The End of the Party

by Andrew Rawnsley

  When he was not at the computer, Brown’s instrument of choice was a thick black marker pen to get the necessary contrast because of his sight. One senior member of the Cabinet who tried to read Brown’s handwriting found it ‘indecipherable – like ancient Hittite’.87 The Prime Minister’s hands were routinely covered in black ink. When one of the Browns’ little boys made an appearance smeared with felt tip, the nanny laughed: ‘Aaah, Gordon II.’88

  After long-haul trips abroad, his staff would quietly note the amount of debris left behind by the Prime Minister. ‘There’ll be KitKat wrappers and banana skins. It’s like a child has been sitting in the seat.’89

  Personal messiness did not cramp his desire to impose an absolute order on the Government. If Blair was a control freak, Brown was the control freak’s control freak. An edict was issued that no motion could go on the parliamentary order paper without the personal approval of the Prime Minister.90 It was further decreed that even minor departmental press releases could not be issued without the authorisation of Number 10. From the beginning, he involved himself in issues that should have been beneath his attention. Digby Jones, the new Trade Minister, had an early spat with departmental officials about the brand of chauffered car he could have. He rejected the cars on the official list because none were made in Britain. Jones wanted to fly the flag with a baby Jag, a demand that the civil servants resisted. At his insistence, this dispute went all the way up to Number 10. Jones knew his problem had reached the very top when he saw Brown at a drinks reception. The Prime Minister asked: ‘Have you got your Jag yet?’91 Jones was grateful that his little problem had got Brown’s attention, but this was a disturbing portent. A junior minister’s travel arrangements ought not to have been commanding the Prime Minister’s time.

  After the bombs and the floods, the Government was unsure what might hit it. Hazel Blears sums up the mood: ‘I think we were all waiting for the plague of locusts to come down next.’92 What came next was not locusts, but it was a plague. There was an episode of foot and mouth, the disease that broke out with such virulence in 2001 that it forced the postponement of the election. Brown had just arrived in Dorset for a summer holiday with Sarah and his sons. He turned around within an hour. According to Murray Elder, Brown was ‘absolutely instinctive’ in rushing back to London ‘simply because the right place to be was back in charge’.93 He returned in a black mood which got worse. Furious with what he saw as the ineptness of the Department of the Environment, he routinely barked out the cliché: ‘Heads must roll.’ One civil servant observed: ‘It was a blame culture. The default response to any problem was that someone must have fucked up.’94

  COBRA was again convened. In early August, Number 10 proudly announced that the Prime Minister had chaired five meetings of the emergency committee in four days.95 Civil servants once more got the impression that this was less for practical reasons than presentational purposes. ‘It was not a war room, it was a newsroom.’96 The foot-and-mouth outbreak was ultimately traced back to a government laboratory, but ‘Gordon’s people went out hammer and tongs to blame a private laboratory’ and then bogusly spun it to the media as a ‘bioterrorism threat’.97

  Gordon Brown’s early weeks in Number 10 were seen as a baptism by fire, flood and pestilence. From these potential nightmares, with the help of his spinners and the media, he fashioned a honeymoon. When he first became Prime Minister, observes Jacqui Smith, ‘some people did have a question mark about how will he respond to events.’ That question ‘was answered pretty resoundingly’ – or so at least it appeared.98

  The summer emergencies came in sizes which were perfectly proportioned for a new leader anxious to prove his competence in a crisis. As Frank Field puts it: ‘Mother luck was with Gordon in those early days. If you are going to have foot and mouth, it’s really rather nice if it is twelve animals. And if you are going to have a terrorist attack, that an ambulance crew happens to notice that there’s a car misbehaving itself.’99

  The foot-and-mouth outbreak was limited in scope and duration. There was some criticism of the Government for not spending enough on flood defences, to which Brown’s characteristic response was to promise a review. It was David Cameron who received the most negative press for leaving his own drowned constituency rather than abort a trip to Rwanda. The terrorist attacks were frightening, but the only fatality was one of the would-be bombers.

  They fitted into the script for Brown’s early premiership recommended by his pollsters: the strong national leader, robust in a crisis and elevated above petty party politics. Jon Cruddas observes: ‘The brilliant thing that Gordon Brown managed to forge in those first few months was to almost transcend normal political divides to become the sort of “father of the nation”.’100 Even opponents like Vince Cable, the deputy leader of the Lib Dems, acknowledge: ‘He got off to a very good start.’101 A senior Tory feared that Brown was being ‘scarily effective’.102 The press was almost universally glowing. Labour was steadily rising in the opinion polls at the expense of both the Lib Dems and the Tories. Gordon Brown’s personal ratings waxed positive. Peter Hain recalls:

  people being very sceptical about Gordon as Prime Minister and that worrying concern just turned absolutely on its head. Within a few months of his premiership, the same people were saying: ‘Well, I was wrong about Gordon. He’s very impressive.’ This was somebody who had surprised them by his capacity for leadership.103

  The honeymoon put a temporary disguise on the weaknesses at Number 10, reinforced Brown’s compulsion to control, and deflected him from addressing the strategic choices facing Labour. Reflecting on that period, one of Brown’s aides later concluded that there was ‘a false confidence because of those early crises’.104 A senior civil servant thought: ‘It was surreal being inside the Brown Bounce when we knew about the chaos behind the scenes.’105 Another official observes: ‘Even in that period, you got the sense that he was chasing it. He was constantly stressing over the media.’106

  To the outside world, Gordon Brown was making an assured start to his premiership, surprising even some of his fiercest critics with the superficial aplomb with which he settled into the role. Within his own world, the Prime Minister was already beginning to suffer from the structural flaws and personnel gaps at Downing Street. Working in Number 10 one day that August, he found the building deserted. Douglas Alexander received a frantic cry for help. ‘There’s no-one here!’ complained Brown. ‘I’ve no staff!’107

  28. Run on the Rock

  Gordon Brown looked out on the bow-tied ranks of money-changers and declared: ‘A new world order has been created.’1 The oligarchs of high finance were by now accustomed to being hosed with praise whenever he addressed them. In his very first speech in the Square Mile as Chancellor in 1997, he proclaimed: ‘The City has demonstrated the best qualities of our country, what I describe as the British genius.’2 In 2004, he said: ‘I want us to do more to encourage the risk-takers.’3 The following year, he genuflected again to the gods of finance when he paid homage to their ‘unique innovative skills, … courage and steadfastness’ and offered his personal thanks ‘for the outstanding, the invaluable contribution you make to the prosperity of Britain’.4 After a decade of showering the City with plaudits, Brown surpassed himself in June 2007 when he made his last Mansion House speech as Chancellor just a week before moving into Number 10. He told them that Britain was ‘a new world leader’ thanks to ‘your efforts, ingenuity and creativity’. Everyone should follow the City’s ‘great example’ and emulate this ‘high value-added, talent-driven industry’. Brown congratulated himself for presiding over a light-touch system of regulation and asked them to applaud him for ‘resisting pressure’ for a crackdown. Moving to his peroration, he smothered them with more unction. ‘Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate.’ He extolled the City for inventing ‘the most modern instruments of finance’ – the very instruments that would soon afterwards bring the entire Western ban
king system to the edge of destruction. Because of their ‘remarkable achievements’ the nation had the privilege to live in ‘an era that history will record as the beginning of a new Golden Age’.5 They reciprocated by giving him a standing ovation.

  As he spoke, the air was already beginning to rush out of the financial bubble celebrated by Brown. The financiers’ ‘ingenuity’ had created a perilously unstable edifice and their avaricious ‘aspiration’ ultimately wrecked swathes of their own industry and the rest of the economy. Events were in train that would lead to the first run on a British bank for more than a century, then the Great Crash of the following year, culminating in the severest economic crisis since the 1930s. Brown would soon re-christen the bubble as the ‘Age of Irresponsibility’6 and hope that no-one remembered that he once lauded it as a ‘Golden Age’.

  He was not alone in taking the supposed masters of the financial universe at their own vaulting estimation. A generation of political leaders, in Britain and much of the rest of the world, fell under the thrall of high finance. The pre-crash David Cameron was just as mesmerised by what he trumpeted as ‘the victory of capitalism, privatisation and liberalisation’ and claimed the credit for ‘critical Conservative decisions’ in favour of ‘low regulation’.7 As late as September 2007, when the bubble was already beginning to burst, the Tory leader asserted that ‘our hugely sophisticated financial markets match funds with ideas better than ever before’ and contended that ‘the world economy is more stable than for a generation.’8

  Right-leaning politicians eulogised unfettered markets from ideological belief; left-leaning politicians were schooled to think that obeisance to finance was the price that had to be paid for power. The instinct to be seen as friendly to profit was encoded in the genes of New Labour. As James Purnell says: ‘It was a founding principle of New Labour that we were going to be probusiness.’9 Blair and Brown both believed that power could not be won and held unless they purged the party of past associations with economic failure and hostility to wealth creation. Because Old Labour had been seen as ‘anti-success’, says the Blairite MP, Sally Keeble, ‘we almost had to overdo it to make the point that we supported the City and weren’t going to cap people’s aspirations to get very rich.’10 Tony Blair opened a meeting with one group of bankers by saying: ‘I’ve taken the view all my time in office that I should leave you people to get on with making money for yourselves.’ After a pause, he added: ‘And the country.’11 Peter Mandelson made a speech in California to computer executives in which he declared that New Labour was ‘intensely relaxed about people getting filthy rich’, though he was subsequently keen to point out that he said: ‘as long as they pay their taxes.’12 Mandelson, like Blair, was fond of money and the company of the monied.

  Brown was not so personally awed by riches. He disdained most City people, though he did mix with Democrat-supporting Wall Street bankers on his summer holidays in Cape Cod. ‘Gordon doesn’t like wealth,’ says a minister who got to know him well.13 His relationship with the City was scratchy for the first five years and then he had ‘a sort of Damascene conversion’ to championing Britain as the global capital of finance.14 He recruited Sir James Sassoon, an investment banker, to be his emissary to the City. In Brown’s eagerness to be associated with banks, he presided over the opening of Lehman Brothers’ new headquarters at Canary Wharf in 2004. The following year, he did the honours for HBOS when it unveiled a new headquarters in Edinburgh. HBOS went bust in 2008. So did Lehmans.

  Brown’s weakness was one of the intellect. He became beguiled by the notion that globalisation had created a new economic paradigm in which growth might be perpetual. He revered Alan Greenspan, the Chairman of the US Federal Reserve between 1987 and 2006, and the father of the bubble. Greenspan built an awesome reputation on the back of the apparent skill with which he guided the world through a sequence of financial shocks from the 1987 crash via the 1998 collapse of Long Term Capital Management to 9/11. Dr Greenspan’s patent medicine was to slash interest rates and flood cash into the markets. This softened those crises at the price of storing up even greater trouble for the future. Having survived such seismic events, markets thought of themselves as invincible. This fool’s paradise encouraged reckless behaviour by investors and speculators. The markets assumed there would never be a day of reckoning because Greenspan would always come to the rescue with an infusion of cheap money. The role of the central banker should be to shut the bar whenever the party threatens to get too raucous. Greenspan led the revellers to believe that there was an endless supply of drink and no threat of a hangover at the end of it.

  Brown cultivated an alliance with Greenspan to enhance his own economic legitimacy. In conversation with Andrew Gowers, the editor of the Financial Times, ‘Gordon Brown could not get half-way through a sentence without mentioning Alan Greenspan and what a great intellectual influence he was.’15 It was on Brown’s recommendation that Greenspan received an honorary knighthood. It was on Brown’s instruction that a plaque was put up in the Treasury to celebrate Greenspan. It was at Brown’s invitation that Greenspan gave the annual Adam Smith lecture in the Kirkcaldy church where Brown’s father had been the minister.16 ‘He is a brilliant guy,’ Brown would say of the American, the highest commendation in his lexicon.17

  Early in his premiership, he hosted a Sunday dinner at Chequers for guests who included Lord Evelyn de Rothschild, Dame Marjorie Scardino of Pearson, Sir Terry Leahy of Tesco and Stephen Green of HSBC. Greenspan was the guest of honour. The first tremors of the great quake were already being felt in July 2007. Yet visitors to Number 10 that summer found Brown boasting about how often the two men talked and extolling Greenspan’s new book, The Age of Turbulence.18 That title barely did justice to what was about to unfold. The former Chairman of the Fed was the author of the Greenspan Doctrine. This held that it was too difficult for central bankers to identify what was a bubble and what was not so it was futile to try to prevent the inflation of asset prices. According to this theory, it was better to let bubbles burst and then mop up afterwards. The world was about to receive a scorching tutorial in the terrible risks of this doctrine.

  Britain’s GDP increased by a third in the decade after 1997.19 The growth of the boom years came from a mixture of genuine economic advance, expansion of the public sector and synthetic gains from a self-fuelling bubble of rising debts and house prices which could not be sustainable for ever. Brown was more the beneficiary of luck than he knew. That luck was a long period of non-inflationary growth and cheap money from Asia that fuelled prosperity in a lot of the industrialised world.

  Brown became seduced by his own propaganda that the long boom derived from his brilliant stewardship of the economy. A decade of continuous expansion fooled him into thinking, and carried many others along with the illusion, that he had somehow transcended the laws of economics. It was his routine boast that he had discovered the nirvana of permanent growth, low inflation and high employment. Central to the New Labour proposition was the claim that it had avoided the financial calamities that swamped every previous Labour government and the wild swings of the economy under the Conservatives. One phrase came to define his Chancellorship. ‘No return to Tory boom and bust!’20 was Brown’s brag for a decade whenever he delivered a Budget, a financial statement or a conference speech. It was not a conscious fiction. The Conservatives would later taunt him with it, but even his opponents bought into the claim. The economic policy adopted by David Cameron and George Osborne when they took charge of the Tory party promised to ‘share the proceeds of growth’. The Conservatives too swallowed the assumption. ‘We will not return to the old boom and bust!’21 Brown cried yet again when he delivered his eleventh and final Budget shortly before becoming Prime Minister. It became easier to say and harder to argue with as the boom bubbled on. He was so addicted to this mantra that he used it more than one hundred times in the House of Commons between 1997 and 2007.22

  This belief that growth was never-ending also encourage
d Brown to run larger government deficits to finance spending on public services and benefits. The prudence of early New Labour was long cast aside by the time the economic weather began to darken. There were two separate surges in public spending. The first phase took spending from a near post-war low of 36.3 per cent of GDP in 1999–2000 to 41.3 per cent by 2005–6. This was what New Labour had been elected to do to improve public services and social justice. Spending then remained at roughly that level until 2007–8. It was the next leg up that was the mistake which stored up big problems for the future. The second surge, timed to coincide with Brown’s premiership, saw spending rise above 43 per cent of GDP in 2008–9 and head upwards to a planned 48.1 per cent in 2010–11.23 This was a dramatic surge in both a historical and an international context. In the assessment of one senior Treasury official who had been in charge of public spending, the national finances were ‘up shit creek’ by the time the crisis broke because surpluses were not banked during the good years.24 The Governor of the Bank of England subsequently said: ‘We entered this crisis with levels of public borrowing which were too high and that made it more difficult.’25 Brown was especially sensitive to criticism that the national finances were becoming dicey. At a breakfast at Number 11 with senior journalists from the Financial Times, he embarrassed those present by exploding in an angry tirade because the paper had challenged his figures. As his visitors left, he grabbed the FT’s editor and hauled him into his study, where Gowers was subjected to a further twenty minutes of Brown’s fury. He fulminated: ‘What do I have to do to get your respect?’26

  Much of the growth during the New Labour years was generated by the City of London. ‘There’s almost nothing in the world to rival it,’ said Peter Mandelson. ‘Of course, you have to support it. You want to advance it and you want it to grow.’27 By contrast, manufacturers felt that they were treated as a poor and neglected relation. ‘We were not seen to be part of the future,’ says Paul Everitt, Chief Executive of the Society of Motor Manufacturers and Traders.28 At its peak, the financial sector was expanding four times as fast as the rest of the economy, had a larger share of the economy than in any other major country, and was providing a substantial and growing proportion of tax revenues. New Labour’s relationship with the City was accurately called ‘a pact with the devil’.29 The Faustian bargain was explicable because the devil had such apparently seductive tunes. Easy credit kept house prices escalating, shop tills ringing and consumers content. The feelgood factor helped to persuade the country to vote Labour three times in a row. Brown saw the City as a cash cow which produced revenues to be spent on health, education, poverty and other Labour priorities. The financial alchemists running banks and hedge funds in the Square Mile, Canary Wharf and Mayfair were celebrated. Less strictly regulated than rivals in New York and Frankfurt, and in an ideal time zone, London became an offshore financial centre for the rest of the world and a pioneer in the invention and dealing of complex instruments. By 2007 there were 550 international banks in Britain and 170 global securities houses. It was the location of approaching half of over-the-counter derivative trades and home to more than two thirds of the global secondary bond market. Brown liked to boast that London was ‘the capital market place of the world’.30