Establishing Program Ownership 2: External Financing and Public Expenditure

Abstract

Just as the introduction of measures to control inflation were a key feature of Britain’s move towards economic policy rectitude in the eyes of its own elites, and in the eyes of the global financial markets in general, and the IMF in particular, fiscal policy retrenchment was a key feature of the British economic policy landscape in the period 1974–76. It is also the area where it is much more frequently asserted that the IMF played a primary role in securing reductions in the PSBR against the wishes of the British government (Bernstein, 1983; Harmon, 1997). While some accounts have acknowledged the extent to which these actions had begun prior to the IMF negotiations themselves (Ludlam, 1992a), it is nonetheless frequently argued that public expenditure cuts can be associated with pressure from international financial markets and the declining legitimacy of the supposedly prevailing Keynesian paradigm of economic policy-making in the UK at this time, even if the degree of influence of the Fund itself has been overstated (Burk and Cairncross, 1992; Hall, 1993; Baker, 1999; Hickson, 2005). While in some ways more sophisticated, and building very usefully on Steve Ludlam’s (1992a) important observation that both public expenditure cuts and cash limits on expenditure predated the IMF negotiations by a considerable amount of time, these approaches also fail to account for the degree of strategic management of the fiscal policy situation within the British government. As such, both approaches imply that Britain did not have ownership of the public expenditure element of the IMF program it was to agree in 1976.