FIRST, an apology. I may have written in the past that the expression “safe
pair of hands” was appropriate to use about Alistair Darling. I probably
hinted that, if you wanted anybody to put a department into sleep mode and
ensure it was well away from the headlines, he was your man.
I may have suggested that, so keen was Gordon Brown to leave his successor
with little to do, the Treasury would be a backwater, with little but the
ceremonials.
Well, I was wrong. Five months of Darling at the Treasury has been more
exciting than 10 years of Brown. It has been a thrill – or a spill – a
minute. He has had the worst start of any chancellor I can recall. He must
have sent up a silent prayer of thanks for the discomfiture of Steve
McClaren and the England football team.
There is Northern Rock and last week’s shift in tone. Having assured us that
taxpayers’ money used in the rescue of the doomed bank would be safe, the
chancellor now merely says he will be doing his best to ensure this is the
case.
There are those 25m missing personal records on a couple of lost CDs. My
details, and yours, could at this moment be being used to set up internet
gambling accounts, take out mortgages (if there is any finance available)
and buy flashy cars.
Then there was the self-inflicted wound of the prebudget report and the
reforms to capital-gains tax – the most unpopular business-tax change in
recent memory. This was in the context of a prebudget report that looked and
felt like a political stunt and was beneath the dignity of a once-great
government department like the Treasury.
Even before the missing CDs, a YouGov poll for The Sunday Times showed that
Labour had fallen four points behind the Conservatives on who was more
competent at running the economy.
That occasionally happened under Brown, his earlier big leads on competence
having been eroded. But, though hard to credit now, the initial impact of
Northern Rock was to boost confidence in the government’s economic
management. Now it is draining away and may never come back.
Last week I wrote that, despite his travails, Mervyn King should stay for a
second term as Bank of England governor. Can I offer a similar endorsement
for Darling?
The chancellor’s problems go deeper even than two House of Commons statements
in consecutive days – one on Northern Rock, one on the missing personal
details – neither reassuring.
When it comes to the public finances, the economy is ill-equipped for a
downturn. Cumulative net public borrowing this fiscal year is £24.2 billion,
£7 billion up on the corresponding period last year. The cumulative
public-sector current budget deficit is up £4 billion.
This is not supposed to be happening. The economy, as the Bank of England
reminds us, has grown strongly, one reason why seven out of nine members of
its monetary policy committee voted against cutting interest rates this
month. The coming slowdown will hit tax revenues, even as the Treasury
struggles to control public-spending growth, currently ahead of plan. In
more ways than one, the chancellor is shovelling money into a bottomless pit.
As for the economic outlook, the closer to financial markets people are, the
gloomier they are becoming. I may be too close but cannot think of a time
recently when the mood has been so dark.
The credit squeeze is in danger of turning into a credit crunch in some areas
of activity. Consumer spending is holding up but the mood in many boardrooms
is bleak. At times like this you need a chancellor exuding reassurance.
Darling has tried but has been too busy firefighting to convincingly offer
such reassurance. On occasion, he has looked like a rabbit caught in the
headlights.
On top of this, after years of plenty for the public services – real growth of
more than 4% in government spending since 2000 – he will have to cope from
next year with a halving of that growth rate. Listen for the wailing.
Darling is in a position all politicians strive to avoid; the wrong place at
the wrong time. When Brown was chancellor you marvelled at his Houdini-like
qualities. Nigel Lawson, another long-server, had the ability to prove the
doomsters wrong, until the very end of his time in office.
Except that Lawson left a terrible legacy for his successors to clear up. How
much can Darling’s problems be blamed on Brown? Is that why Brown put Ed
Balls, his protégé, in the calmer waters of children and schools?
Brown certainly lined up a few poisoned chalices for Darling. The prime
minister cannot be blamed for the credit crunch and Northern Rock but the
holes in the tripartite system for regulating the financial system can be
laid at his door.
Similarly, while nobody can condone the stupidity of an HMRC (Her Majesty’s
Revenue and Customs) official, so cavalier with confidential and sensitive
information, the department Brown created is, as Britain’s chartered
accountants put it, “struggling”.
Any commercial organisation that had piles of unopened mail and the routine
errors and glitches that HMRC inflicts on customers would suffer
“irreparable damage”, said the Institute of Chartered Accountants. That was
before the lost CDs. The merger was one of Brown’s proudest achievements and
he insisted on the job cuts that have left parts of HMRC barely able to run
his mindbogglingly complex tax-and-credits system.
The poisoned chalice of Brown’s public-spending splurge has often been noted
here. It has left the public finances in a far weaker state than they should
be at this stage of the economic cycle, even with Brown’s bequest of a sharp
spending slowdown to come.
Should Darling, like Paul Gray, former head of HMRC, get out before he gets
dragged further into the mire? I cannot offer him the endorsement I gave
Mervyn King.
But he is hapless rather than hopeless, and I suspect he has been more honest
and straightforward with the public in recent weeks than Brown might have
been. And, after all, he will be needed to mop up the mess for quite a while
yet.
PS: While Darling is down, his shadow, George Osborne, is up. On the
afternoon that news of the HMRC fiasco broke, he surprised his hosts, Nesta
(the National Endowment for Science, Technology and the Arts), by not
pulling out of a planned speech. Nesta, whose mission is to encourage
innovation, invited some of Silicon Valley’s leading lights to visit actual
and potential entrepreneurs in Britain.
Osborne who spoke alongside the Silicon Valley team, pointed out that while
Britain’s economy was set to shrink in relative terms in the coming decades
(decline as a share of the world economy), California’s would grow. He
called for greater collaboration between universities and business, and more
government procurement aimed at start-up firms.
Osborne, who has just set up his own advisory panel of entrepreneurs, showed
himself to be in tune with the Californians. Silicon Valley has an
entrepreneurial “ecosystem” that Britain can only envy. Some of that comes
from the top. When it takes 13 weeks for HMRC to give new firms a Vat
number, we are shooting ourselves in the foot.
Finally, a last chance to enter the Freakonomics competition – films that had
real-life consequences. I’ve had some great entries. There will be prizes of
the million-selling book itself and my not-so-million-selling The Dragon &
the Elephant.
david.smith@sunday-times.co.uk
