Mervyn King gets his life peerage and a lollipop, the rest of us get more misery

The newly ennobled Mervyn King blames “a collective lack of imagination” for the financial crisis. We, all of us, failed to see the iceberg. The only problem is that most of us were in the engine room shovelling coal.

I have long been convinced that a life peerage is very much akin to a pacifier. If a significant figure is retiring from public life and has the potential to command media attention, give them a nice title on which to suck and stop kvetching, plus the ability to claim £300 a day for spending a couple of hours in the House of Lords. Giving them a formal public platform has the brilliantly counterintuitive effect of diminishing their future risk index by making them one of many within the Westminster bubble.

The success, or lack thereof, in their former post seems a secondary consideration. And so it is with Sir Mervyn King. This week George Osborne announced that the outgoing Governor of the Bank of England would be taking his place within our unelected pantheon of gown and wig after his retirement at the end of the month. Sporting metaphors blinked like newly born rabbits in the lights of the annual Bankers and Merchants dinner. “You had to play on a sticky wicket,” mused the Chancellor. It was “a game of two halves”, added King.

The only problem is that many would disagree with the post-match analysis – even to the basic level of whether team GB won or lost. We are still a long way off from recovering pre-crisis economic activity levels, unlike the US or Germany, for instance. Inflation has been consistently way above the BoE’s target for many months. Solutions like Funding for Lending appear to have had little impact – lending to SMEs has actually decreased under the scheme. Too little of the river of cash being pumped into the system via Quantitative Easing appears to have trickled through to the real economy – the allegation is that banks are using such schemes and cash to shore up their own balance sheets.

Mervyn King's involvement in the more political aspects of economic strategy has also, rightly, been contentious. Documents released in November 2010 showed an oddly keen involvement in the coalition’s personnel and policies. His blessing of the austerity programme, which has now been questioned even by the IMF, could be seen as almost co-authoring it.

There is also significant criticism of King’s running of the organisation in the “first half” – the one he would term the “nice half”. It is suggested, correctly in my view, that his obsessive focus on inflation targeting failed to take into account the downward pressure on prices created by cheap Chinese imports entering the UK market and so, in effect, allowed the economy “to run too hot during the boom years”. Coupled with very light touch banking regulation, this could be argued to have sown the seeds of the crisis which followed.

Arguably, however, the most distasteful and dishonourable part of his legacy is his attempt to absolve himself of all responsibility. His explanation last year on Radio 4 had a distinct whiff of “nothing to do with me, guv”.  This was a failure of “the system”, he claimed. Isn’t that the system which he oversaw from a key position? "With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much."

It was not hindsight that was lacking. It was plain old present sight. The growth of banks, the mergers, the risky ventures, the out-of-control borrowing – these were not things which happened in secret. They happened in plain sight and with state approval.

Mervyn King blames “a collective lack of imagination”. We, all of us, failed to see the iceberg. We are, apparently, collectively blameworthy. The only problem is that most of us were in the engine room shovelling coal. Mervyn King was one of the people on the bridge. More than that, since one of the BoE’s core purposes and strategic priorities is to “maintain stability and improve the resilience of the financial system”, he was specifically in charge of the looking-out-for-icebergs department.

In those circumstances, it is adding insult to injury for him to shout back from his peerage lifeboat to the rest of us, now drowning in a freezing sea of debt and austerity, “well, you didn’t see the iceberg either”. Why wouldn’t we want to keep this sort of expert, constructive and visionary input a part of our legislature for the rest of his natural life? Happy retirement, Sir Mervyn. We look forward to being blamed for future shipwrecks.

Sir Mervyn King gets a life peerage - the pacifier of public life. Photo: Getty

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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John McDonnell interview: "We’re going to destroy Osborne’s credibility"

The shadow chancellor on the Spending Review, Jeremy Corbyn's leadership and why trade unions will have to break the law. 

When I interviewed John McDonnell in March, before the general election, he predicted that Labour would be the largest party and confessed to a “sneaking feeling that we could win a small majority – because I think the Tory vote is really soft”. As the long-standing chair of the Socialist Campaign Group, McDonnell anticipated leading the resistance inside Labour to any spending cuts made by Ed Miliband. Eight months later, he is indeed campaigning against austerity – but as shadow chancellor against a Conservative majority government.

I meet McDonnell in his new Westminster office in Norman Shaw South, a short walk down the corridor from that of his close friend and greatest ally, Jeremy Corbyn. The day before George Osborne delivers his Spending Review and Autumn Statement, his desk is cluttered with economic papers in preparation for his response.

“The message we’re trying to get across is that this concept of the Tories’ having a ‘long-term economic plan’ is an absolute myth and they’re in chaos, really in chaos on many fronts,” he tells me. McDonnell points to the revolt against cuts to tax credits and policing, and the social care crisis, as evidence that Osborne’s programme is unravelling. On health, he says: “He’s trying to dig out money as best as he can for the NHS, he’s announced the frontloading of some of it, but that simply covers the deficits that there are. Behind that, he’s looking for £22bn of savings, so this winter the NHS is going to be in crisis again.”

Asked what Labour’s equivalent is to the Tories’ undeniably effective “long-term economic plan” message, he said: “I don’t think we’re going to get into one-liners in that way. We’ll be more sophisticated in the way that we communicate. We’re going to have an intelligent and a mature economic debate. If I hear again that they’re going to ‘fix the roof while the sun shines’ I will throw up. It’s nauseating, isn’t it? It reduces debate, intellectual debate, economic debate, to the lowest level of a slogan. That’s why we’re in the mess we are.”

Having abandoned his original support for the Chancellor’s fiscal charter, which mandated a budget surplus by 2020, McDonnell makes an unashamed case for borrowing to invest. “The biggest failure of the last five years under Osborne is the failure to invest,” he says. “Borrowing at the moment is at its cheapest level, but in addition to that I’m not even sure we’ll need to borrow great amounts, because we can get more efficient spending in terms of government spending. If we can address the tax cuts that have gone ahead, particularly around corporation tax, that will give us the resources to actually start paying again in terms of investment.”

He promises a “line-by-line budget review” when I ask whether there are any areas in which he believes spending should be reduced. “My background is hard-nosed bureaucrat . . . we’ll be looking at where we can shift expenditure into more productive areas.”

From 1982 until 1985, John McDonnell, who is 64, was chair of finance at the Greater London Council under Ken Livingstone. After vowing to defy the Thatcher government’s rate-capping policy he was sacked by Livingstone, who accused him of manipulating figures for political purposes. “We’re going to look like the biggest fucking liars since Goebbels,” the future mayor of London told him. McDonnell, who later described Livingstone’s account as “complete fiction”, has since resolved his differences with the man now co-chairing Labour’s defence review.

After his election as the MP for Hayes and Harlington in 1997, McDonnell achieved renown as one of New Labour’s most vociferous opponents, rebelling with a frequency rivalled only by Corbyn. His appointment as shadow chancellor was the most divisive of the Labour leader’s reshuffle. “People like Jeremy even if they don’t agree with him. People don’t like John,” one MP told me at the time. Mindful of this, McDonnell has sought to transform his image. He has apologised for his past praise of the IRA and for joking about assassinating Margaret Thatcher, rebranding himself as a “boring bank manager”. But there are moments when his more radical side surfaces.

He told me that he supports workers breaking the law if the trade union bill, which would limit the right to strike, is passed. “It’s inevitable, I think it’s inevitable. If the bill is introduced in its existing form and is used against any particular trade unionist or trade union, I think it’s inevitable that people will resist. We established our rights by campaigning against unjust laws and taking the risk if necessary. I think that’s inevitable and I’ll support them.”

“Chaos” might be how McDonnell describes Osborne’s position but the same term is now daily applied to Labour. The party is riven over air strikes in Syria and the renewal of Trident and MPs are ever more scornful of Corbyn’s leadership.

While Corbyn has so far refused to offer Labour MPs a free vote on Syria, McDonnell says that he favours one and would oppose military action. “My position on wars has always been that it’s a moral issue and therefore I veer towards free votes . . . We’re waiting for Cameron’s statement; we’ll analyse that, there’ll be a discussion in shadow cabinet and in the PLP [Parliamentary Labour Party] and then we’ll make a decision. I’m still in a situation where I’ve expressed the view that I’m opposed to the bombing campaign or engagement. I think the history of the UK involvement in the Middle East has been a disaster, to say the least . . .This isn’t like the Second World War where you have a military campaign – you defeat the enemy, you sign a peace agreement and that’s it – this is asymmetric warfare. In addition to the risks that are in the battlefield there’s a risk in every community in our land as a result of it.”

Would he want any of the 14 former shadow cabinet members who refused to serve under Corbyn to return? “All of them, we’re trying to get them all back. We’ve got Yvette [Cooper] helping us on a review we’re doing about the economy and women . . . It’s an open door policy, I’m trying to meet them all over these next few weeks.”

Livingstone, a member of Labour’s National Executive Committee, recently called for Simon Danczuk, who revealed details of a private meeting with Corbyn in the Mail on Sunday, and Frank Field, who told me that MPs should run as independents if deselected, to be disciplined. But McDonnell takes a more conciliatory line. “With Simon [Danczuk] in particular and the others, it’s just a matter of saying look at the long-term interests of the party. People don’t vote for a divided party. They’ll accept, though, that within a party you can have democratic debate. As I said time and time again, don’t mistake democracy for division. It’s the way in which you express those different views that are important. All I’m saying is let people express their views, let’s have democratic engagement but please don’t personalise this. I think there’s a reaction within the community, not just the party, against personalised politics. It’s not Jeremy’s style, he never responds in that way. It’s unfortunate but we’ll get through it. It’s just minor elements of it, that’s all.”

McDonnell disavows moves by some in Momentum, the Corbyn-aligned group, to deselect critical MPs. “What we’re not into is deselecting people, what we want to try and do is make sure that everyone’s involved in a democratic engagement process, simple as that.

“So I’ve said time and time again, this isn’t about deselection or whatever. But at the same what we’re trying to say to everybody is even if you disagree, treat each other with respect. At the height of the debates around tuition fees and the Iraq war, even though we had heated disagreements we always treated each other with mutual respect and I think we’ve got to adhere to that. Anyone who’s not doing that just lets themselves down, that’s not the culture of the Labour Party.”

In private, the 90 per cent of MPs who did not support Corbyn’s leadership bid speak often of how and when he could be removed. One point of debate is whether, under the current rules, the Labour leader would automatically make the ballot if challenged or be forced to re-seek nominations. McDonnell is emphatic that the former is the case: “Oh yeah, that’s the rule, yeah.”

McDonnell’s recent media performances have been praised by MPs, and he is spoken of by some on the left as a possible replacement if Corbyn is removed or stands down before 2020. His speech to the PLP on 23 November was described to me by one shadow minister as a “leadership bid”. But McDonnell rules out standing in any future contest. “No, no, I’ve tried twice [in 2007 and 2010], I’m not going to try again, there’s no way I would.”

Despite opinion polls showing Labour as much as 15 points behind the Conservatives, McDonnell insists that the party can win in 2020. “Oh definitely, yeah, you’ll see that. I think this next year’s going to be pivotal for us. We’re going to destroy Osborne’s credibility over the next six months. But more importantly than that, we can’t just be a negative party . . . we’re going to present a positive view of what Labour’s future will be and the future of the economy.

“Over the next 18 months, we’ll be in a situation where we’ve destroyed the Tories’ economic reputation and we’ve built up our own but we’ll do it in a visionary way that presents people with a real alternative.”  

George Eaton is political editor of the New Statesman.