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The bugger, bugged

After a chance meeting with a former News of the World executive who told him his phone had been hacked, Hugh Grant couldn’t resist going back to him – with a hidden tape recorder – to find out if there was more to the story. . .

When I broke down in my midlife crisis car in remotest Kent just before Christmas, a battered white van pulled up on the far carriageway. To help, I thought. But when the driver got out he started taking pictures with a long-lens camera. He came closer to get better shots and I swore at him. Then he offered me a lift the last few miles to my destination. I suspected his motives and swore at him some more. (I'm not entirely sympathetic towards paparazzi.) Then I realised I couldn't get a taxi and was late. So I had to accept the lift.

He turned out to be an ex-News of the World investigative journalist and paparazzo, now running a pub in Dover. He still kept his camera in the car's glove box for just this kind of happy accident.

More than that, he was Paul McMullan, one of two ex-NoW hacks who had blown the whistle (in the Guardian and on Channel 4's Dispatches) on the full extent of phone-hacking at the paper, particularly under its former editor Andy Coulson. This was interesting, as I had been a victim - a fact he confirmed as we drove along. He also had an unusual defence of the practice: that phone-hacking was a price you had to pay for living in a free society. I asked how that worked exactly, but we ran out of time, and next thing we had arrived and he was asking me if I would pose for a photo with him, "not for publication, just for the wall of the pub".

I agreed and the picture duly appeared in the Mail on Sunday that weekend with his creative version of the encounter. He had asked me to drop into his pub some time. So when, some months later, Jemima asked me to write a piece for this paper, it occurred to me it might be interesting to take him up on his invitation.

I wanted to hear more about phone-hacking and the whole business of tabloid journalism. It occurred to me just to interview him straight, as he has, after all, been a whistleblower. But then I thought I might possibly get more, and it might be more fun, if I secretly taped him, The bugger bugged, as it were. Here are some excerpts from our conversation.

Me So, how's the whistleblowing going?
Him I'm trying to get a book published. I sent it off to a publisher who immediately accepted it and then it got legal and they said, "This is never going to get published."
Me Why? Because it accuses too many people of crime?
Him Yes, as I said to the parliamentary commission, Coulson knew all about it and regularly ordered it . . . He [Coulson] rose quickly to the top; he wanted to cover his tracks all the time. So he wouldn't just write a story about a celeb who'd done something. He'd want to make sure they could never sue, so he wanted us to hear the celeb like you on tape saying, "Hello, darling, we had lovely sex last night." So that's on tape - OK, we've got that and so we can publish . . . Historically, the way it went was, in the early days of mobiles, we all had analogue mobiles and that was an absolute joy. You know, you just . . . sat outside Buckingham Palace with a £59 scanner you bought at Argos and get Prince Charles and everything he said.
Me Is that how the Squidgy tapes [of Diana's phone conversations] came out? Which was put down to radio hams, but was in fact . . .
Him Paps in the back of a van, yes . . . I mean, politicians were dropping like flies in the Nineties because it was so easy to get stuff on them. And, obviously, less easy to justify is celebrities. But yes.
Me And . . . it wasn't just the News of the World. It was , you know - the Mail?
Him Oh absolutely, yeah. When I went freelance in 2004 the biggest payers - you'd have thought it would be the NoW, but actually it was the Daily Mail. If I take a good picture, the first person I go to is - such as in your case - the Mail on Sunday. Did you see that story? The picture of you, breaking down . . . I ought to thank you for that. I got £3,000. Whooo!
Me But would they [the Mail] buy a phone-hacked story?
Him For about four or five years they've absolutely been cleaner than clean. And before that they weren't. They were as dirty as anyone . . . They had the most money.
Me So everyone knew? I mean, would Rebekah Wade have known all this stuff was going on?
Him Good question. You're not taping, are you?
Me [slightly shrill voice] No.
Him Well, yeah. Clearly she . . . took over the job of [a journalist] who had a scanner who was trying to sell it to members of his own department. But it wasn't a big crime. [NB: Rebekah Brooks has always denied any knowledge of phone-hacking. The current police investigation is into events that took place after her editorship of the News of the World.]
It started off as fun - you know, it wasn't against the law, so why wouldn't you? And it was only because the MPs who were fiddling their expenses and being generally corrupt kept getting caught so much they changed the law in 2001 to make it illegal to buy and sell a digital scanner. So all we were left with was - you know - finding a blag to get your mobile [records] out of someone at Vodafone. Or, when someone's got it, other people swap things for it.
Me So they all knew? Wade probably knew all about it all?
Him [...] Cameron must have known - that's the bigger scandal. He had to jump into bed with Murdoch as everyone had, starting with Thatcher in the Seventies . . . Tony Blair . . . [tape is hard to hear here] Maggie openly courted Murdoch, saying, you know, "Please support me." So when Cameron, when it came his turn to go to Murdoch via Rebekah Wade . . . Cameron went horse riding regularly with Rebekah. I know, because as well as doorstepping celebrities, I've also doorstepped my ex-boss by hiding in the bushes, waiting for her to come past with Cameron on a horse . . . before the election to show that - you know - Murdoch was backing Cameron.
Me What happened to that story?
Him The Guardian paid for me to do it and I stepped in it and missed them, basically. They'd gone past - not as good as having a picture.
Me Do you think Murdoch knew about phone-hacking?
Him Errr, possibly not. He's a funny bloke given that he owns the Sun and the Screws . . . quite puritanical. Sorry to talk about Divine Brown, but when that came out . . . Murdoch was furious: "What are you putting that on our front page for? You're bringing down the tone of our papers." [Indicating himself] That's what we do over here.
Me Well, it's also because it was his film I was about to come out in.
Him Oh. I see.
Me Yeah. It was a Fox film.
[A pause here while we chat to other customers, and then - ]
Him So anyway, let me finish my story.
Me Murdoch, yes . . .
Him So I was sent to do a feature on Moulin Rouge! at Cannes, which was a great send anyway. Basically my brief was to see who Nicole Kidman was shagging - what she was doing, poking through her bins and get some stuff on her. So Murdoch's paying her five million quid to big up the French and at the same time paying me £5.50 to fuck her up . . . So all hail the master. We're just pawns in his game. How perverse is that?
Me Wow. You reckon he never knew about it?
Him [pause] I don't even think he really worried himself too much about it.
Me What's his son called?
Him James. They're all mates together. They all go horse riding. You've got Jeremy Clarkson lives here [in Oxfordshire]. Cameron lives here, and Rebekah Wade is married to Brooks's son [the former racehorse trainer Charlie Brooks]. Cameron gets dressed up as the Stig to go to Clarkson's 50th birthday party [NB: it was actually to record a video message for the party]. Is that demeaning for a prime minister? It should be the other way round, shouldn't it? So basically, Cameron is very much in debt to Rebekah Wade for helping him not quite win the election . . . So that was my submission to parliament - that Cameron's either a liar or an idiot.
Me But don't you think that all these prime ministers deliberately try to get the police to drag their feet about investigating the whole [phone-hacking] thing because they don't want to upset Murdoch?
Him Yeah. There's that . . . You also work a lot with policemen as well . . . One of the early stories was [and here he names a much-loved TV actress in her sixties] used to be a street walker - whether or not she was, but that's the tip.
Me and Chum MLTVA?!
Me I can't believe it. Oh no!
Chum Really??
Him Yeah. Well, not now . . .
Chum Oh, it'd be so much better if it was now.
Him So I asked a copper to get his hands on the phone files, but because it's only a caution it's not there any more. So that's the tip . . . it's a policeman ringing up a tabloid reporter and asking him for ten grand because this girl had been cautioned right at the start of his career. And then I ask another policemen to go and check the records . . . So that's happening regularly. So the police don't particularly want to investigate.
Me But do you think they're going to have to now?
Him I mean - 20 per cent of the Met has taken backhanders from tabloid hacks. So why would they want to open up that can of worms? . . . And what's wrong with that, anyway? It doesn't hurt anyone particularly. I mean, it could hurt someone's career - but isn't that the dance with the devil you have to play?
Me Well, I suppose the fact that they're dragging their feet while investigating a mass of phone-hacking - which is a crime - some people would think is a bit depressing about the police.
Him But then - should it be a crime? I mean, scanning never used to be a crime. Why should it be? You're transmitting your thoughts and your voice over the airwaves. How can you not expect someone to just stick up an aerial and listen in?
Me So if someone was on a landline and you had a way of tapping in . . .
Him Much harder to do.
Me But if you could, would you think that was illegal? Do you think that should be illegal?
Him I'd have to say quite possibly, yeah. I'd say that should be illegal.
Me But a mobile phone - a digital phone . . . you'd say it'd be all right to tap that?
Him I'm not sure about that. So we went from a point where anyone could listen in to anything. Like you, me, journalists could listen in to corrupt politicians, and this is why we have a reasonably fair society and a not particularly corrupt or criminal prime minister, whereas other countries have Gaddafi. Do you think it's right the only person with a decent digital scanner these days is the government? Whereas 20 years ago we all had a go? Are you comfortable that the only people who can listen in to you now are - is it MI5 or MI6?
Me I'd rather no one listened in, to be honest. And I might not be alone there. You probably wouldn't want people listening to your conversations.
Him I'm not interesting enough for anyone to want to listen in.
Me Ah . . . I think that was one of the questions asked last week at one of the parliamentary committees. They asked Yates [John Yates, acting deputy commissioner of the Metropolitan Police] if it was true that he thought that the NoW had been hacking the phones of friends and family of those girls who were murdered . . . the Soham murder and the Milly girl [Milly Dowler].
Him Yeah. Yeah. It's more than likely. Yeah . . . It was quite routine. Yeah - friends and family is something that's not as easy to justify as the other things.
Me But celebrities you would justify because they're rich?
Him Yeah. I mean, if you don't like it, you've just got to get off the stage. It'll do wonders.
Me So I should have given up acting?
Him If you live off your image, you can't really complain about someone . . .
Me I live off my acting. Which is different to living off your image.
Him Yeah, but you're still presenting yourself to the public. And if the public didn't know you -
Me They don't give a shit. I got arrested with a hooker and they still came to my films. They don't give a fuck about your public image. They just care about whether you're in an entertaining film or not.
Him That's true . . . I have terrible difficulty with him [points to pap shot of Johnny Depp]. He's really difficult. You know, I was in Venice and he was a nightmare to do because he walks around looking like Michael Jackson. And the punchline was . . . after leading everyone a merry dance the film was shot on an open balcony - I mean, it was like - he was standing there in public.
Me And you don't see the difference between the two situations?
Chum He was actually working at this time? As opposed to having his own private time?
Him You can't hide all the time.
Me So you're saying, if you're Johnny Depp or me, you don't deserve to have a private life?
Him You make so much more money. You know, most people in Dover take home about £200 and struggle.
Me So how much do you think the families of the Milly and Soham girls make?
Him OK, so there are examples that are poor and you can't justify - and that's clearly one of them.
Me I tell you the thing I still don't get - if you think it was all right to do all that stuff, why blow the whistle on it?
Him Errm . . . Right. That's interesting. I actually blew the whistle when a friend of mine at the Guardian kept hassling me for an interview. I said, "Well if you put the name of the Castle [his pub] on the front page of the Guardian, I'll do anything you like." So that's how it started.
Me So, have you been leant on by the NoW, News International, since you blew the whistle?
Him No, they've kept their distance. I mean, there's people who have much better records - my records are non-existent. There are people who actually have tapes and transcripts they did for Andy Coulson.
Me And where are these tapes and transcripts? Do you think they've been destroyed?
Him No, I'm sure they're saving them till they retire.
Me So did you personally ever listen to my voice messages?
Him No, I didn't personally ever listen to your voice messages. I did quite a lot of stories on you, though. You were a very good earner at times.

Those are the highlights. As I drove home past the white cliffs, I thought it was interesting - apart from the fact that Paul hates people like me, and I hate people like him, we got on quite well. And, absurdly, I felt a bit guilty for recording him.

And he does have a very nice pub. The Castle Inn, Dover, for the record. There are rooms available, too. He asked me if I'd like to sample the honeymoon suite some time: "I can guarantee your privacy."

-- Listen to the audio now --

This article first appeared in the 11 April 2011 issue of the New Statesman, Jemima Khan guest edit

JONATHAN McHUGH/IKON IMAGES
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The optimism error

We are told that austerity has triumphed and that the British economy is running full steam ahead. The reality is more alarming.

In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.

The unpalatable truth is that austerity in the face of the private-sector collapse of 2008-2009 has weakened our ability to produce output. Britain has been left overfinancialised, overborrowed and underinvested. It is not surprising that it is exceptionally exposed to any global downturn.

Before John Maynard Keynes it was believed, by economists at least, that a competitive market would normally produce full employment. As the facts of experience appeared to indicate otherwise, economists, prompted by Keynes, sharpened up their theory. A market economy would ­always lead to full employment provided wages and prices were flexible. Workers, if facing unemployment, had only to accept wage reductions to “price themselves back into work”.

However, as it seemed unrealistic to suppose that workers would do this – or do it quickly enough – government policy could short-circuit the painful process of adjustment. When a slump threatened or occurred, a government could stimulate spending by cutting interest rates and by incurring budget deficits. This was the main point of the Keynesian revolution.

This policy ran from the 1950s to the 1970s. It was overthrown in the 1980s, when unemployment prevention became confined to interest-rate policy, eventually run by the central bank, not the government. By keeping the rate of inflation constant, the monetary authority could keep unemployment at its “natural rate”. This worked quite well for a time, but then, following the widespread failure of the banking system, the world economy collapsed in 2008.

In a panic, the politicians, from Barack Obama to Gordon Brown, took Keynes out of the cupboard, dusted him down, and “stimulated” the economy like mad. When this produced some useful recovery they got cold feet. “Keynes,” they said, “you’ve done your job. Back in the cupboard you go.” I wrote a book at the time called The Return of the Master. A reviewer pointed out that the Master had returned for six months only.

Why had the politicians’ nerve failed and what were the consequences?

The answer is that in bailing out leading banks and allowing budget deficits to soar, governments had incurred huge debts that threatened their financial credibility. It was claimed that bond yields would rise sharply, adding to the cost of borrowing. This was never plausible in Britain, but bond yield spikes threatened default in Greece and other eurozone countries early in 2010. Long before the stimulus had been allowed to work its magic in restoring economic activity and government revenues, the fiscal engine was put into reverse, and the politics of austerity took over.

Yet austerity did not hasten recovery; it delayed it and rendered it limp when it came. Enter “quantitative easing” (QE). The central bank would flood the banks and
pension funds with cash. This, it was expected, would cause the banks to lower their interest rates, lend more and, by way of a so-called wealth effect, cause companies and high-net-worth individuals to consume and invest more. But it didn’t happen. There was a small initial impact, but it soon petered out. Bank lending, an important index of recovery, in fact went down as the institutions sat on piles of cash and the wealthy speculated in property.

So we reach the present impasse. Events have confirmed that a competitive market economy is subject to severe collapses, and the effects of these linger in the form of elevated unemployment, lower output, lower productivity and increased poverty. At the same time, however, counter-cyclical policy is disabled. Monetary expansion is much less potent than people believed; and using the budget deficit to fight unemployment is ruled out by the bond markets and the ­Financial Times. The levers either don’t work, or we are not allowed to pull them. Where do we go from here?

 

The present situation

The first thing is to establish where we now are. How much recovery has there been in Britain? Economists try to answer this question with reference to the output gap – the difference between what an economy is actually producing and what it can produce. The OECD’s most recent estimate of this gap in the UK stands at a negligible -0.017 per cent. We might conclude from this that the British economy is running full steam ahead and that we have, at last, successfully recovered from the crash. This is the basis of George Osborne’s triumphalism. His critics, including myself, have been proved wrong. His austerity policies have worked. Or so we are told.

But such a conclusion would be premature. Although we are producing as much output as we can, our capacity to produce output has fallen. This can be shown by comparing the current economic situation to where we would expect to be, according to the historic trend.

From this perspective, championed by the Oxford economist Simon Wren-Lewis, the position is far less rosy. Growth in output per person in Britain (roughly “living standards”) averaged 2.25 per cent per year for the half-century before 2008. Recessions in the past have caused deviations downward from this path, but recoveries had delivered above-trend growth, lifting us back up to the previous path. One can say that the “business cycle” oscillates between errors of pessimism and errors of optimism. In other words, the loss of output is temporary.

This time it was different. The recovery from the financial crisis was the weakest on record, and the result of this is a yawning gap between where we are and where we should have been. Output per head is between 10 and 15 per cent below trend.

We are faced with a puzzle. If the output gap is as small as the OECD believes, then the British economy appears to have lost much of its productive potential. It is no longer a case of demand falling short of supply, leaving a surplus of workers and capital equipment. The supply is no longer available: we have lost eight years’ growth of productivity. Between 1971 and 2007 productivity growth averaged 2-3 per cent a year. Since the recession started it has been close to zero. Why is it that the recession turned spare capacity into lost capacity? One answer lies in the ugly word “hysteresis”.

 

Hysteresis

This is an idea borrowed from physics. If an insulated wire is wrapped around an iron bar, and an electric current is then passed along the wire, the iron bar becomes magnetised. Some of this magnetism remains even after the current has been switched off. A shock has a long-lasting effect. This is labelled hysteresis.

An economy experiences hysteresis not when output falls relative to potential output, but when potential output itself falls as a result of a recession. What happens is that the recession itself shrinks productive capacity: the economy’s ability to produce output is impaired.

The intuition behind it is simple enough: if you let a recession last long enough for capital and labour to rust away you will lose growth potential, on account of discouraged workers, lost skills, broken banks and missing investment in future productivity. By not taking steps to offset the negative shock of the recession with the positive shock of a stimulus, the coalition government cost the country 10 per cent or more of potential output.

The phenomenon of hysteresis is not ­necessarily captured by high levels of “headline” unemployment. In fact, low levels of unemployment may reflect low productivity growth, as employers prefer to use cheap workers to investing in machines: unemployed workers may be re-employed in part-time or minimum-wage or zero-hour contract jobs. Much of the new private-sector job creation lauded by the Chancellor is exactly in such low-productivity sectors. The collapse of investment is particularly serious, because investment is the main source of productivity.

The challenge for policy is to liquidate the hysteresis – to restore supply. How is this to be done?

 

Blockage of policy

An economic recession is precipitated by a fall in private spending, be it investment or consumption. It can be countered by monetary and fiscal policy, aiming either to stimulate private spending or to replace it temporarily by public spending. On the monetary front, the bank rate was dropped to near zero; this not being enough, the Bank of England pumped out hundreds of billions of pounds between 2009 and 2012, but too little of the money went into the real economy. As Keynes recognised, it is the spending of money, not the printing of it, which stimulates productive activity, and he warned: “If . . . we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips ­between the cup and the lip.”

That left fiscal policy. Fiscal policy can fight recession by cutting taxes or increasing public spending. Both involve deliberately budgeting for a deficit. In Britain, any possible tolerance for a deficit larger than the one automatically caused by a recession was destroyed by fearmongering about unsustainable debt. From 2009 onwards, the difference between Labour and ­Conservative was about the speed of deficit reduction. The contribution that deliberate deficit budgeting might make to recovery was never mentioned, except by unreconstructed Keynesians.

So we now have a situation in which the main tools available to government to bring about a robust recovery are out of action. In addition, sole reliance on monetary policy for stimulus creates a highly unbalanced recovery. The money the government pours into the economy either sits idle or simply pumps up house prices, threatening to re-create the asset bubble that produced the crisis in the first place. We already have the highest rate of post-crash increase in house prices of all OECD countries. This suggests that the next crash may not be far off.

 

The public accounts trap

From 2009 onwards the main obstacle to a sensible recovery policy has been the obsession with balancing the national budget. A government can finance its spending in one of three ways: it can raise taxes, borrow from the private sector, or borrow from the Bank of England (that is, “print money”). Each has advantages and disadvantages, but public opinion has decided that the first of these – covering all spending by taxes – is the only “honest” way. In popular discourse, borrowing signifies a “deficit”, and a particular horror attaches to deficits, because they suggest the government is not “paying its way”. “We must get the deficit down” has been the refrain of all the parties.

Printing money to finance public investment has been suggested by both the Labour leader and the shadow chancellor as a way to get round the borrowing constraint. Its advantage is that it wouldn’t directly increase the national debt, because the government would only owe the money to itself. On the other hand, it might destroy confidence in the state’s ability to control its spending, and it would jeopardise the independence of the central bank. So, printing money to pay for public spending should only be a remedy of the last resort.

It is right to be concerned about a rising national debt (now roughly £1.6trn). But the way to reverse it is not to cut down the economy, but to cause it to grow in a sustainable way. In many circumstances, that involves deliberately increasing the deficit. This is a paradox too far for most people to grasp. But it makes perfect sense if the increased deficit causes the economy, and thus the government’s revenues, to grow faster than the deficit. If the economy is in the doldrums, practically all forms of government expenditure should be welcomed, as they utilise idle resources.

In our present situation, with little spare capacity, the government needs to think much more carefully about what it should be borrowing for. Public finance theory makes a clear distinction between current and capital spending. A sound rule is that governments should cover their current or recurrent spending by taxation, but should borrow for capital spending, that is, investment. This is because current spending gives rise to no government-owned assets, whereas capital spending does.

If these assets are productive, they pay for themselves by increasing government earnings, either through user charges or through increased tax revenues. If I pay for all my groceries “on tick” my debt will just go on rising. But if I borrow to invest in, say, my education, my increased earnings will be available to discharge my debt.

Covering current account spending by taxation is at the heart of the balanced budget rule. But as Thomas J Sargent, certainly no Keynesian, wrote in 1981 (Federal Reserve Bank of Minneapolis, Research Department Working Paper W): “The principles of classical economic theory condone deficits on capital account.”

Now is an ideal time for the government to be investing in the economy, because it can borrow at such low interest rates. But surely this means increasing the deficit? Yes, it does, but in the same unobjectionable way as a business borrows money to build a plant in the expectation that the investment will pay off. It is because the distinction between current and capital spending has become fuzzy through years of misuse and obfuscation that we have slipped into the state of thinking that all government spending must be balanced by taxes – in the jargon, that net public-sector borrowing should normally be zero. George Osborne has now promised to “balance the budget” – by 2019-20. But within this fiscal straitjacket the only way he can create room for more public investment is to reduce current spending, which in practice means cutting the welfare state.

 

A British Investment Bank

How can we break this block on capital spending? Several of us have been advocating a publicly owned British Investment Bank. The need for such institutions has long been widely acknowledged in continental Europe and east Asia, partly because they fill a gap in the private investment market, partly because they create an institutional division between investment and current spending. This British Investment Bank, as I envisage it, would be owned by the government, but would be able to borrow a multiple of its subscribed capital to finance investment projects within an approved range. Its remit would include not only energy-saving projects but also others that can contribute to rebalancing the economy – particularly transport infrastructure, social housing and export-oriented small and medium-sized enterprises (SMEs).

Unfortunately, the conventional view in Britain is that a government-backed bank would be bound, for one reason or another, to “pick losers”, and thereby pile up non-performing loans. Like all fundamentalist beliefs, this has little empirical backing. Two relevant comparators – the European Investment Bank and Germany’s KfW (Kreditanstalt für Wiederaufbau) – show that, in well-regulated financial systems, such banks pay for themselves. Neither bank has had to go back to its shareholder(s) to raise fresh money to cover losses. The EU is setting up a European Fund for Strategic Investments, which, with a capitalisation of €21bn, is expected to lever at least €315bn of investment over the first three years.

George Osborne has rejected this route to modernisation. Instead of borrowing to renovate our infrastructure, the Chancellor is trying to get foreign, especially Chinese, companies to do it, even if they are state-owned. Looking at British energy companies and rail franchises, we can see that this is merely the latest in a long history of handing over our national assets to foreign states. Public enterprise is apparently good if it is not British.

Britain already has two small state investment banks – the Green Investment Bank (GIB) and the British Business Bank. But the Treasury is so obsessed with avoiding any increase in the deficit that, up to this point, it has deprived these newly formed institutions of any power to borrow. This has restricted their investment potential. The Green Investment Bank was capitalised with £3.8bn of public funds in 2012; it has so far invested £2bn. Now the government proposes to privatise the GIB, because “it is necessary to move the bank off the public balance sheet if it is to arrange additional funding through borrowing”. The same fate no doubt awaits the British Business Bank, set up to channel money to SMEs.

Apart from exposing its unjustified belief that public investment must be loss-making, the Treasury’s stance is an artefact of its insistence that there should be no net borrowing. It was to avoid this grave effect on public investment that Gordon Brown, as chancellor, was drawn into the large-scale Private Finance Initiative, when there were cheaper financing mechanisms available.

Setting up a British Investment Bank with enough borrowing power to make it an effective investment vehicle is the essential first step towards rebuilding supply. Distancing it from politics by giving it a proper remit would create confidence that its ­projects would be selected on commercial, not political criteria. But this step would not be possible without a different accounting system. The solution would be to make use of comprehensive accounting that appropriately scores increases in net worth of the bank’s assets. The British Investment Bank I envisage would only finance investment in productive assets: although its borrowing would show up in the public accounts, it would be financed by revenue from its own activities. This is fundamentally different from tax-financed debt, and fully in line with the conventional theory of public finance outlined above.

Has the Chancellor the courage to grasp the opportunity?

He can justifiably congratulate himself on having avoided the worst disasters to which Treasury accounting rules and narrow ideology could have led him. But in the non-political recesses of his mind he must understand that the recovery over which he has presided is incomplete, fragile and, above all, unfair.

The first necessary step is to reform the way we do our national accounts, in order to dispel the deficit and debt phobia that blights sensible policy.

Robert Skidelsky is a cross-bench peer and a leading biographer of J M Keynes. His most recent book is “Britain Since 1900: a Success Story?” (Vintage)

This article first appeared in the 14 January 2016 issue of the New Statesman, David Bowie