Nationalisation was a banned word in the Labour Party in the Blair-Brown years. But when financial markets opened a decade-ago yesterday, great chunks of Britain’s banking system had fallen into the hands of the Government.
Royal Bank of Scotland chief executive Fred Goodwin described events as ‘a drive-by shooting’.
Reality is that there was no other choice. RBS’s Ulster Bank was bleeding deposits and ATMs were just two hours from running out of cash.
Then prime minister Gordon Brown and chancellor Alistair Darling, both Scots, had no choice but to rid themselves of their feted compatriot Goodwin, install turnaround specialist Stephen Hester and calm the panic.
Prime Minister Gordon Brown listens as Chancellor Alistair Darling announces plans to inject up to 50 billion pounds of government money into the country’s banks on October 8 2008
The British approach of injecting government capital into banks was rapidly imitated by the US. It went a step further, forcing all major banks to take government money irrespective of health.
Rescue of Britain’s banks was the first shoe to drop. In a contentious interview in August 2008, Darling correctly warned that the economic times faced ‘are arguably the worst they’ve been in 60 years.
And I think it’s going to be more profound and long-lasting’. Darling was slapped down by his political master for his gloomy views.
Indeed, when I met with Darling during the rescue of the banking system, and suggested in print afterwards we were in for ‘austerity’, it was my turn to be slapped down by Brown’s people.
A decade on, Theresa May also has used the ‘a’ word, declaring in her conference speech that it was time to end austerity.
The extraordinary aspect of all this is that austerity is a word borrowed from the Labour Party and Leftish opposition to Coalition and Tory policies since the financial crisis.
It is more a state of mind than truth. Sure, there have been dramatic cuts in the budgets of Government departments and a near freeze (now lifted) on public sector salaries.
But in the initial deep recession which followed the financial crisis, Britain’s unusually generous social security system worked as it is meant to and the worst of the impact of global meltdown was absorbed.
As a result of quantitative easing, direct assistance to banks and super-low interest rates, Britain was spared the worst.
Flexible labour markets meant that workers – such as those at Honda in Swindon – consented to short-time working rather than lose their jobs.
There are countless surveys by the Resolution Foundation, Institute for Fiscal Studies (IFS) and others showing how households are worse off since the financial crisis.
Growth has been subdued and incomes squeezed, but a rapid rise in employment means the impact of austerity has been much less than Darling may have feared. Funding for the NHS, for instance, has increased in every year since the crisis, if not enough to keep up with demand from an expanding population and rising care costs.
So how will ending austerity be paid for? The IFS insists that tax increases are inevitable.
All kinds of revenue-raising ideas have emerged from the Treasury in recent months, including higher fuel duties (shot down by the PM), cutbacks in tax relief for pensions and freezing of personal allowances.
The facts are that the fiscal deficit has been sharply cut and Government debt is gradually starting to fall as a proportion of total output.
So when the Chancellor delivers his Budget later this month there could be fiscal space – some £20billion on City estimates – to help loosen the strings on public sector pay and deliver on NHS pledges.
The big fiscal unknown is Brexit and the impact on future tax revenues.
But Philip Hammond must recognise in his heart of hearts that people do not vote Tory for higher taxes.
The most encouraging aspect of the Unilever saga was the willingness of Britain’s big battalion investors to express their dissatisfaction early and loudly about the group’s proposed shift to Rotterdam.
What a pity, then, that big investors, including Aviva, Legal & General and M&G, do not speak publicly and noisily on other corporate actions, whether it be the successful bid by predator Melrose for GKN or the indecent pay package for Jeff Fairburn and cohorts at Persimmon.
Until institutions find their public voice, instead of making decisions in smoked-filled rooms, shareholder democracy will be a sham.