Interview: Alistair Darling

Alistair Darling was Chancellor when the global banking crisis took hold

By EDDIE BARNES
Published on Sunday 19 February 2012 00:00

IN AN exclusive interview Alistair Darling gives his prognosis on the EU crisis, and why the UK is so much stronger together

ALISTAIR Darling will never be short of dinner party stories. Like the time, at an EU meeting in Luxembourg in October 2008 when the chairman of RBS, Sir Tom McKillop, came on the phone to announce the bank was about to go under.

“I knew the bank was in trouble,” says Darling last week, recalling that black day. “Our plan was almost ready, but not quite, and I needed a couple of days.” Darling answered McKillop’s call. “I said to him, how long can you last? I assumed he would say maybe two or three days. What he said was maybe two or three hours.” In other words, there were maybe 120 minutes before RBS holes-in-the-wall ran dry.

In September, the previous year, Darling had watched as Northern Rock had similarly collapsed, prompting savers to queue round the block to get their money out. That was for a regional Newcastle bank. This was RBS, at one stage the biggest bank on the planet. “I just thought, if they close the doors and the machines go off, what on earth is going to happen? You can imagine if you had your money in Barclays or the Bank of Scotland, you’d be down there like a shot trying to get it out. This time they wouldn’t be standing in a nice sunny September afternoon, people would have been panicking.”

He goes on: “I put the phone down. I told my private secretary to tell Nick Macpherson [the Treasury’s permanent secretary] to tell Mervyn King [governor of the Bank of England] to do whatever he could to keep this bank going till the end of the day. Mervyn was very happy to do it. But what he said to me was: ‘And you’re behind it, aren’t you?’ ”

The point was, the governor wanted to know that the UK Government, with the heft of the British economy behind it, was underwriting the decision. Darling said yes. “Basically Mervyn then pumped money into RBS to keep it going until 5pm and was also able to pick up the phone to Ben Bernanke [chairman of the US Federal Reserve], asking him to keep it going for the American day’s trading. The Fed was happy to do that.” The clout of the UK was crucial, he insists. “It was one big country with a central bank talking to another big country with a central bank. Hopefully you don’t have do it every day of the week, but it’s just knowing that you have that strength behind you, that you can pick up a phone and say the UK Government is standing behind this, no questions.” Had it been Ireland, he asks, who knows?

Darling was at home in Edinburgh last week as David Cameron came up to the capital, effectively to launch the pro-Union campaign ahead of Scotland’s independence referendum. In a realistic assessment of the politics of the country, the Prime Minister said he hoped Darling, Gordon Brown and other Labour figures such as John Reid would soon be on the campaign platform beside him. The latter pair have been conspicuous by their silence in recent months. By contrast, Darling – who emerged from the wreckage of the last Labour government with his reputation enhanced – has remained in the public eye. A highly readable memoir of his turbulent time at No 11 is soon out in paperback (a picture of a grumpy-looking Darling on the front comes from an interview he did for GQ with Piers Morgan – perhaps explaining the lack of a smile). Vastly experienced, but still in the prime of his political life, he is increasingly seen as the Scottish politician best equipped to provide an authoritative case for the Union in the face of the SNP’s continuing dominance. He is one of the few Scottish politicians who, as the story above shows, can argue the case for the UK from the point of view of a man who has been there and done it.

With the UK Budget due in a few weeks, this was, from 2008 to 2010, Darling’s busiest time of the year. This year, however, he has had the time to enjoy reading ‘Keynes Hayek’, the new best-selling account of the clash between the two great economists of the 1930s when the West last faced economic Armageddon. Darling (“I’m an unashamed Keynesian”) sees enormous parallels between then and now. “Unless Governments do something to stimulate their economies then I see a long period of stagnation,” he says. Growth is already at zero in the UK. Darling says that Treasury officials will now be telling Chancellor George Osborne that he does have room to loosen the purse strings – and that he needs to act on the growth deficit. If he were there, he says, he’d pile cash into housing, energy, a tax break for the “squeezed middle”, and a massive effort to cut youth unemployment. Osborne, however, has “rather painted himself into a corner”, by insisting “there is no alternative”. With classic Darlingesque dry-ness, he adds: “He should maybe take a lesson out of Margaret Thatcher’s book. She was far more flexible than “the Iron Lady” suggests. She always knew when to back off and she did back off.”

Not that it’s all Osborne’s fault, he says. The Eurozone crisis is more than half of it. His assessment of the Greek crisis is astonishingly frank. “The policy they [European leaders] are pursuing towards Greece is sheer lunacy. Nobody actually believes it will work privately, if you speak to people.” Even if everything worked, he notes that Greece would still have debts worth 120 per cent of its national income. “It will still leave the country so indebted and so crippled that it will never pay its way. Frankly, the solution is that it is going to default and the only question in my mind is does it do it in an orderly way, or does it do it in a disorderly way.” Of course the Greeks have fiddled their books and leaders such as Germany’s Angela Merkel have every right to be angry. “I understand all that, but I think to visit on a country like Greece frankly something that would have been worthy of the Treaty of Versailles is absolutely ludicrous. It just isn’t going to work. And the risk is, of course, that if something goes wrong in Greece, then it spreads around the rest of the Mediterranean and Ireland.”

He adds: “You have to say this country is bust, and rather like a bust company, what do you to sort it out? They are going to have to do that sooner or later. Every fix they have come up with has fallen apart and it has begun to fall apart more regularly now – it used to be several months before the next crisis, but it is now on a more regular basis. The policy of austerity alone is never going to sort out Europe’s problems. Europe’s growth has stalled.”

This from the man once crowned Britain’s most boring politician. Free from the shackles of office, that title – if it were ever true – is most certainly redundant now. On Scotland, he is equally forthright. As we report today, Darling uses this interview to declare he backs a Scottish Parliament with stronger powers over taxation than it has at present. Like David Cameron he believes this can only be approached in detail after Scots have said no to independence. “There’s no point spending an awful lot of effort if the whole thing is redundant. If Scots vote to leave the UK then there is no point in discussing how to improve devolution,” he declares. He says he would share a platform with the Prime Minister – and also says he liked his speech in Edinburgh last week. Unlike Cameron, however, Darling both commits himself in principle to more tax powers at Holyrood, and suggests what they might be. “Income tax is easier because it is easy to identify and the Revenue knows who Scottish taxpayers are. It would be relatively easy to implement,” he says. He does not, however, have the precise detail to hand – that, he argues, is for later.

Now it is decision time on continued membership of the UK. “If you want to get on to further devolution more quickly then why don’t we have the referendum more quickly? Why not next year?” He mocks Salmond’s 2014 timetable. “I’ve never heard the battle cry; what do we want? Independence. When do we want it? Not yet. It is a ludicrous position to take.” And on the substance of independence too, he opens a new line of attack. SNP Finance Secretary John Swinney has declared Scotland would keep the pound after independence, and has also said he would, in such a case, provide reassurance about his spending levels by having “a dialogue” with the Bank of England. He wouldn’t, however, check first with the UK Treasury. That position is unsustainable, says Darling. He claims the UK Chancellor would unquestionably want to have a say in Scotland’s plans.

He refers again to the 2008 crisis with RBS. “The Bank of England has very little money of its own, it doesn’t actually need it,” he notes. So when RBS got into trouble, the Bank was only able to provide back-up because “the UK Government was underwriting it”. He adds: “I had to authorise the Bank basically to do whatever it took. I was betting the entire UK economy on it.” Given its role as the backer behind the bank, the UK Treasury would therefore want to cast a beady eye over the Scottish Government’s books. “You’re going cap in hand,” he adds. “They are breaking free only to tie themselves up again.”

Labour has a lot of ground to pick up on the SNP, Darling acknowledges. The party lost last year “because we fought a bad election campaign and because people felt we had nothing new to say”. He says people thought Labour “deserved a good kicking”. He also believes the party can take a leaf out of the Conservative book by creating an A-list of candidates for Holyrood next time round. Isn’t that a major factor in the party’s slump – the fact that big-hitters like him take the shuttle to London every week, leaving the path clear for the SNP? “I accept that one of our failings is the perception that we have sent lots of people down to Westminster.” Darling says carefully. He adds that, as a Westminster politician, he could not lead a pro-Union campaign, but that he does expect to play “a major role”.

The emergence of a cross-party pro-Union campaign to take on the case for independence is expected within the next few weeks – although this holding line has now been the position for several months. There is no doubt that the SNP has a head start on the pro-union camp. But Darling appears to be relishing the contest. “I’ve been in politics since the mid 1970s and Scottish constitutional politics has dominated all that time [in Scotland] to the exclusion of all else.” Finally, it looks set to be settled. He goes on: “The issue now is: are we staying in the UK or are we not?”

Eddie Barnes: George’s cross to bear

As the Tory conference begins, can Osborne remain resolute on the economy while all around are urging change?

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Darkest day for Scottish banking as the Bank of Scotland faces its end

FOR Scotland's oldest bank, it was the suddenness of its rout that stunned. That and the silence at the top. That and the invisibility of leadership. That and the short-selling frenzy that descended on HBOS shares yesterday, like vultures on a corpse.

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Alicia Murray

Sunday, February 26, 2012 at 10:55 AM

This is just another millionaire Scottish politician wanting to keep his nose in the trough. Vote yes in 2014.

Interview: Alistair Darling

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