[5] Upon the urging of Neville Pickering,[6] Caygill successfully ran for the Christchurch City Council in 1971, and served until 1980.

Just under a year later in a reshuffle in October 1979 Caygill was promoted by Labour leader Bill Rowling and given the economic development portfolio.

[12] When David Lange replaced Rowling leader he appointed Caygill as Shadow Minister of Trade and Industry in March 1983.

[13] When the Fourth Labour Government was formed after the 1984 elections, Caygill aligned himself with Roger Douglas, the controversial Minister of Finance.

Douglas, Caygill, and Richard Prebble were together dubbed "the Treasury Troika",[14] and were responsible for most of the economic reform undertaken by the Labour government.

The "Rogernomics" reforms, which were based on free market economic theory, were unpopular with many traditional Labour supporters, but Caygill managed to avoid the worst of the condemnation directed towards Douglas and Prebble.

New Zealand had been a highly protected economy but transitioned to a lower tariff environment with reduced protectionism.

As health minister he rejected the orthodoxy of the Gibbs report, which sought to create a more competition oriented hospital service.

[4] His approach to the finance role was less confrontational and radical than his predecessor, with one Labour MP saying "We approve much more of what David Caygill wants than we would have with Roger Douglas, because he doesn’t bully us and tell us the economy's going to fall apart if we don't do it.

Thinking privatisation a political liability, he remained committed to it believing it necessary to pay back $14 billion of public debt.

[21] In December 1991 Caygill was replaced as finance spokesperson by Michael Cullen, who was more moderate in his economic policies.

Caygill continued to hold a senior position in the Labour Party and was instead appointed Shadow Minister of Justice and Energy.

[25] He supported Clark in an attempt to oust her as leader in favour of frontbencher Phil Goff in the lead up to the 1996 election.

Caygill announced his retirement on 11 June 1996 to a surprised caucus, after which Cullen was elected as his successor as deputy leader unopposed.