The Conservative party presided over membership of the Exchange Rate Mechanism which caused a damaging recession. This policy was recommended by Labour, the Lib Dems and the CBI, but it was a Conservative government that wrongly undertook it. Once the damage it had done was clear the Conservatives slumped in the polls to around 30% and were unable to win a General election for the ensuing 18 years. Many other issues were blamed for Conservatives lack of success in subsequent elections, but it was the economic mistake which did the damage and which the Conservatives fought to overcome without success until 2015.People were still raising the issue of the high interest rates the ERM caused on the doorsteps in 2005 and 2010. What most people want from a government is policies that allow or assist rising living standards for them and their families.
Labour presided over the banking crash and large slump which followed in 2007-10. Conservatives and Lib Dems had warned against the excessive build up in credit prior to the crash. Labour so far has been out of office for 5 years since the catastrophe, which caused a bigger and deeper recession than the ERM. Labour needs to re-examine how and why it got it wrong in 2005-10 and show it has learnt the right lessons from that experience. Voters will still be raising with them the Great Recession of 2008-9 in 2020, just as they did in 2015.
History suggests the main opposition party only gets another chance to govern when the party in government damages the economy sufficiently, as Labour did in 1968-70 (devaluation crisis), Conservatives in 1974 (coal strike crisis), Labour in 1979 (winter of discontent following trip to IMF and recession), Conservatives in 1997 (Exchange Rate Mechanism recession of early 90s) and Labour in 2010 (Great recession and banking crash).
An opposition party can reduce its problem and get closer to power by making the right apology for past mistakes and showing it has learned from the bitter experience. The narrower the gap, the smaller the error of the government before the Opposition has a real chance of winning. Claiming the crash of 2007-10 was all the fault of the bankers, or that it was an international crash which the UK government could not avoid is not going to wash. The Conservatives rightly could not get away with saying the ERM was a multi party and establishment policy so they should not be uniquely blamed for it. If something happens when you are in government the public rightly expects you to take action to stop it or alleviate it. In the case of the economy voters know that there are external events that you cannot avoid, but they also know that a government has plenty of powers that can make a difference. In the case of rigging the exchange rate or failing to regulate banks properly, they know those were bad decisions by incumbent governments.
Labour needs to accept that
1. It spent and borrowed too much in the public sector prior to the crash, with PFI and other off balance sheet financings adding to the excess borrowing (e.g. Network Rail).
2. It set up a new system of financial regulation in 1997 which failed to rein in excessive credit prior to 2007, so both public and private sectors were borrowing too much.
3. It then with its regulators made the worse error of revealing the weakness of the banks without helping them fix their illiquidity, bringing the whole banking system close to collapse. It should have held secret talks to get the banks to recapitalise themselves, whilst supplying short term loans against security.
4. Only after it had damaged the banks did it make the liquidity available that the banks needed.
5. It wrongly invested in RBS at too high a share price without demanding the changes and reforms needed.
Once it has understood that far from “saving the world” Labour compounded its errors it can get on with thinking through a future economic policy that could enhance the prosperity of UK people.
The fact that the USA and parts of the EU made similar errors in regulating banks does mean this was a “global crisis”.The crisis in the UK that was the fault of the UK government and regulators.