Watching the events since the introduction of the “Not a Budget”, I have sat with my head in my hands. You could almost weep for the lasting consequences of this show of arrogance, ideological obstinacy and incompetence. People’s homes, pensions and the public services they rely upon are all now at serious risk. It’s hard to comprehend just how badly they misjudged the situation and how little they prepared for taking over the highest offices of state.
In his brilliant book The Great Crash, 1929, the economist JK Galbraith advises that to avoid a crash in the future you should put in place a vast range of institutional protections, but that the most important protection is memory.
My first Labour party conference was in 1976 in Blackpool, when the Labour chancellor, Denis Healey, burst into conference amid boos and cheers to announce the acceptance of an IMF loan to prop up the government after a run on sterling. The conditions of the loan were interest rate hikes, cuts in public spending and wage controls. The effect was to see support for the Callaghan Labour government drain away, over the next three years, heralding the Thatcher era.
That experience was burned into my psyche. So, when I became shadow chancellor, I made it clear that I would plan for every option – including a run on the pound – if we were elected. At the time I was accused of making a serious faux pas, but I wanted the markets to know that we had a serious plan for our economy whatever was thrown at us.
Although I thought there would be some initial turbulence in the markets, I didn’t believe that there would be a run. I toured the City intensively to gauge what the true reaction to the election of the Labour party would be. Meeting numerous asset managers and financial advisers, I explained that there were many things in our programme that they may not like, including some renationalisations and tax rises on the wealthiest, for instance; but they were going to happen and there was so much more on investment that would give them real investment opportunities.
The response I got was that although they definitely didn’t like some of our policies, as long as there was certainty and predictability they could live with it. They could price in our policies into their calculations and we would be able to establish a working relationship. As long as there were no major surprises, they could understand our sense of general direction and would not sabotage our programme.
I had a team of advisers from the City and with experience of working with me to plan our steps into government and our ongoing relationship with the market. We received a weekly briefing from a respected investment consultancy in the City.
I also regularly met Mark Carney at the Bank of England to brief him on our programme and get feedback. We had a very constructive and open working relationship and I listened carefully to his views. Before the elections I met with Tom Scholar, the Treasury permanent secretary, and his team to prepare for our first budget and to commission the necessary report from the Office for Budget Responsibility. I found Scholar to be a first-rate professional, very much in the mould of Maurice Stonefrost, who I worked with and served my apprenticeship with at the Greater London council.
How ironic that it should be a duo of free-market fanatics, Liz Truss and Kwasi Kwarteng, who would end up causing a run on the pound. The 40-year neoliberal experiment has failed, and the reaction from the markets to the last desperate attempt to save it by Truss and Kwarteng has demonstrated that investors know it too.
Unless wiser heads in the Tory party prevail and there is a dramatic change of course or change of personnel at the top of this government, we face the prospect of possibly two years of staggering from one crisis to another with a relentless deterioration in our economy, and the potential for deep societal division leading to outbreaks of large-scale protest, perhaps even degenerating into riot.
People may not have agreed with my aims or with Labour’s programme at the time, but I did not want anyone to be able to accuse us of lack of preparation or incompetence. My team and I were genuinely ready for government.
You’ll forgive me, I hope, for considering what could have been.
John McDonnell has been the Labour MP for Hayes and Harlington since 1997. He was shadow chancellor from 2015 to 2020
