Back to the 1970s – Darling talks instead of acting

The Chancellor is now ransacking the files of the 1970s as he seeks to curb an inflation his predecessor and the monetary authorities allowed to get a good hold through their easy money policies of a year or so ago.

He seems to believe that lectures to groups of people will work. This week he is applying his time to lecturing the energy companies to keep the price of electricity and gas down. Has he noticed the international price of oil has just surged to a new high? Will he, like King Canute, signal to the oil market that it must recede? If he managed to hit it just as the tide was turning, he could look quite clever to the uninitiated.

Meanwhile, his mentor next door is busy lecturing MPs to vote down the independent pay award recommendation (whatever that may be), so that MPs can show solidarity with the police, whose independent pay award has been docked by the government. The Prime Minister may at last have found a popular cause with the public, but it is difficult to believe the odd percent off MPs pay will transform the inflationary problem the government faces.

You might have thought Mr Darling would be fed up with lecturing people, after his disastrous lecture on the need for bank to become more prudent without government or Bank of England intervention and assistance, just before he offered the most comprehensive assistance to banks and markets during the Northern Rock crisis.
This latest round of arguing against the energy price and pay inflation is like arguing against the weather. This inflation was made some time ago. It is not going to persist in a year or sos time, given the dreadful credit crunch we are now living through in money markets. Timing is everything.

In the 1970s a previous Labour government used to lecture everyone on how much they could earn and what they could charge for things they sold. The pay and prices policies they developed of course failed to contain inflation, and became extremely unpopular. They overspent, overborrowed and wasted money as a government, and failed to keep proper control of the money supply.

There are some worrying similarities in outlook between Labour Chancellors then and Mr Darling now. The good news is the international background is much less inflationary today, and the credit crunch means inflation is not the true enemy looking beyond the next few months. The bad news is Mr Darling does think his lectures will make a difference, at a time when he should be concentrating on getting the credit and banking markets functioning properly again. His two tasks for this week should be

1. Find a solution for Northern Rock which stops the taxpayer funding increases
2. Start controlling public spending ?? he could place strong controls to prevent recruiting extra people to the public sector other than front line people like nurses and teachers, and back that up with a moratorium on management consultancies and IT projects without very thorough examination of why they were needed

Unfortunately we have a Chancellor who sees his role as being part of the media commentary on the situation, instead of the key player trying to lift a losing team.


  1. Brian Tomkinson
    January 7, 2008

    Whilst sharing your views of the alarming similarities between this Labour government and that of the 1970s, I am far less sanguine about the inflationary threats facing us. Perhaps you would elaborate on your statement that “The international background is much less inflationary today”. In some ways it could be said to be worse. Does anyone really believe any of the inflation indices, which have been concocted to present a confusing picture and thereby deceive people? This year will see mounting pressure for wages and salary settlements above whatever inflation figure is chosen. This country’s economy is, sadly, heading right back to where it was before Margaret Thatcher was elected in 1979, when she began the slow and painful process of putting it onto a sound basis.

    Reply: We agree that in the short term food and energy prices will move inflaiton upwards. We all tend to see the high inflation in purchases which we have to make – petrol, heating oil or gas, Council Tax – and discoutn the lower prices available for discretionary tiems. I still think inflation will drop in a few months time after an uncomfortable winter.

  2. Bazman
    January 7, 2008

    Arguing against Rip-off energy companies all in an unofficial cartel is hardly arguing against the weather. The price of oil is a red herring. The ‘market’ does what it can get away with. I saw this one coming and went for a deal offering a price fix until 2008 in November. ‘Fix’ sounded about right.

  3. mikestallard
    January 7, 2008

    It seems to me to be obvious that the Bank of England is the right organisation to deal with banking. It knows, after hundreds of years' experience, what to do in a crisis. People know they can talk in confidence to the Governor without it going any further. Also they know that he will do everything in his power to keep the banking system afloat. He is, moreover, right there in the thick of it, easily available.
    Not one of these things is true of either the Chancellor of the FSA.

    Secondly, why is inflation bad? It is awful for OAPs like me. But it is excellent for the economy as prices abroad slump. And it is excellent for home owners and buyers too as their properties become a really good investment. Inflation figures have been fiddled – we all know that (2.1%!!!) and people like MPs are having to bargain to keep up.
    But, why not? Swings and roundabouts.

  4. Steven Baker
    January 8, 2008

    I'd like to agree with Mike. A novice regulator has been allowed to "improve" – for which read "tinker with and clumsily centralise" – the regulatory regime in a period of grotesquely easy lending, which – amazingly! – has led to large but ill-defined risks to the economy.

    I blogged on the subject of the FSA's inadequacy in November 2006. I wish I had been wrong:

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