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The explosive reaction from 10 Downing Street could probably be heard from the Isle of Lewis. Mr Brown’s line that the British economy is ‘resilient’ had been flatly and convincingly contradicted by his Chancellor. Yet what is most intriguing is that this is no personality clash, but an institutional rift. The Treasury is fed up with being ordered to rewrite tax policy by Number 10 every few months. Through Mr Darling, it is fighting back by laying out a few simple but devastating truths.
This week’s chaotic stamp duty move — lifting the starting rate to £175,000 — perfectly encapsulates the rift between Number 10 and the Treasury. ‘If you’re going to announce anything in the housing market, you don’t do it in the middle of August,’ Mr Darling said in his croft. ‘It’s just a silly time to do it.’ So we can imagine how delighted he was to be made to announce the move on 2 September. But at least we know this is not his idea: it is the First Lord of the Treasury ordering yet another tax change in time for Labour party conference rather than waiting, as he should, for the Pre-Budget Report.
One can always tell when Mr Darling is being forced in front of the cameras to say words put into his mouth by Number 10. He keeps on repeating the same soundbites, making it look more like a hostage statement than a television interview. When he said this week that he would ‘support people’ by lifting the stamp duty threshold, he will have known that this insults the public’s intelligence. No first-time buyer would be ‘supported’ by being lured into a crashing property market.
In fact, it is hard to think of a worse use of the £1.6 billion which Mr Brown’s housing support package would cost. That he is trying to buck the crashing market at all gives a worrying insight into his psyche. The housing bubble was his horn of plenty, diverting borrowed billions into the Treasury via stamp duty and flushing the high street with borrowed cash from ‘equity withdrawal’. None of this was real money. It was a mirage which has now vanished, leaving a grim reality of repossession, bankruptcy and rising unemployment.
But to see the Prime Minister now promising new, interest-free loans to those on low incomes to help buy a house looks like an act of desperation. It is as if Mr Brown cannot accept this housing bubble is over, and is trying to bring it back to life — borrowing from the City so he can encourage the public to borrow from banks and engage in property speculation. He is behaving like a wedding guest offering around whisky the morning after. Just as one cannot drink a hangover away, one cannot borrow one’s way out of debt.
The Treasury knows this, which is why Mr Darling was so reluctant to announce such a futile and obviously doomed gesture. Its main concern is mounting debt. Mr Brown is again in denial, saying debt is — by his measurement — less than 40 per cent of GDP. But add in the debt concealed in the PFI deals and public-sector pension liabilities and this figure easily rises to 100 per cent. The financial markets see through Mr Brown’s smoke and mirrors, which is why sterling is in freefall.
Mr Darling is an unlikely hero for a Treasury trying to reassert its control over the nation’s finances. Yet he appears to feel safe, as if Mr Brown would not dare reshuffle him. He is now doing a rather wonderful line in veiled threats, making clear he could be a formidable enemy if he chose. Mr Brown and he ‘have many, many conversations — none of which have ever crossed my lips and none of which will’. This is the closest the 54-year-old former Edinburgh barrister comes to saying ‘make my day’.
With David Miliband saying to the Labour party ‘I’m ready to lead’, we now have a fully dysfunctional government and a vacuum where a decisive Prime Minister should be. Some in the Cabinet now believe Mr Brown has no authority to reshuffle at all because, as one member told me, ‘all it takes is for two of us to refuse, and it all unravels’. Yet as long as Mr Darling remains Chancellor, the world will know the Treasury and Number 10 have fundamentally opposing views on the economy. When this happens a void opens up which usually swallows the ruling party.
Yet this has, alas, moved beyond an embarrassment and is starting to hurt the country. The old Seventies City saying — ‘weak government, weak currency’ — is coming into circulation again as overseas investors dump the pound. The cost of this is more inflation and unemployment. Another saying from those days is that all Labour governments end in monster-sized financial crises. Mr Brown had once hoped Britain would forget that maxim. But no matter who he has as his Chancellor, his legacy will be to make it truer than ever before.
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