The Observer, Sunday October 5 2008
I wish my colleagues at the Conservative party conference had waited before writing that the financial crash would turn Labour from a party of exhausted politicians into the saviours of the country.
When I was with the political hacks in the Birmingham ICC, it was easy enough to understand why they believed the Tories could not deal with the crisis. Indeed, as he swaggered to the stage in the home town of Neville Chamberlain, Boris Johnson gave us no indication that he understood that the nation was in crisis. He defended City bonuses and denounced the regulation of financial markets, roaring away as if it was 1998 rather than 2008.
George Osborne and David Cameron at least proved they were living in the same decade as the rest of us. But their school friends are now City paladins and their party is bankrolled by the hedge fund managers who shorted the shares of the Bradford & Bingley and HBOS. Their condemnations lacked all conviction and their embarrassed faces proved it.
They sounded more comfortable discussing their plans to use the ‘proceeds of growth’ to provide tax breaks for marriage and school vouchers. The only snag is that there is no growth. We’re heading into a recession, possibly a long and deep recession, which will shred tax revenues and force the Treasury to divert scarce resources to the hundreds of thousands of unfortunate citizens who are about to lose their jobs and homes. Where on earth Conservative leaders think they will find the money to pay for their reforms was beyond me and, I suspect, them.
Logically, I can see why the media believe the voters will hail Gordon Brown as the leader with the sound social democratic principles that may save us from the disasters wrought by maniacal speculation. Intuitively, however, the notion makes no sense.
I cannot think of a less important subject to be talking about today than the outcome of the 2010 election. But I should tell those who are more concerned about the next opinion poll than whether their bank makes it to Christmas that when a bubble bursts the party in power bursts with it. People who are frightened about their homes, debts, jobs, pensions and savings do not as a rule thank the government which allowed reckless speculation to endanger their livelihoods in the first place.
If the pundits had waited to file until they returned to London, they could have taken a cab to a controversial development in Notting Hill and grasped a further difficulty: Labour was as enchanted by the make-believe finances of the bubble world as the Tories. It remains an open question whether it can snap out of the daydream and return to social democratic principle.
The £15m mansion is causing a stir because it is being fitted out in the early 21st-century’s oligarchic style that so appeals to London’s rich. Despite protests from neighbours, the owner’s builders are excavating under the ornamental garden to build a £1m, subterranean ‘infinity’ pool. They are working for Sir Ronald Cohen, a private equity baron who used the cheap credit of the boom years to organise leveraged buy-outs and amass a fortune of £260m, on which he pays a far lower rate of tax than you, dear reader, pay on your modest income.
There’s nothing exceptional about right-wing plutocrats burrowing under central London to add valuable square footage to their properties. Sir Ronald, however, is not a Tory, but a friend of, and adviser to, Gordon Brown. The Prime Minister proved himself an obliging fellow when he slashed the tax rates for Sir Ronald and all the other private equity buyers who sweated the assets of the companies they snaffled up. His deference to the super-rich is worth stopping to consider, because no Labour or European Social Democratic finance minister has ever behaved like him before.
We are meant to be outraged by the donations to the Conservative party from Lansdowne Partners, CQS and the other City wolves who have been preying on banks close to collapse. I agree – it is outrageous. But we should save some anger for GLG Partners, which was also merrily shorting banks. One of its directors, Paul Myners, gave money to the Labour party, which made him chairman of the Low Pay Commission. I should declare an interest and say that until Friday, he was chairman of this newspaper’s parent company. He left because Gordon Brown decided that he was the right man to take over as Labour’s City Minister.
He’s a nice enough chap, I used to work for him, and all of that, but can’t a Labour Prime Minister see that the crisis has changed everything? The days when Brown could plausibly assume that financiers had the answer to every social issue from low pay to high-end tax rates are over. After the 9/11 atrocities, Tony Blair declared: ‘The kaleidoscope has been shaken. The pieces are in flux. Soon they will settle again. Before they do, let us reorder the world.’
I have no access to the private thoughts of Labour’s leaders, but I fear that they have neither the confidence nor the desire to reorder the world. At the Labour party conference, Yvette Cooper dismissed as too ‘radical’ suggestions that the government should separate high street and investment banking – in other words, prevent ordinary bank customers’ money being endangered in risky speculations. Too radical? Separating retail and investment banking was the centrepiece of Roosevelt’s rescue of the American economy after the Wall Street Crash of 1929. Labour does not seem to have learnt the lessons of the 20th century let alone the 21st.
The pity of it all is that radical reform is there for the taking. The market for free-market ideas has gone quiet of late. The financial system is already being nationalised as the Bank of England moves in to save it from itself. If Alistair Darling wants to stop high-street banks imitating Northern Rock by borrowing from the money markets and wholesale funds, he can. If he wants to imitate Roosevelt and separate retail and investment banking or if he wants to make public assistance dependent on executive pay cuts or if he wants to propose Europe-wide banking regulation, he can. Given the present public mood, if he wants to send the army into the City, he can do that too.
He should realise that the recession will destroy Labour’s actual spending programme as surely as it will destroy the Tories’ proposed spending programme. God knows, there is plenty of waste to cut. But when it is gone, good schemes which could help the poor and the ruined will have to be slashed as well. Is Labour seriously proposing to demand nothing from the City in return?