The Chancellors (27): Denis Healey

Denis Healey, 1974-79

Labour, under Wilson and Callaghan

Denis Healey was one of the most important chancellors in the history of modern Britain, and one of Labour’s lost leaders, and a prime minister that never was.

He was the son of the principal of Keighley Technical School. He went to Bradford Grammar, where he excelled and developed a lifelong love of literature and the arts. He then won a double first in philosophy and classics at Balliol College, Oxford, where Edward Heath and Roy Jenkins were among his contemporaries. He also became a communist, believing that the Communist Party was the only one that was fully opposed to Hitler. He was the beach master at Anzio in 1943, twice mentioned in dispatches and ended the war as Major Healey (below, right, addressing the 1945 Labour conference).

After the war, he became the international secretary of the Labour Party, seeing up close the way in which Stalinist Communist parties were suppressing democratic socialist parties. That experience, and working closely with Ernest Bevin around the time when NATO was created, helped convince Healey that the left misread the nature of communist rule, and the communist threat. When he heard the news of the Soviet suppression of Hungary, in 1956, he wept.

He entered the commons in 1952 (left), and quickly established himself as an unofficial spokesman on defence and foreign policy. As such, he helped to persuade Gaitskell to oppose Suez. In 1959, he joined the shadow cabinet as a spokesman on foreign policy. When Labour returned to power, Healey was given the Ministry of Defence. There would be serious tensions between him and Wilson. He fought a bitter rear-guard action against the defence cuts that would culminate in Britain’s withdrawal east of Suez. Under enormous pressure from Wilson and the Treasury, Healey gave way. To his later regret, he supported arms sales to South Africa; Wilson also believed Healey was too close to the Americans. What those battles established beyond any doubt was his ability. His junior, Roy Hattersley, described him as having complete command of his brief.

Back in opposition, Healey was now in Labour’s front rank: first as shadow foreign secretary, then shadow chancellor. In The Chancellors, Edmund Dell, who was Healey’s chief secretary to the Treasury under Wilson, writes of the ‘three Healeys’. What he means by that is the fact that in 1974, Healey’s eye was primarily on winning the general election to come. Then, through the years 1975-77, he was the chancellor that successfully won an incomes policy and restored fiscal discipline. By 1977, the political chancellor had returned, though this time the prize was lost.

Dell gives us a picture of complex and fascinating man. He was perhaps the most intelligent of all the chancellors. He could also be a bully. Officials appreciated his intellect, and his mastery of his brief, but others feared and even hated his manner. He had the common touch, yet never held sway over the public of the House in the way that Wilson, Callaghan or Jenkins did. He undoubtedly had courage but, consequently, the left of his party came to despise him.

Like Callaghan had in 1967, Healey (above with Wilson and Foot) inherited a right royal mess, and an even more divided party and country, and an even weaker political situation. Until the October election, Labour were a minority government; after, their majority was just three, and then they were a minority again. In 1974, it was politically impossible for Healey to take difficult decisions even if he had wanted to. Then there was Labour’s left. After the defeat in 1970, the left had reasserted itself. The February 1974 manifesto was pretty left wing, including a proposal to create a National Enterprise Board, which would nationalise 25 unnamed major companies. In opposition, Healey had promised that there would be ‘howls of anguish from the rich’ and to ‘squeeze property developers until the pips squeak’: the press conflated the two into ‘squeeze the rich until the pips squeak’. If the left hoped for re-blooded socialism in the years to come, they were both unrealistic and doomed to disappointment. In truth, everyone’s pips were going to be squeaking before long.

The economic problems Healey faced were formidable. At the root of them lay the weakness of sterling in the face of the collapse of the Bretton Woods system, and inflation. Already, the boom engineered by Anthony Barber was stoking inflation. Then, in 1973, the Yom Kippur War saw the oil shock. Heath’s incomes policy had set a statutory limit on pay rises of 7%. That was already excessive. Labour were committed to abandon a statutory pay policy altogether. A much-vaunted Social Contract envisaged union restraint. In the face of rising inflation, union members would prove far less amenable to wage restraint than their leaders.

Inflation soared. By 1975, it the Retail Price Index was fast approaching 30%. Pay demands began to follow suit. Deflation was required. Healey’s 1975 budget was deflationary, if not deflationary enough. In a sign of things to come, it also made much of the need to constrain the money supply. Nonetheless, Healey urgently sought wage restraint. The scale of the task in hand was evident when the National Union of Railwaymen rejected a 27% pay rise, demanding 35%.

Healey went to enormous lengths to press upon his colleagues, especially Michael Foot, who was commonly regarded as the keeper of the left’s soul. The other key figure was the leader of the Transport and General Workers’ Union, Jack Jones. In early 1975, Jones had suggested a voluntary pay policy, based upon a flat rate increase of £9 per week. Healey stressed the threat of a collapse of sterling, or hyperinflation, or both. Jones went with Healey. The result was a voluntary pay policy, of £6 per week, which had statutory backing (to reassure the markets).

The other measure to reassure the markets was to bear down upon borrowing and spending. Thus, in 1975, Healey asked for spending cuts, something always calculated to embitter and divide Labour governments. The left resisted, but so did the ministers in charge of the big spending departments, including Barbara Castle and Tony Crosland. With backing from Callaghan, and Wilson, Healey got what he wanted with £4bn in cuts agreed in December 1975.

The bloody business of securing those cuts probably helped persuade Wilson that the time had come to go. When Callaghan won the leadership election, he kept Healey on. This was somewhat surprising: there had been no love lost between the two men since Healey had violently resisted spending cuts when Callaghan and Jenkins had been chancellor. However, in economically turbulent times, some stability made sense.

There was not much stability anywhere else. Labour, with its tiny majority, was always at risk of losing votes in the Commons. In March 1976, its spending white paper was defeated. A run on sterling ensued. Short-term credits, negotiated in June, were accompanied by another £1bn worth of cuts. As is so often the way, nothing could buck the markets. With Healey about to fly off to the IMF’s annual conference, sterling suddenly plunged.

Callaghan addressed the party conference in blunt terms: Keynesianism was dead (you can read about that in the articles on Callaghan as foreign secretary, here and prime minister, here). Healey’s own address to the same conference was no less blunt, and had to be given from the floor (right), as he had been voted off the party’s National Executive Committee. He was also convinced that Britain needed the help of the IMF if Sterling was to be stabilised. That, in turn, implied spending cuts. The IMF was bound by its own rules, and economic reality, to insist upon them. Callaghan initially hoped that his friendly relations with Gerald Ford and Helmut Schmidt might lead the American president and the German chancellor to prevail upon the IMF to soften their terms. Not for the last time, a British prime minister’s fond hopes that individual governments might overrule an international body bound by rules would prove illusory. Faced with that fact, Callaghan came to agree with the Healey. By the end of 1976, the pound had fallen by 20%: there was, it seemed, no alternative to the IMF. In truth, the IMF gave Callghan and Healey a lever to persuade the cabinet that there really was no alternative. Healey would even describe going to the IMF as a ‘Pyrrhic defeat’.

The issue was then persuading the cabinet, and keeping the government in one piece: the ghosts of 1931 hung heavy over Labour in 1976. The most far-reaching opposition came from Tony Benn, whose alternative economic programme envisaged a socialist siege economy. Benn was relentless, but others mattered more. Once again, Michael Foot was the key to the left, and the key to the centre was Tony Crosland.

Callaghan allowed the cabinet to talk itself to a standstill, over nine long meetings. Healey drew on all his intellectual reserves to show the impossibility of alternatives. If Britain imposed import controls, it would get no help from the IMF. No help would come from Ford or Schmidt. There was, simply, no viable alternative. When, finally, Callaghan made clear that he supported Healey, Crosland gave way. Healey had won.

Victory had a bitter taste. Spending was cut: by 3.5% in 1976-77, by 8% in the following year. Formal targets for the money supply and domestic credit were introduced. The sale of shares in BP raised £500m. Keynesianism  was dead, more than two years before Margaret Thatcher entered number ten.

It worked. Unemployment rose, but not by much: by 1979, it was falling. By 1978, inflation had fallen to 8%. In the same year, GDP grew by 3%. Interest rates, which had been at 15%, were at 5%. By the end of 1977, Britain had stopped drawing on the IMF reserves. In truth, it had probably never needed them. However, without the sword of Damocles the IMF represented, Healey would probably never have been able to impose fiscal and monetary discipline in the way that he did. Publicly, Healey argued that without the intervention of the IMF the cuts would have had to have been far more severe, and three million unemployed would have been the result (as happened under Thatcher).

Erstwhile, but reasonable, opponents (such as Roy Hattersley) recognised Healey’s achievement. The left hated him. By the autumn of 1978, Healey wanted Callaghan to go to the country. The Liberals had withdrawn from the Lib-Lab pact, and Labour could no longer command a majority in the Commons. Healey’s budget had injected demand into the economy and, by the autumn, Labour had a narrow lead in the polls; Callaghan’s personal ratings were way ahead of the untried Thatcher. Callaghan hesitated, and he lost.

For three years, the trade unions had kept a lid on pay. Now, though, even the biggest trade union beast of the lot, the TGWU’s Jack Jones, could not control his member’s desire for wage rises that would reward them for the austerity of the past three years. For the next pay round, believing that the defeat of inflation was finally within reach, Callaghan had persuaded a reluctant Healey to go with a new pay norm of just 5%. This time the unions, and their members, weren’t playing ball. In September 1978, Ford settled a national strike by granting a 17% pay rise; in January 1979, a lorry drivers’ strike was averted by a rise of 20%. The public sector wanted their share too. In January, 1.5m public sector workers came out on strike. The infamous Winter of Discontent saw rubbish piling up in the streets and bodies piling up in the morgues. Callaghan and Healey were cornered. By the time the government lost a vote of confidence and were forced to go to the country, the political tide had turned and Thatcher won.

The question now was whether Healey would succeed him. To some, Healey is one of Labour’s lost leaders, and one of the great prime ministers we never had. Whether, as Labour leader, Healey could have beaten Thatcher is something we will never know, though it was perhaps unlikely. What we can explain is why, in 1980, he lost to Foot.

In the first place, the left hated him: they never forgave him for 1976 nor, one suspects, for spelling out a few home truths that gave the lie to the impossibility of the Bennite siege economy. It’s also true that Healey’s combative and even bulling manner had alienated some of his colleagues too. Nor did Callaghan help, by hanging on for 18 months. After election defeats, as recent years have shown, Labour are prone to sudden lurches to the left. That certainly happened after 1979.

Some feared that Healey, as leader, would split the party. It has often been alleged that some who wanted to split the party (and would go on to form the SPD) voted for Foot because they believed he would split the party. More significantly, Foot seemed to many as the most likely man to hold a bitterly divided party together. That he was also very unlikely to lead it to victory in a general election seemed secondary. Not for the last time in its history, Labour seemed to prefer self-righteous opposition to winning power.

Under Foot, Healey served as a kind of semi-detached deputy leader. The 1981 campaign for the deputy leadership saw Healey defeat Tony Benn by a hair’s breadth, in one of the most bitter and divisive moments in Labour’s history.  Foot and Healey certainly got on better than Foot and Benn would have, but Healey found himself at odds with the sharp lurch to the left the party had taken. In particular, he was opposed to Labour’s policy of unilateral disarmament, and didn’t do much to hide it. When Labour lost again in 1983 and Foot resigned, Healey chose not to stand. The long haul back to power needed a younger man, he believed. He served as Neil Kinnock’s shadow foreign secretary, even though still unhappy about defence policy.

With the burdens of high office gone, Healey’s sometimes caustic wit had freer rein. Not that it had been entirely absent in office: he had famously likened an attack from his Conservative shadow, Geoffrey Howe, to being ‘savaged by a dead sheep’. He dismissed the Labour left as ‘Toytown Trots’, he sat the the veteran left-winger Ian Mikardo was ‘out of his tiny Chinese mind’: he then had to apologise to the Chinese embassy. In opposition, he described Thatcher as ‘the great she-elephant, she-who-must-be-obeyed, the Catherine the Great of Finchley’. Visiting Moscow, he greeted the Communist leadership with ‘Same old mafia again, I see!’ He was also more than capable of self-depreciation: commenting on his own longevity, he dubbed himself ‘the Gromyko of the Labour Party’ (after the longstanding Soviet politician).

When Labour lost again in 1987, he stepped down. He maintained an intermittent interest in politics, and made occasional interventions in the House of Lords, notably calling on Tony Blair to resign in 2004. He had always been deeply sceptical of military intervention abroad, whether in the Falklands, or Yugoslavia, let alone Afghanistan and Iraq. His antipathy was genuine and passionate: at the time of the Falkland’s war he accused Margaret Thatcher of ‘glorying in slaughter’ (he had meant to say conflict).  He decried Tony Blair’s infamous claim that Saddam Hussein had weapons of mass destruction that could be deployed within 45 minutes in one word: ‘shit’. By the end, he had concluded that Britain no longer needed nuclear weapons.

Unlike some politicians, Healey was never a political obsessive. In his autobiography, one of the best of its kind, he stated he was just as interested in poetry, art and music. And he was: The Time of My Life takes its chapter titles from poets. Healey certainly had taste: Yeats (he was a passionate Yeatsian), Homer, McDiarmid, Byron and Coleridge, among others. He was a keen and very good photographer. He loved long, and expensive, lunches and spending time with friends. Most of all though he revelled in family life: he was a devoted husband, father and grandfather. Edna died in 2010: Denis followed five years later, aged 98.

He was one of the most colourful and instantly recognisable figures of his age. For all his seriousness as a politician, he never lacked a sense of fun. When the impressionist Mike Yarwood coined the catchphrase ‘Silly Billy’ when doing his impersonation of Healey, the man himself promptly adopted the phrase himself. Like Healey’s wit, it had a political purpose. The heavyweight bruiser taking very tough decisions was much loved by the public; the wit help carry his powerful intellect lightly. And Healey just happened to be chancellor in the toughest of times. A less clear sighted, weaker and less resolute man might never have managed to pull Britain back from the precipice of possible hyperinflation or to have successfully navigated the crisis of 1976. That he did so without creating Thatcher-era levels of unemployment remains a singular achievement. In the end, Healey and Callaghan were undone by the unions, and Healey by a Labour Party unwilling to face some unpleasant truths.

Here is a BBC documentary on Healey: