Back from the Brink

by Alistair Darling

  Getting IMF involvement was easier, but still difficult. Then a new set of problems arose, this time involving not us but Germany. It appeared late in the evening that the German constitutional court might be able to strike down the deal. Just why this constitutional problem had arisen at this late stage was not clear. There was a real problem now. The Asian markets were about to open. We hadn’t got an agreement, and the ECB wouldn’t agree to their part of the bargain, which was vital, until the ministers had reached accord.

  The tension was mounting. The G7 finance ministers and central bank governors were on a conference call and were kept on hold for nearly two hours while the wrangling went on. Elena Salgado, the Spanish finance minister, was chairing the meeting, as Spain held the European Union presidency at this time. She was in the invidious position of trying to chair a meeting at the same time as trying to negotiate the text of the final statement on behalf of Spain. Spain and Portugal were also now very much in the financial firing line. The markets were worried about their comparatively high levels of borrowing. The only way we would get an agreement was for Germany to remove its objection to the deal. The German finance minister, who was still unwell, was not there. It took a telephone call to Chancellor Merkel in Berlin to unblock the deal. The day was saved.

  The European stabilization fund remained virtual, in that it had still not been agreed where the funding would come from, even among the eurozone members. But the announcement did what was needed and the Greek crisis was averted, for the time being. The medicine they had to swallow was very tough indeed, although by the time the deal was finally agreed I had left office.

  I gave my last interview on the BBC Today programme as Chancellor from the studio in Brussels and returned to London on the Monday morning. Another day and night in Downing Street beckoned. In my absence, negotiations between the Conservatives and Liberal Democrats were taking far longer than expected. The Lib Dems were speaking to us, I always suspected, as a bargaining tool with the Tories. Gordon had called a Cabinet meeting to endorse the principle of talking with the Liberals. It was always possible, I suppose, that their deal with the Tories would unravel, and for that reason I saw no harm in us talking. I am not against coalitions in principle, although in practice one involving the Labour Party was dead in the water. There were other sceptics too: David Miliband didn’t think we had the moral authority to stay in government; and Jack Straw was against it for much the same reasons as I was.

  There was still some rancour in Cabinet. Bob Ainsworth, with whom I’ve been friends for many years, said it was disgraceful that I wasn’t on the negotiating team, and got very angry. He had fallen out badly with Gordon over the last few months. Bob was so vehement in his attack that Gordon later phoned to say that I shouldn’t take my exclusion from the negotiating team personally. I didn’t.

  After the Cabinet meeting, I agreed to go out and put our case, doing a series of interviews on the green opposite the Houses of Parliament. I met both John Reid and David Blunkett forcibly denouncing any move to form a coalition between ourselves and the Liberal Democrats. It was evident that the party was deeply split on the issue. If I had thought there was any real chance of a deal between us, of course I would have demanded to be involved, not least because the Liberal Democrats at that time were congenital spenders. I am sure my presence would have been seen as a spoiler for the negotiations.

  I still had not met Vince Cable for talks, but agreed with Gordon that I would try to do so next morning, Tuesday. I telephoned him and suggested we meet in my office at the Treasury. As a measure of goodwill, I arranged for my ministerial car to collect him from his home in south-west London. An hour later Karl Burke, my driver, telephoned the office and asked to be put through to me. This was unusual. He said, ‘I’m at his house but he won’t come out.’ I had a vision of someone refusing to leave home for fear of what might await him. Eventually I spoke to Vince and he told me that Nick Clegg had made it clear he was not to meet with me now. We did eventually meet later in the day, although Vince had to make his own way to my office. I wasn’t prepared to leave the ministerial car parked in Twickenham all day.

  As we sat down, Vince said that there really wasn’t much point in discussing anything. The deal was done with the Tories. This was no surprise to me, but I asked him how on earth he could agree with the Tory policy on cutting the deficit when he had been so outspoken in his opposition to it? He said that they had been heavily influenced by what the Governor of the Bank of England had been saying, which had put the frighteners on them. They had been led to believe that the situation was far worse than they had thought. I told him this was not true. He also said that there wasn’t much between them and the Tories this financial year. That was true. The reduction in public spending they proposed was about £6 billion. Thereafter, though, the Tories were committed to going further and faster than anything the Liberal Democrats had ever contemplated. It was the years that would follow in which there would be a massive divergence between what was then Liberal policy and the Tory policy.

  There was no point in pursuing the matter, though. The deal was done and, indeed, was probably hatched before the election, at least on an informal level. As far as I can see, the Liberal Democrats had junked everything they believed in on the back of being told that the Greek crisis had changed everything. It had not. Our position remained the same. The markets were not after us in the same way. The Liberals had certainly been panicked, but they were willing to be panicked because they wanted to be part of a coalition government. They could see the chance of power for the first time in nearly a century. The Tories, moreover, rightly recognized that the public remained suspicious of them. The only way they would ever get to prove themselves would be in office. They needed each other for different reasons.

  It was time for us to go. Vince Cable and I decided to make small talk for a while so that no one could say the meeting had been too short. We discussed his book and he asked me whether I would write mine. As soon as he left, I telephoned Gordon and told him what had happened. He was understandably furious. Nick Clegg was still telling him that a deal with us was possible. Indeed, Gordon was now being put in the impossible situation of having to remain as Prime Minister until Nick Clegg and David Cameron signed off their deal.

  These unexpected events, first in Europe and then at home, meant that I was back in London longer than I had anticipated. Margaret caught the train down to be with me. When she rang from King’s Cross, I said she might as well use the return ticket. She came to Downing Street, through the front door, and joined me in the flat. Catherine MacLeod, Sam White, Torsten Henricson-Bell and Geoffrey Spence were there too. Connie had cleaned the flat to within an inch of its life, ready for the new tenants. I had left the Treasury shortly before. I didn’t want any fuss, so I gathered my private office around me and said to them: ‘That’s it. We’re off. The new people will be here in a few hours. Let’s arrange a proper farewell in happier times.’ Which we did.

  We stayed upstairs in the flat while downstairs Gordon was desperately trying to get to a position where he could go to the Palace and resign. Sitting in the flat was an odd sensation. We didn’t belong here any more. We were very glad to have the team there with us. We looked down on Horse Guards Parade, where we had watched the changing of the guard so many times that Margaret was sure she could spot the new recruits. We looked to see whether the kestrel that nested on top of a drainpipe opposite the window was still feeding this year’s fledglings. Tradition demanded that I left a bottle of wine for my successor, which I did, with a note wishing him the best of luck. I have to report that it was a good bottle of wine – modestly priced, in keeping with the times we lived in.

  Happily, Dan Rosenfield arrived carrying another bottle. We raised a glass to each other, waiting in the sitting room, with the television switched on, bizarrely looking at the house in which we were sitting through the lenses of cameras mounted in helicopters whirring overhead. We couldn’t go before Gordon and
Sarah left; nor could we find out when they were going. It turned out that Nick Clegg was still trying to string us along to get a better deal with the Tories. Gordon quite rightly told him that he was not prepared to hang on any longer. In the early evening we watched on television as Gordon and Sarah and their boys made a dignified exit, walking up the street together. It was time for us to go too.

  I wanted to leave as quickly as possible, and certainly before the new government arrived. I thought we should leave by the back door to avoid any fuss. Margaret and Catherine thought we should go out the front. We went downstairs to say our goodbyes to the Downing Street staff, the custodians and the front of house team, all of whom had been so kind and offered whatever help we needed, and to the civil servants who now were preparing for the arrival of the new government. We stood behind the No. 11 door one last time, waiting to leave. Staff from both Nos. 10 and 11 cheered us out. It was very touching.

  Outside were the banks of photographers awaiting the new Prime Minister. We gave them a final wave and drove out of Downing Street. It was the end of nearly a thousand days in office.

  Epilogue

  Despite the protracted handover of power, the return to opposition was abrupt. It was hardly unexpected, though, and, whatever happened, I knew I would not be returning to No. 11. I was still an MP and I had to act as Shadow Chancellor for far longer than I had hoped. Gordon resigned as leader on the day he left Downing Street. He told me he intended to do so and I agreed it was for the best. Harriet Harman did a sterling job holding the fort until Ed Miliband was elected leader at the party conference in September.

  I had to shadow the new Chancellor, George Osborne, for nearly five months. I had no great appetite for it, but Jack Straw and I were both clear, even though we were ready to return to the back-benches, that we had a duty to help keep the show on the road. The Labour Party, far from allowing its head to bow or its members turn against one another, as it had done thirty years earlier, was resolute. There was absolute determination that, no matter how bad the defeat, we would pick ourselves up and carry on. We may have lost nearly ninety seats, but there was a very good intake of new MPs ready to take up the fight. I had been in Parliament for ten years before we got into government. I know what opposition is like. It is a long hard slog; I badly needed a rest and a space to take stock and rebuild my political energies. I said in my first interview in opposition that I wanted to return to the back-benches as soon as a new leader was elected and a new Shadow Cabinet was in place. I wanted this to be known before the leadership election so that my decision to stand down could not appear in any way as a snub to whoever was elected.

  I returned to the back-benches in September 2010 after having spent twenty-two out of my twenty-three years as an MP on the front bench. New Labour’s brand may have been of its time, but I believe that its vision is as worthy today as it was in 1997. Anchored in the centre ground of British politics, it stands not just for the traditional Labour Party value of fairness, but for aspiration too. In recent times, it has become fashionable to attack the concept of a left-of-centre party governing for the entire country. But in the centre ground is where we need to be; it is where we must stay. David Miliband articulated all of this and I was disappointed and frustrated that Labour’s electoral college caused him to lose so narrowly. That college needs to change and with it there needs to be an examination of our relationship with affiliated union members. However, although I supported David during the leadership election, I was ready to give my support to his brother, Ed.

  The leadership election had one very serious consequence for the party. It’s inevitable that when a new government is elected it enjoys a honeymoon period. It can make mistakes in the early days and it won’t be held to account as strictly as it will later in its term in office. A new government can blame the outgoing government for whatever crimes or misdemeanours it chooses. And it’s easier for it to do that if the former government, now in opposition, is in the middle of a leadership contest and is talking to itself. We should have concluded things by July, thereby allowing a new leader to shape our annual conference and use it as a launch pad to reinvigorate the party. Instead, the protracted campaign, which lasted until September, gave the Conservatives a major opportunity which they seized with alacrity.

  The Conservatives’ main priority was to cut public spending; they wanted rapid and deep cuts to eliminate the structural deficit during the course of a parliament. From the Tory viewpoint, they were landed with an unexpected political windfall, brought about by going into coalition with the Liberal Democrats. They could cut faster and harder than they would ever have dared had they secured a majority on their own. And if growth is a lot lower for longer, that will mean even deeper cuts. Faced with criticism from within, David Cameron can blame the Liberals for stopping him from serving up the red meat his party’s right wing demands. After the general election, public opprobrium was largely directed against the Liberal Democrats, who were punished as political turncoats. No wonder Cameron is so attached to Nick Clegg. As things stand, the Liberals will pay a heavy price for their support for the Tories.

  Reducing the deficit was a convenient excuse that provided the Conservatives with cover to make the kind of deep public spending cuts many of them were wanting to make for ideological reasons. Their message was simple: things were worse than they thought; if we didn’t cut now, we’d end up like Greece; Labour was entirely to blame. They were wrong on all three counts.

  When the independent Office for Budget Responsibility produced its first report in the summer of 2010, far from confirming the Tory claim that things were worse, borrowing was shown to be decreasing and growth was returning. The medicine we had administered in 2008 was working. In the face of huge scepticism, I had often said that growth would return at the end of 2009. It did. We now know that growth was higher than we thought, but any political benefit eclipsed by our refusal to accept that equally strong medicine would be needed to cut the deficit as we moved into recovery.

  The Tories’ claim that we were in danger of suffering the same fate as Greece did not stand up either. Greece has a tiny economy compared with that of the UK. It has endured years of economic and political turmoil. The country has many problems and being a member of the euro means that it can’t allow its currency to depreciate; instead, it is tied in to the discipline of being a member of the eurozone. It is therefore in a completely different position to the UK. It is utterly mendacious to suggest otherwise. Equally, the problems experienced by other eurozone countries, such as Ireland, Portugal or even Spain, are different from those of the UK. Greece is a convenient and emotive excuse.

  Their third claim, that they had no choice but to make such deep and rapid cuts, stands even less scrutiny. A growing number of commentators have become more sceptical about whether the new government can deliver on its austerity plans and, equally importantly, express concern that the cuts to public spending will prevent economic growth. Not only has the government had to downgrade its own growth forecasts, but so too have the Bank of England, the OECD and the IMF. There is no doubt, though, that Tory claims about the deficit have gained considerable traction, which Labour must confront as it develops its own critique, not just setting out where it disagrees with the new government but offering a clear and viable alternative.

  The ‘investment versus cuts’ argument cost us dearly. It simply wasn’t credible. The better argument, the one I had tried to advance and which was subsequently adopted by the Labour Party in opposition, would at least have allowed us to maintain our credibility and authority on the economy. Our policy will have to adapt to ever changing circumstances, but whatever else, it must be grounded in reality or it will have no traction with the public.

  We had borrowed, of course, but the structural deficit was only 2.3 per cent of GDP in the year before the crisis. Our national debt, which was at 42.5 per cent of GDP in 1996/7, stood at 36 per cent in the year prior to the economic crisis, after a decade of Labour gover
nment. Between 1979 and 1997, the Conservative government borrowed on average 3.4 per cent of national income; between 1997 and 2007, Labour’s borrowing averaged only 1.2 per cent. Historically, this is far from high. Indeed, between 1998 and 2001 we were in surplus, an almost unheard-of situation. But we mistakenly assumed that the revenue that rolled in from the financial services sector and from stamp duty would keep on coming. Our spending was based on that assumption and, when it came to an end, borrowing rose. There had been no reason to assume that revenues would fall – after all, very few foresaw the banking crisis – but it is a timely reminder to everyone that the good times will not last forever.

  When we borrowed, it was for a good reason. By 1997 it was widely acknowledged that the country’s infrastructure was crumbling. There had been no serious investment in areas such as education, health or the railways for years, and the central disagreement between British political parties at the time focused not on how much more should be spent but on how much less. David Blunkett, as Labour’s first Secretary of State for Education, quickly identified the need to drive up school standards, and Jack Straw and his successors at the Home Office pushed crime levels down, something that only a very few governments have successfully achieved. The NHS benefited from investment in new hospitals and state-of-the-art equipment, and patients now have greater access to better treatment. The Tories decried the drive to cut waiting times through the imposition of targets for treatment. But they worked. The Tories announced that they would be abandoned after the election in 2010, only to reinstate them twelve months later.