Former chancellor admits government lost control for a few days 10 years ago and says people have felt ‘badly treated’ since
The UK would not have voted for Brexit had it not been for the banking crisis that began 10 years ago with the run on Northern Rock, according to the former chancellor Alistair Darling.
Lord Darling admitted the Labour government “lost control” for a few days around this time 10 years ago when customers were queuing outside branches of the lender to withdraw their cash, and said the consequences were still being felt today.
“This financial crisis clearly traumatised a lot of people,” he said. “I think if you look at today’s political situation, you can trace it back to events of 10 years ago, when people’s faith in structures and authority was shaken … A financial crisis became an economic crisis and that economic crisis became deeply political.
“The rhetoric was all about austerity. It’s affected people’s standard of living … People felt, ‘This is not my fault’.”
Darling, who stepped down as a Labour MP ahead of the 2015 general election, said the situation created a “direct line” to Brexit. “I don’t think Brexit would have happened if it hadn’t been for the political and economic events of the preceding 10 years. People were disillusioned. They felt badly treated. They felt squeezed,” he said .
The run on Northern Rock began on 14 September 2007 after the BBC reported that the Newcastle-based lender had received emergency funding from the Bank of England. It was the first run on a high street bank in the UK since Overend & Gurney in the 1860s. After attempts to find a buyer failed, the bank was nationalised in February 2008.
Speaking at on event in London on Wednesday organised by the Resolution Foundation to mark the 10th anniversary of Northern Rock’s collapse, Darling sat alongside Nicky Morgan, the Tory MP and Treasury select committee chair, who said the banking crisis was still raised by voters on the doorstep.
Morgan said constituents would say that if the government could find the money to bail out Northern Rock, Lloyds and Royal Bank of Scotland, why could it not provide public money for the causes they backed.
“The banking crisis has led to a real ‘them and us’ culture,” she said.
Figures released on Wednesday showed wage rises have failed to keep pace with inflation, despite a buoyant labour market in which unemployment has fallen to its lowest level since 1975.
Darling said the austerity policies that followed the crisis did not just have an impact in the UK. “Trump would never have been elected,” said Darling, who described austerity as the “biggest political failure”.
He also hit out at the continued use of quantitative easing – electronic printing of money – which he said was “never intended to be the economic weapon of choice”. He said the public needed to be prepared for a rise in interest rates from the historically low levels they have been at since the crisis.
Morgan, whose committee will meet on Thursday for the first time since the election in June, also pointed to rate rises and the potential impact on consumer credit, such as car loans, where lending had been growing faster than other sectors.
“There is an issue with perpetually low interest rates,” she said. “[We] want to look at the whole issue of household debt, household savings, how the economy is working for people up and down the country … Going back to the reason for last year’s vote, there is clearly a sense it’s not working.”
Darling said sending bankers to prison would not have created a less toxic political backdrop. “It is very difficult to criminalise bad judgment,” he said, adding that sanctions imposed by City regulators were the most effective deterrence to bad behaviour.
Morgan, a former women and equalities minister, called for more progress in improving diversity on boards to avoid groupthink. “There is an issue for recruitment of non-executives. There is still too much recruitment in the board’s own image,” she said.
She also said she expected the Treasury select committee to scrutinise the reforms put in place since the crisis.
Darling disputed any idea that the regulatory reforms may have solved the problem that “banks are too big to fail”, saying it was not OK to let the small ones fail either. “The better question is [whether a bank is] too big to manage,” he said.