In 1976 Britain went to the IMF for the largest loan the Fund had ever made. The real price was not the interest. It was control over what a British government was allowed to spend.

This is the full story of the 1976 IMF crisis. The sterling collapse behind it, the conditions attached, the Cabinet fight over accepting them, and the borrowing figure quietly revised afterwards.

The pound had been sliding all year. On 28 September 1976, Chancellor Denis Healey turned back at Heathrow rather than fly to Hong Kong and Manila, and Britain applied to the International Monetary Fund. An IMF team led by Alan Whittome arrived on 1 November and checked into Brown's Hotel in Mayfair under false names. Their opening demand was around 3 billion pounds of cuts.

What Britain signed away. The Letter of Intent of 15 December 1976 capped government borrowing at 8.7 billion pounds, then 8.6 billion. It cut spending by 1.5 billion, then 2 billion more. It set a ceiling on Domestic Credit Expansion, limiting how much money the banks and the government could create at home. And it forced the sale of the government's stake in BP, at the time the largest share offering in history.

The Cabinet split three ways across roughly nine meetings. James Callaghan and Healey wanted the deal. Anthony Crosland, Shirley Williams and Roy Hattersley argued the cuts were unnecessary. Tony Benn pressed an Alternative Economic Strategy of import controls and reflation. Crosland gave way on 2 December, not because he was persuaded, but to keep the government standing.

Then the twist. The Treasury had forecast borrowing of 10.5 billion pounds for 1977-78. The outturn was 5.7 billion. Healey later wrote that the estimate he handed the IMF was twice as high as it should have been. Britain drew only about half the loan.

Also covered: Harold Wilson, Peter Shore, Gordon Richardson, the Bank of England's deliberate dollar purchase of 4 March 1976, William Simon, Edwin Yeo and Helmut Schmidt.

The counter-argument is included. William Keegan and Vernon Bogdanor argue the crisis was real whatever the forecast said, because the drained reserves and the loss of market confidence were genuine.

Some of those cuts never came back. Public housing completions peaked in 1976 and never recovered.

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