Back from the Brink
Page 1
Back from the Brink
Back from the Brink
Alistair Darling
First published in Great Britain in hardback and export and airside trade paperback 2011 by Atlantic Books, an imprint of Atlantic Books Ltd
Copyright © Alistair Darling, 2011
The moral right of Alistair Darling to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act of 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of both the copyright owner and the above publisher of this book.
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A CIP catalogue record for this book is available from the British Library.
Hardback ISBN: 9 780 85789 279 9
Airport and Export Trade paperback ISBN: 9 780 85789 280 5
eBook ISBN: 9 780 85789 2829
Typeset by Richard Marston
Printed in Great Britain
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For Calum and Anna
Contents
List of Illustrations
Acknowledgements
Prologue
1 The Wreck of Northern Rock
2 The Election that Never Was
3 A Home Visit from the Bank Manager
4 ‘The Worst Downturn in 60 Years’
5 Crisis: the Collapse of Lehman Brothers
6 Keep Calm and Carry On
7 Back from the Brink
8 Knocking at the White House Door
9 Global Success, Domestic Failure
10 Breaking Point
11 Discord in Downing Street
12 Leaving
Epilogue
Timeline
Index
A Note on the Author
List of Illustrations
1. Customers wait in line to remove their savings from a branch of the Northern Rock bank in Kingston upon Thames, September 2007. (Photo by Peter Macdiarmid/Getty Images)
2. Official Cabinet photo, 1997. (UPPA/Photoshot)
3. Official Cabinet photo, 2007. (PA/PA Archive/Press Association Images)
4. Press conference following a G20 preparatory meeting in Berlin, February 2009. (Action Press/Rex Features)
5. Alistair Darling with finance ministers and President George W. Bush in the Rose Garden of the White House, October 2008. (Official Whitehouse photograph by Eric Draper/Collection of Margaret and Alistair Darling)
6. Sir Fred Goodwin, former Chief Executive of the Royal Bank of Scotland and Sir Tom McKillop, former Chairman of the Royal Bank of Scotland leave Parliament on 10 February 2009. (Photo by Peter Macdiarmid/Getty Images)
7. Alistair Darling, with wife Margaret, holds Gladstone’s budget box outside 11 Downing Street. (Reuters/Toby MelvilIe)
8. Alistair and Margaret Darling greeting President Obama and First Lady Michelle Obama, April 2009. (Collection of Margaret and Alistair Darling)
9. David Miliband, Hillary Clinton, Gordon Brown, Barak Obama, Tim Geithner and Alistair Darling in the Downing Street Cabinet Room, April 2009. (Jeremy Selwyn/Evening Standard/Rex Features)
10. Prime Minister Tony Blair and Alistair Darling (then Secretary of State for Trade and Industry) visit a wind farm near Whitstable, July 2006. (David Bebber/AFP/Getty Images)
11. Alistair Darling in his boat, off Lewis, summer 2008. (Murdo Macleod)
12. Queen K, Oleg Deripaska’s megayacht. (UPPA/Photoshot)
13. A worker carries a box out of the US investment bank Lehman Brothers’ offices in Canary Wharf, 15 September 2008. (Davos/Finance Reuters/Andrew Winning)
14. Annual Labour Party Conference, Brighton, 28 September 2009. (Rex Features)
15. Alistair Darling on Lewis, summer 2008. (Murdo Macleod)
Acknowledgements
I am grateful to everyone who helped me write this book. It’s my account and any errors are mine, for which I accept full responsibility. I would like to thank, in particular, Nick Macpherson, who was Permanent Secretary at the Treasury throughout my time as Chancellor, and through him I want to thank all the officials with whom I worked through three turbulent years. I also want to pay tribute to the high standards and professionalism of all the civil servants with whom I have worked in five Whitehall departments. Their dedication to public service is something that all of us should acknowledge.
I would also like to thank my Principal Private Secretary at the Treasury, Dan Rosenfield, and all my private office staff there for their hard work and good humour against all the odds. I have been very fortunate that in every Cabinet post I held all my private secretaries have been extremely loyal, dedicated and tolerant; for this I am very grateful.
Equally important to me has been the support of my colleagues in Parliament. Ann Coffey, MP, and before her David Hanson, MP, were my parliamentary private secretaries. Ann’s friendship and tolerance proved indispensable. So too was the support of many others, including Charlie Falconer, who provided a safe house on one particularly dark evening.
I particularly want to acknowledge the friendship and support of my special adviser Catherine Macleod and her husband George. Their unceasing loyalty, kindness and hospitality will never be forgotten.
I would also like to thank and acknowledge the help of my special advisers, Geoffrey Spence, who offered helpful advice on early drafts of this manuscript, and also Sam White and Torsten Henricson Bell, who were with me until the end. Special advisers are an essential part of the ministerial team. I’d like to thank all of those who worked with me through my time in government.
I couldn’t have discharged my ministerial duties without a strong team in my constituency in Edinburgh, so I would like to thank Isobel Forrester, Carol Wright and my agent Andrew Burns for their unstinting support.
I am also grateful to David Bradshaw, Steve Field, Lewis Neal, Faisal Islam and Anthony Measures for their help, advice and prompting in the writing of this book.
I would like to thank Toby Mundy, Margaret Stead and Orlando Whitfield at Atlantic Books for their encouragement and advice. Thanks also to my literary agents, Maggie McKernan and Georgina Capel, for their support.
Karl Burke, who drove me around the country for more than ten years and remained unfailingly cheerful, is owed another debt of gratitude. I would also like to acknowledge the support of my police protection team, who of course can’t be named but who were always there and always supportive.
The camaraderie and kindness shown to us by staff in Downing Street in difficult times will not be forgotten. For providing us with respite at Dorneywood, thank you to Charlotte, Graham and Gemma.
I owe an immense debt of gratitude to all of our friends and family who gave us so much support when we needed it most. They know who they are. Thank you.
Finally, I want to acknowledge the one who has continued to provide me with everything I could ever ask for – Margaret, my wife. She helped keep the show on the road and I was hugely fortunate that she chose to come and live with me in Downing Street for those three years. Without her I wouldn’t have lasted the course. I want also to thank my children, Calum and Anna, who, for so much of their growing up, I was an absent presence. This book is for them.
Edinburgh, July 2011
Prologue
I don’t believe in panicking before it’s absolutely necessary but I came close to considering it on the morning of 7 October 2008. I left Downing Street in the dark at a quarter to five on a cold, wet
morning, for a routine meeting of finance ministers in Luxembourg. It was going to be a bad day, I knew that. The night before, I had met with Britain’s top bankers in the Treasury. They had brought with them into the room an air of desperation. An account of that meeting, only partly true, had been leaked to the BBC and the Financial Times. It was reported that Britain’s largest banks desperately needed money to stay afloat. Some of them needed capital which they could no longer raise from their shareholders. Crucially, it was reported, that the banks were desperate. The bankers’ briefing had the whiff of panic. The result was that bank shares plummeted.
We took off from RAF Northolt on a small chartered jet. A sunrise never felt so bleak. I knew the London markets were about to open and that they would react badly to the leaked news, however wrong it was. Iceland and its banking system were close to collapse and one of its banks would probably fail that day. In Ireland the day before they had, without warning, underwritten all the savings in their banks, causing disarray for everyone else in Europe. Three weeks earlier, in the United States, the collapse of Lehman Brothers, one of the country’s oldest banks, had pushed the rest of Wall Street to the edge. We were looking over the precipice. It would not take much to tip the world’s banking system and its economies over the edge. The fate of Royal Bank of Scotland – or RBS, as it preferred to be known – one of the world’s largest banks, was critical.
By the time I landed in Luxembourg, RBS was worth 40 per cent less than before take-off. Dealings in its shares had been suspended twice on the London Stock Exchange. My private secretary Dan Rosenfield and my special adviser Geoffrey Spence called me out of the meeting with fellow finance ministers to say that Sir Tom McKillop, the RBS chairman, needed to speak to me urgently. We cleared a room so that I could take the call. When I put down the phone, Geoffrey asked, what did he say?
‘He told me that his bank is going to go bust this afternoon. And he asked me what we were going to do.’
For more than a year a firestorm had been gathering over the financial system in the United States and Europe. We had been singed by the warning flames a year previously, but that was a minor conflagration compared to this.
I gave my first interview as Chancellor of the Exchequer to a newspaper editor about a week after I was appointed in June 2007. His opening remark was to note that I usually was sent to departments that were in trouble in the hope that I could keep them out of the news. ‘This must be the first department you’ve turned up in that’s actually not a mess,’ he said.
I replied that the same thought had struck me. ‘This is the complete opposite. It’s in good nick, both the department and also the economy, which is strong and stable after ten years’ growth.’ What complacency! I tempted fate by adding: ‘Of course, there will be challenges to come.’ This, at least, proved to be an accurate forecast. Looking back on that interview, neither I nor the editor mentioned banks, or anything approaching the subject. Yet just over two months later, savers would be queuing up outside Northern Rock, desperate to withdraw their money – the first obvious signs in the UK of a global crisis that would bring the world banking system, and our economies, to the brink of collapse.
We were not alone in our complacency. The collapse of banks across the globe was not on people’s minds. There were those – some academics, a few economists – who worried about some of the stresses and strains building up within the financial system, much as people worry about earthquakes or tsunamis, but it is fair to say that no one foresaw the crisis that lay just ahead.
Since then many people have claimed to have predicted what was to happen. Most of them failed to mention it at the time. This book covers what happened from the summer of 2007, when I became Chancellor of the Exchequer, through to what proved to be the end of the Labour government which had first been elected ten years before. It was a period of almost one thousand days, none of them easy. There have been, and will be, many accounts written about these momentous events. This is mine.
The story is in the main about the banking crisis: how close we came to the collapse of one of the world’s largest banks, a collapse that would have brought down the global banking system within hours. This is not simply a story about banks and bankers, however. The banking crisis precipitated an economic crisis, the worst for more than a hundred years, and one that, even three years later, is far from resolved. These events also took place at a crucial point in history, at a time when the world is still coming to terms with the rapid globalization of our economies. We are witnessing a power shift – certainly economic, and increasingly political – that will not be reversed and which we in the developed economies have yet fully to appreciate, or even fully understand.
Politics above all is about people and relationships. I cannot tell this story without dealing with the often fraught and increasingly difficult relationship with the prime minister, Gordon Brown. The three years I served as Chancellor were also, sadly, a period of decline in the political fortunes of the Labour Party, which I believe could have been avoided had we played our hand differently. As the cliché has it, in every crisis there is an opportunity: in this case, to show that we could deal with the financial meltdown, come through it, and chart a way forward. I believe that we did deal with the crisis and guided the economy through the storm, but we failed to navigate a political course for the future that would convince the public.
For me, this period also marks something of a transformation in my public profile. As that newspaper editor observed, my political reputation had been built on my ability to ‘troubleshoot’. The epithet ‘a safe pair of hands’ will no doubt feature in my obituary. My ability to get trouble out of the headlines and put things back on the right track served me well in my various ministerial roles. Along with Gordon Brown and Jack Straw, I sat in the Cabinet for thirteen years. We were to be the only survivors of the long march of the Labour Party from its resurrection as New Labour, through its triumph at the polls in 1997, to its defeat in May 2010.
After that victory in 1997, I was appointed as the Chancellor’s number two, Chief Secretary to the Treasury. Those were heady days. Labour had won a spectacular victory at the general election. The country wanted change and it seemed we could do no wrong. The day after the election I flew with my wife Margaret and my children, Calum and Anna, from our home in Edinburgh to London. They were there, in the crowd outside the gates, to watch me take part in the British ritual of walking up Downing Street in front of the world’s press to enter the door of No. 10, to be asked formally to serve by the new Prime Minister, Tony Blair.
On the flight down, the pilot, seeing that I and my colleague, George Robertson, about to be made Defence Secretary, were on board, told our fellow passengers we were on our way to Downing Street. There was a resounding cheer – something rarely heard again. We made the most of it.
I knew I was going to be Chief Secretary because Gordon had asked me a couple of days before the election if I would serve in the job. It was no great surprise, then, when Tony repeated the offer in the Cabinet Room. I felt a bit overawed walking into that room for the first time. I was about to take a chair when Tony said: ‘There’s no need to sit. You know where you’re going.’ Just to make sure I did, I said: ‘The Treasury, I presume.’
From No. 10, ministers go in their shiny new cars to their departments. As I left the Cabinet Room, I was handed a folder by the Cabinet Secretary. It was empty. He told me that ministers cannot be seen to leave Downing Street empty-handed. I accepted the prop.
I was keen to get to work. Gordon had been at his desk since his appointment as Chancellor the evening before. Ten minutes later I walked into the Treasury. I had never seen inside the building. In those days it was a gloomy place, a cross between a cathedral and a Victorian asylum, with endlessly looping long corridors. The civil servants worked enclosed in cell-like rooms with their own internal corridors. It struck me that while the building was grim, its civil servants were bright, young and enthusiastic. Until a few days bef
ore, they had served a Conservative government. For eighteen years the Treasury had been a creature of the Tories. Now, here they were, advising us on how to implement our plan to make the Bank of England independent. Of course, they will tell you why any decision is difficult, or whether there might be a better way; but once it was clear we were determined on our course of action, they worked flat out over the weekend to make it happen on Monday morning.
I remember, a week or two after arriving, one of my Cabinet colleagues, David Blunkett, who is blind, came to see me in a vain attempt to get more money for his department. As I walked him out, halfway along one of those corridors, he stopped and said: ‘Tell me, is this a gloomy place?’
I told him it was, in every sense – and not just because he was getting no more money. I spent fifteen months working in that dreary building, in an office next to the room from which Winston Churchill walked out on to the balcony to lead the cheers at the end of the Second World War. Gloomy it might be, but there was a palpable sense of history, as there is in so much of Whitehall. You are conscious of passing through the pages of history, sometimes influencing it, sometimes not. I enjoyed my time as Chief Secretary. From the vantage point of the Treasury, you get to know about every government department.
By the time I returned as Chancellor a decade later, on 27 June 2007, the Treasury had been reincarnated and completely refurnished. It had moved from the front of the building to facing on to Whitehall to the rear. Now it was above the old Cabinet war rooms, overlooking St James’s Park, airy and open-plan. The endless loop of corridors remained but the fusty atmosphere was gone. Strangely, there was none of the excitement or anticipation I had felt when I was appointed to previous Cabinet jobs. This was one of the most important roles in government. It was a job I had long wanted, and I knew I could do it. I should have felt elated, but I didn’t. There was a sense of foreboding. I was worried about my relationship with the new Prime Minister, Gordon Brown.