Analysis: Darling’s first year at the Treasury
The Northern Rock crisis, rocketing inflation, HMRC lost data disks, tax U-turns and of course the infamous credit crunch – it’s been a tough year in No 11.
While Gordon Brown made no emergency statements during his ten-year tenure, his successor at the Treasury Alistair Darling has managed to make stepping up to the dispatch box a regular habit.
Indeed it has been an eventful year for the chancellor.
“It was a deeply traumatic year,” said Liberal Democrat shadow chancellor Vince Cable.
“It has been a disastrous year but in part due to factors beyond his control and many he inherited from his predecessor.”
Northern Rock
The first crisis for Mr Darling was without a doubt Northern Rock.
On September 12th last year the Novocastrian bank turned to the Bank of England for help and the queues started to grow outside branches as worried savers tried to get their money back.
It was only after Mr Darling offered to guarantee their savings did the queues disperse, but the problems remained. However, even at this time the chancellor was attacked for taking several days to offer assurances.
As speculation grew an election was in the offing, it wasn’t until February 17th – after bids to take over the bank ended as fruitless – did Darling nationalise the Rock.
Now in public hands the bank is cutting staff, reducing its mortgage book and won’t return to profit for a number of years.
“The biggest challenge Alistair has faced must be Northern Rock because they thought the whole banking system was vulnerable,” a Treasury source said.
“They certainly would have preferred to have reached to a solution earlier but they were very keen to get a private buyer.
“He thought rather than go for a quick scheme he had to exhaust every possibility. Of course everyone would have liked a quick solution, but what he was trying to do was find a durable solution.”
However, the Conservatives see delays in a rescue bid for Northern Rock as a sign of the chancellor’s weakness.
A Tory spokesperson said: “We remain the only country in the world to have seen a run on a high-street bank. While the US government managed to organise the sale of Bear Sterns over a weekend our government dithered for five months and ultimately had to resort to nationalisation.”
Inflation
Throughout the Northern Rock crisis, Mr Darling blamed the nefarious international forces of the US subprime crisis.
International crises were also blamed on raging inflation.
In his Mansion House speech last week he said: “The dramatic increases in the prices of food, fuel, gas and electricity alone account for 1.1 percentage points of the 1.2 percentage points increase in inflation.
“These sharp price increases reflect developments in the global balance of demand and supply for food and energy.”
However, Mr Cable is quick to point out inflation should not be solely blamed on international pressures.
“There are some international pressures without any doubt,” he said.
“But in relation to energy, although it is true the world price of energy is beyond the control of the British government, Britain is still largely self-sufficient in oil.
“Much of the imported inflation is not due to world prices; we have also seen substantial devaluation of the pound which not too many people have noticed.”
The Conservatives meanwhile blame the fall in the pound on the Northern Rock crisis.
A spokesperson said: “The rapid decline of sterling can be traced almost exactly to September 14th – the day Northern Rock announced it was seeking emergency funding.”
The chancellor meanwhile is keen to point out, while inflation is over one per cent above the Bank of England’s target of two per cent and rising, historically it is still low.
Mr Darling told the City last week: “Today’s inflation must be tackled. We cannot be complacent.
“But in comparison to the 1970s when it reached over 26 per cent, it remains low. Even in 1991, it was still at eight per cent.”
HMRC lost data discs
But neither the HMRC data crisis, nor the 10p and capital gains tax debacles could be blamed on international pressures.
It is still unclear what happened to the discs lost in the post with the details of every parent and child in the UK claiming child benefit and their national insurance numbers, addresses.
Mr Cable explained the source of these problems were from Mr Darling’s predecessor at the Treasury, a certain Mr Brown, who oversaw the reorganisation of HMRC.
“He presided over the incredible administrative fiasco at the HMRC and the loss of disks – and again this was in part due to badly thought out reorganisation of the department and staff cuts without any thought to the practical implications,” he said.
10p tax U-turn
Gordon Brown’s final budget was greeted with cheers from the Labour backbenchers when the basic rate of tax was cut. But as they realised the full impact of scrapping the 10p tax band, brought in by Labour, Darling and Brown faced a backbench rebellion.
The Treasury source said: “It was a political problem, so it was difficult.
“It was expensive, but he thought it was most sensible solution and the easiest in a funny kind way and it has helped more people and those who had not lost out because of the 10p.”
Mr Cable said: “The 10p rate the most serious [of a series of disasters], and that was a problem he did inherit.
“To the extent to which there are any successes, he had managed to diffuse some of the worst problems, like the 10p tax rate. He inherited the problem and arguably sorted out the worst features of it.”
Darling
Mr Darling may well have been a very unlucky general indeed, so what has he achieved?
Insiders at the Treasury claim he is a strong captain and the while the good ship Treasury headed through choppy waters, all was calm on deck.
“He has been under pressure. But what has been interesting about Alistair, it has been really tough and his demeanour has been strong, he has just absorbed this one day after the next with incredible good humour and calmness under pressure,” a source said.
“Here is this guy having to deal with this litany of horrors. And he just keeps going.”
Dan Barnes
