Nothing was agreed between us that evening. I saw it as a preliminary informal chat. Inevitably, in the period before Gordon was formally elected, there was a lot of speculation, in which I was named as a future Chancellor. It might have been flattering to hear, but it made subsequently accepting another job a more difficult option. The first time that I suspected he was thinking again was at the party after his election as leader in Manchester, when he said he needed to speak to me. I could tell by his manner that he was having second thoughts. The conversation eventually took place late at night on Monday, 25 June, just two days before Tony was officially due to stand down. I went to the Treasury, which was a hive of activity with Gordon’s team preparing for the move to Downing Street.
I met Gordon, not in his room but in a specially constructed glass office which looked like a cage and was used to house his special advisers. He asked me if I would consider the Foreign or Home Office. For the third time in my career, I turned down the Home Office. Nothing personal, it is just that I did not want to go there. I repeated what I’d said in the spring: that I would prefer the Treasury but that he had to be happy with his team. I had to have his confidence. There was no point in me taking the job if that was not the case. Gordon disappeared at this stage, presumably to consult. When he came back, he said: ‘OK, you can do it, but maybe for just a year or so. I may want to make some changes then.’
No Cabinet job is permanent and so, based, I suppose, on a political lifetime of working with him, I accepted. Perhaps I should not have done so on that basis; not because I was entitled to a long-term contract, but because he was torn about appointing me. If he had decided instead to appoint Ed, of course I would have been disappointed, but I would not have felt betrayed. I had no sense of entitlement, nor was there any understanding between us. Ed Balls was his protégé, and he probably thought that after giving him experience in a spending department he could install him at the first reshuffle. It didn’t work out that way.
I offer a full explanation of what happened with Gordon at the time of my appointment because it explains so much of our often troubled relationship when I was Chancellor. I am grateful that he appointed me, but I was clearly a stopgap appointment in his view and, not surprisingly, that of his close circle. So, when we met on 2 June 2009, I was not surprised that he wanted me to move. Indeed, a part of me wanted to go. Fighting economic and financial fires was the easy bit of the job. I was tired of the atmosphere of feuding and the perpetual sniping. Our friendship had been strained beyond breaking point. In many ways I wanted out; I’d had enough. And yet, another part of me – the larger part – did not want to be forced out at this stage and in this way.
11 Discord in Downing Street
Speculation about the reshuffle and my future was well trailed and well informed. The disarray and fractious atmosphere spilled out of the Cabinet Room and on to the front pages. I had never known my Labour colleagues so low. It would have been a relief to go, but also an abdication. I didn’t need to take soundings from people I trusted. At a weekly Prime Minister’s Questions, when challenged to back me by David Cameron, Gordon conspicuously failed to do so. All of us expected that the European and local election results on Thursday, 4 June 2009, would be bad. The murmurings of discontent with Gordon’s premiership among Cabinet members had grown to a crescendo. McBride, the Budget, the fallout from the expenses scandal, and now an impending electoral disaster: it was hardly surprising that the troops were restive. All MPs keenly follow the speculation that precedes reshuffles. Politics is a brutal trade, but I was encouraged by the number of my colleagues in the Commons who expressed support for me.
Ann Coffey, my parliamentary private secretary, whose political antennae are good, said it would be a disaster for me to walk away. There were personal costs too to think about. Margaret had spent two years in Downing Street and was intent on maintaining relationships. But, she said, to be forced out and made the scapegoat for all that had gone wrong was ridiculous. Catherine MacLeod reinforced their views. For you, she said, it would be the ultimate humiliation, which you don’t deserve.
I had two meetings with Gordon, the first on Tuesday, 2 June, the next on polling day, Thursday. It was just the two of us and the mood was oddly amicable. I was relaxed and almost glad to see an end to this terrible episode. We had known each other a long time. At the first, he reminded me that when he initially appointed me he had said that he would reconsider my position after a year or so. He said he wanted to make changes in the government and that he wanted to move me. He made it clear that he wanted me to stay in the government. I told him that, in many ways, he would be better with a Chancellor he could get on with and who was in the same place as him in policy terms. If he chose someone else, at least there would be an end to this continual conflict.
But, I said, the only place I am going is out. I had been thinking about this for several weeks, knowing this moment would come. For me to accept another job would be to cling on to office for the sake of it, and I was not prepared to do that. Gordon insisted that people would understand if I moved. I said our argument was now so public that if I clung on it would do neither of us any good. It would be better for me to go altogether. We spoke for about half an hour, going over and over the same ground. As with so many of our difficult meetings, we agreed to meet again.
This we did, at about 7 o’clock on the evening of Thursday, 4 June. That afternoon, Peter had come to see me in my office at the Treasury. We discussed the woeful state we were in. Earlier in the week Hazel Blears, the Communities Secretary, had suddenly resigned. Her frustration with Gordon had boiled over. They had a very public falling-out over the direction, or lack of it, of the party. She felt especially aggrieved about the way in which he had treated her over her parliamentary expenses. Gordon had singled her out for special criticism and she was hurt by it. I had spoken to her afterwards and she was at a loss to understand why he had done it. It was little comfort to her when I said that I did not think he had intended to. He had been asked about her at a press conference and had gone further in his condemnation than he had meant to. Unfortunately, her resignation came on the eve of the European elections, which was damaging. On top of that, on the day of her departure, Hazel was filmed sporting a brooch bearing the legend ‘Rock the Boat’. That had not gone down well with No. 10.
The situation was bleak, Peter and I agreed. He was sometimes frustrated by my Eeyore-like predictions, I know, but there was no denying the state we were in. As I suspected, he had not called in to chew the fat. He wanted to know whether I would stay in the government if Gordon asked me to move. Peter said that if I left the government it could fatally damage Gordon. I said that might well be the case, but I was not going to cling on to office for the sake of it. If I was going anywhere it was to the back benches. I told Peter that Gordon would do far better to make Ed Balls, with whom at least he could work, his Chancellor. I knew he would pass this message on. Peter, I think, was more concerned that the reshuffle should produce a team that could work together. That was understandable. So when I went to see Gordon again that evening, he could hardly have been surprised when I repeated my position.
Again, the meeting was friendly enough. He ended up offering me just about every job that was going – including the Foreign Office – except the one that I held. I said no. If he didn’t want me as Chancellor, which I entirely understood, I would go. As was now the habit, it was agreed that we would meet again the following day.
As I went upstairs to the flat, I thought it was probably all over. Frankly, it was a relief. I would be going on my own terms. With Catherine and Ann, we enjoyed what we took to be a Last Supper takeaway from Gandhi’s. We sat around the table in the kitchen, and although there was sorrow at the position our government was in, there was also, for me at least, a sense of release. I had done all I could as Chancellor and I could return to the back benches with a clear conscience. Appropriately enough, we listened to the Killers CD that Calum had given me for my
birthday. The previous year it had been Leonard Cohen who distracted me from my woes. This year it was time for stronger stuff. Just before 10 o’clock, Catherine left the flat to go home. As she walked down Downing Street, she bumped into her former lobby colleagues rushing through the gates to do live interviews in front of the No. 10 door. She was told that James Purnell, Social Security Secretary, had resigned from the government. It was a totally unexpected turn of events.
James was thoughtful and one of the brightest of his generation of MPs. Earlier in the year he had spoken at my constituency party’s annual Burns Night supper and his easy and open style had impressed. He allowed himself to think the unthinkable and he was a loss to government. I had known that James was unhappy. He was one of the younger Cabinet members increasingly dismayed at Gordon’s insistence on the line of ‘investment versus cuts’ who had spoken to me of their frustration. I understood why he walked out. He could no longer pretend; he’d had enough of trying to hold a government line in which he did not believe.
In the political ferment that followed his resignation, there was speculation that it was all a plot, that James was the first of the skittles and that others would follow. It didn’t happen. There was no plot. There can’t have been any collusion with Hazel Blears or another colleague, Caroline Flint, who resigned after the reshuffle when she was not promoted and made a personal attack on Gordon. Nor, indeed, with Jacqui Smith, the Home Secretary, who had decided to leave the government a few weeks earlier. Had they all resigned on the same day, the consequences would have been very different. As it was, I knew that James’s decision had one significant consequence for me: I was not going anywhere. I knew that as soon as I saw the news headlines.
After the 10 o’clock news had run the story of James’s resignation, the phones in the flat began to ring. We ignored them and went to bed. Just before 7 o’clock next morning, the No. 10 switchboard called to say the Prime Minister wanted to see me right away. I said I would come as soon as I had washed and shaved. When I went downstairs, Gordon was sitting in Tony Blair’s old study, just off the Cabinet Room, its darkened corners matching the mood. There was no one else there. All he said was: ‘OK, you can stay.’
That was it. I made no demands of him. We didn’t talk on. He was weary and so was I. There will be those who think that if I had said, ‘I’ve had enough, I’m off’, it would have brought him down. It might have done. But I was not prepared to do that. I had supported his leadership. If I left the government it would be to sit on the back-benches, not to foment his overthrow. Also, I feel deep loyalty to the Labour Party. I did not want to damage it any further. There was already a sense of calamity; we were in no fit shape to fight an election. To walk away would have been to absolve myself of collective responsibility for the government.
With the general election now less than a year away, I knew that I was there until the end. Still, I hoped that we might salvage something, perhaps attempt a fresh start. That Friday, still in post, I was far from elated. I spent the day working from the flat, taking calls from colleagues including Geoff Hoon, now out of the Cabinet, who felt frustrated and badly treated by Gordon. Geoff had been a strong supporter of Tony but had moved on to work for Gordon when he became Prime Minister, first as Chief Whip, a role for which he was not best suited temperamentally, then as Transport Secretary. He felt that his loyalty had been abused. Geoff wanted to go to the European Commission; he is very much a Europhile. Gordon would not promise him that and he felt let down.
We had taken a pounding in the English local elections. Our share of the vote had plunged to 23 per cent, the lowest in the post-war era. In the European elections we had suffered our worst result, beaten into third place by UKIP. The BNP gained its first seat in Brussels. Our share of the vote was just 15.3 per cent – worse than we had dared imagine. The Tories won with 28.6 per cent, failing to increase significantly their total share. Health Secretary Andy Burnham’s analysis was acute: ‘The BNP is like the ultimate protest vote. It is how to deliver the establishment a two-fingered salute. I think largely it is a comment on Westminster politics.’
Gordon was not able to make the changes he wanted. He was stuck with me and with David Miliband as Foreign Secretary. He did promote Alan Johnson, a good appointment, as Home Secretary, replacing Jacqui Smith. Alan’s easy-going manner, combined with an ability to get people to work with him, had helped us make up lost ground when he was Health Secretary. Peter Mandelson acquired even more titles, including that of First Secretary of State. John Hutton stood down, which was a pity, and was replaced by Bob Ainsworth as Defence Secretary. I had known all along that Gordon would want at some stage to install Ed Balls as Chancellor. That was his prerogative. But I was not prepared to be trashed and sacrificed in the process. Nor was I prepared to change my view of what needed to be done to build a credible economic and political path out of this economic crisis. I knew the next months would not be easy. Gordon still believed that my approach was wrong and that the Treasury was out of control.
There was a procession of comings and goings downstairs in No. 10 on Friday. I kept well out of it. In the reshuffle, Yvette moved to the Department for Work and Pensions, and Liam Byrne moved from the Cabinet Office to take her job as Chief Secretary. I assumed at first that this was the latest No. 10 attempt to keep an eye on me. I was wrong. Very quickly, Liam became a staunch supporter of my argument against the simplistic ‘investment versus cuts’ narrative. He worked hard to build a credible plan to cut the deficit.
I have set out the events surrounding this reshuffle in greater detail than I might have done because there has been so much erroneous speculation about what happened. Although I was tempted to go, there was no ‘Et tu, Brute’ moment. I thought it more important to try to restore and rebuild the fortunes of the government that I had spent twelve years supporting, and many more years before that trying to get into power.
There was an unhappy sequel to that unhappy day. At the news conference on the reshuffle in Downing Street, Gordon acknowledged the painful scale of the defeats in the European and local elections and vowed to fight on with a fresh team. He was asked about his attempt to remove his Chancellor. It was a pity that he chose to deny it. Everybody knew he had tried to get rid of me as Chancellor, because they had been told so in private briefings for days before. The Treasury had even been alerted and had begun arrangements for a handover to Ed. The denial further damaged Gordon’s relationship with the political correspondents. They no longer believed him.
The next ten days were devoted to preparing for my second Mansion House speech on 17 June. This time, what I had to say was derailed not by the government’s wrongdoing but by the Governor of the Bank of England. Mervyn and I were, and indeed remain, on good terms. I had asked a number of times to see a copy of the speech that he was to deliver immediately after I sat down at the Mansion House. Only two days before we were due to speak, I was told that he had not finished it. This I found curious. Mervyn does not deliver many speeches, but when he does they are usually well argued and thoroughly prepared, as you would expect. He’s not inclined to deliver a few words knocked up the night before. When I eventually saw his speech, a couple of hours before its delivery, it was obvious that it would be seen as evidence of a deep division between him and me. It was a blatant bid for the Bank to take over the regulation of banks – and what seemed to me to be a rewriting of recent history.
The Bank of England has had responsibility for the stability of the financial system since 1997. However, that responsibility only became a statutory one under the Banking Act of 2009, which I introduced after the Northern Rock debacle. The Governor, using the elegant and well-constructed metaphor of a minister who could preach to his congregation but did not have the power to do what he wanted, called for greater powers to be given to the Bank of England. Everyone knew what he was getting at. It was a naked attempt to wrest powers from the FSA. As such – and all those present knew it – it was a direct challenge to government
policy, and therefore to me. The media duly reported it in this way. But whether Mervyn liked it or not, the design of the regulatory system, and the primacy of the Bank or the FSA, are matters for the government, not the Bank.
The speech should have been discussed with me well in advance of its delivery. Mervyn knew I had doubts that the Bank should be the lead regulator, especially as it had been slow off the mark in the banking crisis of 2007. He also knew that I doubted his argument that if the banking system were broken up it would be safer. This was another occasion on which I felt that Mervyn had decided that, because of the government’s weakness, he had licence to roam in a way he would never have done if he had thought he would still have to deal with us after the next election. This is dangerous territory for any Bank Governor, and it followed his public suggestion that the government had not done enough to set out a credible plan to reduce borrowing. The problem was that both the break-up the banks and the handing over of the FSA’s job to the Bank of England were Conservative Party policy. The Governor’s position on borrowing could also be fairly characterized in the same way. Mervyn was careful to cover his pronouncements with caveats, which usually went unreported, but even so he was coming perilously close to crossing a line between legitimate comment and entering the political fray. Given the general political problems we had, the Governor’s speech was seized upon by every commentator as well as the opposition. It was another stick with which to beat us.
Immediately after the reshuffle, I went home to Edinburgh for a constituency event on international development with my Cabinet colleague Douglas Alexander. I was surprised by people’s reactions to us as we met in a church just off Princes Street. Reading the newspapers, secluded in Downing Street and the Treasury, I truly expected that a lynch mob might be waiting for us. Yet most of the people I met that weekend were extremely warm. Throughout my ministerial career, I had often applied what I call the ‘Tesco test’. I make a point of watching how people react when I go shopping. If they look away, you are in trouble. If they engage with you, either through eye contact or, even better, conversation, then you are in with a chance.
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