Been there. Done that. Alistair Darling has the T-shirt with “I was in charge when the banks nearly went bust” emblazoned across it. He knows exactly what it is like to be a chancellor who arrives at the Treasury with a big challenge on his hands.

Indeed, as Philip Hammond works out what to do with the post-Brexit economy, he can at least take comfort from the fact that life at the Treasury is not as tough as it was for George Osborne’s predecessor eight years ago.

Back then, in the weeks that followed the collapse of Lehman Brothers in September 2008, Darling was called out of a meeting of EU finance ministers to be told that RBS would run out of money within hours. The economy was in freefall and Darling was preparing an emergency package of measures for his autumn statement.

Even worse, relations between Darling and the prime minister, Gordon Brown, after the chancellor used a Guardian interview to predict – entirely correctly as it turned out – that the global economy was facing its biggest crisis in 60 years. Any difficulties Hammond is having with his next-door neighbour pale into insignificance by comparison.

Speaking before this week’s autumn statement, Darling says that, as in 2008, the government will not have seen a surprise coming. “The big problem he will face is that no one was prepared for the shock. Very few people expected Brexit, especially those who don’t venture outside London.”

Darling says the situation since the EU referendum is different from 2008. Within weeks of the financial crisis erupting in the summer of 2007, there were signs of trouble in the UK. In September of that year, queues formed outside branches of Northern Rock when it was revealed that the lender was negotiating a bailout from the Bank of England.



Since June, however, predictions from the Treasury that the economy would plunge immediately into recession have proved far too pessimistic.

“It’s a complete phoney war,” Darling says. “After we left nothing happened. People carried on spending. Consumer demand has held up. What we don’t know about are decisions taken behind closed doors, about whether firms are going to invest.”

He says the fall in the value of the pound triggered by Theresa May’s announcement at Conservative party conference that Brexit divorce negotiations would begin by the end of March will only begin to affect consumer behaviour during the course of 2017.

That – along with the uncertain impact of Donald Trump’s arrival at the White House – will make it harder for Hammond to assess what will happen to the economy.

“I expect he will be cautious. We won’t see fireworks because there is so much he doesn’t know. He may think that he will know more by the time of the budget in March, so will do just enough in the autumn statement.”

Darling says that he was dealing with an acute crisis in 2008 that the government knew could be fixed “if at some cost” by recapitalising the banks. The current government, by contrast, is facing chronic problems: “an austerity programme that hasn’t worked and a Brexit that will have unknown effects”.

Darling said he would not advise Hammond to cut VAT but says the new chancellor should use his first big set-piece occasion to announce a clear set of rules for the public finances and to specify where the government has got to on formulating its Brexit strategy.

“Deficit and debt reduction could easily go through to the end of the next parliament (in 2025). Look at Japan. It has had a 25-year programme but still has the highest debt-to-GDP ratio of any G7 country.

“There is so much he doesn’t know yet,” Darling says, noting that it might have been easier for Hammond to assess what was going on had the economy nosedived after the referendum. “My view is that the things people feared have been delayed rather than cancelled,” the former chancellor says.

“Will Hammond do what May has not done and set out where we stand on Brexit? Hammond has said he thinks the financial sector should be in the single market. I would be amazed if he speaks for an hour and doesn’t say what he thinks about Brexit. People will want a clear sense from him of where we are going.”

Hammond is expected to cut taxes or increase spending in the autumn statement to boost growth and help those on low incomes, but Darling says there would be a case for a stimulus whatever the outcome on 23 June.

“Even had there been no Brexit there would be a strong case for taking more fiscal action for infrastructure – roads, railways and internet access. Monetary policy has reached the end of what it can do on its own.



“Quanatitative easing was shock therapy and part of an overall package. But if anybody had said in 2009 that we would still be doing it more than seven years later, people would have asked how could that be the case.”



“People recognise that central banks have done a lot. In Europe, the ECB has avoided another crash through Mario Draghi’s announcement in 2012 that it would do ‘whatever it takes’. But they have reached the end of the road.”

Darling says all governments have got room for fiscal manoeuvre, including Britain. Hammond, he says, has abandoned targets for deficit reduction that weren’t going to be achieved anyway.

“You can’t keep on cutting. Six years of austerity are having an effect, with prisons being an obvious example.”



Darling, who led the Better Together campaign opposing Scottish independence in the 2014 referendum, stood down as an MP at the 2015 election. He then stood alongside his old adversary Osborne in the failed bid to keep Britain in the European Union.



The former chancellor is scathing about the way May and her team have handled Brexit so far. “The government’s silence is either because it has got a cunning plan or because it doesn’t know what to do. People are starting to think that it is the latter rather than the former.”

