Back from the Brink

by Alistair Darling

  I met Jamie Dimon in London some weeks later and he was charm itself. By that time the Obama administration had unveiled plans (never really implemented) that made the bonus tax a mere distraction. When they were first announced, it looked as if the Americans were going to restrict the size of their banks and the range of their operations. Here, the Tories leapt on to that passing bandwagon, only to jump off it a few days later when it became apparent that the idea wasn’t going to fly.

  In early 2010, I attended the annual jamboree of top industrialists and financiers up a mountain, in the ski resort of Davos in Switzerland. This is a relatively informal gathering, the only virtue of which is the opportunity to meet dozens of people on a casual basis for the few minutes necessary to exchange views without having to make an appointment. What might otherwise take months can be done over a weekend simply by bumping into people.

  I was concerned that the continuing anger about bonuses was deflecting attention from the need to get the right regulatory regime in place. I was also concerned that, notwithstanding the excesses shown by some of the well-paid bankers, we should not lose sight of the fact that this industry employs more than a million people in the UK. The only way we were going to have a constructive discussion about this was if the banks showed restraint. It was worth a try. I sat down with a group of about ten of the top bankers in Europe and America. I said to them that the stand-off would do irreparable harm to an industry that was exceptionally important. There would be no winners. Politicians may rail against bank pay, but, as I and my successors have found, it is hard to do much about it when half the world’s financial centres don’t regard it as a problem.

  The pre-Budget report had not helped us politically, and the grumbling against Gordon among my Cabinet colleagues began to grow louder. I intended to speak to him to try and resolve these problems before I left to go to Edinburgh for Christmas. But the last straw was the briefings that followed the pre-Budget report, proclaiming that it had been a triumph for those who had advocated increased spending, particularly on education. It meant that what had been a serious attempt at dealing with our public finances was being presented by No. 10 as another go at tax and spend. Ironically, this is the very impression that Gordon Brown and Tony Blair had dispelled so successfully fifteen years earlier.

  12 Leaving

  This was to be election year, 2010. I never look forward with unalloyed joy to general election campaigns, even those that I think we will win. I’ve been involved in every election since 1979 and have been a candidate in every general election since 1987. Luckily, I have never had to endure the ignominy of making the losing speech at the count.

  It still feels to me like intruding when I knock on a door or accost someone whose innocent purpose in walking along the street is to do a bit of shopping, not to be molested by canvassers and candidates. I do enjoy the debate, such as it is, and making the argument that is an essential part of any campaign. Since 1997 I’ve spent most campaigns in or around the party headquarters in London, doing interviews in between visiting marginal constituencies. I had a strong sense that we could still win the election, or at least make it a very close-run thing, right up until the end. I had been tracking George Osborne’s pronouncements very closely and so often what they were offering didn’t add up or wasn’t budgeted for. We did this in all of the general elections from 2001 onwards and were very good at it: recording their pronouncements and then responding to them.

  Over Christmas 2009 we had been working on a line-by-line costing of Conservative Party promises. Because of our weakened political position, the Tories had been allowed to get away with murder, and it was time to strike back. We had planned a press conference for 4 January, although in truth I was reluctant to leave a snowbound Edinburgh so early in the year. I asked Peter Mandelson whether he thought that our attack on the Conservatives would have any traction. He, like me, thought that at best it would provide grit in the wheels. In fact, it was far better than that, and within an hour or so the Tories were on the back foot, particularly over what they intended to do about the married couple’s tax allowance. David Cameron fumbled the ball badly. First he said the allowance was an aspiration; then, presumably after a hasty conversation with the Daily Mail, it became a commitment again. Their promise to enter the new year with ‘a policy per day’, when they were unable to answer some basic questions on what they had already promised, made them look weak. We had the momentum. I enjoyed that press conference. It was like the old days, when we continually had the Tories on the ropes. Push these people and they wobbled. Press them further and they began to panic. Perhaps we could claw back their poll lead and make a fight of it.

  The following day, at the first Prime Minister’s Questions of the new year, Gordon had a good outing, easily besting Cameron. Then, halfway through this parliamentary joust, news came of another attempt to force a leadership election. A letter had been jointly signed by Patricia Hewitt and Geoff Hoon, calling for a leadership contest. Geoff had been unhappy for a long time. He had called me over Christmas. ‘Don’t do anything until I’ve come down and we’ve spoken,’ I told him. No letter was mentioned but I did dissuade him from writing a newspaper article. Since before Christmas Ann Coffey had been telling me that there was increasing despair among backbenchers and ministers at the thought of going into the election with Gordon as leader. I too was a recipient of almost daily tales of woe and dire predictions. My Cabinet colleagues felt alienated. Perhaps I should have warned Gordon, but I was still angry about the briefings after the pre-Budget report and decided that it would be better for us to keep our distance.

  Now, we were faced with the second serious attempt to replace Gordon with someone else. The fact that the replacement was to be ‘someone else’ was precisely the problem. When Mrs Thatcher was overthrown in 1990, Michael Heseltine was seen as heir apparent, even though in the event he did not win. Here, there was no declared challenger. Most coups do at least have someone who says they are ready to assume power. Ever since the publication of his newspaper article in the summer of 2008, David Miliband had been consistently mentioned as a possible challenger. Had Gordon stood down, he almost certainly would have been. But he wasn’t behind this coup. He, like I, thought it was never going to get off the ground.

  The first time I really had a conversation about this with David Miliband was in June of 2009, when James Purnell had just resigned. David and I met at Catherine MacLeod’s farm, with our families. We had agreed that we needed to talk because, although we’d had snatched conversations, he’d been Foreign Secretary and I’d been tied up with the banks and we’d never sat down and talked through what should happen regarding the leadership of the party. We knew we needed to speak away from Downing Street for privacy’s sake. We had reflected on what an appalling week it had been. I told David that Gordon had offered me his job as foreign secretary but that I’d refused it. We wanted to discuss whether there was a way the government could avoid a Conservative landslide – the question at that time wasn’t whether we’d lose, but how badly – and whether there was any way of getting rid of Gordon. I said that I knew him well and that there was no way he would go voluntarily. Anyone who had lived through the Labour Party during the 1980s was terrified at the thought of another bloodbath along those lines. We were really conscious that once we were out it would be terribly hard to get back in – hence David Cameron being so willing to get into bed with the Lib Dems in 2010. Earlier, I’d had similar conversations with Jack Straw and Douglas Alexander – not so much about the leadership as about the fact that we were facing a landslide defeat.

  We were also painfully aware of the Heseltine factor – that he who wields the knife never wears the crown. Unlike under Thatcher, there was no one who was actually willing to put in the knife, partly out of tribal loyalty. For myself, I’d worked with Gordon for twenty years, many of them happy. I would have found it very difficult to take part in a coup. But I had always seen eye to eye with David and we had a high regard fo
r one another. I made it clear that I would back him were he one day to make a run as leader. That afternoon, as we strolled around Catherine’s garden, we came to a pretty unsatisfactory political conclusion: that Gordon wouldn’t leave; that there was no alternative leader in prospect; and that there was an inevitability that we must just soldier on.

  There is no doubt that on that January afternoon that the delay in front-line ministers coming to stand by the Prime Minister’s side demonstrated the degree of unhappiness within the Cabinet. Most chose to stay at their desks rather than embark on a tour of the television studios. Gordon asked to see me. I met him later that afternoon, shortly after 4 o’clock. He was in a dark mood, unsurprisingly, but there was no way that he was going. He was convinced that he had to stay on and see it through. We had a long talk about the need for him to engage with his colleagues. I explained that members of the Cabinet for the most part felt disengaged at precisely the time when they needed to be working together. I also said that the tension between us, and the constant disagreements on policy, could not continue. He agreed that we had to work together and pursue a common line. In particular, we had to talk about making cuts to reduce the deficit.

  There was never any question of me extracting concessions or demanding that Ed Balls or anyone else be excluded from our discussions. All I wanted was a working relationship, which was essential in the run-up to the general election. By the time I left the room, I was satisfied that we had a mutual understanding of what we needed to do together. Sitting in his study that January evening, I remembered the energetic, focused, driven Gordon Brown I had known, the one I had supported and worked with down the years. Both of us were low. The policy row had been long and debilitating. We both knew we were close to the end of our working relationship, whatever the outcome of the election. There was a weary resignation on both our parts. We both knew that this latest leadership challenge would derail the progress we had made in our attack on the Tories. The momentum was lost once again.

  Although I was hard at work preparing the Budget, I was looking forward to the next meeting of the G7 finance ministers, which was to be held in February up on the Arctic Circle in northern Canada. It was so remote we could only get there by small plane. Because of that there was only a handful of journalists and the ministerial entourages were kept to a minimum. The meeting was held over a Friday and Saturday in what looked in every respect like a frontier town. It was bitingly cold. There was said to be a polar bear padding around the frozen harbour, though I didn’t see it myself. We were all issued with huge goose-feather coats so as to avoid frostbite. There was an opportunity to go dog-sledding, but the politician in me knew that while being propped up on the back of a sledge, surrounded by seal skin, might have been good fun, the solitary photographer who attended the event was not there to take pictures of the magnificent polar landscape. Mervyn King found himself on the front page of the Financial Times sitting on a sled shrouded in furs and skins. I just didn’t think it would make a great pre-election picture.

  Ministers met without anyone else present, in front of a roaring log fire in a local hotel. With the exception of the Japanese minister, who had just been appointed, we all knew each other, and it was a chance to have a proper discussion about where we thought the world economies were going. It was off the record, no notes were kept, but it was the sort of occasion on which you could actually hear what people honestly thought, as opposed to a statement of more formal positions.

  We left early, thus avoiding having to eat seal at the concluding dinner. Eating seal is controversial in Europe, but the Inuit make the point that hunting is what they’ve done for thousands of years; just as we eat cattle and sheep, they eat seals. The trip back was memorable too. After telling the pilot that on no account was he to fly into Icelandic airspace, we flew through the aurora borealis above the Arctic Circle. I had seen the Northern Lights from the ground in Lewis many times, but to fly through millions of green crystals for more than two hours as they glittered on the polar icecap was truly spectacular.

  Despite the attempted coup, we managed to emerge in slightly better shape than might have been expected. We were behind in the polls, but the country was not ready for the Tories. Indeed, they looked more shaky over the next two months than they had for the last year.

  This year’s Budget, then, was driven by the election. Most of the spring was dominated by its preparation. It was to be presented on 24 March 2010, just before the expected dissolution of Parliament. I had presented what was in effect a Budget at the time of the pre-Budget report in December. Now, I was required to present another one, just three months later. I was, to a large extent, left to get on with it this time. Of course, Gordon and I had discussions, but the whole process was much easier. I decided to downgrade the growth forecasts, not for the coming year but for future years. Gordon demurred. There was some pressure to spend more; the introduction of free school meals for under fives was an example. But the additional spending wasn’t being seen as a further economic stimulus, more as a dividing line with the Tories. I fully understand the politics of spending, in which a party makes an offer that its opponents can’t, or won’t, match. But I was acutely aware of what would result from another Budget that could be characterized as being out of tune with the times. I did not want to give the markets any excuse to turn against us at such a critical time.

  This Budget was still intensely political. It was written as a clear statement, setting out what we had done and why. We had decided to intervene to stop economic collapse, and it was becoming apparent that that intervention was working. Unemployment had not risen as much as had been feared. Borrowing was lower than I had forecast a year earlier. However, I made the point that the recovery was in its infancy, and that the choice before us was how to maintain the recovery while at the same time bringing down borrowing in a way that did not damage it or the services on which people depended; hence the decision to maintain our aim of lowering the deficit by half over a four-year period. That was the essential difference – the dividing line, if you like – between us and the Conservatives, and it still is in 2011.

  Growth had returned at the turn of the year, as I had forecast. But in Europe the position was still grim. At that time, Germany had seen no growth, although it was to recover later in the year. Ireland had seen its economy shrink by more than 10 per cent. Ireland and Greece were heading inexorably into deeper trouble. Spain was in recession. All of this was important to us because we have a great deal of trade with these countries. That’s why, during the course of 2010, both we and our successors knew full well that it was in our interests to contribute towards their rescue, through the IMF, the European support package, and, in the case of Ireland, a direct loan made at the end of the year.

  The banks here were more stable and the recovery plans were beginning to bear fruit. They had paid the government more than £8 billion in fees and charges for the financial support they had received. The bankers’ bonus tax was already bringing in more than we had expected. That said, it was now clear that our economy had shrunk by about 6 per cent over the recession, compared with 8 per cent in Japan, 7 per cent in Germany, and 4 per cent in the US.

  Although things were beginning to get better, to reduce public spending now at a faster rate than I had proposed in the pre-Budget report would have run the risk of derailing the recovery, which would mean that, far from reducing borrowing, it would increase. That is exactly what George Osborne had to report in his second Budget, in March 2011. Because of lower growth forecasts, he had to borrow £40 billion more than he had anticipated.

  I also decided to maintain the help for home owners and people who had lost their jobs. Because of our actions, tax receipts were better than expected. VAT receipts were bringing in £3 billion more; corporation tax receipts were increasing; and, because more people were able to stay in work, income tax revenues were stronger. Because of this, borrowing in 2010 was forecast to be £11 billion lower. The structural deficit, which t
akes into account the economic cycle, was now expected to fall from 8.4 per cent of gross domestic product to 2.5 per cent in 2014/15. The bulk of it would therefore be removed and would disappear thereafter. Moreover, our approach of ensuring that the recovery was self-sustaining before cuts in public spending were made chimed with the view of many other governments, the IMF, the World Bank and the OECD. Twelve months later, as the political mood swung towards fiscal austerity, the IMF and the OECD changed their tune.

  Had it not been for the open disagreements in government about our economic approach, I think we could have made a far greater virtue of the three strands of our argument: support to avoid recession becoming depression; then, as recovery took hold, halving our borrowing over a reasonable period to avoid damaging the recovery; and finally, protecting vital services that take years to build up and where deep cuts can set back progress for decades. We also had a good story to tell on growth, including a new green investment bank controlling £2 billion of equity. The new government were to announce this as their own policy a few months later.

  I was much happier with this Budget. I felt confident with it. A great deal of my speech was devoted to the need to improve our country’s infrastructure, including energy and transport. The case for government investment in infrastructure remains a strong one. These are areas in which, without government support, both financial and over important matters such as planning laws, we will fall further behind other countries. This speech was better received by our side, not least because it had a few good lines in it aimed at tax avoidance by large-scale Tory donors. But it was also a clear statement of Labour values and the difference a Labour government had made.