Q & A with David Ward
Former chief policy advisor to John Smith discusses the Labour Leader’s response to Black Wednesday and whether a Labour government could have averted disaster.
IFTC spoke to David Ward, the Head of Policy for former Labour Leader John Smith, about Labour’s position on the European Exchange Rate Mechanism (ERM) in 1992, whether a Kinnock government could have prevented Black Wednesday, and Smith’s unlikely correspondence with Eddie the Eagle’s mother.
How did you become head of policy for John Smith? Do you remember how that opportunity came about?
DW:
Well, I was the campaigns officer for the Parliamentary Labour Party from 1985 to 1987. I worked in the House of Commons and was the link person between the Labour MPs and the Party headquarters, for all the Party’s campaigns at the time, including the ‘Jobs and Industry’ campaign which was led by John Smith in his role as Shadow Trade & Industry Secretary. So I started working very closely with him then. We just hit it off immediately with a very good personal rapport.
I was also Labour’s candidate in the 1987 elections for Chelsea, not a very likely Labour win! But it was fun to do it. I then went off to work for UNICEF. But I bumped into John at a party back in the House of Commons in mid-1988. By then John had become Shadow Chancellor of the Exchequer. His researcher was leaving, and he asked if I’d like to come and work for him.
I was delighted to accept and become his policy advisor. The Shadow Chancellor’s office was incredibly under resourced. It consisted of one secretary, Ann Barrett, and myself dealing with speechwriting, the media, and all policy work. Then when he became Leader of the Opposition, I became so-called Head of Policy and, of course, we had a bigger team then.
How would you summarise Labour’s position on the European Exchange Rate Mechanism (ERM) in 1992?
DW:
After the 1987 election, Neil Kinnock realised that the Party had to do much more. He particularly wanted to shift ground on nuclear weapons, on public ownership and nationalisation, and on Europe. So he launched Labour’s policy review.
To deal with the economy, the policy review was set up with two groups. One on the ‘Productive and Competitive Economy’, chaired by Bryan Gould, and the other on ‘Economic Equality’ dealing with tax issues chaired by John Smith. The Treasury team lead in Bryan Gould’s group was Gordon Brown, who was relatively newly elected to the Shadow Cabinet and serving as Shadow Chief Secretary.
With hindsight, I think it was a complete mistake to separate the tax issues into a separate group. There should have been one overall economic group that looked at all the issues—supply side issues, macroeconomic policy, and tax reform. Part of the reason was because there was a determination to avoid the mistakes made in the 1987 election where Labour’s tax plans unravelled. And so a separate group was seen as necessary.
The problem with [Gould’s group’s] report was that, despite what Bryan Gould says, I think actually it was rather weak on macroeconomic policy. It didn’t mention the public sector borrowing requirement or include anything about Labour’s fiscal stance. It also reflected an uneasy tension over Europe and the ERM.
Bryan Gould has been consistently anti-the common market and the European Economic Community, as it was then, and was also against the ERM. The Labour leadership, in the form of John Smith and particularly Neil Kinnock, were shifting ground on that issue quite substantially. The report was, from the perspective of Kinnock and Smith, too negative about Europe. To address that, a more nuanced policy was drawn up by the Economic Sub-committee of the Shadow Cabinet. This deliberately moved Labour’s policy beyond where Bryan Gould had left it and set out a series of conditions under which Labour could consider joining the ERM, one of which included joining at a competitive rate.
Back then the UK had a serious inflation problem caused by the Lawson boom in 1988-89 and the failure of the Tory policy of monetary targets. We needed a credible policy on inflation control and the ERM offered an attractive option. But none of the main players involved in the Economic Sub-Committee were under any illusion. The critical issue was at what rate we joined.
After the Shadow Cabinet had adopted this conditional support for joining the ERM, the Treasury team undertook a visit to European capitals, with John Smith in the lead obviously, and we visited Brussels, Paris, Bonn, and Frankfurt to discuss our new policy position.
As a long-term supporter of the European Community John was very good at networking in Europe. He was a very affable man and loved the collegiate style of European politics. The highlight of the trip was a meeting with Karl Otto Pöhl, who was then the President of the Bundesbank. They hit it off in the meeting pretty instantaneously and had a very useful discussion of European monetary policy issues.
Pöhl was quite cautious about moving towards a single currency, however. He used a favourite line of his that EMU [Economic and Monetary Union] is a bird that doesn’t have any wings but will probably still fly!
Towards the end of the meeting Smith asked, off the record, what he would say about [the UK] joining the exchange rate. He was in favour of the UK joining but warned— in strict confidence—“absolutely no higher than [a central rate of] DM 2.60.”
So from October 1989, we had the clearest possible steer from the most influential authority in the ERM system about what the rate should be. Of course, we didn’t shout that from the rooftops because we weren’t going to betray the confidence of the Bundesbank President.
After this Treasury team visit, Smith reported back to the Shadow Cabinet and Labour’s move in favour of ERM membership was confirmed.
In my view the fact that Labour had adopted this position increased the pressure on the government to join [the ERM] as well. When they did join at [a central rate of] DM 2.95 [in 1990], of course we thought that was a huge error, but you cannot in opposition immediately denounce it. You just can’t. If you do that, you risk creating a massive problem for the British economy. In the run up to a closely fought election that Labour might have won, you would create the conditions for speculators to bet against the pound. That would have been irresponsible and so you can argue that the patriotic duty of the opposition in those circumstances is to keep its mouth shut. That is exactly what we did.
If Labour had won in 1992, could it have avoided its own Black Wednesday?
DW:
Neil Kinnock and John Eatwell, Neil’s economic advisor, have subsequently said there was a secret plan to instantly devalue within the ERM had Labour won. In fact, I don’t recall that ever being discussed with John Smith. I didn’t know about it. John never mentioned it to me. He might have been aware of it, but our position up to the election day was we were going to stick with the rate in effect.
In fact, prior to the election, a few days before, we’d negotiated with the Treasury a ‘line to take’ depending on different scenarios—had Labour won outright or if there had been a hung parliament. In both scenarios we were officially saying nothing would change.
It may well be that had Neil [Kinnock] won, he would have immediately asked John to support an ERM realignment. Perhaps some of the people around Neil Kinnock were nervous that John would have opposed that. I don’t think he would at all. Ever since our meeting with Pöhl at the Bundesbank, he was completely aware that Britain had joined at the wrong rate. So I think an instant realignment or devaluation could have been a possibility.
Did Labour’s support for the ERM, albeit at a lower central rate, blunt the effectiveness of its attacks on the Conservative government after Black Wednesday?
DW:
No, I don’t think so. The Deutschmark needed to go up in order to get German interest rates down and there was a very strong case for a managed realignment of the whole system, which is what the Bundesbank wanted. They wanted an upward movement of the Deutschmark against everyone else.
After the ‘92 [general] election, during the leadership campaign election John immediately advocated for such a realignment in a speech to Labour MEPs in Strasbourg. This shift of position was economically correct. People in the Treasury knew it was correct. Even Norman Lamont knew it was correct.
After becoming elected as Labour leader, Smith repeatedly called for a managed realignment that summer and autumn; this put him in a strong position when the centrepiece of Tory economic policy collapsed and the pound was forced out of the ERM on Black Wednesday.
It gave us a strong platform to attack John Major and Smith’s first Commons debate as Leader of the Opposition was on the ERM crisis. He was in spectacular form and ripped Major to shreds as the “devalued prime ministers of a devalued government”. The confidence of this attack was in large part due to Smith’s shift of policy in favour of realignment.
In my view Black Wednesday is a key moment in British politics. To me, the really significant damage that was done to the Tories in this period was not done by Tony Blair or New Labour at all, it was done by themselves in relation to the collapse of their ERM policy. Incidentally, I was very pleased to see that Sir John Curtice expressed exactly the same view in your interview with him.
That was also a highly effective period of opposition politics by Labour and John Smith. Of course, I’m biased because I liked John a lot, but it was a very good piece of work. John was able to display his outstanding Parliamentary skills as a debater.
John was brilliant in how he would utilise humour to embarrass John Major. In the ERM debate, for example, he mocked John Major over a bizarre interview the Tory PM had given to the Sunday Times where he talked about the pound rivalling the Deutschmark. In response Goldman Sachs had published a commentary with the line, “the UK has as much chance of doing this as Eddie the Eagle has of winning the Winter Olympics.” It wasn’t our joke, but it was too good to miss, so in the debate John read out this quote and MPs on both sides fell about laughing.
The funny twist in this tale is that afterwards, Eddie the Eagle’s mother wrote to John complaining, that it was cruel to mock her son, “and compare him to that useless John Major”. It was a very poignant but funny letter. I said to John that he should read it out at the next available debate.
Did he ever make that public?
DW:
No. He was a decent guy and he said, “no, no, we can’t do that.” He wrote and apologised to Eddie’s mother and he said “it wasn’t my joke, it was Goldman Sachs’”, ending with something like, “your son is far braver and more noble than John Major ever would know.” He just treated it privately, as he didn’t want to cause her any more embarrassment. But this wonderful mother’s reply certainly made us smile.
This is so interesting, thank you. I’ve been thinking a bit recently about the impact of Black Wednesday on people my age (I graduated from university about two months before it happened, yikes) - fascinating to hear about the private policy discussions leading up to it.