Our competing approaches could easily have been the subject of wider discussion. All of us would have been strengthened by that. As it was, most of the Cabinet was excluded from the debate until it was far too late. I found the personal support offered by senior colleagues like Jack Straw, Harriet Harman and Tessa Jowell immensely reassuring. Younger colleagues too – David Miliband, to whom I spoke often, and James Purnell and Douglas Alexander – all expressed their deep concern that summer. They were worried about Gordon’s refusal to listen to them and our direction or, rather, lack of it, which would almost certainly culminate in disaster at the polls. The Budget should have been a fresh starting point, building on the G20 and providing a runin to the election the following year. It didn’t happen.
I sat at the Cabinet table for thirteen years. That should be the forum at which government policy is hammered out, where differences of opinion are debated and resolved. Of course, the implementation of policy, getting the detail right, can be left to Cabinet sub-committees. When I first attended Cabinet in 1997, I expected to receive papers from my colleagues outlining their policies, so that we could debate their merits. Instead, I was surprised to find that the Cabinet seemed at times simply to be going through the motions. We would sit down, hear the business in Parliament for the next fortnight or so, and then be told about a policy announcement that was going to be made sometime that day. The prime minister controls the Cabinet agenda and decides what will and won’t be discussed. He has to use his judgement as to when he needs to bring colleagues with him – when discussions need to be conducted around the table, as opposed to a minister being squared off at a private meeting in the No. 10 study.
Both Tony and Gordon were reluctant to have open discussions if there was any possibility of controversy. There were other policies too that would have benefited from a far earlier and thorough debate. Iraq is perhaps the prime example. Or Afghanistan, when there was a discussion but only as a prelude to the announcement by John Reid, the Defence Secretary, that we were deploying troops there. Too often, the discussion was simply around the reporting back of the latest development, rather than providing an opportunity to stand back and ask where we were going.
For most of Gordon’s time as Chancellor, he would tell us what he was doing on the economy; but because things seemed to be going so well, there was rarely any debate. It was only in the case of the euro that there was extensive discussion involving every member of the Cabinet. But it was a virtual Cabinet discussion, with members having one-to-one meetings with Tony and Gordon to avoid the semblance of a ‘row’ around the Cabinet table. This fear of ‘rows’, which stemmed from Labour’s turbulent past in opposition and in the Labour Cabinets of the 1960s and 1970s, lived on through our thirteen years in government. ‘Rows’ are part and parcel of political life, and I think that our government would have been stronger if there had been more discussions around the Cabinet table.
I can remember only one discussion, in the summer of 2009, on ‘investment versus cuts’. Yvette raised the matter because she felt that there should be a debate around this issue which was dividing the Cabinet – and, indeed, lay at the heart of the disagreements between Gordon and myself. She wasn’t confrontational in the meeting; she simply made it clear that we needed to have the conversation. James Purnell spoke up in agreement; he too felt that there should be a debate. Gordon listened to what was said, but what exercised him was the fact that it was increasingly apparent that what he and I were saying was at odds, and the discussion was cut short. My guess is that Yvette was more on Ed’s side of the debate than was James Purnell, but this was an instance where people on both sides of the political spectrum felt that the situation was becoming intolerable. I spoke to both James and Yvette later that day. Gordon had seen both of them privately after the meeting. Yvette was upset at the way he had spoken to her. This episode did a lot to persuade James Purnell that he no longer wanted to be part of the government.
This tendency to make policy in this isolated way was not confined to us. It’s happened many times before, under successive governments of different political hues. It has already happened with the new Tory-led coalition government over health service reforms, an obvious example where a bit of collective thinking might have avoided the need for a very public retreat.
The decision-making process that characterized the Labour governments of both Tony and Gordon is something we slipped into almost by accident. Tony set the pattern in the early days of his government, when the Cabinet purported to discuss whether to continue with the Millennium Dome in 1997. Tony said what he thought, that we should support it, and then told us he had another engagement and promptly left. Although a number of Cabinet colleagues, myself included, raised reservations about the whole thing, John Prescott simply said that Tony wanted it, so we had to go with it. It became a running sore for the next five years.
To understand why this style of government happened, it has to be remembered that in its long wilderness years in opposition in the 1980s the Labour Party had become almost ungovernable. The situation was only retrieved by the determination of Neil Kinnock to impose order where there was none and to do so in a necessarily ruthless way. He ensured that decisions were taken from the top, not through interminable committee discussions or, worse, public spats. By the time Tony and Gordon were establishing themselves as future leaders under John Smith, and after our third consecutive election defeat, the party was ready to accept governance by diktat. It worked, for the first few years. Tony, with his fresh eye and beholden to no one, junked much of the baggage we had grown up with after the defeat of 1979. Gordon, to his immense credit, rewrote our economic policy after 1992. This was fine in opposition. Parties are unwieldy beasts; but, with a few exceptions, they do like leadership. Put another way, for all the criticism a leader gets for appearing presidential and intolerant of dissent, people prefer that to a situation where there is no firm leadership or control. But in government, it is not just about implementing policies that may have been developed over a long time; it is equally about applying those policies in detail and reacting to day-to-day events, which may require a different approach. We did not have effective Cabinet government for the thirteen years we were in power. It is a mistake we should not repeat.
This lesson is not peculiar to the Labour Party, or even to British politics. The prime minister has to remember he is only ‘first amongst equals’. True, British politics has evolved. It is hard to envisage Clem Attlee kicking a football around a field for the cameras, or Gladstone hugging a Spice Girl, at least in public. Harold Wilson famously spent much of his time managing competing Cabinet conflicts. In her first term, Margaret Thatcher found it difficult to do what she wanted in the face of Cabinet opposition, and she lost the confidence of her colleagues in the poll tax debacle. If ever there was a policy that should have been road-tested before being implemented, that was it. John Major’s administration was paralysed in part by a cabal working against him. Tony Blair’s problem was different. His internal conflict was with one man, Gordon Brown. This was not a conflict over policy. It was personal.
The point is that Cabinet government is a critical part of our constitution and it is being neglected. The position of the Chancellor in all this is complex. No Chancellor can produce a Budget as a result of committee deliberation. The Chancellor has to form a view of what must be done from the best evidence available, and then produce a Budget. The first time that the rest of his Cabinet colleagues will hear what’s in the Budget is a couple of hours before it is presented. But I think that some of the general principles, and certainly the general approach, can, and should, be discussed. The decisions will be better for it. For example, one of Gordon’s major changes to the tax and benefit system was the introduction of tax credits. Its implementation was complicated, but the principle of providing more help for those who need it most is a good one. It is redistributive and it is fair, but it is easy to criticize it when you look at the sometimes complex calculati
ons. Here is an example where the principle could easily have been discussed and debated and that would have provided a greater sense of ownership of the policy, so that, when things became difficult, the Cabinet would still feel this was ‘their’ policy, not just Gordon’s.
This, then, is the background against which, that Easter Sunday morning, I had a telephone conversation with Gordon about the proposed Budget – me in Edinburgh, he across the Firth of Forth in North Queensferry, still grappling with the fallout from the debacle over his errant adviser. Our conversation was perfectly friendly; it was just that we did not agree. The planning for this Budget was, as Peter Mandelson observed, to be a negotiation rather than a discussion. It was also to be the prelude to the complete breakdown of our political relationship.
10 Breaking Point
The Budget is usually the most important political statement of the year. What was needed this time round, in the spring of 2009, was a clear sense of direction, both political and economic. We desperately needed to work together as team, and we needed sufficient time to prepare the ground in order to gain maximum impact. None of this happened. Instead, the Budget strategy, and in particular the forecasts on which it depended, were not agreed until a few days before its presentation.
In retrospect, this Budget was dead in the water weeks before its presentation. It also marked the moment when my friendship with Gordon, which had lasted more than twenty years, was driven to breaking point. Richard Crossman in his diaries observes that political friendships should be cool and detached. I am afraid he is probably right. By now, ours was lacking in both qualities.
We faced three sets of problems in the run-up to the Budget. First, the political landscape simply couldn’t have been worse for us in the wake of the McBride affair. Second, the chaotic decision-making process, and all those problems that had surfaced during the preparation of the pre-Budget report, manifested themselves again. Finally, there was the fact that Gordon and I were unable to agree about growth forecasts and strategy; our disagreement can be boiled down to investment in the economy versus the need to cut borrowing. There was little disagreement on specific measures, but they could only be decided once the big issues were resolved.
On the Saturday before the Budget was due to be delivered, I met Philip Gould in my office in the Treasury. Philip had done a lot of polling for us and had been part of Tony Blair’s team since the inception of New Labour. Because of this, he was viewed with suspicion by the Brown camp. Rather like Peter Mandelson, Philip (along with Alastair Campbell) was gradually persuaded to come back for the sake of the party. We were on our knees, and the general election was not too far ahead. He told me that the voters were in an ugly and depressed state of mind. They were angry about the recession and the threat to their jobs, and they couldn’t readily comprehend how increased borrowing or spending would make things better. Our only chance of improving our standing with them would be if we could explain clearly what we were planning to do and why – that we wanted to take measures to restart growth, for example, through investment in the economy. We were paying the price for our failure to deliver a message. Now we desperately needed a story to tell, and one on which we were all agreed. Time was short to get that right.
The process by which we drew up the Budget was tortuous. Preparing a Budget should not be like a wage negotiation in a trade dispute, with each side waiting until the other blinks. As a former Chancellor, Gordon knew full well the amount of work that had to be done, even after the fundamentals are signed off. A speech has to be written. Expectations have to be set. This was no way to run a raffle, never mind a Budget. Meetings scheduled to thrash out our position were cancelled, often at the last minute, and new ones hastily arranged, all too often early in the morning or late in the day. This was how it was with all the meetings at which we were to discuss big issues, not just economic ones.
Managing the prime minister’s time is one of the key factors that will determine his or her success. Deciding what is important and what is not is critical. The management of Gordon’s time by No. 10 was, from my perspective, hopeless. There was a permanent air of chaos and crisis. Perhaps I am too managerial, a charge that has been levelled against me. But I find that a world where meetings start and finish when they are supposed to, and where decisions are reached, even if they are not always the ones I want, makes for better governance. It may be boring; the alternative is totally debilitating.
Our discussions rarely, if ever, reached a conclusion. Sometimes there would be just the two of us, meaning that the wider party machine did not know what, if anything, had been agreed. Towards the end of these negotiations, Peter began to attend, but studiously avoided taking sides. Ed Balls, and sometimes Yvette Cooper, who was still Chief Secretary, were there on a few occasions. Often Dan Rosenfield and Jeremy Heywood – who has been, on and off, private secretary to Tony, Gordon, and now David Cameron – would be present. Jeremy was a Treasury man who knew his stuff. He had also been private secretary to Norman Lamont during his Chancellorship.
Occasionally I would try to include Treasury officials, but since Gordon viewed them with suspicion, and sometimes open disdain, it quickly became counterproductive for them to join us. This I found hard to understand, since there was virtually no one in the Treasury at a senior level who had not been appointed when Gordon was Chancellor. No one could have got a senior post without his say-so. However, the message the Treasury conveyed on the economic outlook was consistently rejected by Gordon as being too conservative. He became convinced that they were determined to thwart him. Gus O’Donnell relayed Gordon’s unexpurgated view of Nick and the Treasury in general. Gordon objected to the advice we were providing and the pace at which we worked. The bank interventions were complex, and had to be got right, and Gordon’s wish that they be announced before Obama’s inauguration increased the risk that we wouldn’t. Nick discussed this with me a day or two later, saying he felt he was being threatened: either he gave Gordon the advice he wanted, or he’d be sidelined or even removed. I had sensed Gordon’s mood and was keen that the Treasury should work quickly, but also I needed their best advice. Nick did needle Gordon, though. He would extract his Swiss army knife and languidly peel an apple while telling Gordon that he had overestimated the amount of money that was coming into the Treasury, particularly from the financial services sector, and that this was why the structural deficit had increased.
It is the Permanent Secretary’s job to make sure that ministers and key officials work together. They are pretty good at picking up who has the minister’s ear and who hasn’t. That doesn’t mean that ministers are pushed around by the civil service. Any ministers with a clear idea of what they want to do will get the machine to work for them. Officials like that, even if they disagree with the policy. For a minister to set himself or herself up in a pointless battle with civil servants – or worse, to blame them for their own shortcomings – is a recipe for failure. Civil servants are there to advise, and the minister is there to decide.
So, the latest in a series of fretful Budget negotiations would be terminated when someone would stick their head around the door and say there was another meeting waiting, and another inconclusive conclave would end with a flurry of papers and a fast exit. I sometimes got the impression that Gordon was genuinely torn between our competing views. He knew that borrowing was an issue and that we could not ignore it. However, he and, I think, Ed felt that to run two arguments at once – the need to invest and the need to cut borrowing – was complicated. I knew that to some extent it was, but I also strongly believed that it was a necessary consequence of where we were.
So, the process of discussion was very unsatisfactory and, more importantly, there was still a fundamental difference between Gordon and myself over the forecasts, both for growth and consequently for borrowing and debt. In the three weeks running up to the Budget, we kept coming back to these growth forecasts. Over the last hundred years, the British economy has grown by about 2.5 per cent per ye
ar on average – what economists call the ‘trend rate of growth’. However, after a downturn, like the ones we had in the 1980s and 1990s, growth tends to bounce back, sometimes hitting as much as 4 per cent, as people get back to work, produce more goods and sell more services. Unemployment starts to fall before growth steadies. In other words, it is not uncommon to get higher growth numbers after a series of lower growth figures. Exactly the same shape can be seen in UK forecasts prepared by independent forecasters. Their estimates frequently change, and the commercial ones tend to forecast one year ahead, rather than five years as the government does. Nor was our forecasting any less problematic than that of the coalition government that took over in 2010. By the time George Osborne presented his second Budget in March 2011, his growth forecasts had been downgraded no less than twice in ten months. He was still forecasting sunny uplands to come in years three, four and five – something he used to criticize both Gordon and me for doing.
I do have to emphasize again that forecasts are just that and that they can be wrong. But I was adamant that our growth forecasts had to be believable. My forecast for growth in 2010 of between 1 and 1.5 per cent, although widely derided at the time, proved to be correct. Gordon was more concerned about the forecasts for the years ahead. I thought that we needed to downgrade the forecasts, because although it was difficult to be sure what would happen in two or three years’ time, it would seem incredible if we assumed that nothing would change. He pointed out that in the past the economy had bounced back, in the 1980s and the 1990s, with growth spiking before returning to trend. That was true, but the recovery after this recession looked likely to be slower. This argument went on and on. The outcome was that the forecasts were just about in line with some other forecasters’ predictions, like those of the Bank of England. But the predictions from 2011 were optimistic. Of course, by that year there had also been intervening factors, not least decisions made by the new government, as well as much slower growth in Europe.
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