Transcript of lecture by Alistair Darling
Alistair Darling, a former Chancellor of the Exchequer, gave the Donald Dewar Memorial Lecture on 17 August 2010. The event at Edinburgh International Book Festival was chaired by Brian Taylor, BBC Scotland's Political Editor.
I am very honoured and proud to have been asked to give the Donald Dewar Lecture in this, as you say, the 10th anniversary of his death.
It hardly seems like 10 years ago since he sat in our kitchen. We invited him for lunch on New Year's Eve and we said to come at 1 o'clock. Donald being Donald, he was there at 10 o'clock, and it was a very good lunch indeed. He finally left at quarter to 12, just before 'the bells'. But he was charming, it was a convivial company and we miss him very much.
And his tragic and sudden death affected deeply the many who knew and loved him and the millions more who felt they did. Because I think people instinctively recognised he was a good man in what is a much aligned profession. Indeed, he somehow managed the trick of embodying both the characteristics with which our friends south of the Border like to paint us, and the quality that we Scots would choose as our own.
For Donald was, at least on first acquaintance — and definitely looked — dour, but he was far from it. He was certainly, shall we say, careful with his money. He would have been a very good Treasury Minister.
I remember him when he was a senior politician hurrying round to borrow a rug from friends, explaining that he was holding a dinner party and he wanted to cover a large hole in the dining room carpet. And, typically for Donald, it never entered his head to invite the owners of these carpets to come round for dinner themselves.
But I think Donald also possessed all those qualities that we like to think that are particularly Scottish.
He was loyal, he was canny, and he would be incredibly witty, and nothing better sums up this quality than a picture of him leaving the opening of the new Scottish Parliament with Her Majesty the Queen in 1999.
I am sure some of you remember it: Donald is walking along without a care in the world, hands firmly in his pockets, which as we know is a breach of every rule of etiquette, but the Queen at his side was clearly comfortable in his company. Her head rolled as she laughed at what he was saying, because he did have a wonderful, wicked sense of humour — another quality of course that we like to claim as our own. Indeed, his wit and sense of timing would have graced any performance at the Festival Fringe.
Now, a festival audience is, of course, rather different to the ones that politicians are used to. At the risk of tempting fate this early in what I have to say, no-one has so far heckled or interrupted me — in fact, I could get quite used to speaking to audiences like this!
Indeed for me, quite a lot is now different now to life that's been for the last 13 years. It's perhaps only when you lose an election you realise quite how much being in Government takes over your life.
I will come on to the downside in a minute, but I have to admit I've also enjoyed returning to some long-forgotten pleasures. There's something very pleasant about sitting in your garden with a glass of wine on a long hot summer evening, as we know so well here in Edinburgh, confident that your peace won't be shattered by a call about the latest financial crisis in the United States, Ireland, Greece or pretty well anywhere else in the world. And it's also a big improvement too, Brian, if you will forgive me, but listening to 'Good Morning Scotland' or the 'Today' rogramme is now for me an optional extra, rather than a 24-hour requirement.
But the new cycle aside, don't be under any illusion: I'd much rather be in Government with all the red boxes and the weekend working than out of it.
When I was trying to win the then Edinburgh Central seat for the first time in the 1980s, Donald used to come across to campaign with me, and I remember him saying to me on one occasion: 'In Government you can potentially do everything. In Opposition far too often you can do nothing.'
And Donald knew this all too well. He spent far too much of his political career out of Government. Indeed, you need to remember that he spent much more than people remember out of Parliament altogether. When you think what he did achieve — not least that admirably clear first line of the Scotland Act: 'There shall be a Scottish Parliament' — it's a terrible shame that he didn't live much longer.
But my theme tonight echoes Donald's telling phrase that politics should be about making a difference and how it's much easier to do that in Government than in Opposition, however virtuous being out of power might make you feel.
It was only when I went into politics — I joined the council here 30 years ago to fight a previous Lib Dem / Tory coalition here in Edinburgh, who wanted to rip the heart out of the city with an urban motorway — and exhausting and nerve-racking as it was at times, I am also glad I had the chance to take the decisions needed to prevent the global recession turning into a depression.
That's why I'm so concerned that the wrong decisions on the economy are being taken at the moment.
You know, one of the most pernicious myths in politics is 'they're all the same'. Indeed that very point was put to me by someone on the television this afternoon. It's a line of argument favoured also by those who have a vested interest in the promotion of cynicism. But for me, we are not all the same: we never have been and never will be — as I fear the country will find out again in the coming months and years.
Put bluntly, in the current context there is a very big difference between our approach to cutting borrowing and the approach of the new Government. There are differences of scale, priorities and, above all, intent. For, make no mistake, my successor and his new found friends in the Liberal Democrats are not pursuing policies borne out of necessity but, I believe, by ideology dressed up as necessity.
So I want, before answering your questions, to reflect on the big economic decisions facing our country and also — because Donald was a Labour politician — about the decisions facing my party. You will, I hope, be relieved that I don't propose a re-run of the usual political arguments, but I make no apology of the fact that I will be political: I am a politician.
But I am confident that considered history will show that we handled the financial crisis of the past few years with competence and integrity and, above all, an absolute determination not to put short-term political advantage before the interests of the country.
But while I believe that we won that war, we lost the peace. We won because the decisions that we made did, I believe, overt economic catastrophe, and we were just hours away from that happening, but we lost because we failed to persuade the country that we had a plan for the future.
I say 'considered history', because what we now have, of course, is the instant history that the winners are frequently claiming. To hear them speak you might conclude that it was a Labour Government's investment in new hospitals and schools which somehow brought the United States and the global economy to the brink of disaster — and that's nonsense.
And beware as well of the voices telling us that the crisis was somehow easily foreseeable. Hindsight as we know is a wonderful thing, but the truth is that no-one … very few … actually predicted it, least of all our political opponents or the great panjorams of the media commentary.
I'm no exception. When I was appointed Chancellor in the Summer of 2007 I gave my first interview within a matter of days to the 'Financial Times', a paper for which I have the highest respect. And the very first point put to me was what a relief it must be, having worked at various crisis-hit Government departments in the past, to arrive somewhere as they put it 'that's actually not a mess'.
Now, just to make it clear I was not then the 'Mystic Meg' that I was about to become, I replied: 'It's in good nick, both the department and the economy.' They are a 'famous first words' if ever you want them. And I didn't have to wait too long to find out that I couldn't have been more wrong. The first signs of the crisis started to emerge a few weeks later.
I remember we were on holiday in Majorca and I was sent out to get the morning rolls, and, as you do when you're the Chancellor, a copy of the FT ['Financial Times']. There was a report that the European Central Bank had injected nearly 100 billion Euros into the money markets — not good for your appetite or for a relaxing holiday. We knew that trust between the banks was breaking down, but the sheer scale of the problem wasn't clear. Banks have to lend each other billions of pounds, sometimes overnight, sometimes over short periods, simply to carry on going.
Now I fully understand why you are sitting here and you say: 'Why didn't people understand the scale of the problems that were unfolding?' and it's a fair question. And there are major lessons to be learned by Governments, central banks and regulators all around the world — and indeed many of these lessons are being learned and measures being put in place to try and make sure this doesn't happen in the future.
But in a nutshell, the reason for this problem was because the banks, who were at the centre of this crisis, didn't understand themselves the mess they were in.
Banks had come a long way from the era of Captain Mannering and 'Dad's Army', where they knew their customers and they lent out the money they took in wisely, and probably mostly locally. They were now global in reach and as likely to lend money in Milwaukee as in Morningside. They were lending out in many cases more than 30 times what they took in, and because of the low cost of borrowing at that time and the unprecedented stability, they were looking at ways of increasing returns on their investments.
So ever more complex products were devised to package up loans to people who, as we now know, would not have a hope of repaying them if they economic climate changed, and the result were risks that weren't fully appreciated, products that people simply didn't understand.
And the words of one leading banker to me at the height of the crisis illustrates how widespread the ignorance had become. I remember he took me aside at the end of one of many meetings and he told me with pride that his Board had decided just the day before that in future his bank would only take on risks they understood. I'm not sure whether this was meant to reassure me — it didn't — but either way we, or actually more accurately you, soon ended up owning most of his bank.
The unfortunate truth was that too many banks weren't greatly concerned about what they didn't understand. They convinced themselves they were cleverly reducing their risks by selling these products, but they hadn't noticed that other parts of their very own banks were buying back those very same loans, so the risks weren't being offloaded, they were just being wheeled down the corridor.
And it gives me no pleasure to say that some of the most eager participants in this lucrative folly were right here in this city. It meant that when mortgage holders in the United States in 2007 started defaulting on loans they should never have been given, the rug was pulled out from under the whole system, because nobody had any idea which banks owed what, or which banks were in danger, and then financial institutions quickly began to lose faith in each other, and because of the global nature of the banking system the contagion spread rapidly across the world.
Here, as Brian [Taylor] said, Northern Rock was the first bank to get into serious trouble, and the lack of trust meant that it was increasingly expensive to borrow. And, more than most, Northern Rock depended on being able to borrow to provide its cash flow.
Now we were monitoring these problems at the Treasury, but the wider world was unaware of the looming crisis, and perhaps understandably so.
Just nine days before Northern Rock went into meltdown, one investment manager told a national newspaper that the bank was his top tip. He said, and I quote: 'We haven't seen a UK investment grade bank yielding over 8% for many years … There is a strong reason for investing in the company,' he enthused. What he failed to note was why Northern Rock was having to pay over 8% to borrow, because all their other sources of funding were simply drying up. It was not as it turned out such a top tip.
Northern Rock was forced to seek emergency support from the Bank of England, we had to guarantee savers' deposits and eventually nationalise Northern Rock, and I think even in my most left wing student days with beard I never thought I would end up nationalising a bank.
Nor did I think I would see a republican administration — a republican administration in the United States — following suit. Northern Rock was a small domestic bank, but the US bank Bear Stearns was anything but. It was the fifth largest on Wall Street — and in March 2008 the then US Government had to bail it out, and that sparked widespread concern about major banks all over the world, and hit the confidence of businesses and consumers.
It is against that background that I gave the now infamous &madash; or, as I would put it, very perceptive &madash; interview to 'The Guardian' in Lewes, and I actually gave it two years ago tomorrow.
It turned out that saying that we were heading towards the most serious global economic crisis for 60 years was the surest way to ruin a perfectly relaxing holiday in the Western Isles. I found myself painted, to my astonishment, either as a paragon of wisdom and honesty, by a very few, or some sort of fool, by very many. It really didn't matter, because within a few weeks everyone could see the truth with the collapse of Lehman brothers, the largest bankruptcy in history. Lehman's plight sparked panic: if a bank that big could go under, then absolutely no-one was safe. And it led to a run on the global financial system, stock markets went into free fall, and the crisis forced the US government to set up a staggering $700 billion fund using public money to buy troubled assets from their banks.
Here in the UK we allowed Lloyds to take over HBOS who had major worries over their own potential bad debts. We were also forced to nationalise Bradford and Bingley. And as the crisis grew it was clear that a radical solution was needed to stop the complete collapse of the system here and in other parts of the world, so we put in place a comprehensive solution to address the underlying problem of a lack of trust between banks themselves and their investors.
We provided £37 billion to recapitalise RBS, Lloyds and HBOS to ensure the banks could withstand their losses, so the taxpayer became a majority shareholder in RBS and took a major stake in the now combined Lloyds HBOS.
I would like to say they were absolutely convinced that these exceptional measures would work, but that wouldn't be true. These were extraordinary times, the like of which I will never see again and I really hope that no-one has to live through again. Decisions that would normally take months were made in hours, and none of us involved knew for sure what was going to happen. We hoped — some might even have prayed — but we certainly hoped, and we certainly didn't know for certain what would happen. There was no manual to guide us through, nor was there a consensus that we were doing the right thing.
Some of our political opponents argued strongly at the time against the state taking this kind of activist role in the banking section, although it is not an argument you hear too much of today.
But we knew at the Treasury just how desperate the situation was becoming. We recognised that it would not be the banks or bankers that would pay the full price if we walked away, it would be the businesses they supported, the millions who saved with them and the jobs that depended on them, and the result would have been a global economy in paralysis, and unemployment at levels not seen since the 1930s.
It was a risk also understood by Governments across the world. Co-ordinated international action succeeded in pulling the global financial system back from the brink, and I have to tell you that Gordon Brown played a major role in ensuring that happened. It simply would not have happened if it hadn't been for his insistence and his dogged arguments with other leaders across the world that we had to act, that we had to do things that in normal times you would never even contemplate.
However all this could not prevent the financial crisis contaminating the wider economy. As confidence was lost, firms found it harder to borrow, consumers began to worry about the future, investment and spending decisions were delayed, businesses cut their orders from their suppliers, jobs were lost, trade collapsed and Government revenues fell, with the result that borrowing rose — not just here as some suggest, but in every economy and country around the world.
In the last quarter of 2008, and the first of 2009, we saw almost 5% of the UK economy disappear. Germany and Japan saw even bigger falls. And, just as with the banks, we were faced with a choice between walking away, or using the power of Government to help businesses and people through these difficult times. We chose to act: the result was a recession didn't become depression. Unemployment and repossessions never reached the highs of the '80s or early 1990s, even though the crisis this time was far worse.
And after being criticised for being too gloomy, I found myself branded for the first time in my life as a wild-eyed optimist for forecasting that the economy would pull out of recession by the end of 2009. But it did, growth did return to the economy at the end of last year and has continued since, and we now know that borrowing was lower than expected, about £10 billion lower.
And that's why I object so much to the big lie — and I use those words advisedly — that the situation is far worse than expected when the new Government was formed. It is simply not true.
Now recovery — none of this was inevitable. It was possible because of the deliberate choices made by a Labour Government. In fact there is no stronger case against those who argue that Government doesn't make a difference than the events of the last couple of years.
It's only Government that could step in at a time of crisis, and the Government has a role, I believe, not just in reducing the impact of this crisis but in helping secure the recovery and future growth, providing the framework for the private sector to create jobs and prosperity by investing in human and physical capital, helping your son and daughter and, in time, your grandchildren get a good job and career. To ensure that we can meet the cost of supporting people in retirement and providing them with health and education.
Now the new government seems not to share my belief, because this coalition is based I believe on a fiction that the government is always the problem, never the solution. That is the fault line in our politics today, the batter of ideas that will define this parliament. They are setting about dismantling much the public sector, not with reluctance but with enthusiasm, with far too little regard for the damaging impact of the decisions, not to mention the social unfairness.
And far from the Lib Dems tempering the Tory draconian measures, they are giving them cover to go further and faster.
Make no mistake, this is not the new politics but the very old politics, and the approach they have chosen to take — and it is a choice they have made — amounts to a huge gamble with growth and jobs. In June we saw an old fashioned Tory budget — not a coalition budget but a Tory budget — and it's clear the budget is putting recovery established by a balanced approach to the economy at risk. They are attempting to re-write history to blame us, to justify their gamble with the economy and people's jobs.
Now that approach I think is dishonest. The deficit increased because of the global recession, not the pre-crash spending plans the Tories actually supported at the time, and with each passing day there is more evidence of the risk that such a destructive approach poses to our fragile recovery. Dangers which will only worsen, the damage that cuts already planned will have on families and communities across the country.
But, just as I believe there are lessons for our opponents to learn, there are lessons for us too. Now it might be possible to argue that neither the Tories nor the Liberal Democrats decisively won the argument at the last election, but there's certainly no doubt that we lost, because just 29% of the total vote doesn't leave much room for doubt.
What's important now for my party is that we take stock and be honest about what went wrong.
I believe the public gave us credit for the actions that we took during the crisis, they, and that means you, didn't trust us though on the challenges ahead. We rather lost our way. Rather than recognising the public were rightly concerned about the level of borrowing, we got side-tracked into a debate about investment over cuts. By failing to talk openly about the deficit and our tough plan to halve it within a four-year period, we vacated the crucial space to make the case for the positive role that government can play.
Because unlike the present Government, we are clear that the Government has a crucial role in supporting growth, the prerequisite for getting borrowing down, which will only convince people you've got the answers if they believe you know what the question is in the first place.
You can't have political credibility without economic credibility, and that battle was lost and we can't afford not to learn the lessons.
In just two weeks the Labour party will begin electing its new leader. As many of you will know I am supporting David Miliband, I sat beside him in the cabinet, I know he is willing and able to make the tough decisions in the best interests of this country. But, as I am not standing, and in fact will step down from the front bench whoever wins, I can offer some perhaps detached advice to all the candidates in our party as a whole.
We must be proud of our achievements and we must not let our record be rubbished. Don't believe that the last 13 years are simply a succession of mistakes, misjudgements and missed opportunities, that's frankly nonsense.
Of course we didn't get everything right, we made mistakes, governments do, but is there anyone who really thinks the Health Service didn't improve dramatically since 1997? If they do they've either been fortunate enough not to have visited a doctor or a hospital, or unfortunate to be losing their memory.
Far from joining in with our opponents in trashing our records we should stand up for it, for the calls we made in the recession, for the dramatic improvements in public services we delivered, for the fairness we entrenched to the minimum wage, increased help for pensioners, children and families. For constitutional reform and civil partnerships and scores of other ways, big and small our country was changed for the better.
But as well as being less defensive we have to guard against talking as I fear it is becoming a feature of the leadership debate to ourselves.
A leader needs to be ready when necessary to challenge his or her party, not just to tell them what they want to hear. Of course we need to talk to those who voted for us, but we lost a million votes between 1997 and 2010, so it's essential we speak to those that didn't support us too, and to do that we need credibility and that means starting from where the country is, not where we'd like it to be.
Warn, as I have this evening, against the Tory gamble with people's jobs and livelihoods, but accept the need to cut the deficit. Yes, criticise the Government for doing it too quickly without proper thought, and with cuts driven by ideology, but let's not pretend that somehow we can just ignore it. If we do we will again lose the crucial argument that you can reduce borrowing fairly while supporting jobs and investing in the key areas for the future.
That's what a Labour Government would have been doing day by day, week by week, month by month, and the country must be reminded there was and there is an alternative. We need to put that case on the basis of credibility, pride and substance.
These, of course, are the three characteristics which just about sum up Donald Dewar. Ten years after Donald's tragic death robbed us of such an outstanding politician and a decent man, we need to focus on them now. Both our country and my party depend on us succeeding.
Thank you very much for listening. I am looking forward to answering your questions about anything I've said or, being a politician, anything I didn't say. Thank you.