as if we were facing a totally new and potentially terrifying set of economic circumstances, there were lessons to learn from history. The Wall Street Crash hadn’t caused the Great Depression, it was the banking crisis that came after it, and the policy response to that crisis, which let bank after bank close, taking with them savings, credit and any chance of recovery.
Those who argued that all we needed was tighter financial controls and more government spending were wrong: this was a monetary crisis, and the most important part of the solution was monetary action: flooding the system with liquidity, preventing the collapse of systemic financial institutions, establishing new sources of finance – government ones, if necessary – to lend money to small businesses now starved of cash.
Confident of this analysis, the third thing we had to do was to be bold. In November 2008, we announced that we would move away from Labour’s spending plans. Championing prudence was particularly brave at a time when the whole world was fixated on a Keynesian ‘spend, spend, spend’ solution to the crash. But we genuinely believed that the government’s fiscal position was so precarious that it could not afford to go beyond the ‘automatic stabilisers’ of higher benefit bills and lower tax receipts that in any event push up the budget deficit when the economy stops growing.
Discretionary increases in government spending and tax cuts were all right for those countries that could afford them; those that couldn’t were playing with fire. So, in another bold step – particularly for a party that prided itself on supporting low taxes – when Labour announced a temporary cut in VAT, we voted against it.
The real boldness, however, was in directly advocating a policy of austerity in terms of cutting government spending for the future. After all, what party goes into a general election talking about cuts? And we were using that crucial word: cuts.
This caused more trouble for Gordon Brown, who, after having mistakenly declared himself to have ended the b-words – boom and bust – simply refused for weeks and weeks to use the c-word.
Some critics say that we were as naïve as Brown – and that we never saw the bust coming. But it was before the crunch and crash that I’d given a speech at KPMG warning about Labour’s unsustainable deficit and debt. We knew their overspending would come to bear on us all. We knew the economy was built on sand. We just didn’t know the meteorite would hit when it did.
Other critics say that we were desperate to cut public spending in order to dismantle public services. Well, since we’d promised in 2007 to match Labour’s spending plans, clearly that wasn’t the case. The reality was, in the phrase George coined and then made famous through endless repetition, they hadn’t fixed the roof when the sun was shining.
The reason for cutting was therefore the total opposite. It was to save public services. The greater the debt, the more money we would be spending on repayments. The weaker the economy, the less to spend on public services. We saw this clear as day, and I suspected that working people would see it too. They knew the UK hadn’t been living within its means, and that that needed to change.
We were making some tangible policies in order to prevent such a situation occurring ever again. That included another bold step, which was to give away a power that chancellors had long held.
I had some experience of the stringency with which annual accounts and results were published when I worked at Carlton. Lawyers and auditors would pore over every word to check for accuracy. But that was business. In politics, it seemed to be totally different. It was up to the Treasury to predict future growth on which its spending plans would be based. That gave it the opportunity to manipulate the growth forecasts and fiddle tax receipts, which Labour took full advantage of.
Gordon Brown and Alistair Darling’s forecasts became works of fiction. At every Budget and Pre-Budget Report they would become increasingly optimistic. When better estimates or true figures emerged, there were wild disparities. George and I proposed that an independent Office for Budget Responsibility (OBR) should make those predictions instead. Of course it wasn’t easy for anyone to guess how much the economy would grow (or, at this point, contract). But by removing the potential for bias, we could prevent figures being massaged to justify spending increases our country couldn’t afford.
That Christmas of 2008, shops like Woolworths and MFI were disappearing from our high streets. The New Year, 2009, brought confirmation of Britain’s first recession since 1991. What concerned people wasn’t just how the deficit would affect them today. It was how this ‘spend today, pay tomorrow’ culture was saddling the next generation with debt. How wrong it was – morally – to make our children pay for our excesses. This was perfectly captured in our poster that January – a picture of a baby with the line: ‘Dad’s nose. Mum’s eyes. Gordon Brown’s debt.’
Brown’s favourite insult to hurl at me was ‘This is no time for a novice.’ I worried deeply that, at this time of great financial turbulence, it would become especially potent. After all, George and I had never held ministerial office. And we did make mistakes.
But we had carefully thought out our strategy. We stuck to our instincts – instincts we believed the public would share – that a crisis caused by recklessness and secrecy should be met with prudence and honesty. And we ended the period with more people trusting us than the government on the crucial issue of managing the economy – the first time we had had a consistent lead over Labour since the 1990s.
But the second meteorite was about to hit.
Great political controversies tend to drive us all to think in simple headlines. This one seemed like a straightforward story: brave campaigner sets out on a mission to unearth grave wrongdoing; Parliament resists releasing information it ought to; the information comes out anyway, and it reveals appalling practices, illegality and corruption.
All those things are true of the expenses scandal, but the full truth is more complex. And I didn’t just have a front-row seat, I was on the judge’s bench – and in the dock myself. And what I saw from that unique position was, yes, wrongdoing that needed unearthing, but also unfairness, heartbreak and lots and lots of grey areas.
The context was this. MPs were entitled to claim an ‘Additional Cost Allowance’ (ACA) of up to £24,000 per year for running a second home, because they have to be based in Westminster for part of the week and in their constituency for the rest of it. There was also £22,000 of ‘Incidental Expenses Provision’ for office expenses, over and above the salaries for staff. Rules about employing relatives as members of staff were virtually non-existent.
The ACA in particular was treated by many as if it should be claimed automatically. Over many years the salaries of MPs had been held back – usually for political reasons – and their allowances increased instead. Often, MPs would just send a load of receipts in to the Commons Fees Office and let them decide what household expenditures or repairs should qualify.
Our party had a taste of what was coming when it was revealed that there was little evidence of what MP Derek Conway’s researcher, his son, had done to earn the thousands of pounds he’d received at the taxpayer’s expense.
Labour experienced its own preview of the scandal when some receipts for which home secretary Jacqui Smith had been reimbursed were published. They included two pay-per-view pornographic films, which her husband soon owned up to.
I knew I had to act fast. I made sure all our MPs filled out a ‘Right to Know’ form that provided the basic details of their expenses claim and whether they employed any relatives. These would be made public.
Labour’s reaction was to continue to attempt to keep the problem under wraps. Leader of the House of Commons Harriet Harman wanted the House to vote to ensure that MPs’ expenses were exempt from the Freedom of Information Act. But it was too late. The Daily Telegraph bought a stolen disc with every MP’s expenses claims set out in full, receipts and all. Day after day it published the details. Determined to remain ahead of the game, I called a press conference at the St Stephen’s Club. My response included an apology and a roadmap – and I didn’t conceal my anger about what had been going on: ‘Politicians