) gave way to fear of unemployment: in January 1972, unemployment topped the totemic million mark.

Heath was spooked. He had already began his infamous U-turn, when Rolls Royce had been nationalised in 1971, to save it from going bust. 1972 would see the reintroduction of a prices and income policy.  Most importantly, Barber, acting as his master’s voice, pushed through a sharply reflationary budget, justified by the vague hope that entry to the EEC in 1973 would allow the economy to expand more rapidly without further fuelling inflation. Spending was increased, and subsidies to industry returned. Taxes were cut by £1.2bn. The PSBR (the public sector borrowing requirement) for 1972-73 was set at an eye-watering £3.3bn.

Meanwhile, there was a sterling crisis. In May 1972, with EEC membership looming, the government had joined the European snake, in which EEC currency values were fixed to the deutschmark. Six weeks later, the markets forced Barber to come off the snake and float the pound. It fell sharply against most currencies, though not the dollar, helping to fuel inflation. And then came the Yom Kippur War, and the oil shock, which saw OPEC (the Organisation of Petroleum Exporting Countries) hike oil prices by 70%. By 1974, Britain had a monthly trade deficit of £343m.

The Barber boom inexorably led to rising inflation, and another wave of inflation-busting pay demands. By December 1973, Barber was forced to increase surtax, cut spending by 4% and rein in the runaway money supply. Interest rates would would be set at 13%. It was too little, and too late. When the miners called another strike, and Heath went to the country, spiralling inflation was inevitable: by 1975, it peaked at 24%. The following year, Labour abandoned Keynesianism. By then, Barber had left the Commons.

The judgement of history remains scathing: Barber was, perhaps, the worst chancellor of the lot. The Barber boom was like Maudling’s dash for growth, but in worse circumstances, and even more irresponsible. Barber would go on to admit that the 1972 budget had been a mistake, and though Heath was its true father, Barber was its midwife. Heath and Barber’s abject failure would teach the likes of Margaret Thatcher and Geoffrey Howe some key lessons. The old stop-go Keynesian policies could not deal with stagflation. U-turns did not work. Inflation was the primary evil, and had to be tackled; so did the trade union power. High levels of borrowing were inflationary. The answer was monetarism, and if that caused unemployment, the government could not afford to be spooked. Barber’s failure was also the midwife of Thatcherism.

Here is part of Barber’s ministerial broadcast about the 1973 budget:

And announcing the emergency deflationary package in December of the same year: