Darling in the hall of horrors

Unflattering comparisons to certain predecessors have dogged the Chancellor's week. He is damaged, w

By no stretch of the imagination can Alistair Darling be regarded as a chancellor who has chalked up unalloyed triumphs. The fumbled nationalisation of Northern Rock, the perceived U-turns on capital gains and the taxation of non-doms and the sharp deterioration in the public finances have framed him, in the public mind, as inept.

Indeed, a YouGov poll found that 44 per cent of those surveyed believe that Darling, once regarded as new Labour's "safe pair of hands", should be fired. Only 27 per cent of those polled could bring themselves to support him staying at the Treasury. In the City, where opinion turns on a sixpence, the calls for his head have become shrill. New Labour's traditional enemies have detected weakness and have pounced upon it.

Following Gordon Brown at the Treasury was always going to be a difficult task, even for someone who gave the appearance of being as calm as Darling. But no one could have predicted the opprobrium that has been heaped upon him.

Once Brown, with all his bustling ambition, had gone to No 10, all those critics and commentators who feared to cross the former chancellor saw his successor as an easy target. This has led to some very unfortunate comparisons for the current incumbent at No 11. In recent weeks Darling has variously been described as the worst chancellor since the late Anthony Barber and Norman Lamont. Neither comparison bears much scru tiny. Barber and Lamont were Tories and both held office for several years before shortcomings became apparent.

Barber's "Competition and Credit Control" unleashed the first great inflation and the secondary banking collapse of 1974-75. In that crisis the Bank of England, still in charge of financial supervision, launched a secret rescue of the kind which might have saved Darling the embarrassment of Northern Rock. However, even Darling's most bitter opponents cannot blame him for a Barber-style credit explosion.

As for Lamont, he presided over a huge public sector debt and the UK's chaotic exit from the Exchange Rate Mechanism, when interest rates went up and down like a Yo-yo as the chancellor famously sang in the bath.

Many of Darling's problems stem from next door at No 10. When Brown became Prime Minister he removed some of the Treasury's most skilled operators. On the ministerial front the biggest loss was the economic secretary, Ed Balls, in effect the City minister, who spent much of his time responding to the complaints of the Square Mile. There was also an outflow of senior officials, including John Cunliffe, Tom Scholar (now back), Michael Ellam and the gung-ho special adviser Damian McBride.

Huge anger

Brown rushed next door so quickly that he failed to clear his desk. Among the issues he left behind were two long-standing, delicate tax questions surrounding the super-rich. Huge anger was building in the media and in the Commons over the exploitation of tax loopholes by the private equity princelings - tearing the heart out of Brit ish business - and non-domiciled freeloaders.

The Prime Minister must also take his share of the blame for the Northern Rock fiasco. In the aftermath of the nationalisation decision, Brown in particular sought to depict the implosion at the Newcastle bank as part of a much broader international event. At his regular Downing Street press conference there was much talk of obscure branches of finance - US monolines, for instance, which insure financial instruments such as bonds.

Brown was right to point out that the credit crunch which struck on 9 August was born in America's trailer-trash mortgage market. But it was changes made by Brown to Britain's system of regulation in 1997 that led to months of dith ering, uncertainty, charges of incompetence and eventually, when all other escape routes had been closed, nationalisation.

The "Tripartite" system of regulation was designed by Brown and Balls. The intention was to remove responsibility for banking supervision from the Bank of England, so that it could concentrate on its core function of controlling inflation. Bank supervision was moved lock, stock and barrel to the new super-regulator, the Financial Services Authority at Canary Wharf.

But there was a fundamental flaw in the system. The Bank of England, like all central banks, controlled the liquidity - the ability to provide cash to institutions in difficulty - but it was the ineffectual FSA that determined when they were in trouble. This disconnection meant that no one was directly in charge and when Northern Rock hit the buffers because it ran out of ready cash, no one was willing to organise the kind of rescue by the banking industry that is the norm in almost every other country. This even though there was at least one offer on the table, from Lloyds TSB, the high street bank.

A member of the Bank of England's ruling court told me that as important as the institutional paralysis were the people at the helm. Imagine if (Lord) Eddie George were still governor of the Bank of England, Howard Davies (now at the London School of Economics) were head of the FSA and Brown were still at the Treasury. For sure, the willpower and leadership required for a secret banking rescue, which would have prevented the humiliating run on the Rock, would have been present.

Instead, the Bank, the FSA and the Treasury all seemed intent in mid-September to avoid responsibility and blame for a debacle that would run on until February. Again Brown must take a share of the blame. It was he who insisted that every private-sector route be explored before nationalisation took place, on the grounds that public ownership was too old Labour, a throwback to the dark days of the Wilson government and British Leyland and British Steel in the 1970s. Yet the long delays in taking firm decisions gave the impression of a vacillating administration that found it impos sible to make the tough political choice until all other options had run out.

Darling is also the victim of fundamental Budget failings. Brown, despite his reputation as the "iron chancellor", had taken his eye off fiscal policy, and public borrowing was soaring. The time to cut the Budget deficit is when the economy is growing. Instead, Brown chose to go on a public spending splurge in a vain attempt to deal with the problems of the NHS and education.

His ability to spend freely was heavily dependent on buoyant tax income, much of it from the City. Unfortunately, when the credit crunch set in, tax income from banks and those who work for them plummeted and a chasm opened up in the Budget. At the very moment when the Treasury might have adopted the Keynesian solution of spending or tax-cutting its way out of recession - as the International Monetary Fund now recommends - Darling found his hands tied.

As a consequence, when he delivers his first Budget next month, Darling will have to explain away a budgetary black hole similar to that faced by Norman Lamont when he introduced Britain's biggest ever tax-raising Budget in 1993. Not a comparison that Darling will relish.

Yet it was the unresolved tax issues that have been the real undoing of Darling. The rushed pre-Budget report in October took the decisive steps to tax the super-rich. Capital gains tax was to be simplified and raised from 10 per cent to 18 per cent. And Labour, stealing and wearing Tory clothes, would impose a £30,000 charge on the non-doms.

It is what followed that so damaged Darling's reputation. The City, supported by the CBI, the Financial Times and the Telegraph, launched a vitriolic campaign against both proposals, claiming they would destroy London's leadership as a financial centre and send the private equity princelings and non-doms fleeing to Monaco and Switzerland. Proposals that enjoyed the support of millions of ordinary, hard-working, taxpaying Britons were being attacked by a small clique of vested interests.

Was it avoidable?

In both cases the pressure on the Chancellor became so strong that No 10 orchestrated retreats which left Darling looking weak and indecisive. In the case of non-doms, Darling was specifically undermined by one from Brown's government of all the talents, the excitable former CBI boss Digby Jones - the trade minister.

Could all of this have been avoided? A more robust chancellor could have taken on his critics, rather than allow them to dominate the agenda. The private equity bosses and non-doms have no political constituency in the UK, apart from the disgraced bankers of the City. Yet the reality is that the tax retreats were not humiliating U-turns, as portrayed in lurid headlines, but mid-course adjustments of the kind that happen with all complex tax changes.

The assassination of Darling by a peculiar combination of forces from next door at No 10, the CBI and sections of the media has not been pretty to watch. They sensed weakness and attacked relentlessly. His image will not have been helped by his muddled media appearances after the nationalisation of Northern Rock was announced. As jobs in Newcastle are axed by his chosen company doctor, Ron Sandler, Darling may well come to regret the phrase "business as usual". It is also likely that "temporary" ownership could mean anything up to a decade, given the history of previous bank nationalisations on both sides of the Atlantic.

Darling needs to find the inner reserves to take on his enemies in the Budget on 12 March. Most importantly, he must stake out an aggressive, US-style growth strategy for keeping recession at bay. Otherwise he will find his survival at the Treasury foreshortened and could join the hall of horrors of Britain's worst chancellors.

Alex Brummer is City editor of the Daily Mail

This article first appeared in the 25 February 2008 issue of the New Statesman, Pakistan reborn

Photo: ANDREW TESTA/THE NEW YORK TIMES/ EYEVINE
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Interview: Nicola Sturgeon's Scottish referendum dilemma

In a candid interview, the First Minister discusses Theresa May’s coldness, Brexit and tax rises – and why she doesn't know when a second referendum will be held. 

Nicola Sturgeon – along with her aides, who I gather weren’t given much choice – has taken up jogging in the verdant country­side that lies to the east of the Scottish Parliament. “The first time was last week,” she says, when we meet in her large, bright Holyrood office. “Loads of people were out running, which made me a bit self-conscious. But it was fine for ages because everybody’s so focused. Then, suddenly, what must have been a running group came towards me. I saw one of them look and as they ran past I turned round and all of them were looking.” She winces. “I will eventually get to the point where I can run for more than 100 yards at a time, but I’m not at the stage yet where I can go very far. So I’m thinking, God, they’re going to see me stop. I don’t know if I can do this.”

This is a very Nicola Sturgeon story – a touch of the ordinary amid the extraordinary. She may have been a frontbencher for almost two decades, a cabinet minister for half of that and the First Minister since 2014, but she retains that particularly Scottish trait of wry self-mockery. She is also exceptionally steely, evident in her willed transformation over her adult life from a shy, awkward party member to the charismatic leader sitting in front of me. Don’t be surprised if she is doing competitive ten-kilometre runs before the year is out.

I arrived at the parliament wondering what frame of mind the First Minister would be in. The past year has not been especially kind to her or the SNP. While the party is still Scotland’s most popular by a significant margin, and Sturgeon continues to be its dominant politician, the warning lights are flashing. In the 2015 general election, the SNP went from six seats out of 59 to 56, a remarkable result. However, in Theresa May’s snap election in June this year, it lost 21 of those seats (including those of Angus Robertson, the SNP leader at Westminster, and Alex Salmond), as well as half a million votes. Much of the blame has been placed on Sturgeon and her call for a second independence referendum following the vote for Brexit. For critics, it confirmed a suspicion that the SNP only cares about one thing and will manipulate any situation to that end. Her decision also seemed a little rushed and desperate, the act of a woman all too aware of the clock ticking.

But if I expect Sturgeon to be on the defensive, maybe even a little downbeat, I’m wrong. Having just come from a feisty session of First Minister’s Questions, where she had the usual barney with her Tory opposite number, Ruth Davidson, she is impressively candid. “When you come out [of FMQs], your adrenaline levels are through the roof,” she says, waggling a fist in my direction. “It’s never a good idea to come straight out and do an interview, for example.” Adrenalised or not, for the next hour, she is thoughtful, frank, funny and perhaps even a little bitchy.

Sturgeon’s office is on the fourth floor, looking out over – and down on – Holyrood Palace, the Queen’s official residence in Edinburgh. As we talk, a large artistic rendering of a saltire adorns the wall behind her. She is similarly in blue and white, and there are books about Burns on the shelves. This is an SNP first minister’s office.

She tells me that she and her husband, Peter Murrell, the party’s chief executive, took a summer break in Portugal, where his parents have a share in an apartment. “We came home and Peter went back to work and I spent a week at home, just basically doing housework…” I raise an eyebrow and an aide, sitting nearby, snorts. She catches herself. “Not really… I periodically – and by periodically I mean once a year or once every two years – decide I’m going to dust and hoover and things like that. So I did that for a morning. It’s quite therapeutic when you get into it. And then I spent a week at home, reading and chilling out.”

In a recent Guardian interview, Martin Amis had a dig at Jeremy Corbyn for having “no autodidact streak”. Amis said: “I mean, is he a reader?… It does matter if leaders have some sort of backing.” One of Sturgeon’s great strengths is that she is a committed bibliophile. She consumes books, especially novels, at a tremendous rate and raves to me about Gabriel Tallent’s astonishing debut, My Absolute Darling, as well as Bernard MacLaverty’s Midwinter Break. She has just ploughed through Paul Auster’s daunting, 880-page 4 3 2 1 (“It was OK. I don’t think it should be on the Booker shortlist.”) She also reread the works of Chimamanda Ngozi Adichie before interviewing her onstage at the Edinburgh International Book Festival in August.

The First Minister is now reading What Happened, Hillary Clinton’s book about her defeat by Donald Trump. “I’ve never been able to read any of her [previous] books because literally every word is focus-grouped to the nth degree,” Sturgeon says. “This one, there are moments of frankness and raw honesty and passages where it’s victimhood and self-pity, but that’s kind of understandable and very human. The thing that fascinates me about Hillary, apart from the politics, is just her sheer bloody resilience.  Given what she’s gone through and everything that’s been chucked at her, I genuinely don’t know how she keeps coming back.”

***

Speaking of resilience, does she have any fellow feeling for Theresa May, humiliated by the electorate and, for now, kept in No 10 like a racoon in a trap by colleagues who are both power-hungry and biding their time? “At a human level, of course,” she says. “When you’ve got an insight into how rough and tough and, at times, downright unpleasant the trade of politics can be, it’s hard not to feel some personal sympathy. Her position must be pretty intolerable. It’s tempered, though, by the fact that nobody made her call an election and she did it for purely party-political interest.”

How does she get on with May – who is formal and restrained, even off-camera – in their semi-regular meetings? Sturgeon starts laughing. “The Theresa May that the country ended up seeing in the election was the one I’ve been dealing with for however long she’s been Prime Minister. This is a woman who sits in meetings where it’s just the two of you and reads from a script. I found it very frustrating because David Cameron, whose politics and mine are very far apart, always managed to have a personal rapport. You could sit with David and have a fairly frank discussion, agree the things you could agree on and accept you disagree on everything else, and have a bit of banter as well.

“I remember just after May came back from America [in January], when she’d held Trump’s hand [Sturgeon starts laughing again], she’d also been to Turkey and somewhere else. This was the Monday morning. We sit down, it’s literally just the two of us, and I say, ‘You must be knackered.’ She said, ‘No! I’m fine!’ And it was as if I’d insulted her. It was just impossible to get any human connection.”

Given this, and the weaknesses exposed during the election, Sturgeon is scathing about how the Conservatives fought the campaign, putting May’s character and competence front and centre. “The people around her must have known that vulnerability,” she says. “God, we all make mistakes and we all miscalculate things, so this is not me sitting on high, passing judgement on others, but don’t build a campaign entirely around your own personality when you know your personality’s not capable of carrying a campaign… Even if you can’t see that yourself, somebody somewhere around you should have.”

Sturgeon might not be in May’s beleaguered position but she has problems. Her demand in March, at a press conference at Bute House, Edinburgh, for a second independence referendum by spring 2019 was a serious mistake and it has left a dent in what had seemed her impermeable personal popularity. Polls show support for the SNP and independence now share a similar downward trajectory. Over the next three years, the First Minister must persuade a sceptical electorate that her party deserves a fourth consecutive term in government.

Does she regret demanding another vote on separation?

Here she gets as close as she will go to a mea culpa. “Obviously I’m thinking pretty deeply about it. I think Brexit is a complete and utter car crash – an unfolding disaster. I haven’t changed my views on that, and I think it’s deeply wrong for [Scotland] to be taken down that path without the ability to decide whether that’s right or not.

“I recognise, as well – and it’s obviously something I have reflected on – that understandably people feel very uncertain about everything just now, partly because the past few years have been one big decision after another. That’s why I said before recess that I will not consider any further the question of a second referendum at this stage. I’m saying, OK, people are not ready to decide we will do that, so we have to come back when things are clearer and decide whether we want to do it and in what timescale.”

Will she attempt to hold a second referendum? Could it be off?

“The honest answer to that is: I don’t know,” she says. Her expression of doubt is revealing.

Would she, however, support a second EU referendum, perhaps on the final separation package? “I think it probably gets more and more difficult to resist it,” she tells me. “I know people try to draw lots of analogies [between the EU and independence referendums], and there are some, but whatever you thought of the [Scottish] white paper, it was there and it was a fairly detailed proposition.

“One of the beautiful things about the independence referendum was the extent to which ordinary folk became experts on really technical, big, macro­economic positions. Standing on a street corner on a Friday morning, an ordinary working-class elderly gentleman was talking to me in great detail about lender of last resort and how that would work. You can say the white paper was crap, or whatever, but it was there, people were informed and they knew what they were voting for.

“That was not the case in the EU referendum. People did not know what they were voting for. There was no proposition put forward by anyone that could then be tested and that they could be held to account on. The very fact we have no idea what the final outcome might look like suggests there is a case for a second referendum that I think there wasn’t in 2014. It may become very hard to resist.”

Sturgeon hasn’t found the Brexit process “particularly easy”, especially when the government at Westminster is in the grip of what is becoming an increasingly vicious succession battle. The SNP administration has repeatedly clashed with the relevant ministers at Westminster, whom it says have given little care to Scotland’s particular needs. Sturgeon’s view of David Davis, Liam Fox and Boris Johnson is not rosy.

“Probably not a day goes by where I don’t look at them and think, ‘What the hell’s going on?’” she says. “That’s not meant as a personal comment on their abilities – although [with] some of them I would have personal question marks over their abilities. But they’re completely paralysed, and the election has left them in a position where you’ve got a Prime Minister who has no control over the direction of her government, and you have other senior ministers who are prepared to keep her there only because it’s in their short-term interests to do it. If you’re sitting on the European side of the table now, how can you have a negotiation with a government where you don’t actually know what their position is, or whether the position you’re being told across the table is one that can carry support back at home? It’s a shambles and it’s increasingly going to be the case that nothing other than Brexit gets any bandwidth at all. It’s really, really not in the interests of the country as a whole.”

***

This is an accusation that is directed at the SNP, too – that the national interest takes second place to its constitutional imperative. It is undoubtedly something that Sturgeon considered over the summer as she sought to rebalance her administration. As a result, the programme for government unveiled earlier this month was impressively long-term in places: for example, its promise to create a Scottish national investment bank, the setting of some ambitious goals on climate change and the commitment to fund research into a basic income.

Most striking, however, was Sturgeon’s decision to “open a discussion about… responsible and progressive use of our tax powers”. With the Scotland Act 2016, Westminster passed control over income tax to Holyrood, and Sturgeon intends to use this new power.

“For ten years,” she says, “we have done a pretty good job of protecting public services as best we can in a period of austerity, while keeping the taxes that we’ve been responsible for low. We’re now at a stage where austerity’s continued, we’re going to have economic consequences from Brexit, we all want good public services, we want the NHS to continue to have strong investment, we want our public-sector workers to be paid more, we want businesses to have the right infrastructure. How do we progressively and responsibly, with the interests of the economy taken strongly, fund our public services going forward? Most people would think right now that there is a case for those with the broadest shoulders paying a little bit more.”

I wonder whether the success of Jeremy Corbyn has influenced her thinking – many expect that a revival of Scottish Labour would force the SNP to veer left (it will also be interesting to see how Westminster reacts to Scotland raising the top rate of income tax). “It’s not particularly Corbyn that’s made me think that,” she insists, a little unconvincingly.

Isn’t Sturgeon concerned that making Scotland the highest-taxed part of the UK could undermine its competitiveness, its attraction as a place to live and as a destination for inward investment? “We should never be in a position where we don’t factor that kind of thing into our thinking, but you talk to businesses, and tax – yes, it’s important, but in terms of attracting investment to Scotland, the quality of your infrastructure matters. Businesses want good public services as well, so it’s the whole package that determines whether Scotland is an attractive place to live and invest in and work in,” she tells me. “It’s seeing it in the round. The competitiveness of your tax arrangements are part of what makes you attractive or not, but it’s not the only part.”

As for the immediate future, she is upbeat. She believes that Ruth Davidson, her main rival, is overrated. “I think Ruth, for all the many strengths people think she might have, often doesn’t do her homework very well,” she tells me. “From time to time, Ruth slips up on that… Quite a bit, actually. I know what I want to do over the next few years, and I’m in a very good place and feeling really up for it. After ten years in office, it’s inevitable you become a victim of your own success. What’s more remarkable is that, after ten years, the SNP still polls at least 10 and usually 10-15 points ahead of our nearest rivals.”

Author's note: Shortly after this interview went to print, the SNP got in touch to say that Nicola Sturgeon’s comment, ‘the honest answer to that is: I don’t know’, was about the timescale of the next independence referendum and not whether there would be one. The misinterpretation was mine.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

This article first appeared in the 25 February 2008 issue of the New Statesman, Pakistan reborn