One cheer for Lord Mandelson and Mr Darling

Praise where praise is due. Apparently the clueless coup had its moments. Lord M and Mr D seem to have wrestled the driving wheel away from Mr Balls. According to briefing “Tory cuts versus Labour investment” is no longer the dish of the day. We are all cutters now.

This morning Mr Darling begins the long task of trying to win back the confidence of the money lenders. When you need to borrow one quarter of all you are spending, day in, day out, you do need to heed their views. The Bank this week confirmed that it would not be printing any more money. They only have around £7 billion of firepower left out of the £200 billion they agreed to print to see the government through the worst of the downturn. In recent weeks the Bank has been buying under half the amount of debt the government needs to borrow. We can see that from the increase in the interest rate the government now has to offer to raise its money.As readers of this site will know, we should expect further increases in interest rates to follow as the government shifts from printing some to borrowing the lot.

If the government is serious about helping recovery it needs to put through spending cuts now. Lord M has been showing the way with the Universities – not popular but I guess realistic. I would myself prefer it if they would stop recruiting from outside to all these non jobs and got on with the task of reforming and simplifying public services.

Lord M has also allowed people to write that he wishes to reassure entrepreneurs and rich foreign investors that they are still welcome here. Labour, he says, is not about to squeeze them until the pips squeak. There is still enough New Labour to recognise the need to keep and encourage entrerprise. If that is true then they should cancel the 50p tax rate, as the quickest way to send a message to the world community that they do still want a UK open for business.

We are told today there will be a Labour budget before the election. That will make interesting reading. Of course it will contain the biggest spending cuts for 20 years. To create a sustainable recovery it needs to contain the biggest spending cuts for more than 70 years, such is the extent of the crisis in public finances. If they do not cut soon, interest rates will carry on upwards, damaging what passes for a private sector recovery so far.

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14 Comments

  1. Kevin Lohse
    Posted January 9, 2010 at 9:35 am | Permalink

    Dear John. Interest rates rising through external pressures + falling output = Stagflation = IMF. Weren't we there about 35 years ago? I wouldn't at all suggest that Labour are thinking of staving off economic collapse until June and intending a March election without having set a Budget to campaign with.

  2. Donna W
    Posted January 9, 2010 at 9:36 am | Permalink

    The 'clueless coup' wasn't clueless….. I am convinced Mandelson was behind it all along. It was intended to remind Gordon that he only remains in No.10 if Mandelson says so … and Mandelson didn't approve of Gordon listening to Balls and his pathetic core vote/class war strategy instead of his, Mandelson's advice.

    Hoon and Hewitt were expendable – but dim enough to be led into a coup which couldn't possibly succeed. Mandelson doesn't want Gordon gone – he's got to take the hit for losing the election. Mandelson is now just trying to contain the losses before installing the next puppet as Labour leader.

    Still – it will be interesting to see how (badly) Gordon manages to explain that his policy of 'Labour investment' and the Tories were 'wrong, wrong, wrong' will be retracted. I wouldn't be surprised if, at the Leaders' debates, Gordon is taken suddenly ill and Mandelson steps up to 'bravely stand in for him.'

  3. alan jutson
    Posted January 9, 2010 at 10:20 am | Permalink

    I see from the Telegraph this morning that more hints are being made to the Government that our AAA rating is being viewed ever more closely by those that matter.
    Perhaps this is the reason why the Penny is at last begining to drop in Labours thinking.
    Not even Gordon Brown can defy the markets for ever.

    • Mike Stallard
      Posted January 9, 2010 at 6:23 pm | Permalink

      Oh yes, he can!

  4. Brian Tomkinson
    Posted January 9, 2010 at 11:18 am | Permalink

    How any money lender can have any confidence in anything that this Labour government, in its various guises, says, is a mystery to me. Nor do I see, from what has so far been said, how they could be much more confident if the Conservatives were in charge. As each day does by, my thought that they are all spineless and need to be forced to take the necessary action, which they can then blame on someone else, seems more convincing.

  5. JimF
    Posted January 9, 2010 at 1:07 pm | Permalink

    Yes, Darling's timing on this statement is too coincidental for it not to have been behind the failed coup.

    They are clearly walking a tightrope between the voters and money market sentiment. There is probably sufficiently little time left now before an election for them to talk tough (for the markets) without doing anything substantive (which affects voters). But it is a close run thing, and it is duplicitous.

    It would be interesting to gauge opinion as to which interest rate levels will prompt major Sterling loan defaults to start kicking in, and what will the time lag be between rates rising and default. My guess is that they have time on this, and that their biggest risk now, before an election, is a Sterling crisis. This is the avoidance measure, together with probable vast ECB Sterling purchases to prop us up.

    • Eotvos
      Posted January 9, 2010 at 4:03 pm | Permalink

      Jim, why should the ECB prop Sterling? I cannot think of a reason, political or economical. They're not going to prop Greece or the Irish and they are Eurozone.

      Soros made money by selling it prior to Black Wed.

      • JimF
        Posted January 9, 2010 at 10:41 pm | Permalink

        Because I believe France and Germany don't want us to have a large competitive advantage brought on by devaluation. It is also in the interest of Brussels to prop up this Government against a new Tory one which just might start asking more questions of the EU. So there's one economic and one political argument.
        Interested that you think the ECB aren't propping up Ireland and Greece. I thought they were 2 of the net largest beneficiaries per capita of EU cash in the Eurozone.

        • Eotvos
          Posted January 10, 2010 at 12:20 pm | Permalink

          Thx for that. This is not my area of expertise.

  6. Stronghold Barricade
    Posted January 9, 2010 at 1:40 pm | Permalink

    If the production figures show that we are still in recession, then surely Darling can argue that the departmental cuts have to come in after the budget is set…say the following PBR or another budget just after the election?

    The conservatives will have no ground left soon, and still they don't attack the government's record

  7. Mike Stallard
    Posted January 9, 2010 at 6:30 pm | Permalink

    This government is not going to change radically because it deeply believes in the State hosing money at every problem. It sincerely believes that appointing a bureaucracy to handle difficulties is the right thing to do. It also believes that "Gordon" is a genius. And, let us never forget the millions and millions of voters who depend on their rights to our money for hand-outs/salaries to live off off of….
    It all seems to work pretty well, too, at the moment, doesn't it. (Read Labour List).
    What concerns me a lot more is the Conservatives who are not making Thatcherite noises because they don't really have to. Is this because things have gone too far now for a democratic answer to the coming disastrous question?

  8. Lindsay McDougall
    Posted January 10, 2010 at 5:12 pm | Permalink

    Indeed, and I believe this was the intention of the pseudo-coup all along. But the key immediate question for Labour is: Will the 2010/11 deficit be significantly less than the 2009/10 deficit? If not, they are wasting their time – and everybody else's.

  9. Dan Holdsworth
    Posted January 11, 2010 at 11:41 am | Permalink

    There is also one other hidden factor in all of this which Mandelson is likely acutely aware of: the Labour Party still owes millions, run up by Tony Blair before he skipped out. At present this debt is being serviced by the Government (helping-ed) the big public sector unions, who (are the biggest donor to -ed) the Labour Party.

    Come the expected defeat for Labour at the election, and this money flow will cease. Most of the rest of the Labour Party's income will also cease to flow; they'll be the defeated has-beens who will have next to no power worth speaking of, and thus won't be worth (backing-ed).

    Now, the Labour Party is set up financially in a very silly manner (actually, it is organised stupidly in many ways; no way to boot out a bad leader for instance), such that the principle officers of the Party have unlimited personal liability for the debts of the Party; the Party as such doesn't have many assets but does owe much.

    Now, were I a banker owed that much money, I'd want to milk the Labour Party for exactly as much money as I could get without the danger of losing my shirt. Long-term, I would not be prepared to risk sitting on the debt and waiting ages for repayment, especially not with the likelihood of high interest rates to come. No, I'd wait until the election results were near-certain then if Labour looked to be losing I'd call in all the debts, bankrupt the Party and go on to bankrupt the principle officers (an unlikely scenario-ed)

    This is no doubt what they can look forward to. This is why, even as nobody likes Gordon one little bit, nobody is prepared to depose him since to do so means an early election followed by defeat and personal financial ruin. Gordon likely knows this in some dim, distant way (his (wellbeing-ed) is rumoured to depend mostly on the pharmacological genius of several eminent physicians), hence he knows he will not be toppled until election day, which I predict will come as late as legally possible, and will lead to the effective end of the Labour Party.

  10. Adrian Peirson
    Posted January 12, 2010 at 9:22 am | Permalink

    The Time is Now Generals, all we need do is coin our own money, the shackles round the necks of Industrious and Inventive Imaginative Brits are off, Britain becomes Great Britain once more, Other peoples demand the same, the NWO collapses and humanity gets back on the correct path, Trade, and friendship with Sovereign nations, Tourism, Science, Artistry.

    Or we can continue as we are.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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