Northern Rock: is Gordon or Dave faring worst?

Much of the comment Lib Dem Voice has featured on Northern Rock has centred – understandably – on Vince Cable’s sure-footed performance as the party’s shadow chancellor. Vince was, we all know, the first to warn of the impending credit crunch, and the first to advocate temporary nationalisation of Northern Rock as the least worst way to protect the taxpayers’ interest. As a result, we Lib Dems find ourselves in the unusual position of developing a reputation for economic credibility with the media and public.

But it’s just as interesting to analyse how the other two parties are weathering the Northern Rock crisis. The assumption has been made by some that the current economic turmoil will be bad for Labour: they will carry the can, just as the Tories never recovered from the UK’s ejection from the ERM in 1992. David Cameron and George Osbourne were especially virulent at their press conference this week, tainting Alastair Darling as a “dead man walking”, and arguing that Labour was taking Britain back to the 1970s.

The hyperbole was misjudged, as even Conservative Home admits – especially as the Tories have struggled to come up with a coherent alternative to Labour’s messy approach. None of this is likely to affect the Tories’ opinion poll ratings – presumably they’ll reap some benefit of whatever popularity dip the Government suffers – but it does little to convince either opinion formers or the electorate that Messrs Cameron and Osbourne would prove any more competent then Brown and Darling when facing an economic crisis in the future.

So is the Government off the hook? Well, maybe. That’s certainly the spin that’s being put on today’s Economist/YouGov poll, which shows “only” 5% of the public holding Labour most accountable for Northern Rock’s woes. (Though how even 5% can blame Labour ahead of the bank’s reckless management is a complete mystery to me.)

The parallel between Northern Rock and the ERM has often been drawn. In many ways it’s false. Anyone who had either a mortgage or savings was affected by the Major Government’s hiking of interest rates to maintain the value of sterling. Only the employees of and investors with Northern Rock are directly affected by its collapse. Unsurprisingly, then, the Northern Rock debacle has had a much lesser impact on the general public.

But there is one parallel which is, I think, fair. The Tory vote did not collapse immediately after the humiliation of withdrawal from the ERM. The seven polls taken in the month after ‘Black Wednesday’ (16th September, 1992) all showed the Tories’ support between 37% and 39% – behind Labour, who had also advocated ERM membership, but not by much. The Germans and currency speculators reaped much of the blame for sterling’s forced exit, rather than the Government. The Tories’ troubles really started to mount with Michael Heseltine’s bungled pits closure announcement, the Maastricht Treaty saga, the ‘back to basics’ sleaze coverage, VAT on fuel, etc, etc.

Although ‘Black Wednesday’ became the iconic moment when the Tories’ long-held reputation for being trustworthy stewards of the economy evaporated, it was the permanent air of crisis which enveloped the Major administration which ultimately did for it.

Northern Rock will not, on its own, seal Labour’s fate. What will capsize Mr Brown’s premiership is if the poor handling of Northern Rock becomes an emblem of Labour’s wider failings.

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This entry was posted in Op-eds.


  • Typically astute analysis, Stephen. Not the least of those wider failings is the fact that the government is running a deficit of more than 3% of GDP going into a downturn, after 15 years of uninterrupted economic growth… This is one of the largest deficits in the developed world, and whereas most countries have used the years of plenty to pay down debt and consolidate their fiscal positions, Brown has done the opposite. At the moment only economists are really fretting about this, but the figures could get ugly very quickly – between 1989 and 1992, a surplus of roughly 1.5% of GDP plummeted into a deficit of 7% and necessitated big tax increases and spending austerity.

  • Of course, a more frugal approach to government spending would be no bad thing – but it should be through a conscious effort to control spending, root out waste and focus on key priorities, rather than in response to a cash crisis created through the lack of that discipline.

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