If Labour is to govern again then it must defend its response to the financial crisis

9th August, 2017 1:00 pm

For as long as there is a debate about the financial crisis then there must be voices willing to defend Labour’s response to it.

In the decade since a crack in the US mortgage market turned into chasm of capital, jobs and understanding across the western world, Labour has steered an uneasy course across the wreckage of the crash.

Now, ten years on from the onset of the credit crisis – judged as beginning on this day in 2007 when French bank BNP Paribas froze three funds tied to American sub-prime mortgages – Labour must speak up for the unprecedented action taken by Alistair Darling and Gordon Brown a year later which saved the British banking system.

We “saved the world”, as Brown said subsequently. The Tories jeered and sneered the slip of the tongue but the then prime minister wasn’t far wrong.

Without the actions of the Labour PM and chancellor the result would have been a meltdown in the global financial system.

As Darling told the BBC today, the alternative to nationalisation would have been “blind panic”.

The sentiment that Labour delivered the right outcome from a catastrophic situation has not always been shared in the party subsequently. Contrary views have ranged from the belief that Labour should have taken operational control of the banks, including remaking RBS as a “people’s lender”, to a zeal that big banks should just be allowed to fail, regardless of the consequences for working people with mortgages or pensioners with savings. One argument that percolated on the left for several years was the claim that a Labour government had “privatised the profits and nationalised the losses” of the financial system.

This is misguided and takes little heed of the perilous situation in which Britain found itself in 2008. The details of any counter-history are too tangled to debate here but it seems clear that Darling and Brown had little choice but to enact the nationalisation of RBS and the merged Lloyds-HBOS, which was in a relatively less dire position and where the taxpayer ended up with a lower stake.

This morning Darling recounted the “scariest” moment, when the chair of RBS told him the bank was running out of money.

Ten years on from the crisis he is a peer and has published a book which detailed his difficult relationship with Brown. The senior of the two is now writing his own memoir which is due to be published this autumn.

The two men came together again to save the Union in 2014 and have both spoken out over the Tories’ failed economic strategy.

The Tories were on the wrong side of the argument in 2007 and 2008 – and they have stayed there nearly every step of the way.

The young and clueless David Cameron and George Osborne initially opposed the bailout – which is credited with preventing a recession turning into a depression – before they scraped into government and then choked off the economic recovery, instituting a wave of spending cuts that hit the poor hardest before breaking their solemn promise to eliminate the deficit.

Cameron and Osborne have lost their place in government and given up their Commons seats but the legacy of their disastrous economic strategy will be felt for many years yet. Millions of workers languish on low pay and are still being ignored by Theresa May.

As such, it was illuminating to read Torsten Bell, head of the Resolution Foundation and a former advisor to Darling and then Ed Miliband, set out in The Guardian what the Treasury got right, what it failed to anticipate, such as the “colossal” pay squeeze which followed over the next 10 years, and what needs to happen next.

I used to encounter Bell when I worked for a shadow cabinet minister. You don’t have to agree with everything in his piece to accept his argument that “things simply haven’t changed anywhere near enough”.

Labour under Jeremy Corbyn has shifted the debate on austerity and won a public hearing – although not to the extent of winning a general election, yet. The attacks on Labour’s economic record in office will, however, never go away so today’s MPs and activists must show a greater willingness to defend our party’s role in the response. For as long as there is a discussion about the financial crisis then there will be a debate about whether Labour should be allowed back into power.

 

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