Money Blog: Is Alistair Darling Setting Us Up For an Economic Revival?
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Is Alistair Darling Setting Us Up For an Economic Revival?
By Nic Cicutti
Sep 1, 10:28 AM
Ever since reading Alistair Darling’s interview in this weekend’s Guardian in which he was highly pessimistic about the state of the UK economy, I’ve been trying to work out exactly what he meant by his comments.
The bit about the public being “pissed off” with Labour is fairly understandable: that’s because many of us are. His government has long been incapable of listening to independent views when it comes to issues of personal finance.
It’s the bit about “the worst economic crisis in 60 years” that I can’t get my head around – basically because the period from 1948 until the end of the 1960s wasn’t all that bad.
Yes, in the immediate aftermath of WWII, there was still a period of austerity. Yes, there was rationing, gradually removed, on many items of food and clothing. Yes, life was not all that pleasant for most people.
But on the whole, the economy grew, unemployment remained at incredibly low levels – barely 2% of the population – while more than a million council homes were built in the six years after the war. Inflation, which had briefly risen above to 10% as the war ended was falling sharply by 1948 and dropped to about 3% by 1950.
The UK economy adjusted to the post-war period fairly well, overall. So why is Alistair Darling’s reference point so specific in terms of the date he chose?
Well, one answer might be that he simply got his years wrong. Maybe he meant the 1970s, admittedly a bleak period for the UK economy. Or he is simply economically illiterate? Which is hardly a good thing for any Chancellor to be…
Another is that he was trying to go as far back as possible in his timeline so that by exaggerating the scale of the crisis today, it will be easier in a year or two’s time for him (or for a successor) to point out just how far the recovery has come from such a weak point – identified by him, of course.
Although I buy that explanation in part, I wonder if it really is the full answer. Personally, I am tempted by two other thoughts I haven’t really seen anywhere else.
The first is that the post-war boom experienced in Britain after 1945 would not have been possible without massive aid from the US as part of its Marshall Plan for Europe.
Between 1948 and 1951 some £3.4bn – the equivalent of almost £90bn in today’s money – was pumped into the UK economy from the US. Clearly, there will be no foreign bailout this time. But is Alistair Darling preparing us for a massive increase in public spending to stave off recession?
My second thought is about interest rates. As we know, until 1997, if he wanted rates to move up or down, a Chancellor would often have quick word in the ear of the Bank of England governor. But when Labour won the general election that year, it effectively surrendered its ability to set or even influence base rates to the Bank.
The only way now to “influence” base rate setting is to create a climate of opinion where the Bank’s Monetary Policy Committee (MPC) is left in no doubt the crisis is so acute, at least when viewed by the Chancellor, that it must act immediately rather than wait several months more before lowering the base rate.
Is this fanciful? Maybe, but there have been other instances in the past 12 months where the government has been accused of subtly (or not so subtly) attempting to influence the MPC’s decision-making powers. All such accusations have been denied, of course.
If I’m right in either guess, then Alistair Darling is playing a much cleverer game than we have given him credit for so far. The big question is whether he really is that sharp. What do you think?
User Comments
PAUL CARDY 3 September 2008, 02:57
So first time buyers are going to come flooding back and rescue us all, what a fool the chancellor must be, if the fist time buyer can afFord a £175000 mortgage I very much doubt he or she is that hard up for £1750 being as he or she earns nearly £50000. A far better bet would be to reduce stamp duty to 1%, that way we would all be saying lets go now and save £8000 or whatever, because 1% of 100000 sales is far better than 50% of no sales. Also whilst we are on the subject now that house prices are falling does the government still want to tax us on the profits we were all making on property, no of course not because now they would be paying us.
Martyn Conley 2 September 2008, 19:55
The previous chancellor, who shall remain nameless in order to protect the guilty, was extremely lucky in that, during his ten years in office, the global economy was booming. He had very little to do except pile on taxes, wreck the private pension system, undermine his boss and, of course take all the credit. Unfortunately, when everything went pearshaped, he was clueless. So, what did he do? He promoted another incompetent into the job in order to let him take the blame. What hope is there for this country until this collection of idiots are dumped on the scrapheap where they belong?
Jane Jams 2 September 2008, 19:42
It doesnt matter who is chancellor or prime misister, nothing will change unless they get in the real world…. with their huge salaries and expenses no one in any kind of power will understand what its like to have to go without things because “someone” mismanaged!! “Real” families are struggling and with a £1000 a month morgage and a disposable income of around £150 a month, (after bills!!)for a family of 3 how on earth am I meant to support him or anyone else living in their fantasy world!! The lastest news on stamp duty is pathetic, do they think that a measly £1750 (max) saving will encourage first time buyers….how do they explain no purchases in previous no stamp duty areas?? PLEASE someone help!!!! personally “pissed off” is a severe understatement… Recovery… exactly how??
David Barron 2 September 2008, 18:18
sorry i dont think he really is that smart otherwise we would have been better prepared for what is happening to the country right now. I would like to know when he thinks the recovery wiil be????????
john hateley 2 September 2008, 17:24
It is a pity that the previous chancalor did not see the crash coming `any prudent` person would have had bells ringing with `sub prime morgages.` I did not expect my investments to be loaned to self decleration of borrowers.
If they did not see this coming, what trust can we now have in their ability?
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