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

André Carrilho
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"Jeremy knows he can't do the job." What now for Labour and Britain's opposition?

Senior figures from all parties discuss the way forward: a new Labour leader, a new party or something else?

In the week beginning 13 March 2017, the Scottish National Party demanded a second referendum on indepen­dence, the Chancellor tore up his Budget and George Osborne was announced as the next editor of the London Evening Standard. One fact united these seemingly disparate events: the weakness of Her Majesty’s Opposition.

When Scotland’s First Minister, Nicola Sturgeon, addressed journalists at Bute House, her Edinburgh residence, she observed that Labour’s collapse entailed an extended period of Conservative rule. Such was the apparent truth of this statement that it went unchallenged.

Twenty minutes before Prime Minister’s Questions on 15 March, the Conservatives announced the abandonment of their planned rise in National Insurance for the self-employed. Their expectation that Jeremy Corbyn would be unable to profit was fulfilled. “Faced with an open goal, Jeremy picked up a tennis racket,” one Labour MP lamented of his leader’s performance. Rather than a threat, the government regards PMQs as an opportunity.

Two days later, Osborne was announced as the next editor of the Standard. “Frankly @George_Osborne will provide more effective opposition to the government than the current Labour Party,” the paper’s co-proprietor Evgeny Lebedev tweeted. His decision to hand the post to a Conservative MP was another mark of Labour’s marginalisation. In more politically competitive times, owners are warier of overt partisanship.

The Tories have a parliamentary majority of just 15 – the smallest of any single-party government since 1974 – but they enjoy a dominance out of all proportion to this figure. Nick Clegg, the Liberal Democrat former deputy prime minister, told me: “The fundamental pendulum swing of democracy, namely that the people in power are always worried that the other lot are going to hoof them out, has stopped.”

Labour is hardly a stranger to opposition: the party governed for just 20 years of the 20th century. But never in postwar history has it appeared so feeble. By-elections are usually relished by oppositions and feared by governments. But in Copeland in the north-west of England, a seat that had not returned a Conservative since 1931, the Tories triumphed over Labour. In recent polling the governing party has led by as much as 19 points and on one occasion it was leading in every age group, every social class and every region.

Corbyn’s MPs fear that were he to lead Labour into a general election, the attack dossier assembled by the Conservatives would push support as low as 20 per cent.

When David Miliband recently said that Labour was “further from power than at any stage in my lifetime”, he was being far too generous. After the forthcoming boundary changes, it could be left with as few as 150 seats: its worst performance since 1935.

The party’s plight was both predictable and predicted – the inevitable consequence of electing a leader who, by his own admission, lacked the requisite skills. “Now we made to make sure I don’t win,” Corbyn told supporters after he made the ballot in 2015. The lifelong backbencher stood with the intention of leading debate, not leading the party.

Neil Kinnock, Labour’s leader from 1983 to 1992, told me: “From the outset, I said that Jeremy [Corbyn] just can’t do the job . . . Now I think he knows that. He’s been a member of parliament for 34 years and will have a sense of self-examination. Both he and the people who work around him know that he just can’t do the job.”

Morale in the leader’s office has seldom been lower. “They’ve got the yips,” a Lab­our aide told me. Shortly after the Tories’ Budget U-turn, Corbyn’s director of strategy and communications, Seumas Milne, asked journalists whether there would be an early general election. He produced no evidence of any hope that Labour could win it.

Yet Corbyn’s leadership alone does not explain the crisis. In the early 1980s, when Labour was similarly enfeebled (but still strong in Scotland, unlike today), the creation of the Social Democratic Party provided hope. But the mere 23 seats won by the SDP-Liberal Alliance in 1983 (on 25.4 per cent of the vote, against Labour’s 209 seats from 27.6 per cent) acts as a permanent warning to those tempted to split.

With only nine MPs, the Liberal Democrats are too weak to function as an alternative opposition, despite their accelerating recovery. The third-largest party in the House of Commons – the SNP – is an exclusively Scottish force. The hegemony of the Nats, which cost Labour 40 seats in Scotland in 2015, has encouraged forecasts of perpetual Tory rule. “I don’t think there’s any way the Labour Party in this day and age can beat the Conservatives south of the border,” Clegg said.

To many eyes, the UK is being transformed into two one-party states: an SNP-led Scotland and a Conservative-led England. “The right-wing press have coalesced around Brexit and have transformed themselves from competitors into, in effect, a political cabal, which has such a paralysing effect on the political debate,” Clegg said. “You have a consistent and homogeneous drumbeat from the Telegraph, the Express, the Mail, the Sun, and so on.”

In this new era, the greatest influence on the government is being exercised from within the Conservative Party. “Where’s the aggravation? Where’s the heat coming from? Eighty hardline Brexiteers,” Anna Soubry, the pro-European former Conservative minister, told me. “They’re a party within a party and they are calling the shots. So where else is [May’s] heat? Fifteen Conservatives – people like me and the rest of them now. So who’s winning out there?”

Soubry added: “The right wing of the party flex their muscle against the only lead Remainer in the cabinet, Philip Hammond, for no other reason than to see him off. And that’s what they’ll do. They’ll pick them off one by one. These people are ruthless, this is their life’s work, and nobody and nothing is going to get in their way.”

Theresa May’s decision to pursue a “hard Brexit” – withdrawal from the EU single market and the customs union – is partly a policy choice; there is probably no other means by which the UK can secure significant control over European immigration. But the Prime Minister’s course is also a political choice. She recognised that the Conservatives’ formidable pro-Leave faction, whose trust she had to earn, as a Remainer, would accept nothing less.

***

The UK is entering the most complex negotiations it has undertaken since the end of the Second World War with the weakest opposition in living memory. Though some Tories relish an era of prolonged one-party rule, others are troubled by the democratic implications. Neil Carmichael MP, the chair of the Conservative Group for Europe, cited Disraeli’s warning: “No government can be long secure without a formidable opposition.” It was in Margaret Thatcher’s and Tony Blair’s pomp that calamitous decisions such as the poll tax and the invasion of Iraq were made. Governments that do not fear defeat frequently become their own worst enemy and, in turn, the public’s. The UK, with its unwritten constitution, its unelected upper chamber and its majoritarian voting system, is permanently vulnerable to elective dictatorships.

As they gasp at Labour’s self-destruction, politicians are assailed by Lenin’s question: “What is to be done?” Despite the baleful precedent of the SDP, some advocate a new split. In favour of following this path, they cite an increasingly promiscuous electorate, a pool of willing donors and “the 48 per cent” who voted Remain. Emmanuel Macron – the favourite to be elected president of France in May, who founded his own political movement, En Marche! – is another inspiration.

A week after the EU referendum, the Liberal Democrat leader, Tim Farron, was taken by surprise when a close ally of George Osborne approached him and suggested the creation of a new centrist party called “the Democrats” (the then chancellor had already pitched the idea to Labour MPs). “I’m all ears and I’m very positive about working with people in other parties,” Farron told me. But he said that the “most effective thing” he could do was to rebuild the Liberal Democrats.

When we spoke, Nick Clegg emphasised that “you’ve got to start with the ideas” but, strikingly, he did not dismiss the possibility of a new party. “You can have all sorts of endless, as I say, political parlour game discussions about whether you have different constellations or otherwise.”

Anna Soubry was still more positive about a new party, arguing: “If it could somehow be the voice of a moderate, sensible, forward-thinking, visionary middle way, with open minds – actually things which I’ve believed in all my life – better get on with it.”

However, Labour MPs have no desire to accept that the left’s supremacy is irreversible. But neither do they wish to challenge Corbyn. An MP distilled the new approach: “There is a strategy to give Jeremy [Corbyn] enough rope to hang himself. So it has not been about popping up in the media and criticising him in the way that colleagues did a year or so ago.” By giving him the space to fail on his own terms, rather than triggering another leadership contest, MPs hope that members will ultimately accept a change of direction.

Corbyn’s opponents acknowledge the risks of this approach.

“People are incredibly mindful of the fact that our brand is toxifying,” one told me. “As each day goes by, our plight worsens. Our position in the polls gets worse and the road back gets longer.”

Shadow cabinet ministers believe that Corbyn’s allies will never permit his departure until there is a viable successor. An increasingly influential figure is Karie Murphy, the director of the leader’s office and a close friend of Unite’s general secretary, Len McCluskey. “She’s holding Jeremy in place,” I was told.

Leadership candidates require nominations from 15 per cent of Labour MPs and MEPs, a threshold that the left aims to reduce to just 5 per cent through the “McDonnell amendment” (named after the shadow chancellor, who failed to make ballot when he stood in 2007 and 2010).

Should the rule change pass at this year’s party conference – an unlikely result – the next leadership contest could feature as many as 19 candidates. Labour has no shortage of aspirant leaders: Yvette Cooper, Dan Jarvis, Clive Lewis, Lisa Nandy, Keir Starmer, Emily Thornberry, Chuka Umunna. (Rebecca Long-Bailey, the shadow business secretary and Corbynite choice, is said to believe she is “not ready” for the job.)

All are clear-sighted enough to recognise that Labour’s problems would not end with Corbyn’s departure (nor did they begin with his election as leader). The party must restore its economic credibility, recover in Scotland, or perform far better in England, and bridge the divide between liberal Remainers and conservative Leavers.

Lisa Nandy, one of those who has thought most deeply about Labour’s predicament, told me: “I do think that, for many people, not being able to have time with their families and feel secure about where the next wage packet is coming from, and hope that life is going to get better for their kids, is really pressing as a political priority now. They will vote for the political party that offers real solutions to those things.

“That’s why power is such an important unifying agenda for the Labour Party – not just through redistribution of wealth, which I think we all agree about, but actually the redistribution of power as well: giving people the tools that they need to exert control over the things that matter in their own lives,” she says.

But some Labour MPs suggest even more drastic remedial action is required. “In order to convince the public that you’ve moved on, you have to have a Clause Four-type moment,” one member told me. “Which would probably involve kicking John McDonnell out of the Labour Party or something like that.

“You have a purge. Ken Livingstone gone, maybe even Jeremy [Corbyn] gone. That’s the only way that you can persuade the public that you’re not like that.”

Political commentators often mistake cyclical developments for structural changes. After Labour’s 1992 election defeat it was sometimes said that the party would never govern again. It went on to win three successive terms for the first time in its history. In March 2005 Geoffrey Wheatcroft published his book The Strange Death of Tory England. Less than nine months later, the Conservatives elected David Cameron as leader and returned to winning ways. As the US political journalist Sean Trende has archly observed, if even the Democrats recovered “rather quickly from losing the Civil War” few defeats are unsurvivable.

From despair may spring opportunity. “It is amazing how this Brexit-Trump phase has really mobilised interest in politics,” Nick Clegg said. “It’s galvanised a lot of people . . . That will lead somewhere. If in a democracy there is a lot of energy about, it will find an outlet.”

Editor’s Note, 30 March 2017: Len McCluskey of Unite wishes to point out that Karie Murphy is his close friend not his partner as the piece originally said. The text has been amended accordingly.

George Eaton is political editor of the New Statesman.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition