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It was twenty years ago today…

September 16, 2012 7:48 am

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It’s twenty years ago today that Britain crashed out of the ERM. Here’s how the papers reported it at the time:

Norman Lamont’s reputation was in tatters, with the Daily Mail labelling him “The Devalued Chancellor”. He was flanked at the time by a young aide, what was his name again:

Ah yes, David something…

Remember this next time Cameron attacks Balls and Miliband for their work at the Treasury.

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  • telemachus

    Everyone seems to blame Lamont. But what about his boss? As Andrew Marr paints him and lets him speak as the benign uncle we cannot forget that Major also presided over the push of naked capitalism into the institutions that Thatcher had failed to privatise (NHS, Schools and Universities). And indeed Major signed off on Maastricht which led to Black Wednesday(and much else)
    Lamont is rightly a figure of fun but we must remember the dangers of the driving power behind him as Major dons cricket whites and smiles sweetly.

    • David B

      And if it is guilt by association who advised Brown. Yes the two Ed’s

  • aracataca

    IMHO the true catastrophe that was Norman Lamont can never be understated. In a sense the chronicle of his time as Chancellor had already been foretold in his academic career where he obtained a 3rd class honours degree in English. No intellectual colossus then our Norman.In one afternoon he spent £15 billion trying to keep us in the ERM. This was money we were told could not be spent on schools or hospitals or pensions.The consequences of Lamont were truly catastrophic. Interest rates at the central bank were 17% that’s 34 times what they are at present- for those not old enough to recall the events imagine paying 34 times as much interest on your mortgage as you do at present. Virtually everyone I knew was in negative equity and the value of the house that I had bought in 1989 had fallen by 57% by the time I came to sell it in 1996 and my abiding memory of the early to mid 1990s is working 70 hours a week, getting additional salary increases for experience etc, having no dependants but still being constantly in debt.  It was a truly catastrophic time and of course explains in large part why Blair won by an overall majority of 179 seats in 1997.
    It is important IMHO for the left to revisit this period for a number of reasons. Firstly, Lamont is wheeled out on TV from time to time to opine on the current economic situation.Invariably, he offers the usual monetarist diet of savage cuts, tax breaks for the wealthy etc, etc. It should never be forgotten that he was an utter disaster as Chancellor. Secondly, the right refer to this period as a golden age.They point to growth rates of 3% at a time when the position of the state was being rolled back-see the recent comments of  John Moulton chair of Better Capital (brain dead right wing venture capitalist and ex Tory Party donor). The fact is we were growing at 3% per year only because everything had been completely devastated between 1988 and 1992.It was 3% growth after a period of complete collapse. Thirdly, the right talk about Blair being handed a golden legacy in 1997. This is complete rubbish.In 1997 the country was still clambering out of the enormous hole created by Lamont and Major during the preceding five years.IMHO it’s time we were fully reminded of the years of Lamont and Major.

    • David B

      Then how do you describe the economic mess left by Gordon Brown. Selling gold at the bottom of the market. Destroying the pensions of millions of private sector workers. There are more people in negative equity now. And on and on it goes.

    • jaime taurosangastre candelas

      You bought a house and 7 years later sell it for 43% of the purchase price?

      Unless in the intervening 7 years your deposit and repayments had made good more than 57% of the original value, I struggle to see why you sold at such a low price, and even then, the prevailing interest rates on your previous mortgage would have meant that you bought any equity you had very expensively.  There are better uses for fiat money than throwing it away so easily. Gold had a flat period in the years you mention, but you could still have made around 23% on it, as well as paying rent rather than a mortgage on a declining asset.

    • jaime taurosangastre candelas

      You bought a house and 7 years later sell it for 43% of the purchase price?

      • aracataca

        I had my reasons and I wasn’t the only one to sell at a loss. I notice that old adulterer Major (he of  ’back to basics’ fame) was wheeled out for Andrew Marr this morning. He  reminded us once again that his opinion and judgement aren’t worth a light by stating that we are in a phase of economic recovery.

        • jaime taurosangastre candelas

          Well, I’m sure your reasons made sense, or even if you knew about the impending loss, could do nothing about your circumstances.  It just seems to be a terribly sad transfer of assets from a person to a corporation.

          • robertcp

            House prices were at sensible levels for most of the 1990s, which thankfully was when I bought my flat. 

            Leaving the ERM was a good thing and the economy was in a good state until the mid 2000s.

          • postageincluded

             You say “leaving” as if the Major government had made a rational decision to voluntarily exit the ERM. In fact, they hung on tooth-and-nail, throwing everything they had into the fight to stay in the ERM (including a billion dollars to Mr Soros) and only left when they had nothing left to throw.

          • aracataca

            Quite correct. Major and Lamont spent £15billion in total (in one afternoon) and put interest rates up to 17% to try and stay in. Had they left voluntarily 6 months earlier the fall out would have been minimal in comparison with what actually happened. It should be remembered that interest rates were at 15% for a year. This was cataclysmic for most ordinary people at the time and included an unsurpassed number of house repossessions 
            (before or since).

          • jaime taurosangastre candelas

            As a matter of interest, were fixed rate mortgages not generally available in the 1990s?  They seem to me to be sensible if you can obtain the right (for you) rate of interest and length of fix.

            It avoids the nightmare of some crazy government putting up rates as happened in the past, and homeowners around the country being unable to afford the revised repayments and being forced to sell their houses.

          • postageincluded

             They were. And they were generally attached to a little something called an endowment policy.

          • robertcp

            I agree.  They joined at too high a rate and should have left earlier or tried to devalue within the ERM.  Kinnock has said that Labour would have devalued within the ERM if Labour had won in 1992.

          • robertcp

            I agree.  They joined at too high a rate and should have left earlier or tried to devalue within the ERM.  Kinnock has said that Labour would have devalued within the ERM if Labour had won in 1992.

          • robertcp

            I agree.  They joined at too high a rate and should have left earlier or tried to devalue within the ERM.  Kinnock has said that Labour would have devalued within the ERM if Labour had won in 1992.

  • MikeBrighton

    I seem to recall the then Shadow Chancellor one G Brown fully supported UK membership of the ERM……

  • AnotherOldBoy

    The problem whcih came to a head 20 years asgo today was that we had joined the ERM in the first place, something which the left (including Labour) and the establishment (including the BBC and FT|) had been urging for years.  In her last, weak couple of years as Prime Minister, Mrs Thatcher succumbed to the pressure to join.  The result was higher interest rates than we needed (following a period outside the ERM with lower interest rates than we needed as Mr Lawson tried to keep the pound below 3.2 Deutchmarks, in effect pre-empting joining the ERM).

    The real lesson of 20 years ago is that joining the ERM was the misstake.  The only critics of that decision at the time were on the right as I recall.  Even then some – Messrs Blair and Mandelson spring to mind – thought we should join the Euro (I would add Mr Kenneth Clark, Mr Heseltine and the entire Liberal Democrat party to the list).

    Contrary to the experience of arcataea below, in July 1994 I managed to sell the house I bought in July 1988 for what I had paid for it.  The economy picked up after we left the ERM, enjoying a period of growth which was first subverted and then ended by Mr Brown and his merry men.

  • Hamish Dewar

    I see that Norman Lamont writing in the Telegraph is justifying the exit from the ERM as making it politically impossible for subsequent UK Governments to join the Euro.  A curious argument.

    • telemachus

      Through the miracle of google I see that he appears to still be saying that joining the ERM was a good thing because it got inflation down-As if!

      • postageincluded

        The great advantage of being two-faced is that you can have your cake and eat it.

  • https://mikestallard.virtualgallery.com/ Mike Stallard

    Lamont, Major, Attlee, Campbell Bannerman…….
    I remember the old whippets and I had a loft full of pigeons when I was down t’ pit lad!

    Now then, what’s next.

  • David B

    It was 5 years ago on Friday that the run on Northern Rock started and 4 years ago on Saturday when Lehman Brothers crashed.  The consequences of which are still with us today.  And the two Ed’s were in the cabinet that allowed this to happen.  They were also in the treasury when the pension policies of millions of private sector works were destroyed, the gold reserves were sold at rock bottom, etc.

    • sdrpalmer

      This suggests to me that the politicians of all hues have been spectacularly bad at trying to be clever with the economy.
      I really don’t see what is wrong with a policy of sound finances.
      No tricks, no gimmicks, no trying to pander to or control the ‘markets’.
      Just steady, sensible budgeting.

  • bre616uk

    Would events have been any different if Labour had been in power at that time? The Labour Party Manifesto 1992 stated that “To curb inflation Labour will maintain the value of the pound within the European Exchange Rate Mechanism.” Perhaps you might like to explain how Labour would have avoided Norman Lamont’s fate.

  • postageincluded

    Of course, the forced exit from the ERM was a political catastrophe for the Tories and, yes, the scheme was inherently unstable,  but the real catastrophe for the UK was entering the mechanism at a rate that was unsustainably high.

    Contrary to Tory myth, the joining rate was not imposed by Europe on poor hapless UK. Had Thatcher and Major joined the mechanism at a more appropriate rate we would have been spared the crippling interest rates and the recession that membership caused. They chose to enter at a high rate because they believed they should control inflation by maintaining an artificially high value for the pound. Obviously those with a deal of money in the bank prefer it not to lose value!

    Since then, the Tories have maintained the position that it was the ERM itself, and the EEC,  that were the cause of the recession, the cause of Black Wednesday, the cause of the collapse of the Major government and the cause of the Labour landslide that followed it.  What was really to blame was the Tory ideological fixation on reducing inflation at all costs, a fixation that preceded the existence of the ERM, let alone UK’s entry.

  • markfergusonuk

    I expected someone would say this.

    I would merely note that David Cameron attacks Labour’s spending plans with regularity, despite having backed them at the time of the financial crisis…

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