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24 August 2015updated 27 Aug 2015 3:12am

Which party would benefit from a UK downturn?

A crash could provide Corbyn with a chance to win a hearing. But voters may cling to the Tories for stability. 

By George Eaton

Today’s global stock market rout (dubbed “Black Monday”) means that fears of another crash are at their greatest since 2008. Larry Summers, the former US Treasury secretary, has warned that “As in August 1997, 1998, 2007 and 2008 we could be in the early stage of a very serious situation.” More dramatically, Damian McBride, an adviser to Gordon Brown during the last crash, has suggested storing hard cash, panic buying bottled water, tinned goods and other essentials, and agreeing a “rally point” with loved ones “in case transport and communication gets cut off”. Of special concern to economists is what HSBC’s Stephen King calls the “Titantic problem”: lots of icebergs but no lifeboats. High government deficits and record-low interest rates mean that states have few bullets to fire in the event of another crash. 

The possibility of a UK downturn is already being viewed by some as a boon for Jeremy Corbyn, Labour’s likely next leader. His unorthodox policy suggestions, such as people’s quantitative easing, could quickly become mainstream (as nationalisation did last time) as states scramble to maintain growth. The assumption is that Corbyn would benefit as voters turned on the government. But it’s worth recalling that far from damaging his popularity, the 2008 crash initially aided Gordon Brown as voters clung to him as the “rock of stability”. The Tories’ large lead on economic management means that they are well-placed to reassure voters that only they can be trusted to steer the ship through troubled waters. Though their past mockery of Brown for blaming the recession on “global factors” would undoubtedly be used against them. In an attempt to pre-empt a possible downturn, George Osborne has said today: “You don’t know where the next crisis is coming from, where the next shock is going to come from in the world. Britain is a very open economy, probably the most open of the largest economies, and we are affected by what happens, whether it is problems in the euro zone, problems in Asian financial markets.”

Meanwhile, Tom Watson has criticised infrastructure minister Jim O’Neill, recently appointed to oversee Osborne’s “Northern Powerhouse”, after he earlier disregarded concerns over the Chinese economy. Labour’s likely next deputy leader said: “In January, Jim O’Neill, one of [Osborne’s] closest economic advisers, the man he installed in the House of Lords and put in charge of the nation’s infrastructure,dismissed the ‘eternal bears’ who said the Chinese stock market was dangerously overvalued and being propped up by artificial means. He heralded the strength of the Shanghai Composite Index and said he remained ‘bullish on China’. The Shanghai Composite Index has fallen by nearly 30 per cent since June, with potentially serious ramifications for the global economy.”

He added: “The UK is dependent on China for £100bn of infrastructure investment over the next decade. George Osbornehas appointed O’Neill as his commercial secretary with responsibility for the so-called Northern Powerhouse, for Britain’s industrial strategy, and for attracting overseas investment in UK infrastructure. 

“The chancellor should tell us why he thinks a minister who has got it so badly wrong on China has been placed in charge of so much else the country needs to get right.”

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