Yesterday in seven badly chosen words Mr Darling announced the death of New Labour. To many of us it has been a slow and lingering death for some time, but Mr Darling put a stake through its heart.
New Labour was a spin story devised by Mr Blair and Mr Brown in the 1990s to make Labour electable. It said that New Labour would offer economic efficiency allied to social justice. At face value it was a good offer, attractive to many Conservatives. Who doesnâ€™t want economic growth and prosperity, and who doesnâ€™t want that to be used to help the less well off? it sought to banish memories of Labour’s previous economic mismanagements. Every previous Labour period of government had been short, including too much public spending and public borrowing, a balance of payments and a sterling crisis, a devaluation and cuts or slow growth in living standards.
The Conservative Opposition under David Cameron has been doing a good job showing that the social justice side of the offer has not been delivered. New Labour, like Old Labour, thought social justice could be created by taking more money off the richer half of the country to give to people living on benefit. It didnâ€™t work in the 60s or 70s, so there was no reason why it should work in the noughties. Mr Brown thought that the problem in the past had been a shortage of money to do it on a big enough scale, so he simply threw even more money at it. The result was even more people living permanently on benefit. He thought that if he paid benefit to people in work as well as out of work it might tempt more into work, but underestimated how much had to be done to educate, train and motivate the 5 million plus still living on benefit as a way of life. Many people now know that the government has not delivered social justice. The left will urge Mr Brown to do more of the same â€“ spend more money on those on benefits. He will do some of that and it will have the same result as before. He now does it when the puboic accounts are in a dreadful mess. He runs the risk of a government financing crisis to go with the sterling devaluation he has already triggered.The Blairites and modernisers will tell him to look at the detailed work of Iain Duncan Smith and others on how to mend a broken society. He will lift some of their soundbites and back a few pioneer projects, but not on a scale likely to have any impact.
Now Mr Darling has demolished the more important half of the New Labour offer, the promise of economic stability and efficiency. Labour won 3 elections on a few soundbites. Readers of this site will know what I have thought throughout of the spin that Labour made the Bank of England independent and that guaranteed economic stability. Any lingering doubts people had about my analysis must have been cast aside by the convulsions in markets since last August. The bigger soundbite from the point of view of popular impact was the often repeated mantra â€œThere will be no more boom and bustâ€.
â€œNo more boom and bust” was the most effective of all the New Labour songs. It was audacious and all encompassing. It was audacious because it reminded people of the mistakes of the Tory years in 1992-3 when the Exchange Rate Mechanism fell apart, the only Tory economic policy Labour had ever supported and had urged on the then government! Any sensible critic would accept that had Labour been in office then they would have inflicted exactly the same misery on the British public. As one of the few MP critics of the ERM throughout, it was a lonely business when the main Opposition party would not help us expose and fight against it. It was effective, because people wanted assurances that interest rates and house prices would be stable, or not go down.
The soundbite worked brilliantly in 1997, as part of the reason for change. What change did people most want? â€œNo more boom and bustâ€. It worked well again in 2001. After all, leaving aside the disgraceful tax raid on the pension funds and the sale of the gold holdings, most of the period 1997-2001 was characterised by prudent management of public finances and produced a reasonable economic performance. That added some credibility to the slogan. Labour still allowed boom and bust in manufacturing, but that was disguised by the strength of services in general and Londonâ€™s service sector in particular which helped the national figures considerably.
By 2005 it should have been apparent to more commentators that we were back in boom and bust, but because we were enjoying the boom part of the policy too many people were still prepared to ignore the obvious signs. I highlighted the excess and waste in public spending, the build up of far too much public borrowing, and the change in inflation targets to keep interest rates lower than desirable. I also highlighted wrong headed mortgage regulation and the Basel I banking regulations, which became an important part of the disaster.
Mr Darling has told us it cannot work again. Even if his new forecast is too pessimistic, as many private sector commentators imply by their forecasts, we all now know that we have lurched from too much borrowing, too much price inflation, too much house price inflation, to too little growth and to a Credit Crunch. In Mr Darlingâ€™s words we have lurched from pretty good economic conditions to the â€œworst in 60 yearsâ€.
Perhaps he did this with the full knowledge of the Prime Minister, with both men thinking that lowering expectations drastically was the best way to create a new start and to get an audience for whatever actions they will take next. Polls must tell them people did not believe the old spin line about how well placed the UK economy was to weather the US sub prime crisis, as if people would not see the other crisis made here in the UK.If he did, the PM is now offside, and others are at work to undermine the Chancellor in favour of Mr Balls. Perhaps he did it to cut loose from a Prime Minister on the slide, telling us that he the Chancellor recognises that his inheritance from his boss was not all it was cracked up to be at the time.
Either way, it transforms British politics. It now allows us a more honest debate about what went wrong and what needs to be done to put it right, if only the media will start to listen to those voices that have dissented throughout from the nonsensical spin that has prevented proper economic analysis. It will anyway confirm the public view that New Labour is dead â€“ it has delivered neither economic efficiency nor social justice- whatever the media now do.
We do need both social justice and economic efficiency. To achieve them we first need a government which can get a grip on public spending and borrowing, and reform our monetary and banking arrangements, so they will deliver prudence and low inflationary growth in the future. That was what we tried to set out in the Economic Policy Review last autumn, published just before the Rock crisis, written in the expectation that the monetary mismanagement we were witnessing would end in tears.
The idea that the treasury should guarantee and underwrite Â£40 billion of housing values is absurd. Have they learnt nothing from nationalising Northern Rock? The more they spend on such ventures, the more they waste, and the more confidence drains away. IT IS TIME TO STOP DREAMING UP NEW SPENDING PLANS, TIME TO GET A GRIP ON THE STATE BUDGET.There are limits to how much the state can borrow. They are well into the danger zone already.