The reason why, not that we ever said it publicly, is that it actually didn’t matter if businesses kept the VAT cut or passed it on. As long as the savings were spent by someone, whether it was a business keeping someone in a job or a household increasing their weekly shop, then the amount of cash going round the economy would be increased and the fiscal stimulus would be achieved.
Conversely, the great danger of a large, one-off income tax cut or rebate is that many people will do what comes naturally in a recession – keep the extra money for a rainier day rather than spend it – thus defeating the object of the stimulus. It’s precisely because the savings from a VAT cut are small and cumulative that people or businesses automatically recycle them through their spending and therefore keep the cash in the economy.
That was why Gordon and Alistair Darling decided VAT should be reduced to 15 per cent for a year in 2009. However, Alistair was urged by the Treasury to recommend a quid pro quo, whereby – when the temporary cut came to an end – the standard rate would go to 20 per cent, not back to 17.5 per cent. Senior Treasury officials had long hankered for such a move, seeing it as a simple means of banking extra billions in the Exchequer’s plus column for the years to come, and arguing that the standard rate of 17.5 per cent that had been in place since 1991 had – over time – fallen way behind the European average.
Gordon dismissed the idea out of hand, not least because of the analysis I’d done back in 2001, but even though he won that argument, Alistair kept coming back to the issue, as if going to 20 per cent was simply a question of ‘when’, whatever the economic and distributional impact.
Gordon became increasingly angry about what he saw as the Treasury civil service working to a political agenda, trying to force Labour to make unpopular tax decisions to make life easier for an incoming Tory government, and could not understand why Alistair was going along with it. ‘These Treasury guys are already working for Osborne,’ he said, ‘and Alistair doesn’t see it.’
The truth is that Gordon would never have allowed VAT to rise – it was total anathema to him, and always had been. We couldn’t even get him to consider marginal extensions of VAT to junk mail or pornographic magazines (more borderlines!), let alone an increase in the standard rate. And – based on the ‘special project’ work I’d done – Ed Balls and Ed Miliband felt exactly the same. How could they ever go along with a move that they’d ruled out in 2002 precisely because it was so regressive?
The issue came to a head again before the election in 2010 when several of Gordon’s advisers urged him to rule out a VAT increase in Labour’s manifesto, the idea being that – if the Tories refused to follow suit – this could become one of the defining issues of the campaign. It made perfect sense. Given that Gordon would never countenance an increase in VAT, then even if further tax rises were needed after the election to tackle the deficit, you could guarantee VAT wouldn’t be one of them.
Even though I was long gone by that stage, I was always listened to when it came to VAT, and I used various back channels to supply the figures that would be needed on the doorstep about what a rise to 20 per cent would mean for different household types.
But given the strength of Treasury feeling on the issue, Alistair refused point blank to sign up to any commitment on VAT, leaving Gordon’s advisers fearing he would resign on the eve of the election campaign if they tried to force it. Looking at things from the outside, I was tearing my hair out. As far as I was concerned, the Labour Party was being held to ransom by a Chancellor who was more concerned about his internal reputation with Treasury civil servants than about winning the election.
By the time the third leaders’ debate came around, Gordon was being urged from many quarters to call Alistair’s bluff and put Cameron on the spot, by saying: ‘I can make a solemn promise that – as long as I am Prime Minister – VAT will not rise, and I will resign if I ever break that promise. Now, let’s see if David Cameron will say the same.’ But then the Mrs Duffy incident happened, and all thoughts of throwing down game-changing gauntlets went out of the window; it would have looked like desperation rather than tactical genius.
I remain convinced it was a massive mistake for Labour not to rule out a VAT rise in 2010, and for that reason – whatever the other arguments in favour – I am always slightly baffled when I see calls in the media for Alistair Darling to be restored as shadow Chancellor before the 2015 election. Why on earth would Labour put up against George Osborne the only opposition figure who agreed with him in 2010 on raising VAT, in place of Ed Balls, who has been fighting against 20 per cent VAT for thirteen years?
8
SPORT OF QUEENS
Depending on your point of view, it is either a great constitutional tradition or a ridiculous anachronism that, the night before the Budget, the first person outside the Treasury made privy to its full contents is Her Majesty the Queen.
On those hectic evenings, when documents and press notices are still being finalised and printed, and the speech is receiving the famous ‘finishing touches’ – or in Gordon’s case, great big black lines put through whole pages with accompanying shouts of ‘Who writes this bloody stuff?’ – the Chancellor must visit Buckingham Palace for an hour, present the key measures and figures in the Budget, and answer the Queen’s questions about them.
The next morning, in theory, the Prime Minister and the Cabinet are given a similar briefing, although Gordon took his constitutional duty to inform the Queen rather more seriously than he did the need to take questions from Alan Milburn or Charles Clarke. Indeed, for a man who usually complained about having to do almost anything in his diary, he was never anything but diligent and obliging when it came to his audiences with the Queen.
And usually nervous too, especially in 2001, when newspaper speculation about our planned Budget reforms to betting duty caused a last-minute panic in Gordon’s office in case the Queen wanted to grill him about the impact on her beloved horse-racing.
By that point, betting duty was one of my areas. Once the ‘special VAT project’ was complete and Katy Peters had moved on in early 2001, I’d finally been appointed head of the Treasury’s indirect tax branch by a new head of the tax policy team, a titan of an official named Alex Gibbs.
Gibbsy had the unenviable but essential task of going before the Treasury select committee each year after the Budget, and refusing to admit that the tax burden was rising. John Pavel used to tell me that any civil servant who answered that question wrongly would find themselves ‘counting puffins on the Orkney Islands’ the following week.
So the committee would ask Gibbsy thirty different times in thirty different ways to read out the set of Red Book figures for the proportion of national income taken in tax, and say whether the last number was higher than the first.
And thirty different times, Gibbsy would answer the question in exactly the same way as Gordon always did, explaining that tax revenues tended to rise during prolonged periods of growth, but referring them to the 1996 Red Book under the Tories which projected higher totals for the tax burden than those currently seen. It takes an iron will to tough it out like that.
His successor folded under the pressure of being asked whether one number was higher than another number the very first time he was up before the committee, leading to a Daily Mail splash and banner headlines in every other paper. He wasn’t quite sent to the Orkney Islands, but did choose to move to Newcastle Council not long afterwards.
Gibbsy was also a betting man, once recounting an agonising journey stuck in motorway queues unable to explain to his wife why he was getting so agitated by the huge second innings total that India were accumulating at Lord’s. They finally made it to a Little Chef where he could sprint to get online and stop his mounting losses on the spread betting market. But that was a rare setback.
Helped by Gibbsy’s expertise and impeccable contacts within the industry, my first job as head of indirect tax was working out how to deal with offshore bookies offering online tax-free be
tting to punters. Unable to beat them, the big UK bookmakers were all threatening to close their high-street outlets and join them, representing a massive risk to tax revenues and jobs.
Our plan was to abolish betting tax on punters to remove the online advantage, and replace it with a tax on bookmakers’ profits, a high-risk strategy given this would also remove the advantage that British racecourses then enjoyed offering a tax-free day out. The hope was that the resulting tide of tax-free betting would raise all ships and soaring bookies’ profits would plug the revenue gap.
It was a major reform but in the broader context of a pre-election Budget, Gordon hadn’t paid it much attention, leaving Ed Miliband and Ten-Foot Timms to get on with it, who in turn trusted me and Gibbsy to get it right.
So Gordon faced the prospect of having to brief the Queen on an issue which he knew little about, but where she was potentially an expert with very strong views. What happened if she disagreed with the planned reforms? What if she told him he was going to destroy her days out at the races?
I was instructed to write Gordon an urgent briefing note: everything he needed to know about the issue on one page and a script for presenting it to the Queen on another. I threw in some extra material about the state of the racing industry and how Her Majesty’s horses had been doing over the past year, and whizzed it to his office.
I was immediately summoned for my first ever one-to-one meeting with Gordon, where he grilled me the way he was worried the Queen would grill him and scribbled wild notes. When he returned from his audience, I received an unusually effusive note from his office saying how grateful he was for the briefing and how useful he’d found it.
Not, incidentally, that it had any effect on Gordon, as he maintained his Presbyterian horror of gambling. When we managed to deliver the abolition of betting duty earlier than planned, I gave the Treasury communications team a draft press notice, which included the top ten bets that punters would be able to have tax free between October and January as a result: Sol Campbell to score for Arsenal on his November return to Spurs, Robbie Williams to get the Christmas No. 1 and so on.
Ian Austin, Gordon’s political press adviser, loved it and it was all set to go, but when Gordon was asked to sign off his quote he was furious at the idea of us suggesting bets: ‘What are you doing? This is the Treasury, not bloody Las Vegas!’ The original press notice was scrapped and something that would have been a very popular announcement with punters was reduced to a bland technical note – although that didn’t stop Ian supplying the list of bets to The Sun so they could do it themselves.
Despite Gordon’s disapproval, from the night of my pre-Palace briefing, I acquired my first ever sobriquet from him: ‘Betting Guy’, and even my own special corridor greeting: ‘How are the horses?’ When I was his political adviser six years later, one of my pre-Budget duties was still providing Gordon with a briefing note about betting, racing and the Queen’s horses, in case the subject ever came up again.
By that stage, I’d devolved production of the note to a true racing expert, the Treasury press office administrator Robbie Browse, who’d enjoyed a past career looking after the royal family and other VIPs on their days out racing. In January 2006, Robbie found himself in huge trouble after inadvertently emailing a daft joke about the Chinese to the entire copy list for Treasury press notices.
I went into overdrive with the media trying to kill the story and save Robbie’s job, including threatening the Evening Standard that if they didn’t get a reporter and camera away from his flat, then I wouldn’t give them any help with the Budget that year. But the real job was persuading Gordon that he should look the other way, rather than leaning on the Treasury hierarchy to give Robbie the sack.
For the sake of relations with the Chinese – not least Rupert Murdoch’s then wife Wendi Deng – Gordon’s instinct was that the Treasury should show no mercy, but after I explained that Robbie was the person who wrote his annual note on the racing industry for his audience with the Queen, his position shifted and Robbie survived: definitive proof that Gordon considered the Queen more important than Murdoch.
Indeed, I don’t think any of her prime ministers can have respected and admired her more. He and Sarah were genuinely thrilled about their first visit to Balmoral and determined to show due decorum, in contrast to Tony and Cherie’s first stay, when they not only conceived their youngest child, but told the world that they’d done so. Gordon was particularly tickled to be driven round the country estate in a Range Rover by the Queen herself, and to see her getting out to grapple with collapsed fence posts.
And because of that admiration and respect he had for the Queen, I was constantly on the look-out for stories where Gordon could display his monarchist tendencies. One of my proudest splashes was in the Daily Mail on Budget Day 2005, when I trailed Gordon’s announcement that we would fund a statue to the Queen Mother overlooking The Mall next to that of her husband, George VI. I’d rarely seen Gordon as happy on a Budget morning as when I showed him the front page.
Of course the even bigger prize for me was any story which simultaneously made Gordon look like Charlotte Corday and Tony Blair look like Jean Marat. I hit the jackpot not long before the election in 2005, when relations between the two men were at possibly their lowest ebb, with a Mail on Sunday splash saying that Gordon had thwarted Tony’s plans to scrap the ‘Royal Flight’ and instead planned to provide the Queen with a new luxury fleet. Gordon called when he saw the paper, said: ‘I hope you had nothing to do with this’, but I could hear the lilt in his voice.
By contrast, some of the few times I felt in real trouble with him were when I’d done anything that he thought might damage his relationship with the Palace.
One of his lesser-known responsibilities as Chancellor was ‘Master of the Mint’, in which capacity he submitted to the Queen – in his own name, but usually without any input – the recommendations of the Royal Mint Advisory Committee for new coin designs. When, in 2005, I saw their proposals for a 50p coin marking the anniversary of the Victoria Cross, which portrayed a soldier in the sights of a sniper rifle, I drafted a letter for Gordon’s office to send back to the mint saying:
Before he writes to HM The Queen to request approval he would like further thought to be given to the design. He appreciates the designer’s attempt to portray the courage and selflessness of the British soldier carrying a wounded comrade while under fire. But he feels that the particular image of a British soldier apparently about to be shot in the back will not seem appropriate to many people.
I leaked the letter and the 50p design to The Sun, who splashed them in their Saturday edition with suitable outrage and rare praise for Gordon on an issue relating to ‘Our Boys’.
As my mobile rang at five o’clock that morning, I knew without looking that it was Gordon and I was in trouble. ‘How can you do this to me?’ he screamed. ‘This is the Queen! THE QUEEN!’ It offended Gordon’s sense of constitutional propriety to leak any details of his dealings with the Queen, even about recommendations he wasn’t prepared to send her.
If there’s a lasting legacy from Gordon’s loyalty to the Crown, it is that despite the republican streak that historically runs through the Labour Party the two Eds who lead it are firmly in the opposite camp, and both fervent admirers of Prince Charles. If they are in Numbers 10 and 11 Downing Street when Charles ascends the throne, those people who fear and resent his influence over government policy may have good reason to worry.
I can imagine Balls’s first pre-Budget audience with the new king: ‘Now, Sir, I understand you’re interested in my plans for VAT relief on pot plants.’
9
MY DEMON BOOZE
Putting me in charge of alcohol taxes was like putting Ian Paisley on the papal conclave.
I had an almost worrying lack of experience when it came to my other lead tax areas: I’d never smoked a cigarette or driven a car; and I usually only bet on the Grand National. But I made up for it when it came to my excess o
f experience in alcohol consumption.
I’d started drinking lager alongside my dad when I was very young: watching the Gaelic football or a Bob Hope film on TV together meant five cans from the six-pack for him, one for me, and don’t tell your mother.
When I was fourteen, after my first day’s shift on a building site, tearing up cracked paving stones and hauling around new ones, the foreman took me to the pub and it was the first time in my life that I equated the exhaustion of a hard day’s work with the need for a pint of lager.
Four years working behind the college bar at Cambridge saw my tolerance and waist size soar, not least because of the bottles I’d take back to my room every night of the week to help me work.
By the time I was earning a Grade 7 salary at Customs aged twenty-five, and spending three-quarters of it in the pub either on myself, mates or colleagues, I was by any measure an alcoholic, albeit probably the dictionary definition of a functioning one. I used to walk past Smithfield Market on my way to Blackfriars at 7 a.m., and – if I had lots of paperwork in my bag to get through that morning – I’d conclude it made perfect sense for me to do it in one of the 24-hour bars rather than at my desk.
In the Treasury tax team, it was more complicated. I had to be on call for ministers at any time, and the day was usually so busy with meetings and submissions that I couldn’t just slope off to the pub. So my daily routine became a quick two pints while going out ‘to get a sandwich’ at lunchtime, two hours in the pub with colleagues straight after work, then back to the Treasury with a six-pack to do another three hours’ work before the last Tube home, a can on the Tube (pre the Boris ban), and another four at home before falling asleep on the sofa. And repeat.
Power Trip Page 5