John Smith asked me shortly before his sudden death who I would support when he was gone. I told him I would find it hard to choose, both men had such strengths. John turned to me and said sharply: ‘Well, you’ll have to choose.’ I did, and sadly much sooner than any of us would have wanted. I supported Tony for the leadership because it seemed to me that he was able to reach out to a generation of middle Britons with whom Labour had failed to engage for the best part of thirty years. Gordon provided an economic edge to the wider appeal; his economic thinking was the ballast.
From a ringside seat, I saw the slowly dripping poison of their relationship damage our government. I don’t know the precise terms of the agreement that the two of them are supposed to have reached either in the Granita restaurant in Islington or in a friend’s home. Knowing them both, I suspect that each left the table thinking that he had got what he wanted. The problem was that their respective understandings were quite different. Tony may well have indicated that he intended serving perhaps two terms, while Gordon was sure that that was an absolute commitment. What I do know is that from 2004 onwards Gordon became increasingly frustrated that Tony wouldn’t step down. The tension between the two camps during the general election of 2005 was barely kept under wraps, and it exploded a year later when the Brown camp became increasingly convinced that Tony was intent on remaining in his post. By 2006, following Tony’s refusal to condemn the Israeli pounding of Lebanese territory that summer, the party had lost patience with him. The insurrection by the Brownites that autumn wasn’t spontaneous. It was organized and it had its desired effect. Tony stepped down in 2007. It’s sad that a party that spawned two such talented individuals eventually came to be riven by their civil war.
I’ve never been part of either camp. Perhaps it’s one of my political failings – I can see both sides of an argument. But by 2006 I didn’t see how Tony Blair could stay on. His reputation had been badly damaged by Iraq and the final straw for many in the party, myself included, was his failure to call a halt to what was happening in Lebanon. I had always thought that Gordon had a plan and that he would need at least three years to see it through before the next election. The obvious time for Tony to stand down would have been in the autumn of 2006 or the spring of 2007, and though I was frustrated that he didn’t want to, I understood why. He wanted to rehabilitate himself on the domestic front after Iraq.
I remember talking to Tony about Gordon during one of their more public arguments – over the euro, I think. Tony said that he wanted to discuss something with Gordon and was told the only time he could do so was at 6.30 in the morning. He told me: ‘You’ve no idea what it’s like. It’s like facing the dentist’s drill without an anaesthetic. He goes on and on.’ I thought then that perhaps Tony was exaggerating a bit. In his memoirs Tony expresses frustration that people didn’t understand what it was like working with Gordon. At one point he explains how, after much agonizing, he felt he couldn’t sack his Chancellor. In my three years as Chancellor, I had many occasions on which to reflect on Tony’s dilemma.
Gordon has many strengths, but he is not an easy man to work with. He doesn’t always see the effect his words have on people, but, temperament aside, his strong intellectual approach would trump any countervailing empathy. He is a man capable of huge gestures of generosity, but he seemed to have no conception of the effects of his sometimes appalling behaviour on those close to him, or of the political damage his way of operating – indirectly, through a cabal – could cause.
As prime minister he seemed, often, like a man out of his time. The skills learned as a young politician, and then as a precocious actor in the Labour machine of the 1960s and 1970s, were perhaps out of date. He tried desperately to make it work; he can’t be accused of not trying. But as I’ve said before, there is no hiding place in Downing Street. Perhaps most damaging, for Gordon in particular, but for all of us in the end, was that he surrounded himself with a cadre of people whose preoccupation was the removal of Tony Blair and the installation of Gordon Brown. They had their own reasons, some political, others personal, but blind loyalty meant that Gordon was only told that which he wanted – or could bear – to hear and that meant, ultimately, that he was ill-served. Speaking truth to power never came into it.
It would be wrong to claim that there was a plot to get rid of Tony Blair; there was no plot. A plot is secret. This was an open campaign, and as far as the Brownite cabal was concerned, you were with them or against them. It was a fairly brutal regime, and many of us fell foul of it. After Gordon became Prime Minister, the cabal sought fresh enemies and as Chancellor I quickly found myself in the firing line. Their under-hand tactics, particularly the continuous briefings and leaks to the media, were difficult to bear and were also incredibly damaging to the reputation of the party. Tony and Gordon dominated the Labour Party for more than ten years and were an overwhelming force for good, but by the end their feud allowed a cancer to grow which, I believe, contributed to our defeat in 2010. The lessons of this crisis have yet to be fully learned and the consequences of what happened are still playing out. There never was a full scale inquiry although the Treasury select committee, under the highly respected leadership of my colleague John McFall, MP, shone a light on many of the practices that led to the crash. The FSA report into the RBS debacle is yet to come. A lot of repair work is needed over the next few years if confidence is to be restored.
The three years I spent at No. 11 were an incredible experience. Within weeks of taking office, I was thrust into the limelight in a way I had never before experienced. I had to deal with a crisis the scale of which I could never have imagined. As I said at the beginning of this book, events transformed my time as Chancellor, which I suspect would have been rather briefer had the economic crisis not taken hold and had Gordon not been weakened by growing unrest within the party. Events took over, but I am proud of the extent to which my team rose to the extraordinary challenges we faced. We had to take decisions that, had they been wrong, would have had devastating consequences. I had a sense throughout of what needed to be done and I fought tooth and nail, often in the face of both overt and covert opposition from No. 10, to proceed as I saw fit.
We didn’t get everything right, as I’ve explained in this book, but we did chart a way through. The effects could so easily have been far worse. My deepest regret is that, during the 2010 election, the government failed to capitalize on our successful handling of the financial crisis, and for that I accept my share of responsibility. We in the Labour Party had lost our collective vision and sense of purpose, and we need now to get it back again. I am never knowingly over-optimistic, but I do believe that if we can learn from what happened and be confident in ourselves and in our values, a new generation can rise to the test and the Labour Party can regroup and once again be elected to government.
Timeline
2007
27 June
Tony Blair steps down as prime minister and is replaced by Gordon Brown.
17 July
Bear Stearns announces its two troubled hedge funds are virtually worthless following bursting of the real estate bubble.
19 July
Federal Reserve chairman Ben Bernanke warns that the crisis in the US sub-prime lending market could cost up to $100 billion.
9 August
French investment bank BNP Paribas freezes three funds because of its exposure to the sub-prime mortgage market. In response to the turmoil, the European Central Bank pumps 95 billion euros into the credit markets to improve liquidity. The US Federal Reserve says it will put $12 billion of temporary reserves into the US banking system.
14 August
Financial Services Authority (FSA) discloses concerns about Northern Rock to the Treasury and Bank of England.
13 September
BBC reveals that Northern Rock has asked for, and has been granted, emergency financial support from the Bank of England in its role as lender of last resort.
14 September
; Depositors queue to withdraw their savings from Northern Rock branches around the country.
17 September
Chancellor makes a statement on the situation in the financial markets and announces that the government will guarantee all existing deposits in Northern Rock.
19 September
Bank of England announces an injection of £10 billion into the money markets in an attempt to bring down three-month inter-bank interest rates.
20 September
Treasury announces extended protection for Northern Rock customers.
6 October
Gordon Brown calls off snap autumn election. Critics accuse him of ‘bottling’ a decision because the Conservatives are polling well.
9 October
Treasury confirms that the guarantee arrangements previously announced to protect existing depositors of Northern Rock will be extended to all new retail deposits made after 19 September.
18 October
Package containing two CDs of Child Benefit data sent from HMRC to the National Audit Office, containing details of 25 million individuals, is lost.
30 October
Merrill Lynch chief resigns after the bank unveils $7.9 billion exposure to bad debt.
4 November
Chuck Prince resigns as chief executive of Citigroup, as the bank reveals it is facing an additional $8–11 billion of losses on mortgage-related securities.
6 December
President Bush outlines plans to freeze rates on sub-prime mortgages for five years to help people hit by the US housing market crisis. Bank of England cuts interest rates by 0.25 per cent to 5.5 per cent.
2008
2 January
Price of oil hits $100 per barrel for the first time.
21 January
Global stock indexes, including the FTSE 100, record their greatest falls since 9/11 terrorist attacks.
17 February
Chancellor announces Northern Rock will be taken into a period of temporary public ownership; in so doing, government rejects the two private sector offers.
17 February
Northern Rock is nationalized.
18 February
Northern Rock shares suspended. Banking (Special Provisions) Bill has first reading in Commons and, in a statement to the Commons, Chancellor states that ‘the Government have no intention at present to use the Bill to bring any institution other than Northern Rock into temporary public ownership’.
7 March
US Federal Reserve makes $200 billion available to major banks, saying it has taken action ‘to address heightened liquidity pressures’.
14 March
Bear Stearns receives emergency lending from Federal Reserve, via J P Morgan Chase.
17 March
Bear Stearns, Wall Street’s fifth-largest bank, is acquired by JP Morgan Chase.
11 April
Council of Mortgage Lenders warns that mortgage funding could be cut by half in 2008.
21 April
Bank of England launches scheme allowing banks temporarily to swap high-quality mortgage-backed and other securities for UK Treasury bills under the special liquidity scheme; however, responsibility for losses on their loans would remain with the banks.
22 April
Royal Bank of Scotland announces a plan to raise money from its shareholders with a £12 billion rights issue, the biggest in UK corporate history.
8 July
British Chambers of Commerce quarterly report finds the credit crunch and rising costs have dented the most important sectors of the economy and there are serious risks of recession in the UK. FTSE 100 Index briefly dips into a ‘bear market’, suffering a 20 per cent fall from recent highs.
31 July
UK house prices show their biggest annual fall since the Nationwide began its housing survey in 1991, a decline of 8.1 per cent.
28 August
Nationwide reveals that UK house prices have fallen by 10.5 per cent in a year.
29 August
Chancellor warns that the economy is facing its worst crisis for sixty years in an interview with the Guardian, saying that the downturn will be more ‘profound and long-lasting’ than most had feared.
7 September
Mortgage lenders Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are rescued by the US government in one of the largest bail-outs in US history.
10 September
Wall Street bank Lehman Brothers posts a loss of $3.9 billion for the three months to August. European Commission warns that the UK, Germany and Spain will go into recession by the end of the year.
15 September
Lehman Brothers files for Chapter 11 bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis. US bank Merrill Lynch is taken over by Bank of America for $50 billion.
17 September
Bank of England announces extension of the final date of the drawdown period for its special liquidity scheme from 21 October 2008 to 30 January 2009. Lloyds TSB agrees to buy HBOS. American International Group (AIG), one of the world’s biggest insurers, saved from the brink of collapse after US Federal Reserve agrees $85 billion bail-out; the deal gives the US government a 79.9 per cent stake in the insurer.
18 September
FSA announces a ban on short-selling of financial stocks and an obligation to disclose significant ‘short’ positions, a move also adopted by the Irish financial regulator.
29 September
Bradford and Bingley is broken up; its retail side is taken over by Santander and the mortgage and loan books nationalized.
1 October
Bank of England begins providing covert liquidity to HBOS; this support peaks at £25.4 billion on 13 November.
7 October
Bank of England begins providing covert liquidity to Royal Bank of Scotland; this support peaks at £36.6 billion on 17 October.
13 October
Chancellor makes statement to the Commons on the recapitalization of HBOS, Lloyds TSB and RBS, with the government taking significant shareholdings in the three banks and its capital investment totalling £37 billion. Chancellor also issues a written statement on the contingencies fund and the action taken on the Icelandic banks Kaupthing and Landsbanki.
24 October
Office of National Statistics announces that UK GDP fell by 0.5 per cent in the second quarter of 2008, the first contraction since the second quarter of 1992, when the British economy was at the end of its last recession, and the biggest drop since the fourth quarter of 1990.
19 November
IMF approves a £1.4 billion loan for Iceland. British, Dutch and German governments later confirm that they will give Iceland a combined total of $6.3 billion in loans to cover the cost of compensating Icesave account holders.
14 December
Irish government announces a recapitalization programme for credit institutions in Ireland of up to 10 billion euros.
19 December
Outgoing President Bush announces $17.4 billion in short-term loans to General Motors and Chrysler, the money coming from the ‘troubled asset relief programme’.
21 December
Irish government announces recapitalization investment of 2 billion euros each in Allied Irish Bank and Bank of Ireland, and 1.5 billion euros in Anglo Irish Bank.
31 December
FTSE 100 Index closes down 31.3 per cent since the beginning of the year, the biggest annual fall since the index began.
2009
15 January
Irish government nationalizes Anglo Irish Bank.
5 March
Bank of England announces that it will undertake a policy of ‘quantitative easing’; the Bank will purchase £75 billion of assets using money which it will create.
9 March
FTSE 100 Index hits six-year low at 3460.
30 March
Dunfermline Building Society, which announced £26 mi
llion in losses, principally arising from its residential and commercial mortgage assets, is taken over by Nationwide building society.
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