Iain McWhirter: What will life be like under the Tories? Better get used to it because Labour is going down for the third time, and this time there's no bouncing back. Gordon Brown has manifestly lost the plot on the banking crisis, and doesn't know what to do next.
What will life be like under the Tories? Better get used to it because Labour is going down for the third time, and this time there's no bouncing back. Gordon Brown has manifestly lost the plot on the banking crisis, and doesn't know what to do next. The Treasury is paralysed with indecision: desperate to avoid nationalising Lloyds, while realising that the Brown- brokered shotgun merger with HBOS was a colossal mistake.
Meanwhile, the economy is speeding downhill like a runaway train heading for the buffers of mass unemployment, a sterling crisis, fiscal default, hyper-inflation, hyper-deflation - you name it, we're looking at it. Economists, typically, can't agree on what is going to happen, except that it will be bad; very bad. This is the hundred-year economic storm, and Brown is lashed to the helm.
Government borrowing is out of control as the Bank of England prepares to print money and rob pensioners of their savings. Up to 600,000 students and school-leavers are going to enter the job market this summer, and up to half of them will not get a job. By the time of the next General Election, if Brown delays until 2010, there will be at least three million British people unemployed and a million of them will be under 25. Two million homeowners will be in negative equity and repossessions will be at an all-time high. Wartime aside, no government has ever survived such a catastrophic economic decline.
The Prime Minister retains the confidence of his own party in parliament because they can't think of anything else to do. But in the country, Brown is out of time. He enjoyed the benefit of the doubt in the first banking crisis, but his capital has been lost in the latest financial panic. The polls are appalling, showing that Labour is now way more than 10 points behind the Cameron Conservatives. Brown is rightly blamed for bringing into government people like Sir James Crosby, architect of the HBOS disaster, to advise on how to resolve the banking crisis, which is like hiring an arsonist to advise on fire safety. Incredibly, the government still says it will implement Crosby's report on housing by spending £100bn of public money buying up the worthless mortgage bonds that Crosby irresponsibly manufactured during his time at the helm of HBOS. It's bank robbery in reverse.
RBS and Lloyds are defying the Prime Minister by pressing ahead with bonuses, even as they consume billions in taxpayers' cash. They justify this suicidal greed by insisting they have contractual obligations. Well, the government should tell them to take their contracts to the bankruptcy administrators, which is where they would be had they not been bailed out. What's the bonus on Jobseeker's Allowance? It should then call in the Serious Fraud Office. The Lloyds takeover has revealed tens of billions of pounds in losses and writedowns which had been disguised. RBS should be investigated for giving misleading information to shareholders before its record rights issue last year. This epic financial scandal cannot be allowed to pass without its authors being tested in the courts, but this government lacks the moral authority to call the banks to account.
Democracy demands that when governments make an almighty mess of it they are replaced. David Cameron has presentational problems - not least the wealth of his front bench and his party's history of support for banking deregulation - but the election is there for the taking. The Tories' secret weapon is the grey vote, the legion of over-50s savers who are furious that their incomes are about to be destroyed in order to pay for the irresponsibility of others. Anyone in any doubt about this should check out the tirade from the former doyenne of "yoof" TV, Janet Street-Porter, on BBC's Any Questions last week. She raged at the government for penalising people, like her, who've saved for their retirement. This pensioner generation - unlike previous ones - will not go gently into penury. There are six times as many savers as borrowers, and they're mostly of the generation that still votes.
The Tories, of course, have the unenviable prospect of inheriting the greatest economic crisis in modern history. As Barack Obama has discovered, taking over an economy in a crisis is like taking over a speeding car that's lost its steering: you're heading for a crash but there's not a lot you can do about it. You can't get out with a spanner and fix things; all you can do is brace yourself for the final impact. Taxes will clearly have to rise to pay off Labour's trillion-pound public debt, for which Prime Minister Cameron will blame Gordon Brown. Interest rates will rise, too, to encourage saving and to stabilise the pound - so don't expect house prices to bounce back under the Conservatives.
There will be deep cuts in public spending. The National Health Service will be part-privatised, with hotel expenses being met by patients. Schools will close and class sizes rise as parents are given financial incentives to go private. Incapacity benefits will be axed and public bureaucracies shredded. There will be some industrial unrest, especially in the public sector, but not as much as you might think because those in jobs will be desperate to keep them, as in the 1930s.
The Tories will try to renege on the £1 trillion public-sector pension liability which the government has shamefully kept off the books for years. Private-sector workers, whose pensions have been destroyed, cannot be expected to pay for the guaranteed final-salary pensions of millions of government employees. The danger is that, facing legal obstacles, the Tories will be tempted to do this by jacking up inflation rather than taking the political heat. For all their talk of spending within their means, the Tories are just as likely as Labour to take the easy way out by debasing the currency. Cameron's people are not Keynsians, but they are pragmatic enough to realise that public spending has to be used to try to promote economic activity. They have promised to open fast rail links to the north and will no doubt increase spending on roads and bridges.
As Brown sinks beneath the waves of recession, it is becoming clear that, politically, Cameron was right to concentrate on debt last year rather than stimulus. Through tens of billions handed wantonly to bankrupt banks, and billions lost in benefits to the unemployed, the public finances are ruined for a generation, and Cameron can hang this round Gordon Brown's neck. The economy will revive eventually - it always does - but in the mean time prepare for a new age of austerity: the Brown bust before the Cameron recovery.
