I initially arranged to see Alistair Darling on a Tuesday at 2pm. It was a busy week – back-to-school week and rather a tricky time for the markets (again). So what with the packed lunches, the incomprehensible phonetics system used in today’s primary schools, the tweeting (@MerrynSW for those of you who are interested) and the blogging, it was 1:30 before I looked in my diary to see where we were meeting. Portcullis House, it said. Hmm, I said to the person handing me a cup of much-needed coffee. I didn’t know there was a Portcullis House in Scotland (where I was) too. There isn’t, she said. And that, gentlemen, is what ladies’ magazines call “having it all”.
Anyway, Alistair Darling is a nice man with a book to promote, and when he realised that he wouldn’t be seeing me in London he agreed to come to me a few days later (he doesn’t live far from me). So he did. I met him on the doorstep. I’ve been here before, he said. And he had. He used to live just around the corner in a flat he bought in 1976 for £6,000. But he also knew every room in our house. Turns out I live in the old Scottish Labour headquarters. Scrape a little of the newish paint off the door and you’ll see postbox red beneath. We had a quick look around the house for old times’ sake: it seems the likes of Alistair Darling and Gordon Brown used to have their meetings in what is now our kitchen. How about that?
Alistair’s car is on a meter (we have one hour) so we get started – with tax and fairness. We talk about the mansion tax and why we can’t just revalue houses and create a higher band of council tax instead. Surely that would be easier than creating a whole new – and complicated – tax? Indeed it would, says Darling. But it is politically difficult, which is why successive governments have looked at it and not done it. “If you are antagonising half the voters it’s just one of those things that you drop and then you look around for some other way of getting money from people.” The same goes for combining income tax and National Insurance: it makes sense, but it is too hard to do because people then think income tax has gone up. No government wants that.
So now you know. The best new taxes are the ones that irritate the fewest people – those on the rich, for example. So what of the 50p rate that he introduced just before Labour was voted out? It isn’t, he says, so much a matter of raising money – although he insists that it will bring some in – but a “matter of fairness”. You can’t expect the general population to accept a squeeze in their living standards and at the same time say to the people at the top “well you can pay less”. Anyway, he says, people in the top band don’t really have much to complain about: a lot of them have done “pretty well over the last few years”. I don’t really buy this – it might be the case that the tax raises some money (we still don’t know), but if it doesn’t we all know who will make up the extra in the end. If the rich don’t pay up, the poor have to make up the difference.
Taxing people on today’s income because they’ve done well in the past seems skewed too – it’s more of an argument for a wealth tax than an income tax. On the plus side, he really does see the 50% rate as temporary. Not because he thinks it’s wrong for people to have to pay a marginal tax rate of over 50%, but because “competition between countries with a top rate of tax does matter in the long term”.
OK, what about Vince Cable’s plans to do something about executive pay? Darling isn’t that into these. Vince, he says, is “long on rhetoric”, but weak on real plans. It’s all very well saying you want to regulate pay, but how do you decide what is a “fair day’s pay for a CEO”? But doesn’t Darling agree that CEO pay is out of control? He does. He sees why people get irritated by the “bank problem” (the more you lose the more you get paid), by bonuses, and by pay to non-entrepreneurial executives. But he isn’t sure what can be done about it.
I wonder if he agrees with me that our big institutional shareholders are culpable when it comes to executive pay. This is an easy one. He does. He met them all “at the height of the financial crisis” and asked why they didn’t question the banks better. Shareholding means “you should take an interest” in the firms you own. If they have a “crazy remuneration scheme that actually gives people an incentive to bust the company then that must surely be of more than passing interest to you”.
Fund managers and MEPs
Sometimes he says institutional shareholders remind him of MEPs: they’re accountable to their constituents, but their actual work is so “vast and detached” it doesn’t really mean anything to them. Can we do anything about this? He thinks probably not: “you can’t legislate to make somebody a good person”. That might be an insight he could pass on to Ed Miliband, who announced at the Labour conference this week that he is somehow able to distinguish between morally good and bad businesses, and hence reward the latter and legislate against the former (see Ed’s moralising is naive).
With that in mind I take us back ten years. If Darling could have another go at regulating the banks on Labour’s watch, how would he have done it differently? There are two things he would have addressed. First, the fact that the regulators tended to look at each institution as a freestanding entity. If each were fine individually, everything was fine. Yet what the crisis exposed is that “the whole system is interconnected… you can give a bank a clean bill of health”, but if the one next door or in another country is in trouble, “you are in trouble”. That makes sense in the context of Northern Rock, I say, in that it was constantly given a clean bill by the regulators for their nutty 100%-plus mortgage products – it was the wholesale market seizure that brought them down. He isn’t having that: “the Northern Rock board was culpable in the extreme”. Right.
And the second thing? The “tick box culture”. Darling remembers an RBS banker telling him that the regulators didn’t understand his business. It later turned out the banker didn’t either. But the point is that the regulators never really “got in among the banks and figured out their exposures”. If they had, they might have warned RBS off ABN Amro. But the real problem, says Darling, was that everyone (including him at this point, I assume) was asking the wrong questions. It makes sense that people ask questions of those who lose money, but actually you should ask questions when people are making money too. He remembers a meeting with Barings’ board prior to its collapse and being told “by this very pukka chap” that they were doing much better than their competitors and “awfully well in the Far East”.
Unfortunately for them, they soon found out just why they had been doing so well in the Far East. If only they’d asked why they were making too much before they lost too much. It’s a good point. But I don’t imagine putting it into action will solve any future crises: governments are always loath to ask too many questions as long as the tax revenues are pouring in.
On to the economic cycle. I wonder again if he could go back a decade it might have been an idea to give the Bank of England more targets than just CPI – house prices, for example. He isn’t so sure. Mervyn King has told him that, had he been targeting house prices, he would have had to put rates up fast in 2004/2005, which would have “generated howls of protest from business”. Perhaps, but had the bubble been stopped in its tracks, wouldn’t that be better for those same businesses now? Isn’t taking tough decisions what government is for? The truth is, he says, that while there is lots written about how we should work to smooth growth, no one “has found a way of abolishing the economic cycle”.
Have you told Gordon?
Gosh, I say, have you told Gordon? It’s a cheap shot and he treats it as such. All politicians are entitled to the odd “rhetorical flourish”, he says, before noting that, if he was George Osborne, he’d be pretty careful about flourishing the idea of Britain as a “safe haven”. So what would he do if were back in charge of the UK again, given that Gordon Brown is now saying that this crisis is worse than that of 2008?
If he got to be a benign dictator holding both the roles of PM and chancellor and therefore able to do whatever he wanted to sort us out, what would it be? He isn’t that into this idea – “tell me which dictatorship is safe at the moment” – but I promise him hypothetical physical safety in his hypothetical role and eventually he concedes that he would “worry about growth”. Yes, I say, of course, but what would you do? The big mistake, he says, would be to “become overwhelmed and think there is nothing you can do”. Yes, and? His answer isn’t, to be honest, particularly satisfactory. Back in 2008/2009, for a “few short months”, countries were prepared to do anything necessary to prevent depression and in particular to act together. Today that “spirit is absolutely gone”. The result? The risk of Greece defaulting is “increasing by the day”. How high does he put the probability now? Due to the time that’s been wasted, it is “over 50%”.
He remembers a meeting in Washington in the middle of the last general election (“it was one of those IMF meetings so I had to go”). There everyone agreed the “Greek situation was absolutely critical and if we weren’t careful it would bring down the euro”. Eighteen months on and nothing has changed. His point is that this didn’t have to happen. But isn’t this just how politics works? You can’t make aggressive policy moves until everyone is desperate. It doesn’t need to be that way, he says, pointing out that it was George Bush (not Gordon Brown, it seems…) who saved the world by getting people to come to Washington in November 2008 to make a plan. Today, we don’t have a Bush, and he thinks we are “at something of a crossroads”. I worry that today’s enormous financial and political upheavals will end in unpleasant conflict. Does he worry about wars? “Yes.” Times such as this create the conditions that make it “more rather than less likely”. He also worries about civil unrest and the growth of terrorism. “We have just gone through a happy decade and we are about to go into one that is far from happy.”
Not a Marxist any more
It’s hard to disagree with this, but it isn’t getting us closer to what he’d do. I ask again. He wouldn’t be so aggressive with Plan A. But, of course, as he says, it’s tricky because, in an ideal world, “you wouldn’t have started from here”. I assume he means that the old Cabinet feels a bit guilty about Labour’s budget deficit. But he doesn’t: he just means Osborne has “created a problem for himself” by insisting there is no Plan B. Now, if there is (and Darling reckons the next budget will be a Plan B in all but name), there’ll be no end of fuss from the markets. Still, while he has the odd dig at Osborne, I haven’t managed to get much specific criticism out of Darling. If he would cut more slowly than Osborne, there isn’t much in it. He thinks the Tories are doing fine on welfare reform; and every time I ask him what he would do instead he hasn’t much to say. I suspect the walls of my house think he has changed rather since 1977.
I finish by asking him about his own money. Does he have any gold in his portfolio? “Gold, no, none whatsoever.” So what does he invest in? “I don’t.” You must have some money, I say. “No, we don’t.” There’s a man who has learnt nothing from Tony Blair (in a good way, obviously). On that note, Alistair has to go – there is only time for us to agree on the door step that Scottish independence would probably be a disaster. The next day a letter comes through the door addressed to The Fleet Manager, The Labour Party. My husband thinks we should repaint the front door red.
Who is Alistair Darling?
Alistair Darling was born into Edinburgh’s middle classes, the son of a civil engineer. He was educated at Loretto (a sporty private school just outside the city) and then at the University of Aberdeen where he studied law. He moved on to support the International Marxist Group and then, in 1977, at the age of 23, the Labour party. He became a solicitor the next year and then moved on to the Scots bar before becoming a councillor and then, in 1987, an MP in Edinburgh. He became chief secretary to the Treasury in 1997. He was then secretary of state for work and pensions, for transport, for Scotland, and for trade and industry, before being promoted by Gordon Brown to chancellor in 2007. He was one of only three people who stayed in the Cabinet from Labour’s first victory to their defeat (Jack Straw and Gordon Brown being the others) and he remains an MP for Edinburgh South West.
He has no formal training as an economist or a financier. Does it matter? He thinks not. The fact that a lot of European finance ministers and central bankers are technocrats hasn’t helped them much. And with several years in the Treasury behind him, he was “hardly ignorant” of economics when when he became chancellor. Anyway, his legal training means that he is “good at picking up something I know nothing about”. He also wonders if, given that in the end a good many of the decisions of a finance minister are purely “judgement calls”, there are “some strengths in coming to it from the outside”. He might be right. You can quibble about his budgets, the price he extracted from the big banks for their bail-outs (far too low), and about the ideologically driven 50% tax rate. But you can’t claim he was worse at being chancellor than any of Europe’s finance ministers are at being finance ministers.
Darling’s memoirs
Eighteen months since the Labour government left office, its history continues to be revised and rewritten. Alistair Darling’s account focuses on its least savoury part, the last few years of the increasingly bitter, divided government. Like all political memoirs it’s a chance to settle old scores. Yet the book’s central theme, the financial crisis, still dominates British politics, making Back From The Brink (Atlantic Books, £19.99) a timely contribution to the debate about how to solve the crisis.
Unsurprisingly, a lot of the book concentrates on reinforcing the idea that Darling was “a thoroughly decent bloke doing his best in the worst of circumstances”, says Larry Elliot in The Guardian. The account is “peppered with tales of the chancellor’s best endeavours being thwarted by a paranoiac prime minister, an out-of-touch Bank of England governor and the antics of bankers intoxicated by money and power”. And Darling relishes the opportunity to recount how he predicted the severity of the crisis in the summer of 2008, only to be silenced by the prime minister.
It was Darling’s relationship with Brown that grabbed the headlines when the book launched. Indeed, when it comes to the former PM, “Darling does not pull his punches”, says Philip Stephens in the FT. “Appalling”, “volcanic” and “brutal” are some of the adjectives applied to Brown’s behaviour. The criticisms are the more striking for an absence of obvious malice.” Perhaps even more damning is Darling’s view of Brown’s economic judgement. According to Darling, the “prime minister was in denial, first believing the downturn would be short-lived, then refusing to acknowledge that a necessary fiscal stimulus had at some point to be followed by a credible plan to get the deficit under control”.
Yet “you could argue that the public figure who comes out worst from Alistair Darling’s account of the banking crash is not Gordon Brown, but Mervyn King”, says Benedict Brogan in The Daily Telegraph. “The Bank of England governor is portrayed as an obdurate man of poor judgment prone to political gamesmanship, who was given a second term because no one better could be found. Hardly a ringing endorsement for the guy supposed to be guiding us through the current economic mess.”