Leader: Darling's candour highlights leadership woes

Published on Sunday 31 August 2008 20:07

WAS Alistair Darling quoted out of context in his reference to the worst economic crisis in 60 years? If so, he has only himself to blame. The Chancellor's weekend press interview was much more unguarded than his normal tight-lipped approach to the media, with references to voters being "p****d off" by Labour's handling of the economy, and even an uncharacteristic sly aside about Wendy Alexander. Readers of Mr Darling's interview might conclude that he was letting off steam

As to the substance of his remarks about the economy, Mr Darling says he was referring not to the gravity of the threats posed – the credit crunch combined with commodity price inflation – but to their immediate impact. Clearly, the current extent of unemployment and contraction of output in the UK is – so far – nowhere near as bad as it was between the wars, or even following the oil price shock of 1973.

Yet it is equally clear that the extent of the crisis for ordinary people is much worse than official figures suggest. RPI inflation is running at an average of 5 per cent. But the cost of food, energy and basic household items that must be bought on a weekly basis is accelerating much faster – with electricity and gas bills projected to rise even faster over the winter period. The catastrophic fall in the value of the pound – eight per cent last month – will add to inflation worries.

At the same time, rising unemployment is being disguised by the exit of immigrant workers to their home countries and by many out-of-work professionals (particularly in the construction industry) registering as "self-employed" rather than claiming benefit. Today, figures are published showing that orders in Scottish manufacturing are falling for the first time in five years.

This week, the government is expected to announce a package of measures designed to help families with rising energy bills and to shore up the housing market. However, such action in Britain comes a full six months after the US administration made similar moves, giving US consumers 80 billion in tax rebates to boost consumption.

It is known that there has been friction between Downing Street and the Treasury over the scope of any stimulus package in Britain, as government borrowing has soared to near record levels. It is increasingly difficult to work out who is in charge of the economy – Mr Darling or the Prime Minister.

Also this week, the Bank of England will be considering interest rates. With the economy slowing fast, the case for a cut in interest rates has strengthened significantly. The markets already expect a cut sometime in the near future, so there is a strong argument for doing it now and boosting consumer and business confidence. Such a move would be a lot easier if Mr Brown and Mr Darling were leading from the front.