Tuesday, September 02, 2008 

New Labour's "Black Wednesday"?

It's probably an exaggeration to suggest that today's events could well be New Labour's Black Wednesday, as by no means is the OECD's forecast that Britain will slip into recession over the next two quarters akin to the catharsis which was the swift exit of the pound from the European exchange rate mechanism. It is however most certainly something resembling a turning point: an international organisation with a reputation beyond normal pundits predicting that the UK economy is heading for a recession. Again, this wouldn't be so damaging if it wasn't for two reasons: firstly that New Labour's message ever since the so-called credit crunch started biting in August of last year has been that the UK is "uniquely placed to weather the financial storm", or statements to that effect, and secondly that none of the other G7 nations are as yet likely to go into recession, or at least so quickly.

We can perhaps soften the blow of this slightly by pointing out that the OECD report (PDF) notes that the economies of Japan, Germany, France and Italy all contracted in the second quarter of this year, and that the OECD still predicts that this year's growth will be 1.2%, with only the United States and Germany likely to put in a better performance, but none of this will be of any real significance if the OECD prediction becomes reality; we will still be the only country to be by most definitions in recession. Additionally, you can also argue that things really can't get any worse for New Labour itself as a whole: after you're 20 points behind in the polls, it doesn't really make much difference how much larger the gap becomes, because either way there's only one inevitable outcome come polling day.

For Gordon Brown personally however, this furthers throws his leadership into question. All summer long we've been told that the economic re-launch, starting today with the annoucement of the much anticipated stamp duty holiday, would be the beginning of his fight back, with presumably the attempted stabilising of the house market to be followed by measures aimed at insulating lower income families from the massive rises in the costs of fuel. Instead what we've witnessed over the past four days has been the Alastair Darling show, with quite possibly the most boring man in politics coming out of his shell to deliver glad tidings of the doom to come. On one level, you have to admire his decision to invite a hack to stay with him while he holidayed on a Scottish island, having formerly eschewed interviews almost entirely. His answers to the questions posed by the Grauniad's Decca Aitkenhead were surprising because he didn't cloak them in the usual familiar way of suggesting that the glass is both half full and half empty at the exact same time. No, we were facing possibly the worst economic conditions in 60 years, the voters were pissed off with them, and he was hardly effusive about the Supreme Leader himself either.

Even if you accept that Darling's words were somewhat mangled by the Grauniad, when what he actually said was that the world economic conditions were the worst for 60 years, something not quite as lacking in rigour or reality as us personally in the worst condition for 60 years, and that instantly also means that what he said was no different from what other politicians from Labour have also stated, it's still caused a predictable storm that Darling himself has had to attempt to calm. He, rather than Brown has had to go in for the masochistic strategy of facing the press. It also somewhat tempers what would otherwise have been something else to admire: a politician being frank with the public, which the current poll on CiF has 82% backing for. Instead, he's been damned and blamed for yesterday's slump on sterling and for jittering the markets, as if the markets need the excuse of someone not talking out of their hat for panicking, something they habitually do at the slightest sign of trouble.

Indeed, it would be remiss not to highlight the media's own role in this whole sorry economic saga. The same newspapers which have so encouraged the house price bubble while at the same time permanently predicting impending doom were the ones crying loudest for a stamp duty holiday, possibly one of the most ineffective measures out for stabilising the market. As soon as the government let it be known that it was considering that exact thing, the media started the hue and the cry that this was further undermining the market by not doing it straight away and so putting off sellers from going through while they waited to see what would happen. Now that the holiday has duly been announced, they'll doubtless say that it either isn't enough or that it's a stop-gap measure which will do nothing more than create yet another temporary bubble.

Today's measures are of course exactly that. They're government doing something to be seen to be doing something, because something must be done. At the very most the holiday will save someone £1,750. A sum not to be sniffed at it, it must be said, and I'd be happy to have that sort of money sitting in my bank account; when however you are buying a house that costs £175,000, that sort of sum looks like chickenfeed, which it comparatively is. Nationwide's last survey of the housing market said that the average house price had fallen by nearly £5,000 in just a month. As the holiday is supposedly aimed at the less well-off and the first time buyers, it makes far more sense to wait until the market finally comes back to some sort of equilibrium, rather than rush in because the chancellor's promised that you'll save £1,750 if you buy now. The only people who are going to benefit then are those who have no choice but to move now.

At the heart of all this quite obviously is that the whole economic boom which we've so enjoyed for the last 14 or so years has been based on the housing bubble. For all the talk of creating a skills and knowledge economy to replace the manufacturing one which we've abandoned or increasingly disowned, what's really been driving wealth creation has been the home-owning obsession, leading directly to the sub-prime crisis driven by the lunacy of the likes of the over 100% mortgages. The popping of the bubble is the only way in which we might come back to some sort of sanity, which is exactly why we ought not to be interfering any further in the housing market at all. The long-needed adjustment which is now taking place will in fact be far less painful and extended if we leave it to pan out of its own accord. The real story ought to be that for all the increase in the top grades in both GCSEs and A-levels, still almost 50% of those at 16 are not getting 5 decent grades at GCSE, despite, or perhaps because of the incessant meddling with the school system. The academies which all three political parties now apparently support are despite all their extra money, emphasis on selection and differences in behaviour and ethos policies failing to do significantly better than the schools they replaced, and in some cases they're even doing worse. That's the real failure to prepare for the future which ought to be getting the attention, not on the spending policies which the Tories either failed to oppose or which they can't say how they would have handled differently.

It's still impossible to know whether Brown will see out the end of the year, or even potentially the end of next month as Labour leader, but today has certainly put yet another nail in both his and his party's coffin. Whether it will come to be seen as New Labour's Black Wednesday moment also remains to be seen, but for the former chancellor to be shown to be so decidedly humiliated whilst his own chancellor is in the spotlight may well be the final straw that broke the camel's back.

Slight addendum: I ought to have said that it's obviously not an exact analogy to Black Wednesday in that it doesn't expose government incompetence, rather that it's the exposing of a government's insistence that everything is going to be alright, honest. The difficulty as always is in finding the balance between talking up the the situation when all is apparently not well and in going over the top in Cassandra-like bleakness for the future. New Labour most certainly has not found that balance.

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