By Joshua.Chambers

19 Oct 2011

When he warned of impending economic catastrophe in 2008, Alistair Darling prioritised rigorous honesty above short-term political advantage. Joshua Chambers finds that he’s still just as determined to voice awkward truths

In the foyer of Portcullis House there is little sign of the MPs who work in the offices upstairs. Instead, flustered flunkies hurry in and out, apologising to the groups of people who have been kept waiting to meet their elected representatives.

Then one MP does appear, and his shock of white hair and dark eyebrows are instantly recognisable. Unlike many of his peers, former chancellor Alistair Darling comes in to meet his guests himself and guides the photographer and myself back up to his office. He’s about to paint us a dark, unsettling picture of a global economy struggling with a dead weight of toxic debt; a banking system once again close, in parts, to collapse; a failure of international leadership that is allowing disaster to creep ever closer. Yet Darling is relaxed and unhurried as he leads us back upstairs; for him, the responsibilities and pressures of government have evidently evaporated.

The trappings of government have disappeared, too: his office is strangely sparse and uncluttered. There are no support staff and few personal possessions, apart from a couple of framed Treasury bills, a large English dictionary and a copy of Tony Blair’s autobiography.

Into government

We’ll get to the economic forecast soon – but first, we take a canter through Darling’s ministerial career. He joined Blair’s government on its election in 1997, and admits that New Labour didn’t understand the civil service when it came to power. “One of the things that we didn’t get right all the time was how we handled the relationship with the civil service,” he recalls. “On one level, it’s understandable. Remember that we’d been out of power for 18 years, and so there was virtually no-one who had been a minister. Our key people hadn’t been near government. I hadn’t been into a government building at all, and it’s not surprising that we found it difficult to deal with a completely different environment.”

Many ministers, entering this alien realm, leant heavily on their special advisers. But Darling quickly came to trust his civil servants: he says he preferred to work through traditional channels, and disparages the idea of politically-appointed officials. “My method of operating was different to some of my colleagues,” he says. “My view of the civil service is that there’s an excellent tradition in this country that your civil service stays regardless of the government, so that the machine continues on working.” He saw the alternative in action when he visited the US as chancellor. “My American counterpart, Tim Geithner, had nobody working for him for about three or four months. Even his coffee-maker turned out to be [an appointed] Republican – that’s a ridiculous situation.”

Darling’s first posting was as chief secretary to the Treasury, where he stayed until 1998. Then, when Harriet Harman and Frank Field were sacked as secretary of state and minister for social security, he took over at the department and quickly built a reputation as a safe pair of hands. “Tony felt that he didn’t really know what Harriet and Frank Field were doing. He was frustrated, he wanted to see things happen, and he didn’t think they were happening,” Darling says.

All change

After four years without any major hiccups, Darling was moved to the Department for Transport – an area that really enthused him. “I remember when Tony asked me if I would do it, the night before it become public that Steve Byers was going to resign,” he recalls. “I said: ‘Of course, I’d love to do that,’ and he said: ‘Really? What do you want to do that for?’” Darling explains that he was ready to do something different from welfare and that the department was “just an awful mess” – a problem he “relished” tackling.

In order to sort out the problems, Darling thought it important to first take the department out of the media spotlight. “I remember saying to the civil servants: ‘The first task we’ve got is to sort out the trains. It’s a minority of the population who travel on the trains every day, but until we’ve got them off the front pages we’re never going to get anything else done.” Next he worked with his permanent secretary, Rachel Lomax, to shake up the department. “It was full of older men with sports jackets with patches, and I think many of them must have known Doctor Beeching,” he jokes. “[Lomax] changed it: she promoted more women; she got a younger group of people in there.”

He thinks the department was dysfunctional and had low morale because “it had been mucked about with by successive governments” rather than kept as a free-standing department: Blair initially merged it into deputy prime minister John Prescott’s super-department, before restoring autonomy in 2001. When Gordon Brown became prime minister, he thought about merging it with another department again – but Darling says he persuaded him to keep it as it was. “Reorganisation is incredibly distracting in terms of management time,” he says. “Actually, the voters couldn’t give a damn about how departments are organised. All they want to make sure is that the train they get runs on time.” Darling goes on to praise David Cameron for resisting the urge to reorganise Whitehall when coming into power.

Darling himself moved from transport to the Treasury when Brown took over, and was surprised at the culture of civil servants there. “Gordon had preferred to operate through his special advisers,” he says – so officials were wary of even speaking to the new chancellor. “I just found it odd that people seemed to be so reticent,” he recalls. “It’s unusual to have any minister for ten years, and [under Brown] they had worked in a different way. They were more used to sitting down with Ed Balls or whoever was the interface.” The ministerial team had also worked differently: “They had their own responsibilities, but they didn’t operate so much as a team.”

Brown at Ten

When Brown moved across to Number 10, the heart of government soon creaked at the strain of his unorthodox working style. “There was just so much going wrong. Meetings were not being held when they should have been, decisions were not being taken when they should have been, and that was just all very difficult,” Darling says. “There were real problems in the Number 10 operation, and I think Peter [Mandelson] did a lot. What it badly needed was a chief executive – to some extent Jeremy [Heywood] was doing this as a civil servant, but he was permanent secretary and also doing various other things. [Brown] just needed someone to bring order to the whole thing and Peter did that.”

By 2008 it wasn’t just Brown’s working methods causing difficulties: the government was tackling the worst financial crisis since the Great Depression of the 1930s. The first signs came in 2007 when, only months after Darling had joined the Treasury, it had to deal with the first run on a British bank in 150 years. “The difficulty was that because for ten years there had been no problems at all, the number of people working on financial stability was much reduced,” he remembers. “We basically had to go around the department and get the brightest and the best to do nothing else.”

Northern Rock was soon nationalised, and the move changed the culture of the Treasury from “being basically a department that polices other departments from one step removed, to a big delivery department”. A year down the line, the government had to step in to rescue and recapitalise most of the UK’s big banks.

Was he confident at the time that the government’s recapitalisation plan would work? “You couldn’t be confident, because we were in such a volatile period,” he replies. “I defy anyone to stand up and say they knew it was all going to work. But we had a situation where we knew that, slowly but surely, HBOS, RBS were just running out of money. After [the collapse of US bank] Lehmans, the same thing was happening in America, it was happening in continental Europe… We had no guarantee that it was going to work but what I did know was that, if we didn’t do something drastic, then we were going to face a total collapse.”

Darling is confident that UK banks are now in a strong position because of his actions. “Our banks are much better capitalised and there was an honest cleaning out of the cellars two years ago,” he says. Unfortunately, he adds, “that has not happened in most European banks.”

Domestic doubts

Darling still harbours major concerns about the prospects of the domestic economy. “If we don’t do something, we’re in a situation where we’re going to see the economy continue to stagnate. Look at yesterday’s unemployment figures: [the unemployed] are our children, our grandchildren, and they’re not going to get jobs,” he says. “One of the big political challenges for the present government is that in the past, people have been through hard times but you could always say that while it may be hard for the next couple of years, things will get better.” This time, Darling warns that without a change of economic policy, “it’s not going to get better for five or ten years. That will put a massive political pressure on this government, which is why I’m pretty sure they will change tack – despite what they say about no plan B.”

Darling cites last week’s announcement of a new round of quantitative easing as the first instalment of a plan B. However, he warns that “it won’t work unless it finds its way into the high street. With £75bn, if all we’re doing is buying gilts off the banks and leaving them with the cash, it won’t work.” The second instalment of plan B, he says, is the government’s proposed credit-easing plan, on which he’s withholding judgement. “Although it was trailed in advance of the Tory party conference, we haven’t actually seen it yet.

Osborne says it is additional money,” he says; but while the coalition says “there is no plan B, this looks suspiciously like another instalment of it.”
Darling does already have some concerns about the credit-easing plan, though: namely, how it’s going to work. “The government doesn’t have a national network for operating this,” he says. “We’re not doing it through the Bank of England because it has refused, but are we doing it through the existing banks?” He thinks that the government is planning to provide guarantees to banks to make them less risk-averse, but says that this could cause another problem: ‘moral hazard,’ meaning that banks wouldn’t face consequences for incautious lending. “If I’ve got money that’s guaranteed, of course I’ll lend you some money because, actually, if you can’t pay me, I’ll go back to the government and say: ‘He’s buggered off, I want my money.’”

The details, Darling suggests, will be announced in November. But in the meantime, as the economy faces continuing difficulties he warns of another domestic problem: the loss of talented public sector workers to the private sector. “The thing I worry about at the moment is that in departments like the Treasury, the risk is that they lose their best people, who can go the City, be paid more and be told: ‘Look, there are opportunities here.’ What the government is saying to the civil service is, effectively, there’s a pay freeze for this Parliament and soon you may not have a job. A lot of people in the Treasury who are in their 20s and 30s face the prospect that they’re never going to be able to buy a house in London or start a family.”

Further, “if you start losing key people then your intellectual ability to respond is then impaired, and that is a real problem. It’s something that permanent secretaries and the head of the civil service need to be conscious of,” he warns. “I’m not arguing that you can’t operate with less people; you just need to make sure that you’ve got the right people.”

European turmoil

Looking overseas, Darling is troubled by the global economic outlook and sees little action being taken to change western growth prospects. “We’re never going to get out of the mess that we’re in unless there’s some international solidarity,” he says. “The phrase: ‘We’re all in this together’ – which is increasingly hollow here, I’m afraid – is very true when applied to the international scene. But there’s not much sign of the leadership that we need.”
Darling singles out as “utter madness” the refusal of Eurozone countries this summer to stress-test banks, assessing the likely results of a Greek default. “That’s where politics really trumped reality, because everybody knows it’s a matter of time before Greece defaults,” he says. “If you look at the mess the Eurozone is in at the moment, you know the problem. It won’t go away, you just have to sort it, and whatever you do, you have to do far more than people are expecting so that people get the feeling you are now in control. Whereas in Europe, they’re still struggling to ratify an agreement they reached in July, and things have got a lot worse since.”

Ultimately, Darling thinks that the West’s economic frailty and political weakness are allowing the centre of the world economy to shift rapidly eastwards. “The big risk is that the rest of the world is moving on,” he comments. “The central economic gravity was always moving to the East. This is going to speed it up – and we will pay a heavy price for it.”

However, “rather than be defeatist, it is well worth the present government re-reading some of Keynes’ writing from the 1930s. Some of the things he was saying then are as good today: government can make a difference. But it does mean a policy change”. And that change will have to come fast: “We don’t have time. There’s a long lead-in time between doing something and seeing the results.”

Darling has been calm throughout the interview. He can be: he is no longer responsible for running the British economy. However, in his self-contained, understated manner, he is clearly frustrated at the present global situation. There is a G20 summit this week: what would he say to it if he were still in power? “I would be saying that we need to take a sensible view of the timescale and the rate at which we get our borrowing down,” he says. “We need to do whatever is necessary to get our economies to grow. We need to make sure our banks are recapitalised, rather than just talking about it. And we need to get Europe to sort out its problems. These things all need to be done together, and we need to be moving in the same direction. We also need to persuade countries like China that they need to be part of the long-term solution, because the world is so imbalanced; it’s not sustainable.”

Calmly, quietly, he concludes: “There’s no time to be lost.”

Darling on ...

Chancellor George Osborne and the UK economy
“I don’t think the present chancellor’s daft. He can see that growth has stopped and he can see the political pressure, which is why I think he’ll do something about it.”

Increasing the role that markets play in public service delivery
“I don’t have any philosophical objection to that. If you’re in a hospital, you’re not really worried whether it’s owned by the state or a company. What you want is a building that’s clean, wind- and water-tight, and works. What matters to the patient is that it’s free at the point of use and you get the best possible service.”

The Office of Budget Responsibility
“I support it because I’m in favour of transparency and I’m in favour of people saying that it’s not the government manipulating the figures. I also say that they’ve gotten it as wrong as everybody else used to get it… The modelling is not very different from the Treasury modelling because it’s basically the same people doing it, albeit from a different building. Economic forecasting is like a weather forecast: broadly right but precisely wrong.”

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