There was only one member of the Treasury staff working in No. 11, as events organizer. The only rule was that guests had to include normal people, not just the great and the good. The only people Margaret does not much like are those with a sense of entitlement. My role was to put in an appearance and say hello. The receptions are organized a long time ahead, so the traffic of visitors carried on even at the height of the financial crisis, with two or three evening receptions a week as well as daily visits. The night before the bank rescue, a happy stream of Red Cross volunteers was leaving as I walked into the sitting room downstairs. Off once again to meet the bankers, the thought that an experienced first-aider might come in useful did cross my mind.
A bemused Egyptian finance minister and his entourage, who had swept in for a courtesy meeting, once watched the sitting-room door swing open and Margaret pass through with a wave and a line of young visitors in her wake, on their way to see the historic Soane Dining Room and to sit in the Chancellor’s swivel chair in the study. Then, a week after the bank rescue, I was grilled in the downstairs sitting room by a young man from Scotland, called Alastair, who would have been studying economics but for the brain tumour that would take his life. He had raised thousands of pounds for the Teenage Cancer Trust and was interested in how best to invest it. I had to admit I couldn’t help him there. No. 11 was a place to keep you grounded.
What was public space and what was private was never quite determined. The flat upstairs was more an oasis than a haven. It was hard to get home to Edinburgh because most weekends I needed to be in the Treasury. Instead, friends and family came to us. Their presence was a reminder that we had a life outside. They, in turn, enjoyed seeing the bedroom in which Winston Churchill had dictated his speeches to a typist sitting at the end of his bed, and the bath where Margaret Thatcher did her late-night thinking. The decor had not changed much. No, we would assure them, there is no butler and, yes, we do cook for ourselves. I don’t know what kind of life people imagined we were leading, but being invited to stack the dishwasher after supper probably helped some of them feel more at home.
The weekend of the Northern Rock nationalization, ten friends, who had been close neighbours when our children were small, came down to London for the weekend on a long-arranged visit. We had supper in the flat on the Saturday evening, unwinding and catching up with news. There was a lot of laughter and I could hardly break up the party by explaining that, actually, I was a very, very important Chancellor with matters of state to attend to. They were, admittedly, surprised to see me make the public announcement the next day.
We did miss our children very much. Calum was a student at Aberdeen, an eight-hour train ride away, and Anna was on her gap year, travelling and working with street children in South Africa, before starting university in Glasgow. They did enjoy their visits to Downing Street, though. There was always something happening. One July afternoon, during the recess of 2008, a production team arrived to film scenes for In the Loop, a spin-off film from Armando Iannucci’s inspired slant on government spin, The Thick of It, of which Calum and I are big fans. I arrived back in the flat to find ‘Malcolm Tucker’ sitting on the sofa, having a cup of tea with Calum and Margaret. I don’t know who was more taken aback. Peter Capaldi, who plays the demented spin doctor, was also the star of one of my favourite films, Local Hero, but I managed not to ask for his autograph.
The Chancellor’s Christmas party for children was a big event in the No. 11 social calendar. Each year different charities would bring in children who deserved a treat. A kind man, more used to organizing parties for celebrities and royalty, generously offered to give the place a festive facelift for the event. When I left in the morning, No. 11 was its usual drab self. By the time I came home, it was Santa’s grotto; there was a full-sized sleigh with reindeer in the sitting room and a machine blowing fake snow in the hall. Peregrine Armstrong-Jones and his team had achieved the miracle of making No. 11 look cheerful. Officials coming to meetings didn’t seem to mind sitting in between a row of jolly snowmen.
Margaret said that Calum and Anna and her friends could come but only if they were to be Santa’s helpers. That meant Anna dressing up as an elf, and Calum not: he came as a Christmas tree instead. His embarrassment was nothing compared with mine when I went up to the flat to find a pantomime dame’s outfit, complete with wig, laid out on our bed. David Walliams, of Little Britain, had kindly offered to come along to the party and brought his costume dresser with him. He was solicitous with the children, and very funny, but did not entirely convince one young guest who was peering closely at him: ‘You’re not a lady,’ he announced.
‘Who says?’ David growled.
The photographers were delighted to catch the Chancellor chatting to a pantomime dame. ‘Are you two married?’ a small boy asked.
‘Thinking about it,’ David said.
‘No, not even engaged,’ I added quickly.
The pace of life as Chancellor was punctuated by these reminders that there is world away from the Treasury. Meeting people whose lives were not always easy, and for whom a visit to No. 11 was a chance to feel valued, was a good antidote to the daily crises. When there was time, we held gatherings in the Soane Dining Room with its beautiful vaulted ceiling and wooden walls. This was a chance for me to hear directly from people from across the economic spectrum and to find out what was happening. We tried to keep such meetings informal, so that guests could relax and I could hear directly from them what was happening to them.
There were some memorable evenings upstairs in the flat too, including an impromptu bagpipe performance in the kitchen for my private office staff just before my last Budget. They watched rapt – or perhaps stunned – as the piper, a guest borrowed from a charity reception, marched around the flat playing a Hebridean lament. How appropriate. The neighbours did not complain, despite the unintended provocation.
4 ‘The Worst Downturn in 60 Years’
In March 2008, less than a month before its introduction, few people appeared to have turned their attention to the withdrawal of the 10p rate of tax. I had looked at the problem again, but couldn’t see how I could deal with it then. It would have meant breaking the fiscal rules because we would have been borrowing too much. A couple of weeks later, though, on the eve of the House rising for Easter, it was clear that this was the next storm about to blow in.
The British parliamentary system means that ministers are answerable to Parliament, either in the House of Commons or, if the minister is a peer, the House of Lords. The relationship between ministers and their fellow MPs, those sitting on the back benches, is vital. And of particular importance is the relationship between ministers and their own party colleagues; if they lose their confidence, life becomes difficult, if not impossible.
Contact between ministers and their back-bench colleagues can happen in a number of ways. Formal meetings are comparatively rare. What is more common is that, because all MPs vote, usually on a nightly basis, in the Commons lobbies, this provides an opportunity for ministers to bump into colleagues, exchange a few words, either on something in particular or on general policy issues. It allows ministers to sense the mood of the party. I attached particular importance to visiting the members’ tea room, a place where only MPs can go and where, during informal chats, a minister can be buttonholed by a back-bench MP. This is an important part of parliamentary life.
For some weeks in the run-up to the withdrawal of the 10p tax rate, MPs would approach me to flag up their concern about the change. The clamour began to rise as we approached the Easter recess. The closer we got to the start of the 2008 financial year, when the change would take effect, the louder the clamour became.
The Parliamentary Labour Party (PLP) meets every week. It is a chance for backbenchers to question ministers, and at the end of each term the Prime Minister attends to rally the troops. This time, the troops were extremely restive. Ever since Gordon had called off the election the previous October, my parliamentary colleague
s had become increasingly unhappy with his leadership. Every political party becomes restless when it falls behind in the opinion polls, and especially so if they can’t detect any strategy to get back on the front foot. Now, many of them were being besieged by complaints from constituents. One of the things that really upsets backbenchers is their own government taking action that brings irate voters to their surgeries. This is exactly what the imminent removal of the 10p tax rate was starting to do: MPs were returning to Westminster each week having found their surgeries and their constituency postbags full of angry complaints. Even worse, many of those who were about to lose out from the change were traditional Labour supporters. A number of colleagues had approached me in the division lobbies and in the corridors of the House to ask what was happening about the 10p rate. I acknowledged that there was a problem but that it would take some time to fix it. We simply didn’t have the money to do so right now.
So there was not much to cheer them when they trooped into the PLP meeting to be addressed by their prime minister. The committee room in which this meeting takes place is like most in the House: dimly lit and gloomy at the best of times. It almost mimics the House itself, with two rows of benches facing one another. There aren’t enough seats and so on important occasions it’s very crowded. MPs crushed in and some were sitting on the floor. The mood was very tense. MP after MP – loyalists who would normally follow the government line – stood up to argue against the plan. I could see that Gordon was becoming increasingly agitated. He kept insisting that the MPs questioning him were wrong: no one would be worse off when the 10p rate was withdrawn. I do not know why he said this. He remained calm, but became more and more terse. Had he acknowledged the problem and promised to try and sort it out, it is possible that we might have avoided a crisis that severely damaged him and our government. As it was, for the first time I can remember, the party was in a position where it did not believe what it was being told by its Prime Minister. Under questioning, Gordon doggedly maintained that no one would lose out and that most people would gain. The low rumble of disbelieving voices began to swell. He told MPs to send him the letters of complaint from constituents. He would show them that they would not lose out.
Tony Lloyd, the chairman of the PLP, and I spoke afterwards to a number of colleagues who were astounded at Gordon’s continued denial, because they’d seen the figures. Subsequently, some of our most loyal MPs tabled a motion for debate in the Commons, criticizing the move and calling for its reversal. I knew that this was a major political problem. Perhaps I should have bitten the bullet and spent another few billion pounds on fixing it. But, because we were still bound by the fiscal rules, there was no immediate room for manoeuvre.
Gordon’s instinct was to try to hold the political line, and that there should be no damaging climb-down. It wasn’t helped by the fact that the charge was being led by his old bête noire, Frank Field. They had a strong dislike for each other, which to a large extent stemmed from Frank’s year as minister for welfare reform when we came into government in 1997. Gordon felt that Frank’s reforms were unworkable and too expensive. Frank felt that he was stymied by Gordon at every turn. The problem for us now was that it was not just Frank rubbing Gordon up the wrong way, but most of the PLP and, increasingly, members of the Cabinet.
I spoke to my parliamentary private secretary, Ann Coffey, and asked what was the mood on the back-benches? Ann said it was a disaster; it could not be any worse. Gordon appeared to be denying that anyone would lose a single penny. Most backbenchers were openly saying that he did not understand the consequences of his own policy and was not willing to listen to them. If we could at least have persuaded MPs that we were listening, that we understood the difficulty and were prepared to find a solution, the political pressure would have eased. As it was, a growing number believed the door was firmly closed and were openly talking about voting against their own government on the Finance Bill.
We escaped London for the Easter break and went north to my mother’s house on the Isle of Lewis. Normally this is the place where I relax and recharge. From the front door I can look out across a sea loch and a landscape that has not changed in thousands of years. There is nothing between the end of the house and Canada. It is a place where the colours of the sky and the shape of the sea change incessantly. The house was built by my great-grandfather on his croft more than 150 years ago. This Easter, though, it felt less than peaceful. Every news bulletin brought more reports of rebellion over the abolition of the 10p rate.
From the supermarket car park in Stornoway, I listened to Ed Miliband, then the Cabinet Office minister, bravely repeating the lines I had given him: we would keep this matter under review and if necessary bring forward measures to plug the gap in the autumn. He did a good job in the circumstances. It was not the performance that mattered, though, it was the message, and I knew it would not stick. It was inevitable that we would be defeated by our own side if it came to a vote in the House. Presumably the Tories, who had not said a word about it, would join in, as would the Liberal Democrats.
When we got back to London, I appeared on the Sunday morning political show hosted by Andrew Marr. He pressed me on the 10p problem. I held the line that we would return to it in the autumn. I said that there were losers and that I would see what I could do to compensate them. It was clear to me there was now a full-scale revolt, so I made it clear that whatever we did would involve backdated compensation to the beginning of the financial year. I did not want to have to present a mini-Budget to fix it if that could be avoided. It would be reminiscent of the problems faced by the Wilson government in the 1970s. Mini-Budgets suggest that good, orderly government is breaking down. Unfortunately it was.
It was not only the PLP who were in revolt. There was growing unrest within the Cabinet, not just about this issue but about the government’s lack of direction and about Gordon’s leadership. At the first Cabinet meeting after the Easter recess, Jack Straw passed me a note. Jack is a great survivor and sniffs the political wind. He represents Blackburn in Lancashire, where many people would lose out from the removal of the 10p rate. His note simply said: ‘I think you need to sort this out.’
Gordon too was having second thoughts. The question was, what did we need to do? I felt it was important to give a message to the back-benchers. I was trying to walk a tightrope: I knew we would have to do something, but I did not want the political fallout from what would be portrayed as another climb-down. The damage caused by the election-that-never-was the previous autumn was very much on my mind. The more I talked to my colleagues, both inside and outside government, the more I realized that the option of holding out until the next big fiscal event, the pre-Budget report in the autumn, would not work. The Finance Bill had to be got through by the end of July. The important thing was to get across the message that we were listening and would make changes. Practically, it would have been difficult to do this in one-to-one meetings, and I wanted to avoid the formality of addressing the PLP as a whole. Instead, I convened a regular meeting of the back-bench Treasury committee, to which around seventy of my colleagues turned up. That in itself was a signal. Normally such meetings are attended by about a dozen MPs. It was a very civilized exchange, but I was left in no doubt about the strength of feeling. My Cabinet colleagues Harriet Harman, Geoff Hoon, James Purnell and David Miliband were shaking their heads in disbelief, increasingly despairing at the mess and at the level of Gordon’s denial.
The chaotic atmosphere in No. 10 worsened. Gordon sent Jeremy Heywood, his Principal Private Secretary, to negotiate directly with Frank Field. I did not think this would achieve anything, since the enmity between Frank and Gordon was so great. What was needed was something that would remove the political sting and solve the real problem for those losing out. This would not be achieved by negotiating with someone who had his views certainly, but was hardly a shop steward for the back-benches. Gordon and I had frequent conversations about how to resolve the problem. In the first two weeks o
f May, we had a series of meetings, which also included Yvette Cooper, who was then Chief Secretary to the Treasury and had a good grasp of the detail. Looking at my notes, I see these meetings as symptomatic of the problem: instead of coming up with a solution, we covered the same ground over and over again.
Gordon wanted me to find a way to determine to what extent individuals had indeed lost out. This had a superficial attraction, since that way only those who really had lost out would be compensated. The obvious disadvantage was that we would have to means-test hundreds of thousands of people. My experience with the Department of Social Security told me this would be hopelessly impractical, taking months, if not years, to put in place, and even longer to pay out compensation. I believed we had to announce a general measure that would help most of those who had lost out. When we met on 7 May, we discussed providing some relief straight away, but Gordon wanted it to be for one year only and to be presented as an anti-recessionary measure. He too was concerned about spending money we didn’t have. He argued that we should indicate that we would be prepared to spend, say, £500 to £600 million pounds in the autumn. I thought it would cost much more than that to fix the problem, and that we needed to act immediately. Whether or not the compensation would last for more than one year was an issue I was prepared to leave open.
In the end, I concluded that the only way to help most of those who would lose out was to lift the amount of income that was tax-free, by increasing personal allowances for basic-rate taxpayers. It was a broad-brush stroke, but it would be simple and quick. I would tell the House of Commons that we would say how we intended to pay for it at the pre-Budget report. We eventually agreed to this plan, and we announced it on 13 May. It gave everyone earning less than about £40,000 a tax rebate of £120 from the beginning of the financial year.
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