Chancellor of the Exchequer, 1964–1967 In October 1964,
Conservative Prime Minister
Alec Douglas-Home (who had only been in power for twelve months since the resignation of
Harold Macmillan) was forced to call a
general election, the parliament being about to expire. Labour won a narrow majority, gaining 56 seats for a total of 317 to the Conservatives' 304. The new Labour government under
Harold Wilson immediately faced economic problems; Wilson acted within his first hours to appoint Callaghan as the new
chancellor of the Exchequer. Callaghan's time as chancellor was characterised by an ultimately doomed effort to stave off devaluation of the pound. The previous chancellor,
Reginald Maudling, had initiated fiscally expansionary measures that had helped create a pre-election economic boom. By greatly increasing domestic demand, this had caused imports to grow much faster than exports; thus, when Labour entered government it faced a
balance of payments deficit of £800,000,000 (), and sterling, which was then on a
fixed exchange rate came under immediate
speculative attack. Both Wilson and Callaghan took a strong stance against
devaluation of sterling, which would have made British exports more competitive, partly due to the perception that the devaluation carried out by the previous Labour government
in 1949 had contributed to that government's downfall. The alternative to devaluation, however, was a series of austerity measures designed to reduce demand in the economy in order to reduce imports, and to stabilise the balance of payments and the value of sterling. s in
The Hague, 1966 Just ten days after taking up his post, Callaghan immediately introduced a 15% surcharge on imports, with the exception of foodstuffs and raw materials. This measure was intended to tackle the balance of payments deficit; however, it caused an uproar amongst Britain's international trading partners. The outcry was so intense that it caused the government to announce that the surcharge was a temporary measure. Callaghan later admitted in his autobiography that he could have handled the matter better, and in his haste to tackle the balance of payments problem, had failed to consult foreign governments. On 11 November, Callaghan gave his first budget and announced increases in income tax, petrol tax and the introduction of a new
capital gains tax, actions which most economists deemed necessary to take the heat out of the balance and sterling deficit. In line with Labour's manifesto commitments, the budget also contained social measures to increase the state pension and the widows pension; measures which were disliked by the City and speculators, causing a run on the pound. On 23 November, it was decided to increase the bank rate from 2% to 7%, which generated a large amount of criticism. Handling the situation was made more difficult by the attitude of
Lord Cromer, the governor of the
Bank of England, who argued against the fiscal policies of the new Labour government. When Callaghan and Wilson threatened to call a new general election, the governor soon raised a £3,000,000,000 loan to stabilise the reserves and the deficit. His second budget came on 6 April 1965, in which he announced efforts to deflate the economy and reduce home import demand by £250,000,000. Shortly afterwards, the bank rate was reduced from 7% down to 6%. For a brief time, the economy and British financial market stabilised, allowing in June for Callaghan to visit the United States and to discuss the state of the British economy with President
Lyndon B. Johnson and the
International Monetary Fund (IMF). In July the pound came under extreme pressure, and Callaghan was forced to create harsh temporary measures to demonstrate control of the economy. These included delaying all current government building projects and postponing new pension plans. The alternative was to devalue the pound (or, which would at first have amounted to the same thing, to allow it to
float). Callaghan and Wilson, however, were again adamant that a devaluation of the pound would create new social and economic problems and continued to take a firm stance against it. The government continued to struggle both with the economy and with the slender majority which, by 1966, had been reduced to one. On 28 February,
Harold Wilson formally announced an election for 31 March 1966. On 1 March, Callaghan gave a 'little budget' to the Commons and announced the historic decision that the UK would adopt
decimal currency. (Not until 1971, under a Conservative government, did the United Kingdom move from the system of pounds, shillings and pence to a decimal system of 100 pence to the pound.) He also announced a short-term mortgage scheme which allowed low-wage earners to maintain mortgage schemes in the face of economic difficulties. Soon afterwards, at the
1966 general election, Labour won 363 seats compared to 252 seats against the Conservatives, giving the Labour government an increased majority of 97 seats. Callaghan introduced his next Budget on 4 May. He had informed the house that he would bring a full Budget to the House when he made his 'little budget' speech prior to the election. The main point of his budget was the introduction of a
Selective Employment Tax, penalising the service industry and favouring the manufacturing industry. Twelve days after the budget, the
National Union of Seamen called a national strike and the problems facing Sterling were multiplied. Additional strikes caused the balance of payments deficit to increase. However, a £3,300,000,000 loan from Swiss banks was due by the end of the year. On 14 July the bank rate was increased again to seven percent, and on 20 July Callaghan announced a ten-point emergency package to deal with the crisis which included further tax rises and a six-month freeze on wage increases. By early 1967, the economy had begun to stabilise once again with the balance of payments moving into equilibrium, the bank rate was reduced to 6% in March and 5.5% in May. It was under these conditions that Callaghan beat
Michael Foot in a vote to become
Treasurer of the Labour Party. The economy was soon in turmoil again by June, with the
Six-Day War in the Middle East. Several Arab countries, such as
Kuwait and
Iraq, announced an oil embargo against Britain, accusing it of intervening on the Israeli side in the conflict, resulting in a rise in oil prices which had a disastrous effect on the balance of payments. Furthermore, the economy was hit in mid-September when a national dock strike lasted for eight weeks. The final straw, however, was an
EEC report which suggested that the pound could not be sustained as a reserve currency and it was suggested again that the pound should be devalued. Callaghan responded by pointing out that, had it not been for the Middle East crisis, Britain would have been heading for a balance of payments surplus in 1967. However, rumours that devaluation was on the cards led to heavy selling of Sterling on world markets. Callaghan now privately confided in Wilson that he doubted that the pound could be saved; this was reinforced after a meeting with
Alec Cairncross, head of the
Government Economic Service, who told him in no uncertain terms that the value of Sterling could not be maintained, and in his view it should be devalued as soon as possible. The IMF offered a contingency fund of $3 billion, but Wilson and Callaghan refused this because of several conditions attached, which they believed would allow the IMF to interfere with economic policy. On Wednesday 15 November, the historic decision was taken to commit the government to a 14.3% devaluation from the existing fixed
exchange rate of $2.80 to the pound, to $2.40 to the pound. They intended to announce the decision publicly on 18 November. However, in the run-up to the public announcement, Callaghan found himself in a tricky situation when answering questions in the House of Commons: one backbencher,
Robert Sheldon, tabled a motion concerning a rumour that Britain would be receiving a loan from banks. Callaghan did not wish to lie to the Commons, but at the same time going public about the devaluation decision before the 18th would be financially disastrous for the country. He answered the initial question by stating that he did not comment on rumours. However, a follow-up question was made by
Stan Orme suggesting that devaluation was preferable to
deflation, which caused a major problem. Callaghan replied that he had "nothing to add or subtract from, anything I have said on previous occasions on the subject of devaluation"... Speculators seized on the fact that he had not denied there would be a devaluation and started selling Sterling. Over the next 24 hours, the flight from Sterling cost the country £1,500 million. The situation was a great political controversy at the time. As
Denis Healey in his autobiography notes: Before the devaluation, Jim Callaghan had announced publicly to the Press and the
House of Commons that he would not devalue, something he later said was necessary to maintain confidence in the pound and avoid creating jitters in the financial markets. Callaghan immediately offered his resignation as chancellor, and increasing political opposition forced Wilson to accept it. Wilson then moved
Roy Jenkins, the home secretary, to be chancellor; Callaghan became the new home secretary on 30 November 1967.
Home secretary, 1967–1970 Callaghan was responsible for the
Commonwealth Immigrants Act 1968, a controversial piece of legislation prompted by Conservative assertions that an influx of
Kenyan Asians would soon inundate the country. It passed through the Commons in a week and placed entry controls on holders of British passports who had "no substantial connection" with Britain by setting up a new system. In his memoirs
Time and Chance, Callaghan wrote that introducing the Commonwealth Immigrants Bill had been an unwelcome task but that he did not regret it. He said the Asians had "discovered a loophole", and he told a BBC interviewer: "Public opinion in this country was extremely agitated, and the consideration that was in my mind was how we could preserve a proper sense of order in this country and, at the same time, do justice to these peopleI had to balance both considerations". An opponent of the Act, Conservative MP
Ian Gilmour, said that it was "brought in to keep the blacks out. If it had been the case that it was 5,000 white settlers who were coming in, the newspapers and politicians, Callaghan included, who were making all the fuss would have been quite pleased". Also significant was the passing of the
Race Relations Act in the same year, making it illegal to refuse employment, housing or education on the basis of ethnic background. The Act extended the powers of the
Race Relations Board at the time, to deal with complaints of discrimination and unfair attitudes. It also set up a new supervisory body, the
Community Relations Commission, to promote "harmonious community relations". Presenting the Bill to Parliament, Callaghan said: "The House has rarely faced an issue of greater social significance for our country and our children." Another significant development was the
Representation of the People Act 1969, which made Britain the first major democratic nation to lower the
voting age from 21 to 18. This came into effect in time for the
1970 general election.
Northern Ireland James Chichester-Clark Callaghan's tenure as home secretary was marked by the emerging conflict in
Northern Ireland: Like all British governments since the
partition of Ireland in 1921, Harold Wilson's Labour government preferred not to intervene in the affairs of Northern Ireland. However, in August 1969,
escalating sectarian violence between the province's
Protestant and
Catholic communities, gave the
Government of Northern Ireland little choice but to ask the British government to intervene directly and send in troops, and it was as home secretary that Callaghan took the decision to
deploy British Army troops in the province. In return Callaghan and Wilson demanded that various reforms be implemented in the province, such as the phasing out of the Protestant paramilitary
B-Specials, and their replacement by the
Ulster Defence Regiment, which was open to Catholic recruits, and various reforms to reduce discrimination against Catholics, such as reforms to the voting franchise, and a reform of local government boundaries and housing allocations. Although the troops were initially welcomed by Northern Ireland's Catholics, by early 1970 this had soured, and the
Provisional IRA emerged, and embarked on what became a decades long violent campaign during what became known as
The Troubles.
In Place of Strife In 1969, Callaghan, a strong defender of the Labour–trade union link, led the successful opposition in a divided cabinet to
Barbara Castle's
White Paper "
In Place of Strife" which sought to modify trade union law. Amongst its numerous proposals were plans to force unions to call a ballot before a strike was held and the establishment of an Industrial Board to enforce settlements in industrial disputes. Ten years later, Callaghan's actions in opposing trade union reform would come back to haunt him during the
Winter of Discontent. ==In opposition, 1970–1974==