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

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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