Ministers and officials were encouraged, rather briskly, to come back inside. We sat down to discuss where we thought we were. Yvette Cooper and Treasury ministers Angela Eagle, Jane Kennedy and Kitty Ussher contributed their thoughts to the discussions, along with Dave Ramsden, the Treasury’s chief economist, and Mark Bowman, who was in charge of bringing the Budget together. It was clear that there was a looming risk of recession, probably by the beginning of 2009. The credit crunch had intensified and the picture was unremittingly bleak right around the world. We did think, though, even then, that if we did what was needed to support the economy, we could still see a return to growth at the end of 2009. But the next twelve months were going to be very difficult, with everything pointing to a far sharper downturn than most people were predicting. It was that meeting that set the tone for two important newspaper interviews I gave that summer, warning of a deep and lengthy economic storm.
Following the Budget in March 2008, very few were predicting a recession. In April, the Bank of England said in its financial stability report that the worst was over and that it expected confidence would return. The IMF report was optimistic and commended the UK on its actions so far. It concluded that there would be a ‘global rebound’ in 2009. The highly respected National Institute for Economic Research said in July that we in the UK would escape recession. Even a few weeks later, Mervyn King, presenting the Bank’s inflation report in August, said that output would be broadly flat over the next year. Dave Ramsden thought that there would be a shallow recession, starting at the end of the year. What was not foreseen was how quickly the economy would slow down before starting to shrink as the recession deepened. Equally worrying was the discussion we had on public sector finances at Dorneywood. A quarter of our corporate taxes came from the financial services sector. The size of our housing market meant that any downturn would reduce stamp duty receipts. A slowdown in spending would mean less VAT, and rising unemployment would cut income tax receipts.
I remember Nick Macpherson musing that if things were bad, borrowing could top £100 billion in a year or so. That brought gasps of incredulity from some around the table. As it turned out, it was something of an underestimate. The problem was that it had been assumed that taxes coming in from the financial sector would go on and on. After all, they had done so since the beginning of the decade. Far from being decried, huge bank profits and massive bonuses meant an increasingly large tax take. The real problem was that the economy had become too dependent on one sector. When the crisis hit, the UK was hit very hard.
As our discussions wore on that evening and into the next day, I was sufficiently alarmed to take Nick Macpherson and Dave Ramsden into a corner. I asked them to get a team working on what we would need to do if the banking crisis did develop further and recession hit more deeply than we feared. This was looking like a downturn that would be profound and long-lasting. Even when the economy started to grow again, it would be a long haul. I was particularly concerned at the increased borrowing and greater debt that I would have to announce in the pre-Budget report in November. Over that weekend, we sketched out our approach. First, it would be necessary to maintain public spending in order to keep momentum in the economy. Secondly, it would be necessary to provide an additional stimulus – that is, more spending to prevent recession from sliding into depression. But the third leg was equally important. We would also have to come up with a plan to cut borrowing and reduce debt as we moved out of recession, in 2009 or 2010.
At this stage, there was no disagreement between myself and Gordon on our strategy. That emerged later. He was, though, far more focused on the need for stimulus than on the deficit. It is worth noting that our fear at that time was that unemployment would rise much higher than it did. Outside commentators, including David ‘Danny’ Blanchflower, the respected labour market economist on the Bank of England’s Monetary Policy Committee, believed unemployment might hit 4 million. In fact, unemployment remained far lower than forecast, which, in my view, is the direct result of the action we took later that autumn.
What was not apparent at Dorneywood that July was that we had already moved into recession. There is always a lag in receiving the official statistics that show whether or not an economy is growing or shrinking. The Office for National Statistics usually revises its initial estimates of what is happening several times, over a number of years. So it would take more than a year for the official statistics to show that we were in recession that summer.
This then was the background to the interview I gave to Rachel Sylvester and Alice Thomson of The Times to set the right tone for the summer and autumn. Reading the article now, under the heading ‘Prophet of Economic Gloom’, I see that I gave a pretty blunt view of what was to come. I was actually in quite a cheerful mood that day. My friend Ann Coffey had surprised me with two tickets to attend what proved to be the first of a number of Leonard Cohen farewell concerts. I was taking Calum and was looking forward to an uplifting performance by the master of gloom at London’s O2 Arena. It was a tremendous show.
I told The Times that the downturn would last far longer and go much deeper than I had expected earlier in the year. I went on to say that I thought it could continue for years rather than months. I said that growth was likely to be slower than predicted, and that the problems in the banking system were deep-seated. And I said that while public services were the cornerstone of the welfare state, they had to be paid for. I added that I sensed that people were very conscious of their own financial position, and that now they felt squeezed.
In fact, I had said much the same thing first in an interview on the economy with the New Statesman a month earlier, in June 2008, in which I told political editor Martin Bright: ‘If you ask fundamentally what’s changed . . . self-evidently it’s the credit crunch . . . The IMF has said that it is the biggest shock to the world’s economic systems since the 1930s.’ In the No. 11 study, we talked through the year past and I added: ‘If you look at the overarching event of the past twelve months, it is a slowdown in the economy and everything that comes with it and that hasn’t just affected the economic matters – it’s had a huge bearing on politics too. It’s the old adage “it’s the economy, stupid” and the economy drives politics.’ No mention of the interview was ever made to me by either Gordon or his team. That was the pattern. Clearly, each interview was carefully noted. My view of what was happening in the economy was diverging from theirs. They viewed that as disloyalty, but I was determined to set out the truth as I saw it. If the knives weren’t yet out for me, they were certainly being sharpened.
It was the middle of August before I could escape London for the Hebrides. For the fortnight before that, in Gordon’s absence, allegedly on holiday, I stayed in Downing Street, deputizing for him in ‘running the country’. Actually, I did nothing of the sort. Gordon and his court had decamped to Southwold, in Suffolk, where he was still very much not on holiday. Shriti Vadera, his economic adviser, was there, and Ed Balls and his press secretary, Damian McBride, visited. It was almost like the summer camp of the king in days of old.
As far as I could see, my duties were confined to meeting those of his entourage not invited to Southwold. Among them was Stephen Carter, who had been brought in as chief strategist a few months before to restore order to No. 10. He was the former Chief Executive of the media watchdog Ofcom, following a successful career in advertising. Unflappable and efficient, Stephen was still in post but out of favour, as was so often the case. His aura of calm that week was a welcome contrast to the usual chaotic operation in No. 10. He was one of many decent people who looked increasingly burdened and battered by the events of the past year. The most significant decision I had to make during that fortnight was to insist that my colleague, Foreign Office minister Jim Murphy abandon his family holiday to return to head up our response to the crisis caused by the Russian invasion of Georgia.
I had one more task to perform before starting our family holiday. Catherine MacLeod had agreed on my
behalf to a Guardian request for an interview for their Saturday magazine. It was to be a profile, intended to run the weekend before the party conference in September, which was just weeks away. I had appointed Catherine, whom I’ve known for twenty years, the previous autumn. She was a former political editor of the Glasgow Herald and we knew each other well and trusted one another. I needed someone to speak for me. The Treasury has excellent press officers, but quite properly they cannot deal with the more political side of things, so I needed someone to advise on media and political coverage and to speak to journalists. For most of my parliamentary career I’ve avoided giving personal interviews, because they open a door which can’t then be closed. I don’t like talking about myself, but the risk is that other people will then define you and create a picture that might not be true. Catherine encouraged me to put my head above the parapet, to let people know how I ticked. She organized informal meetings for me with political and economic commentators, and handled the political end of media enquiries. Her great strength was that she was deeply respected in the Westminster lobby, by political editors, reporters and commentators, as well as MPs.
The Guardian was explicit. They wanted a ‘colour piece’, as it’s described in the trade, to appear on the eve of the party conference. They didn’t want an office interview. They first suggested doing it in Edinburgh, but that would have meant losing another two days of our holiday. I did not want to delay the trip to Lewis any longer. Hoping that the paper was on a tight budget and that I could head the whole thing off, I said: ‘Tell them they’ll have to come to the Western Isles.’ The offer was accepted with alacrity. The result was that feature writer Decca Aitkenhead and photographer Murdo Macleod, a Lewis man himself, whom I knew from Edinburgh, duly presented themselves at the croft house on a beautiful sunny August afternoon, with a pair of golden eagles hanging in the sky above us.
In the fallout from the interview, I was accused of many things, including having been foolish to allow a reporter to visit the croft and join us for supper before doing the interview the next day. All I will say is that we are generally hospitable, and since she had come all the way from London to our remote refuge, it seemed the natural and polite thing to do. Murdo had rung Catherine to say it was such a beautiful day, it might be best to do the portraits a day ahead of the planned interview while the sun was shining. He knows that the weather there is unpredictable. Murdo arrived after a recce to find a few places for the kind of moody island portraits at which he excels, capturing the light and the skies and the swell of the sea. He and I, with Decca and Catherine, set off to do the photographs, around Dalbeg and among the Callanish standing stones. He also wanted pictures of me on my small Orkney spinner boat. Then we went back for a meal of lamb and Stornoway black pudding around the kitchen table. We couldn’t offer either Catherine or Decca a bed, there wasn’t room, so after supper Murdo left to stay with his mother in Shawbost, while Decca and Catherine headed off for the hour-long drive to Uig, where they were both booked into the Baile Na Cille guest house for the night. On the drive back their hire car had a puncture and they had to be rescued by a passing crofter.
Next morning, Catherine and Decca arrived back for the interview. It was expansive, and ranged over the personal as well as the political. At one point, when we were discussing the economy, I said: ‘Arguably, this is the worst downturn there has been in sixty years. And I think it is going to be more profound and long-lasting than people thought.’ My prognosis was exactly what I had set out in The Times a month earlier and in my New Statesman interview. Decca left with Catherine in the afternoon to catch a plane home. We got on with our holiday.
Two weeks later, on the ferry heading from Stornoway to Ullapool on our way home, Catherine rang – to discuss, I thought, another interview, for the Stornoway Gazette, in which I had given the same message. The Guardian, she told me, was carrying the interview the next day, three weeks earlier than we had thought. That was when alarm bells began to ring. As we were sitting down to a meal with the children in a restaurant at the end of our street in Edinburgh, Catherine rang again to say that the Guardian had run my predictions on its front page: ‘Economy at sixty-year low, says Darling.’ The article had been picked up next door at No. 10 the night before it appeared. Their reaction, fed back to me, was one I’d heard before: I was clearly a prisoner of the Treasury, unable to think for myself. The fact that what I said might be true did not seem to enter their minds. No one wanted to acknowledge that we were heading for an extremely serious downturn.
Early the next morning, Catherine told me she had taken part in a conference call with Damian McBride, Mike Ellam, the Prime Minister’s official spokesman, and Joe Irvine, a political aide. It was clear that they were raging. Joe had warned Catherine before the call that the interview was being described as a disaster. The conversation was difficult: they wanted to know how I was planning to respond, and they were asking for me to go out and do interviews. I wanted to do so. What the Guardian headline had done was to suggest that this was a British problem, rather than a global one. I was happy to give an interview that spelled out that the problem was global. The front-page article, written by Nick Watt and drawing on Decca Aitkenhead’s interview, cleverly spotted a political story and made the most of it. In substance, though, I had said no more than had been reported in The Times and New Statesman. The real problem was that what I was saying and what Gordon was saying were very different.
The Guardian front-page story was uncannily accompanied by the same story splashed in the Daily Telegraph. Quite where the BBC got the story to run on the 10 o’clock news the night before it appeared I don’t know. The reporter told viewers that she had not seen the article in the next day’s Guardian but had been told about it, and that it had set alarm bells ringing in No. 10. All of this leaking and briefing whipped up a media frenzy. Catherine spent Saturday fielding calls from journalists, who repeatedly told her how furious the Prime Minister was with me. That was odd, because on the Saturday morning I had spoken to Gordon and he was civil, if terse, and gave no sign of anger. He said that the people he was speaking to were telling him the recession would be over in six months. I replied that that was not what I was hearing. I was as anxious as he was to do a television interview to make it clear that, while we faced a bad downturn, so too did most other countries. The press was briefed that I had been ‘ordered’ by a furious prime minister to make a public apology, which was simply not true.
The media reaction was extraordinary. It was as if my words had been a bolt from the blue and that I was personally responsible for crashing the economy. Politicians are regularly criticized for appearing to be economical with the truth. I was condemned for having said no more than was true. The Tories, understandably, piled in. They were unsure at first whether to agree with my analysis or to condemn me for having said what I had. So they did both.
It was the briefing machine at No. 10 and Gordon’s attack dogs, who fed the story and kept it running. I later described it as like ‘the forces of hell’ being unleashed on me. That’s what it felt like. Damian McBride was no fan of mine – he clearly disapproved of Gordon’s decision to appoint me as Chancellor. He used to look at me like the butler who resented the fact that his master had married someone he didn’t approve of. I’m not sure that he ever spoke to me. He would give me a curt nod, nothing more. He had a group of journalists whom he briefed regularly, and when Catherine McLeod finally managed to meet with him, after repeated requests, he told her which journalists she should talk to and which not. Catherine believes that she was largely disregarded at first because no one expected me to be Chancellor for long. McBride was very tense, like a coiled spring. Unlike The Thick of It, all of his briefings took place behind the scenes. By contrast, Charlie Whelan enjoyed his reputation as a political bruiser. He was special adviser to Gordon in opposition and then for the first two years in government, when he took up a job at Unite. He started reappearing in an unofficial capacity once Gordon became pri
me minister, but later, when Peter Mandelson returned to government, Peter discouraged him from taking part in the planning for the election.
The attack dogs set about another colleague that summer. At the beginning of the summer recess, after the loss of the Glasgow East seat, David Miliband, then Foreign Secretary, had written an article for the Guardian in which he set out the need for a coherent political strategy to recover lost ground. It was a thoughtful piece, but it was interpreted by the inner circle as an attack on Gordon and a signal that David might launch a leadership attempt. Gordon was told by his team left behind at No. 10 that he should be relaxed about it. They were right. The article would have died a death had a cack-handed press operation not been mounted to trash David.
Exactly the same thing happened at the end of the summer with me. For days after the Guardian piece ran, journalists told us they were being told repeatedly that I had made a hash of it. Well-sourced speculation that I was about to be reshuffled began to appear in the media. Perhaps they were using the interview as an opportunity to get rid of me once and for all. At the time, what I didn’t know was that on his flight home in late August from the Olympic Games closing ceremony in Beijing, Gordon had told journalists that we would see an economic recovery within six months. Understandably, this open divergence of views between Prime Minister and Chancellor provided fertile ground in which to plant seeds of doubt about the Chancellor’s competence.
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