Show Hide image

Catastrophe averted?

The leaders of the rich countries went to Washington to save the world from sliding into deep recess

Vincent Cable

Shadow chancellor, Liberal Democrats

By the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements.

The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table.

The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round.

While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

Will Hutton

Economic commentator

It was remarkable to gather so much economic and political power in one room to address a common agenda. That was the good news - along with commitments to co-ordinate fiscal expansion, to expand the lending power of the IMF and World Bank (Japan's $100bn loan to the IMF will increase the Fund's lending capacity by 40 per cent), to boost cross-border supervision, to tackle credit rating agencies, to reassess mad accounting rules and require member countries to attack the bonus culture in the financial services industry. A year ago such an agreement would have been inconceivable.

The bad news is that much of this is shutting the stable door after the horse has bolted. Four things have to be recognised: that the world has profound imbalances between high-saving, high-surplus areas in Asia and the Gulf and low-saving, structural deficit countries in the transatlantic economy (Germany excepted); that a system of floating exchange rates and private banks can no longer take the weight of recycling those savings; that unless the system is de-risked and the burden of adjustment is placed on deficit and surplus countries alike, the global system faces breakdown; and finally, that the business model used by the banks to recycle surpluses - securitisation and hedging in the $360trn global derivatives market - is broken.

In plain English, China must accept that its currency must appreciate; Britain and America, that they cannot run their economies on foreign savings; and all players that there has to be a system of semi-fixed exchange rates between the yen, the euro and the dollar.

One tough reality is that, for all their new economic weight, China, Brazil, Russia and India do not have fully convertible currencies - nor do they want to accept the discipline involved in having convertible currencies.

Ann Pettifor

Fellow, New Economics Foundation

Over the past decade, the Group of Eight leaders turned their exclusive annual meetings into jamborees. Rock concerts, protesters and celebrities added populist glitz. However, the real purpose of the meetings - international co-operation and co-ordination - was ducked. At last year's G8 Summit in Heiligendamm, Germany, George W Bush and Gordon Brown vetoed Angela Merkel's agenda item for co-operation over tighter international regulation and financial oversight of capital markets. That task, they argued then, could safely be delegated to "the invisible hand". Now that the fantastic, self-regulating machinery of free markets has proved grossly malfunctional, it is good to hear talk of enhanced co-operation and regulation.

But, in places, the joint statement issued by the 20 world leaders borders on the delusional. The phrase "We must . . . ensure . . . that a global crisis, such as this one, does not happen again" implies that they are avoiding the next war when they are still losing this one.

Even more questionable is the call for continued "economic growth". In a world of finite resources on a planet with limited capacity to absorb toxic emissions, and with bushfires encircling Los Angeles, we would have hoped that world leaders had some awareness of the threat of climate change and of the limits to economic growth. But no. The gravest threat to global security - our rapacious attitude to the earth's resources - is once again whipped up with talk of "market principles, open trade and economic growth".

Jesse Norman

Senior fellow at Policy Exchange

One might have thought the G20 summit a good moment for some straight talk from the Prime Minister. Instead, the political wind machine was cranked up to full blast. The summit would be a second Bretton Woods. Gordon Brown would forge a new global consensus on co-ordinated intervention to stimulate growth (while, of course, leading reforms to prevent the banking crisis from ever recurring). Luckily virtually none of this was true, or the summit would have been a hopeless failure. With fiscal measures already widely adopted, the G20 hardly needed Brown's leadership. No surprise that he returned empty-handed.

Labour has moved from despondency to a manic desperation to remain in office. The result is that the ever-fragile concept of truth in politics has wholly been cast aside. Thus the humiliating bank nationalisation has been dressed up as an act of far-seeing economic statesmanship. And a sensible warning from the shadow chancellor that current economic policy puts sterling at risk has been condemned for breaching an irrelevant semi-convention dating from the time of fixed exchange rates.

Alex Brummer

City editor, Daily Mail

There is a golden rule of international financial meetings. The larger the "G" number, in other words the more countries involved, the less likely it is that any worthwhile or binding decisions will be taken. So while it was wholly encouraging that the G20 summit brought a number of emerging market leaders to the top table of finance, including China, Brazil and Russia, there was never any real prospect of the event becoming the new Bretton Woods.

Furthermore, the summit took place in the final days of the lame duck administration of George Bush. Once it became clear Barack Obama was going nowhere near the confab, the event became even more of an irrelevance.

European leaders may like to blame Wall Street and Anglo-Saxon capitalism for the credit crunch and the recession now spreading through the Group of Seven like wildfire, but there is no hope of concerted international action without the new White House and Federal Reserve on board.

Almost all that was agreed could have been decided before the leaders left home. The commitment to reviving the Doha trade round is pure motherhood and apple pie. The prairie populists on Capitol Hill are unlikely to be enthusiastic.

At the core of the proposals was the commitment to use fiscal measures, tax cuts and public spending to kick-start global economies. But despite Gordon Brown's enthusiastic embrace of a new Keynesian big-spending approach - as advocated by Nobel prize-winner Paul Krugman - he neatly forgot to mention that such big-spending ways were only for those countries with a "policy framework conducive to fiscal sustainability". The UK with its ballooning budget deficit, which could hit £100bn or more next year, is clearly in no such position.

It is hard to fathom in what way the G20 was "historic", as the Prime Minister claimed in the Commons. There is little original in a bunch of old ideas designed to remove risk from the financial system and control executive pay. That is what regulators should have done before the banks ploughed into the iceberg.

James Buchan

Author and financial commentator

What is the Financial Stability Forum? What is "mitigating against pro-cyclicality in regulatory policy"? What, if anything, has the G20 summit in Washington on the weekend of the 15 November achieved?

Nothing very much, is the answer to all three questions. In the twilight of a discredited US administration, and with President-elect Barack Obama absent, the meeting was never likely to achieve a great deal or generate excitement in the US. Yet the final declaration, drafted with suspicious ease by the delegations on Saturday night, has something for everybody but not enough of anything to scare the financial horses.

Nicolas Sarkozy, the French president whose idea the whole thing was, gained some support for more institutional government of trade and finance, but no super-gendarme international of the type that has been directing financial traffic in the French imagination since the 17th century. As Jean-Pierre Robin wrote in the Figaro: "Those with fantasies of supranational supervision will need to change therapist." The US, jealous of its commercial sovereignty even when it is going about without its shirt, put paid to those Gallic dreams and also gained some platitudes about free trade.

The new commercial powers, not only Brazil, Russia, India and mainland China but also rich oil producers such as Saudi Arabia, received diplomatic recognition of their deep pockets. "The world's geopolitical structure has a new dimension," the Brazilian president, Luiz Inácio Lula da Silva, said. "There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis."

I suspect the winner is Gordon Brown. The next meeting will be held under his presidency in London in April. The Washington ragbag of proposals to reform or tinker with the current system, such as reminding us about the Financial Stability Form and mitigating against that regrettable pro-cyclicality in regulatory policy, appeals to his technical vanity and plays to his technical strengths.

Paul Mason

Economics editor, Newsnight

There was a sense in Washington, despite the throbbing engines and bulletproof glass, of powerlessness. The communiqué was stronger on the causes of the crisis than on co-ordinated solutions. Policymakers are right to stay focused on the near-term dangers: these are country-level debt default, the rising cost of borrowing for non-financial companies, rapid job losses and - via feedback - further destabilisation of the banking system. We are moving into the phase of fiscal stimulus but there are powerful technical arguments that say without "quantitative easing" - that is, printing money to stimulate demand - it doesn't work. The same people who told me it would come to recapitalisation, that the TARP (troubled assets relief programme) would not work, are now saying: nationalise the banks and print money.

Despite the urgency of the focus on near-term dangers, what was obvious at G20 was the lack of vision as to the future growth model of capitalism. The problem was seen as a failure of regulation; the solution a pretty weak brew of re-regulation that will get diluted even more as the lobbyists begin to have influence. But the problem is more fundamental: the growth model based on high debt instead of high wages has failed and will be hard to revive.

Peter Mandelson

Secretary of State for Business

We have been caught in a global whirlwind of extraordinary force.

It has brought with it a fear that has gripped the world economy and taken hold here at home. We are seeing it every day, with fear among consumers that is depressing demand; fear among banks that is inhibiting them from lending; fear among small- and medium-sized businesses that banks are just about to cut off their credit lines. The choice facing us and governments around the world is this: do we act decisively to counter and overcome this fear, or do we become paralysed by it and fail to act?

The government has already shown its willingness to take the bolder course as the first mover in setting about stabilising the banks. What is needed now is action to stimulate the demand essential for recovery. The UK economy, like economies in the rest of the world, needs a shot of adrenalin.

The Bank of England has already made a significant cut to interest rates. This monetary stimulus now needs to be matched by a fiscal stimulus. And because this is a global crisis this is best done if the benefit of the measures taken nationally is maximised by the same measures being taken around the world. That was the message from the international conference in Washington, as governments recognised the need to take the action necessary to stimulate their economies.

People will say, "But you are resorting to borrowing in order to deliver the stimulus that's needed." My answer to that is, what is the alternative? We certainly haven't heard one from the Conservatives.

David Cameron and George Osborne, trapped by their desire to oppose everything the government does, refuse to accept the scale of the challenge the world's economies now face and the prescribed international action. Their stance appears to be, if the rest of the world disagrees with us, it is because the rest of the world is wrong. The result is incoherence and an Opposition at sixes and sevens. One minute this is "do all it takes" and the next it is - as we heard this week - leave the recession to "take its course".

Sitting on our hands watching houses repossessed and businesses go to the wall is certainly not the approach being urged on me by people I have been speaking to up and down the country. They want their government to act to stimulate demand in the economy here and now. With all due prudence, that is what we are going to do.

Diane Coyle

Author and economist

The G20 meeting confirmed a robust and rapid response (by past standards) to recession, even in the US operating under a rump free-market administration. Policymakers around the world have been shaken to see the financial system at the brink of collapse - on their watch.

Yet it is difficult to predict how severe the recession will be. Bank lending to businesses and individuals is virtually frozen. In many (but not all) areas of the economy, activity has come to a halt. The last financial boom and bust, ending in 2001, had surprisingly little impact on jobs and growth, as the financial bubble had become increasingly untethered from anything real. Today's vicious circle of evaporating liquidity is much more serious, but lower interest rates and bigger government deficits will help. The underlying trends are easier to outline. Some challenges are clearly unaltered, such as climate change and our ageing society.

The technological opportunities are still there, too, in communications, the internet and biotechnology. Globalisation will be less driven by finance in future, but it will not be unwound. It would take a generation to turn back the clock on economic linkages, and the cultural impacts are permanent. In fact, the crisis has underlined our interdependence across national borders.

What has changed is the political economy of globalisation. In the triad of efficiency, fairness and freedom which dominates political choice in democracies, fairness will take priority in the years ahead, and the drive for ever greater productivity gains will retreat. The semi-nationalisation of the banks has started to shift the boundary between public and private domains; we will have to think more carefully about how to govern private choices that have big social spillovers. The G20 did not touch on this profound question of governance.

Iain Macwhirter

Political commentator

The G20 was largely a throat-clearing session and was never going to put in place the foundations of a new international financial system. Progress on the stalled Doha trade talks is encouraging but provides no guarantee that protectionism will not raise its head in the coming economic slump.

It is inevitable that countries faced with financial collapse will try to defend their economies by any means possible. Britain is already far down the road of "beggar my neighbour" economics by the "managed" devaluation of the pound, a crude attempt to boost UK industry by lowering the prices of British exports and creating a de facto tariff wall around imports from abroad. It won't work because Britain does not make much of anything any more except debt, and the world has plenty of that already.

But the collapse of the pound will seriously damage what is left of UK financial services. No one in their right minds would put money into the UK economy now, with the property market collapsing, UK banks insolvent and government borrowing likely to reach £100bn in the next 18 months.

Gordon Brown seems to believe that sterling is like the dollar, and that people will buy our dud pounds whatever the likely losses. However, as we are discovering, sterling is not a reserve currency and unlike the US we cannot force other countries to pay our debts. The future for our battered island is likely to be hyperinflation punctuated by appeals to the International Monetary Fund for emergency aid. Forget about spending our way out of recession - the UK government simply lacks the resources to fund the huge borrowing that would be required. Something will have to give. Brown will have cause to regret being so beastly to the Icelanders.

Richard Reeves

Director of Demos

James Carville, the hardened political aide to Bill Clinton, said that if he was reincarnated he'd want to come back as the bond market: "You can intimidate anybody." Right now it seems odd to think of any financial markets threatening anybody. But it is one of the ironies of the current economic situation that the capital markets still have some serious muscle.

Western governments, faced with recession, need to throw a lot of money at their ailing financial institutions - money that can be raised only by selling Treasury debt, mostly to the capital-rich investors of the Far East. For Gordon Brown, this is likely to become a more difficult sell, as Prudence is given the push and the pound takes a nosedive. Even national exchequers invite sceptical scrutiny in this new, nervous world.

The financial crisis is at heart a loss of faith. The word credit derives from the Latin credo - "I believe". When the Titanic of the financial world - in the shape of Lehman Brothers - was allowed to sink, the bonds of trust stretching around the world were snapped. In an instant, everyone stopped believing in each other.

A number of sensible measures should be on the agenda when the G20 reconvenes next year, including legislation to ensure bonuses in financial services are paid on the basis of five-year performance; new "pro-cyclical" provisioning rules requiring finance houses to increase their store of capital in economic upturns; and tougher, independent regulation of the rating agencies whose doe-eyed assessments of banks built on a mountain of paper helped get us in this mess.

There is, however, no quick technical fix for such a dramatic loss of confidence. Trust can be lost in the blink of a market-trader's eye - but it will take years to rebuild.


  • 1 Created a road map aimed at stabilising the world economy and overhauling the banking system with targets for the end of March 2009
  • 2 Advocated Keynesian big-spending
    “fiscal stimulus”
  • 3 Expanded from a small club making world decisions to recognise the importance of the economies of Brazil, Russia, India and China
  • 4 Agreed to reform international finance institutions, including better transparency and supervision of credit ratings agencies
  • 5 Agreed that the Financial Stability Forum should include emerging economies
  • 6 Banks and hedge funds to hold increased levels of capital and cash
  • 7 Recommended “supervisory colleges” for all major cross-border financial institutions
  • 8 Return to the Doha round – trade ministers to meet in Geneva next month
  • 9 Instructed G20 finance ministers to draw up plans and timeline
  • 10 Agreed to meet again, in London next April


  • 1 Agree a future growth model for capitalism. Instead they reconfirmed their “shared belief in market principles”
  • 2 Agree detailed plans for regulatory reforms of banking
  • 3 Establish a plan of action for achieving the already endangered Millennium Development Goals
  • 4 Set up an international supervisory body with sufficient power to control global markets
  • 5 Halt the run on sterling, which fell sharply against the euro and dollar

Alyssa McDonald

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess

Show Hide image

Paul Mason: How the left should respond to Brexit

It's up to the labour movement to rescue the elite from the self-inflected wound of Brexit.

For the first time in a generation there is a tangible split between the Tory leadership and the business elite. Forget the 41 per cent poll rating, forget Theresa May’s claim to have moved towards “the centre”; the most important thing to emerge since the Tory conference is a deep revulsion, among wide sections of normally Conservative voters, at the xenophobia, nationalism and economic recklessness on display.

Rhetorically, May has achieved a lot. She quashed any possibility of a soft Brexit strategy. She ended 30 years of openness to migration. She scrapped the Tories’ commitment to balanced books by 2020 – though she neglected to replace this keystone policy with anything else. And she pledged to stop constitutional scrutiny over the Brexit process from Holyrood, Westminster or the courts.

Yet in reality she achieved nothing. May’s government is not in control of the crucial process that will define its fate – the Brexit negotiations. And on Scotland, she has triggered a sequence of events that could lead to the end of the UK within the next five years.

In the light of this, the left has to be refocused around the facts that have emerged since the referendum on 23 June. Britain will leave the EU – but it faces a choice between May’s hubristic nonsense and a strategy to salvage 30 years of engagement with the biggest market in the world. Scotland will hold its second referendum. Labour will be led through all this by a man who, for the first time in the party’s history, cannot be relied on to do the elite’s bidding.

Brexit, on its own, need not have caused a great shift in British politics. It is the new, visceral split between Tory xenophobia and the implicitly liberal and globalist culture in most boardrooms that makes this a turning point. It is a challenge for the left as big as the ones Labour faced in 1931, when the gold standard collapsed; or in 1940, when the reality of total war dawned. It represents a big opportunity – but only if we jolt our brains out of the old patterns, think beyond party allegiances, and react fast.

Let’s start with the facts around which May, Philip Hammond and Amber Rudd constructed their rhetorical body swerve at the Tory conference. Britain is £1.7trn in debt. Its budget deficit cannot be eradicated by 2020 because, even on the steroids of quantitative easing, growth is low, wages are stagnant and its trade situation deeply negative. Austerity, in short, did not work.

With sterling weakened, by next year we’ll begin to feel the pressure of imported inflation on real wages, re-creating the economic pain of 2011-12. On top of that, by attempting a “hard Brexit”, May has created damaging uncertainty for investment that no degree of short-term positivity can mitigate. Even if the range of outcomes only widens, investment will get delayed – and with May’s commitment to hard Brexit the range of outcomes will get significantly worse: 7.5 per cent lopped off GDP, according to a leaked Treasury assessment.

Civil servants believe Britain’s negotiating position is so weak that it will have to leverage its intelligence-providing services to Europe and concede “free movement of high-skilled workers”, just to persuade the French and the Germans to cut any kind of decent bilateral deal. Yet in the two years of brinkmanship that begin when Article 50 is triggered, the EU27 will have no reason whatsoever to concede favourable terms for bilateral trade. By adopting hard Brexit and hard xenophobia, Theresa May has scheduled a 24-month slow-motion car crash.

To orient the Labour Party, trade unions and the wider progressive movement, we need first to understand the scale of the break from normality. Labour already faced deep problems. First, without Scotland it cannot govern; yet many of its members in Scotland are so dislocated from the progressive Scottish national movement that the party is bereft of answers.

Next, the old relationship between the urban salariat and the ex-industrial working class has inverted. With a vastly expanded membership, Labour is the de facto party of the urban salariat. Its heartland is Remainia – the cities that voted to stay in Europe. Its electoral battlegrounds are now places such as Bury, Nuneaton, Corby and Portsmouth, where the “centre” (as measured by the Lib Dem vote) has collapsed, to be replaced by thousands of Green voters and thousands more voting Ukip.

This was the known problem on the eve of Brexit, though layers of Labour MPs and councillors refused to understand it or respond to it. The solution to it was, even at that point, obvious: Labour can only attract back a million Green voters and hundreds of thousands of Ukip voters in winnable marginals with a combination of social liberalism and economic radicalism.

The alternative, as outlined in the Blue Labour project of Maurice Glasman and Jon Cruddas, was an overt return to social conservatism. That cannot work, because it might win back some ex-Labour Ukip voters but could not inspire Labour’s new urban core to go on the doorstep and fight for it. On the contrary, it could easily inspire many of them to tear up their membership cards.

A new strategy – to combine social liberalism, multiculturalism and environmentalism with left-wing economic policies aimed at reviving the “communities left behind” – was, for me, always the heart of Corbynism. Jeremy Corbyn himself, whatever his personal strengths and weaknesses, was a placeholder for a political strategy.

Brexit, the attempted Labour coup and the Tory swing to hard Brexit have changed things all over again. And Labour’s leadership needs to move fast into the political space that has opened up. The starting point is to understand May’s administration as a regime of crisis. It is held together by rhetoric and a vacuum of press scrutiny, exacerbated by Labour’s civil war and the SNP’s perennial dithering over strategy to achieve Scottish independence. The crisis consists of the perils of hard Brexit combined with a tangible split between the old party of capital and capital itself. The elite – the bankers, senior managers, the super-rich and the ­upper middle class – do not want Brexit. Nor does a significant proportion of Middle Britain’s managerial and investing classes.




All this presents Labour with a series of achievable goals – as an opposition in Westminster, in London, as the likely winner in many of the forthcoming mayoral battles, and at Holyrood. The first aim should be: not just oppose hard Brexit, but prevent it. This entails the Labour front bench committing to an attempt to remain inside the European Economic Area.

The wariness – shared by some on the Corbyn side, as well as the Labour right – is born of the assumption that if you commit to the single market, you must accept free movement of labour. The party’s new spokesman on Brexit, Keir Starmer, expressed perfectly what is wrong with this approach: first it’s a negotiation, not a finished relationship; second, you start from the economics, not the migration issue.

Leaving the single market will be a macroeconomic disaster, compounded by a social catastrophe, in which all the European protections – of citizens’ rights, labour rights, consumer and environmental standards – will get ripped up. That’s why the Labour front bench must commit to staying inside the single market, while seeking a deal on free movement that gives Britain time and space to restructure its labour market.

John McDonnell’s “red lines”, produced hurriedly in the days after Brexit, embody this principle – but not explicitly. McDonnell has said Labour would vote against any Brexit deal that did not involve some form of single-market access, and preserve the City’s passporting arrangement, where banks are authorised to trade across an entire area without having to be incorporated separately in each country. Freedom of movement is not included in the red lines.

May, meanwhile, insists there will be no parliamentary scrutiny of the negotiating stance, or of the outcome. This position cannot stand, and overthrowing it provides a big, early target for Labour and the other opposition parties. They should use their constitutional influence – not only in Westminster but at Holyrood, Cardiff and the mayor-run cities, to bust open the Conservatives’ secrecy operation.

By declaring – formally, in a written pact – that they will refuse to ratify a Brexit deal based on World Trade Organisation tariffs, the progressive parties can destroy May’s negotiating position in Brussels overnight. Let the Conservative press accuse us of being “citizens of the world”, undermining the national interest. They will dig their own political grave even faster.

In parallel, Labour needs to lead – intellectually, morally and practically – the fight for a coherent, pro-globalist form of Brexit. In order for this to embody the spirit of the referendum, it would have to include some repatriation of sovereignty, as well as a significant, temporary retreat from freedom of movement. That means – and my colleagues on the left need to accept this – that the British people, in effect, will have changed Labour’s position on immigration from below, by plebiscite.

In response, Labour needs to design a proposal that permits and encourages high beneficial migration, discourages and mitigates the impact of low-wage migration and – forgotten in the rush to “tinder box” rhetoric by the Blairites – puts refugees at the front of the queue, not the back. At its heart must be the assurance, already given to three million EU-born workers, that they will not be used as any kind of bargaining chip and their position here is inviolable.

Finally Labour needs to get real about Scotland. The recent loss of the council by-election in Garscadden, with a 20 per cent swing to the SNP, signals that the party risks losing Glasgow City Council next year.

It is a problem beyond Corbyn’s control: his key supporters inside Scottish Labour are long-standing and principled left-wing opponents of nationalism. Which would be fine if tens of thousands of left-wing social democrats were not enthused by a new, radical cultural narrative of national identity. Corbyn’s natural allies – the thousands of leftists who took part in the Radical Independence Campaign – are trapped outside the party, sitting inside the Scottish Greens, Rise or the left of the SNP.

The interim solution is for Scottish Labour to adopt the position argued by its deputy leader, Alex Rowley: embrace “home rule” – a rejigged devo-max proposal – and support a second independence referendum. Then throw open the doors to radical left-wing supporters of independence. If, for that to happen, there has to be a change of leadership (replacing Kezia Dugdale), then it’s better to do it before losing your last bastion in local government.

The speed with which Labour’s challenge has evolved is a signal that this is no ordinary situation. To understand how dangerous it would be to cling to the old logic, you have only to extrapolate the current polls into an electoral ground war plan. Sticking to the old rules, Labour HQ should – right now – be planning a defensive campaign to avoid losing 60 seats to May. Instead, it can and must lay a plan to promote her administration’s chaotic demise. It should have the ambition to govern – either on its own, or with the support of the SNP at Westminster.

To achieve this, it must confront the ultimate demon: Labour must show willing to make an alliance with the globalist section of the elite. Tony Blair’s equivocation about a return to politics, the constant noise about a new centrist party, and signs of a Lib Dem revival in local by-elections are all straws in the wind. If significant sections of the middle class decide they cannot live with Tory xenophobia, the liberal centre will revive.

The best thing for Labour to do now is to claim as much of the high ground before that. It must become the party of progressive Brexit. The worst thing would be to start worrying about “losing the traditional working class”.

The “traditional working class” knows all too well how virulent Ukip xenophobia is: Labour and trade union members spend hours at the pub and in the workplace and on the doorstep arguing against it.

All over Britain, the labour movement is a line, drawn through working-class communities, which says that migrants are not to blame for poor housing, education, low pay and dislocated communities. For the first time in a generation Labour has a leader prepared to say who is to blame: the neoliberal elite and their addiction to privatisation, austerity and low wages.

It was the elite’s insouciance over the negative impacts of EU migration on the lowest-skilled, together with their determination to suppress class politics inside Labour, that helped get us into this mess. An alliance with some of them, to achieve soft Brexit, democratic scrutiny and to defeat xenophobic solutions, must be conditional.

We, the labour movement, will dig the British ruling class out of a self-made hole, just as we did in May 1940. The price is: no return to the philosophy of poverty and inequality; a strategic new deal, one that puts state ownership, redistribution and social justice at the heart of post-Brexit consensus.

That is the way forward. If Labour politicians can bring themselves to explain it clearly, cajole the party apparatus out of its epic sulk and make a brave new offer to Scotland – it can work. But time is important. We are up against a corrosive nationalist bigotry that now echoes direct from the front page of the Daily Mail to Downing Street. Every day it goes unchallenged it will seep deeper into Britain’s political pores.

Paul Mason is the author of “PostCapitalism: a Guide to Our Future” (Penguin)

This article first appeared in the 13 October 2016 issue of the New Statesman, England’s revenge