Saturday, 30 August 2008



Peter Oborne: Recession and the disturbing lesson of history from a Prime Minister in denial 

Last updated at 12:36 AM on 30th August 2008

There have been four serious economic downturns in Britain over the past 100 years. 

The first of these remains stuck in folk memory: the Great Depression of the Thirties, which led to mass unemployment and industrial dereliction. 

World War II was followed by a period of sustained, though jerky, economic growth. 

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Brown and Darling

Out of touch: Brown and Darling refused to accept that Britain is heading for a recession

This came to a grinding halt in the mid-Seventies, when inflation soared to 25 per cent, growth ceased and unemployment increased remorselessly to more than 3 million. 

Mass unemployment and high inflation returned at the start of the Nineties, a problem made much worse by the insane decision, forced on Prime Minister Margaret Thatcher by John Major and Douglas Hurd, to join the Exchange Rate Mechanism. 

Following this week's sobering news that economic growth in Britain has once again ground to a halt, and that the pound has suffered its worst monthly fall since we left the ERM in 1992, it can be stated with reasonable confidence that we are now entering a fourth economic recession, with all that means in terms of sheer, grinding human misery. 

Like each of the last three crises, this one will produce political consequences. 

The catastrophe of 1931 ripped apart Ramsay MacDonald's Labour government, and led to a long split in the Labour movement that was only fully mended with the victory of the Attlee government of 1945. 

Internationally, it is worth remembering, the consequences of economic collapse were graver still: the conditions were created for the rise of fascism and, in due course, the carnage of World War II.

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The recession of the Seventies had less dramatic international repercussions.

Domestically, however, the results were very significant indeed.

Harole Wilson and Jim Callaghan's Labour Party, which at one stage seemed invincible, once again split in two. 

It was destroyed as a national political force, thus creating the conditions for the emergence of Margaret Thatcher, only for another Tory government to be ruined in turn by the economic disaster of the early Nineties. 

So there is only one really big question looming over Westminster this weekend: in what ways will the latest recession reshape British politics? 

The first point to make is our economic predicament can only be utterly disastrous for the personal confidence of the Prime Minister. 

Gordon Brown was one of only a very small group of Chancellors (Nigel Lawson, who bears some of the responsibility for the Nineties recession, was perhaps another) who genuinely believed that they had reinvented the art of economic management. 

In particular, Brown was utterly certain that he had produced a miraculous formula which had brought to an end the economic cycle.

He must have declared hundreds if not thousands of times that, thanks to his policies, there would be 'no more boom and bust'. 

Gordon Brown was not making this claim for mere political effect. He genuinely believed that he had solved a problem that had baffled some of the world's finest minds for centuries. 

Of course we now know that he had done nothing of the sort. As the British people are about to discover to our cost, the economic cycle remains as potent, as unpredictable and potentially as destructive as ever. 

The recession will claim many hundreds of thousands of jobs and send numerous businesses reeling towards bankruptcy before it is done. 

There will a be political cost in all this to the Labour government. Yet the deep personal humiliation for Gordon Brown needs to be taken into account. 

The Prime Minister is a very proud man. But he now needs to come to terms not just with the fact that his legacy as Chancellor is a mess but also  -  just as hurtful  -  that intellectually he got the British economy completely wrong. 

In short, Gordon Brown finds himself in the dire position of a man who every day sees his life's work being destroyed before his eyes. 

The deeply worrying problem is that Mr Brown has yet to admit this. Like many people confronted with a catastrophe or a bereavement (and the destruction of his economic policy, for so long his pride and joy, may have hit him with the full emotional force of a death in the family), Gordon Brown has gone into a state of denial. 

For almost a year now, he has been refusing to accept that the British economy is entering recession. 

This state of denial explains the increasingly bizarre series of economic statements emanating from Downing Street and the Treasury. 

For some months the Prime Minister has been insisting that the British economy is in a fairly decent state and, what is more, in a far better position than other major economies to confront the international economic downturn. 

Everybody in the real world knows that this claim is farcical. Official figures show there are only three countries in the top 50 world economies with more profligate public borrowing policies than Britain: Egypt, Pakistan and Hungary. 

Then there is the matter of the official Treasury economic forecasts, as set out by poor Alistair Darling in his Budget last March. 

According to Darling, the British growth rate was set to fall only slightly this year, before recovering in 2009 and beyond. 

Darling thought that borrowing would not exceed £43 billion, and that inflation and unemployment would remain reasonably stable. Darling's Budget was pure fantasy. 

It showed that the Chancellor had not the faintest idea of what was really happening out there in the British economy. 

Six months on, and annual growth has halted, inflation is approaching 5 per cent, while unemployment is moving upwards in a very menacing way. 

The pound has effectively been devalued against other world currencies, while the housing market is in freefall. 

Nor can Chancellor Alistair Darling plausibly claim that he has been overtaken by events that were impossible to predict at the time. 

All of the factors which have brought about our desperate economic predicament  -  rising oil and commodity prices, the so-called credit crunch, and Britain's chronic over-dependence on government spending and consumer debt  -  were blindingly obvious last spring. I pointed out as much in this column at the time. 

In ordinary life it is normally a purely personal tragedy when an individual cannot come to terms with reality, and retreats into a unreal, private world. 

It matters very much indeed, however, when that individual is the Chancellor of the Exchequer, entrusted with the state of the nation's finances. 

It matters even more when the condition is shared by his next-door neighbour the Prime Minister. 

And yet this is the state of affairs in which Britain finds herself this autumn. The scale of our domestic, economic crisis is becoming ever more apparent on the international stage. 

In a moment of humiliation for the Government, the European Union was obliged to warn Britain over her financial profligacy. 

The EU Commissioner for economic and monetary affairs, Joaquin Almunia, is threatening to set in motion the 'excessive deficit procedure', an EU instrument to discipline extravagant member states. 

More embarrassing still, the International Monetary Fund is starting to take a close interest in the parlous British financial position, just as it did when Denis Healey was Labour Chancellor during the economic crises of the Seventies. 

Back in July the IMF issued a fierce warning to the British government to bring its borrowing under control. 

Brown and Darling have - at least until today's belated acknowledgement from the Chancellor that the economy is facing its worst downturn since the war - been refusing to admit there is a problem.

As evidence of recession mounts, they are nevertheless coming under mounting pressure from their own supporters to reflate the economy with an emergency spending package. 

But that would once again bring international condemnation for spineless financial extravagance. 

It should be noted that Labour governments faced an identical choice between prudence and financial profligacy in the financial crises of the Thirties and Seventies  -  and that each time the argument split the party so badly that it did not return to power for a generation. 

 

The man who really started a revolution 

Yesterday the funeral of the Labour MP Leo Abse took place in St Gabriel's Church in Cwmbran, South Wales. 

I have known Leo's family for more than 30 years, and he was the first politician I came to know at all well. 

I still consider him a model for how an MP should be: decent, cultured, generous, with a fantastically inquiring mind. 

Maybe some of these qualities hampered his career. He never became a minister. 

But his achievement was nonetheless vast, and far more substantial than most Cabinet ministers. 

In the Sixties he piloted through the House of Commons a series of private members' Bills which changed British society for all time: in particular Abse was responsible for the legalisation of homosexuality and the relaxation of Britain's rigid divorce laws. 

Some will disagree, but I believe that Leo Abse left Britain a much more decent and happier society than he found it. I am proud to have known him, and believe that he should rightfully be considered the greatest back-bencher of the 20th century. 

Posted by Britannia Radio at 11:48