At the time of the Northern Rock collapse, our pollster had told me that no one understood that its causes lay in the US mortgage market. However, I rather thought the argument was getting through. One weekend at the end of 2007, I was pushing my trolley around the local Tesco. Two elderly ladies spotted me, and started to talk to each other about Northern Rock. One of the things you get used to as a politician is that people frequently talk about you as if you are not there. While scanning the fruit and veg, I heard one confide to her friend: ‘It’s the sub-prime mortgages, you know.’
Towards the middle of June we realized we would not get home for Calum’s twenty-first birthday. His sister was returning from her gap-year travels around the same date, so we decided to invite close friends and family for a celebration at Dorneywood. It was a very happy weekend. The political weather may have been poor, but we spent a gloriously sunny couple of days. I sat with my Red Box, doing the weekend’s homework on the terrace looking out over the summer gardens, thinking of Harold Wilson’s dictum of a week being a long time in politics. It was the first time in a long time that we had been able properly to relax.
That summer, when I was able to get back to Edinburgh more often than at any time over the previous two years, I picked up two important points. The first was that people were fast losing faith in us, but that they had not given up on us altogether. The second was that they really did not warm to the Tories. I had picked up exactly the same things in London. The situation was not yet lost, but we would have to work desperately hard if we were to claw back our position.
Our summer holiday of 2009 was less eventful than the previous year. We enjoyed a peaceful two weeks in the Hebrides. The weather was glorious and for days on end we were treated to the sight of a pair of golden eagles with their offspring, floating so close above the house that we could see their eyes looking down at us. It is good to see that these beautiful birds are now returning, when only a few years ago there was the fear of their becoming extinct in parts of Scotland. We even managed to catch a few lobsters. Stocks had been depleted for years but are now recovering.
I hoped to avoid deputizing for the Prime Minister, as I had done for two weeks the year before. This year it was decided that Jack, Harriet and I would each do a week. When I arrived back in London, the breaking news was the decision of the Scottish justice minister to release Abdelbaset al-Megrahi, the Libyan convicted of the murder of 270 people when Pan Am Flight 103 was blown up over Lockerbie in December 1988, on compassionate grounds. Now he was supposedly dying of prostate cancer, and his release obviously provoked very strong feelings, not only in the UK but particularly in the US. The majority of the passengers had been American citizens going home for Christmas. Tony was at that time trying to bring Colonel Gaddafi in from the cold, and al-Megrahi was a stumbling block to the improvement of relations between Libya and the UK and US. The British government was therefore not unhappy about the Scottish government’s decision to release him, but there was no collusion. I suspect that the Scottish government was motivated by a desire to be seen to be playing on the international stage; certainly the Justice Secretary had gone to visit the prisoner in his cell, a privilege not accorded to other inmates seeking compassionate release. But what this all suggests to me is a coincidence of interests, rather than collusion, between the British and the Scottish governments.
By the time I met with the No. 10 staff to take stock of what was going on, the story had been running for some days. The line that had been decided upon was that the matter was one for the Scottish government rather than Downing Street. In an age when the prime minister is expected to have a view on everything from Coronation Street to football, having no view on the release of a man who had been convicted of a heinous terrorist crime was never going to wash. Catherine MacLeod told the meeting that she thought silence would not work. The response of Gordon’s advisers was that it was a Scottish story. She said they were wrong: it was a story that would reverberate around the world. She was slapped down by his team and told that Gordon had closed down the issue. Far from it: the story dragged on for weeks. Catherine’s judgement was proved correct once again – and far from being at death’s door, al-Megrahi was still alive two years later.
That autumn there was to be a series of international meetings involving the same people and covering a lot of the same ground. Ironically, our carbon footprint would be formidable. My attention turned to the international efforts to maintain the recovery, which had been so invigorated by the G20 summit in London in April. The G20 was due to reconvene in Pittsburgh in September, this time with President Obama in the chair. It had been decided that the finance ministers would convene in London in early September to prepare the way. Two meetings would be time-consuming enough; but there would also be the autumn meeting of the IMF in October, which this year was being held in Istanbul. This was my first visit to Istanbul, and sailing down the Bosphorus, almost able to reach out and touch the shores of the two continents of Europe and Asia, visiting spectacular churches and mosques, feeling the fusion of east and west meeting in one city, I knew I would return. We finance ministers began to think that we saw each other more than we saw our families.
In addition, it had been agreed earlier in the year that the same finance ministers would meet in St Andrews in November. Finally, leaders and environment ministers were due to meet in Copenhagen in December to try to get an agreement on climate change to succeed the 1997 Kyoto protocol. St Andrews offered an ideal location with a secure venue. I knew too that because it boasts world-famous golf courses there would be no difficulty persuading ministers to attend. I hoped that I might be able to get an agreement on climate change in the run-up to Copenhagen. Far too many finance ministers regard climate change as something for others, for their colleagues who are responsible for the environment or energy. But measures to halt the damage being done to the environment do have a major financial impact. Equally, failure to act has great costs.
At that time, hopes for a deal in Copenhagen were high. It was at our London meeting in September that the differences of opinion that would kill off any chance of agreement in December were exposed. It became clear that many countries, India and China in particular, were not willing to sign up to anything meaningful on climate change. Canada too had reservations. At one point, increasingly irritated at the apparent refusal of the Chinese to sign up to anything at all, I said to them that if they persisted with this line I would have to explain who it was that was blocking the agreement. They moved slightly at that point. The trouble was, though, that the Chinese representatives did not have authority from Beijing to agree to much more than a few warm words.
Ministers were, by and large, happy with the agreements on the economy and on regulation, as these were largely work in progress. In the news conference afterwards, attention focused on differences between ourselves and the French over what to do about bankers’ bonuses. That, to some extent, disguised the fact that we had been unable to agree anything concrete on climate change. The difficulty was to resurface again at the final meeting of the G20 finance ministers in St Andrews in November.
We met on the sunny, windswept Fife coast in a hotel purpose-built for golfers, just outside the ancient town, for what would be the last meeting under our presidency of the G20. To welcome guests from across the world, students from our children’s old school, James Gillespie’s High School in Edinburgh, played the clàrsach, the Gaelic harp. The music was beautiful and Margaret and I were proud of the students, who had come a long way by bus to be met with the kind of desultory response that is normal on these occasions. Margaret had arranged for the atrium of the hotel to be a showcase for the finest of Scottish produce, brands such as Harris Tweed, Hebrides and Anta fabrics, as well as an exhibition by the Glasgow galleries of the work of Charles Rennie Mackintosh and Jessie M. King.
On the Saturday morning, we met a long queue of very small school-children lugging very big musical instruments into the hotel theatre. The sound o
f an orchestral performance by youngsters from Big Noise, a pioneering social project in Raploch, in Stirlingshire, provided the background to the first of many wearying meetings. Mervyn King and his wife Barbara, who joined us for the concert, were immensely moved by the performance.
Try as I might, I could not get China and India to sign up to anything. Eventually we cocooned them in a small room. I asked Tim Geithner and Christine Lagarde to join us. There were also Guido Mantega from Brazil and Anders Borg, the Swedish finance minister, representing Ecofin. But we could not budge them, even towards a minimal commitment; they were not prepared to sign up to anything they thought might constrain their economic development. Watching them at close quarters, the Indian and Chinese ministers played off each other, each relying on the other to be more obstructive. The Chinese civil servant seemed to be more vehemently opposed to our proposed text than did his minister. The shots were being called thousands of miles away. Here were two countries that, on any view, were going to be among the largest economies in the world. They should be at the top table of decision-making. But when it came down to it, they were not willing to accept the burdens that tackling climate change would bring. Their main argument, put simply, was ‘we didn’t cause the damage, it’s your fault, you fix it’. Their second, frequently stated, position was that the developed West was trying to hold back two developing countries that were desperately trying to catch up. In the event, they did agree to something bland, but it was a portent of the failure there would be to make any real progress at Copenhagen, despite the valiant role played by Ed Miliband. He put enormous effort into trying to get a deal, and so too did Gordon.
At the beginning of the year, I had been encouraged by the extent to which countries were prepared to come in from the cold and work together to try to resolve problems through international cooperation. None of this was going to be achieved at one summit. It was a process. At Pittsburgh, with President Obama in the chair and the Americans fully engaged, there had still been a determination to get things done. But by the time of the St Andrews gathering it was clear that somehow we had lost the momentum. It was not just one or two errant finance ministers playing hardball: these were clearly decisions taken at the highest level. International cooperation will only go so far unless ministers feel, as they did over the banking crisis, that they are on the brink and have no choice but to act together. The complete failure of the latest round of world trade talks, started in 2002, is an eloquent reminder of what happens when one or two countries don’t feel they have to play.
There is a postscript to the St Andrews meeting. Gordon was in Scotland, campaigning in the Glenrothes by-election, which Labour won emphatically, giving a welcome fillip to flagging spirits and hope of a recovery in our political fortunes. He told me that he wanted to say a few words to the gathering. The ‘few words’ turned out to be a speech calling for a tax on financial transactions. It would mean that every time money was transferred, a fraction of its value would be paid in tax, potentially raising billions of pounds. The finance ministers responded very badly to his initiative. They were given no warning. However, they weren’t entirely surprised: many had worked with Gordon for years while he was Chancellor. He had a long history of using such gatherings as a backdrop for a press release; quite often they’d already read what they were going to hear in the Financial Times. It was bound to unravel.
Tim Geithner told me he understood the politics, but that there was no way that he could agree to it. Of course, he was asked point-blank what he thought at his press conference that afternoon, and it was evident that the US government would not agree to this step. Jim Flaherty of Canada was equally emphatic. At my own press conference, I had to square a circle. Back in London, Downing Street was briefing that the case for the tax had been well received by the finance ministers, when in fact they had taken a very different view. I see little prospect of such a tax being implemented unless, at the very least, countries with major financial sectors become convinced of its merits. In theory, it would be a good way of getting a fairer contribution from the financial system. In practice, it would be impossible to make it work unless there was near-universal agreement, and there is no sign of that yet.
After the trauma of the summer reshuffle, we settled back into an uneasy truce in our working relationship. Gordon held his views and I held mine. The more he repeated the ‘investment versus cuts’ argument, the greater our political problems. The government settled into a period of what seemed like weary resignation. The reshuffle had not provided a fresh start. They rarely do; they are big in Westminster, but seldom cut through to the outside world. It was simply a messy end to a messy episode.
Despite that, when the Cabinet met for the last time before the summer recess, in Cardiff, on a warm bright day, we were in remarkably good spirits. We were, all of us, determined to do everything possible to put up a strong fight at the looming general election. At that meeting we discussed transport. Andrew Adonis, the new Transport Secretary, had brought his intellectual rigour to bear on the future of our railways. He also brought into Cabinet with him a map prepared by the old Ministry of Transport in the 1950s, showing what Britain’s motorway system would one day look like. It was remarkably prescient in its size and shape. Andrew wanted to do the same with the railways, with a new generation of high-speed trains. I was extremely interested, and somewhat surprised, given the Department for Transport’s long-standing scepticism about the value of high-speed rail. Andrew and I had discussed his plans over the previous month or so. Whether or not a high-speed train will ever get north of the English Midlands – if, indeed, it is built at all – I don’t know. Maintaining the present network is tough enough and it needs major investment. Added to that, it’s no substitute for measures needed to increase capacity at Heathrow. But Andrew’s boyish exuberance and serious intent rekindled the fire that any government needs – particularly one like ours.
The row at the heart of government rumbled on, however. The repeated attempts to run the argument that Labour wanted to invest and the Tories to cut was not working. It wasn’t that people did not believe that the Tories would cut. Of course they would. That’s what they do. But people knew we would have to cut spending too. A growing number of Cabinet colleagues and fellow MPs were expressing despair at this impossible argument. I discussed it with Peter Mandelson, who, since his recall to the Cabinet the previous autumn, had been an increasingly stabilizing force in No. 10. It was good to have him as an ally. I wasn’t going to make any headway with Gordon, but unless we changed course now the pre-Budget report was going to be a disaster. Peter decided to use a speech to the Westminster parliamentary lobby to start the process in the summer. Later in September, both he and I would make further speeches setting out the narrative that would, we hoped, take us to the pre-Budget report and then to the election. In essence, we would prioritize economic recovery, and then get the deficit down. There would be spending reductions, of course. But we had to protect key public services. We also pointed out that all this was being done on the back of increases in public spending over the previous ten years.
My speech, delivered as the James Callaghan Memorial Lecture in Cardiff in September, not only made these arguments but also explored larger themes, about the role of government. I made the point, as James Callaghan had done, that government had the means of changing people’s lives for the better. There was a case, I said, for a government actively engaged in doing that, principally through education. But government could also shape the economic weather, as well as making a key difference to the business environment. However, unless Gordon were to change his tone, none of this would work. He was finally persuaded – not by me but by Peter – to the use the word ‘cuts’ in his speech to the TUC that same month. It was an odd choice; he used the word seven or eight times, but we knew he just didn’t believe it.
I did speak to Ed Balls about this issue from time to time and sensed that he was ready to accept a more nuanced argument. Certainly, he
told me so on more than one occasion. What he said to Gordon I do not know. Gordon kept telling me he did not want to be labelled ‘another Philip Snowden’. Nor, I assured him, did I. Ironically, though I didn’t tell him so, I had said the same thing to the ‘Taliban wing’, as I dubbed the hard-line orthodox economists in the Treasury, on numerous occasions. My officials knew the strength of my views. Snowden, or at least his ghost, was not even in the room.
Gordon was wedded to a dividing line that had been successful in the past, and all attempts to shift him seemed to be in vain. Instead, with increasing regularity, I picked up that the No. 10 entourage believed not only that I was in thrall to Treasury orthodoxy, but that praise from Tory columnists had gone to my head. No doubt my unexpected Spectator award as ‘Survivor of the Year’ confirmed my critics’ worst suspicions. I saw it as a bit of fun. As I told the audience at the ceremony, I’d only ever won one national award before, that of ‘Most Boring Politician of the Year’. That coveted award, which I had won twice on the trot, was made by a trucking magazine when I was Secretary of State for Transport. I made one final attempt to make a decisive break from where we were. The pre-Budget report was to be presented in December because the Budget had only been presented very late in April. To my mind, it would be the last chance we would have if we, and not events, were to make the weather in the run-up to the general election. The economic background was showing signs of improving. However, we were by no means out of the woods. The banking sector had stabilized, but, as the IMF had said, it was too soon for governments to reduce spending without threatening recovery. Everyone expected that coming out of the recession that followed the banking crisis would be difficult. Britain is the second biggest exporter of services and the sixth largest exporter of goods in the world. Our trade had been hit hard. Our economy had contracted by 4.7 per cent in 2009. The US had seen a contraction of just over 3 per cent, but in Germany it was 5.6 per cent, and 7.7 per cent in Japan. We were not alone. Nevertheless, there were signs that, although the damage had been substantial, recovery would still come by the end of 2009.
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