Alistair Darling

Supplementary material:  (i)  links to contemporary reports ; (ii)  notes on fiscal developments.

Alistair Darling MP.
Photo © Crown copyright 2007, used by permission.

After serving in a succession of senior positions in the United Kingdom government under Tony Blair, Alistair Darling succeeded Gordon Brown as Chancellor of the Exchequer. Shortly after he took office in 2007, the country experienced the first effects of the Great Recession and, in his following three years as Chancellor, he was engaged in the fiscal management of the British economy during its most turbulent post-war period.

Chancellor of the Exchequer

The economic developments during Alistair darling's chancellorship are described in the article on the Great Recession, and their effects upon the Government's finances are summarised in the addendum to this article

When Alastair Darling took over as Chancellor of the Exchequer in June 2007, some banks were beginning to suffer the effects of the subprime mortgage crisis, but the economy was continuing to grow at an above-trend rate. Later in that year, however, commodity price increases were beginning to affect growth, and the banking crisis was getting worse. In his November pre-budget report, Alistair Darling warned that a continuation of the banking crisis could reduce the rate of further growth. By the middle of 2008, his fears were realised, and the economy was suffering from the effects of a major international financial crisis which he described in an interview as arguably the worst in 60 years". (That statement was attacked by the Shadow Chancellor as an admission of the Government's failings and a contradiction of reassuring statements by Gordon Brown).

In the October 2008, there was a major intensification of the financial crisis, triggered by the previous month's collapse of the United States Lehman Brothers investment bank. Alistair Darling and Gordon Brown responded with a rescue package for British banks , and an international campaign to persuade other governments to adopt similar measures in support their banks. During the following months, the British example was followed by other European countries and similar measures were adopted by the United States. Those actions were followed by stabilisation of the financial system, but many British banks continued to suffer serious financial difficulties. A programme of additional support for the banks was adopted and by April 2009, five of the nine largest British banks had been taken partly or wholly into public ownership - in addition to the 2007 nationalisation of Northern Rock.

In November 2008, Alistair Darling announced a fiscal stimulus amounting to 1.5 per cent of GDP, including a temporary 2½ percentage points reduction in value-added tax and a bringing forward of £3 billion of capital investment. His announcement had a mixed reception: it was called deceitful by the Shadow Chancellor and "crass" by the German Finance Minister, but was subsequently described as successful by the International Monetary Fund. There were responses to criticisms of the tax reduction by the Institute for Fiscal Studies and the Centre for Economics and Business Research

The growth of output resumed in the 4th quarter of 2009, and attention turned to the problem of reducing the, by then inflated budget deficit. Alistair Darling had inherited from Gordon Brown a deficit of 2.7 per cent of national income (which was above the OECD average, but lower than the deficit that Gordon Brown had inherited from his predecessor), and ry the end of 2009 the deficit had grown to nearly 12 per cent. Of that total, less than 2 per cent was the result of Alistair Darling's fiscal policy actions: the remainder being due the recessionary operation of the economy's automatic stabilisers. The Institute for Fiscal Studies estimates the structural deficit - which is the portion of the deficit that is expected to persist after recessionary influences have ceased - to be about 6 per cent of national income. Recognising that the continuation of that magnitude of deficit would be unsustainable, the government launched the Fiscal Responsibility Act - imposing upon itself a commitment to reduce it by half by the financial year ending 2014, and to make continuing reductions thereafter.

Retirement

Following the 2010 election, Alistair Darling served as the opposition's Shadow Chancellor until October 2010, when he retired from the Shadow Cabinet.