15th May 2010
BBC News
“… the pound dipped below parity with the Euro yesterday before the close of trading as the markets came to terms with the downgrading of the UK’s credit rating. A spokesman from BNP Paribas believes that the current panic in the markets is a temporary measure and once things have calmed down, the FTSE and the pound will both bounce back.
‘What you’ve got to bear in mind is that AA+ is actually a strong rating. It’s the same as that for Belgium, which is hardly a byword for risk and credit chaos. The ratings themselves don’t actually have any direct power – the interest rates charged by the markets on Government borrowing vary widely within those ratings and it’s not uncommon for a country with a triple-A rating to pay higher rates than one with a lower rating. The issue is that it’s become a talismanic thing for many investors, and it’s a cliché that the markets don’t react – they overreact’
In other news, British Airways is taking legal action to try to stop the latest strike by its cabin crew. Business correspondent …”
Chris Huhne’s home in Clapham
“Well, I don’t see that we’ve got many choices left”, said Clegg. “If they won’t budge on the economics, or give us anything else, and we desperately need at least a few months of stability, we’ve got to sign up to it. Right?”
Cable nodded, glumly. “I agree with Nick. It’s a crying shame – I really thought that Labour would give us a lot more to work with. It’s just down to Brown – when he’s gone, they’ll probably be more willing to listen to reality”
“There’s no chance that they’ll let us supply anything for the Emergency Budget, David?”
David Laws shrugged. “Not while Ed Balls has anything to say about it. Only about half of their team give any impression of wanting the negotiations to work out at all. The rest seem to be looking more for problems than solutions”
“Evan?” asked Huhne.
“I agree”, said Evan Harris. “They’re not looking to compromise at all. Balls definitely wants to go it alone. I think Ed Milliband is dubious as well. Harman seems to have no hope and is going through the motions”
Huhne shook his head.
Laws chipped in. “Oh – by the way, I found out what triggered the downgrading”
“Oh?” asked Huhne.
“I’ve still got a few contacts in the business, and one of them knows someone who works at Fitch”, said Laws
“Fitch – they’re the ones who downgraded us first, right?” asked Cable
“Yeah. Turns out someone at Fitch was talking ‘off the record’ with Charlie Whelan”, said Laws.
“Whelan – isn’t he out of the business of spin-doctoring now?”, asked Clegg.
“Yes and no”, replied Laws. He’s still got all his contacts with Balls and company, and has no hesitation in using them. Apparently he told his contact at Fitch that Brown had found a way to stay on, Balls was going to be Chancellor, and he was going to pull back a long way from the level of cuts that Darling had promised”
“Why the hell would he do that?” gasped Cable.
“Search me. My only thoughts are that either he wanted to get the news out there early to manage expectations …” started Laws.
“Dangerous game”, mused Huhne.
“… or call their bluff on the repeated warnings of a downgrade, or drive them to downgrade us ‘for no reason’ before the lack of cuts became public knowledge …” Laws continued.
“Even more dangerous”, murmured Clegg.
“And stupid”, said Cable.
“… or it was just a cockup – Whelan boasting about still having links to power”, finished Laws. “And then Moody’s realised that Fitch had inside knowledge and – I think – had a contact in Fitch that supplied them with the same knowledge. Tie that to the slight level of paranoia they’ve all got because of not rating correctly before the crash, and a downgrade happens bloody quickly. Then S&P don’t want to be left out on a limb on their own”
Cable chipped in. “Plus Fitch would probably be pissed off because they’ve repeatedly warned that we could be downgraded if we didn’t take the deficit seriously, so they almost had to. Stupid move. Just plain stupid”.
“Well, there’s not much we can do about that”, said Huhne. “What I want to work on is making sure that we don’t get burned by public anger for propping up Brown’s regime. The tabloids are going insane”
“Going insane? Doesn’t that imply sanity to start with?” murmured Harris.
“The quality press aren’t much better, either. Look at this: ‘GERRYMANDER!’ is the headline from the Times. I’d understand if it was the Torygraph, but the Times is usually a bit better”, said Huhne.
“Still a Murdoch paper, though”, said Cable.
“The Indy and Guardian are ripping into us for not agreeing a Coalition with Brown. Polly Toynbee has ‘reliable sources’ telling her that we’re being unreasonable. Us!”, said Huhne.
“Maybe we should have got to her first?”, suggested Laws.
“The Sun, Mail and Express are up in arms about the fact that Brown could survive. The only reason they haven’t used the Gerrymander headline is ‘cause their readers can’t cope with more than two syllables – three at the outside. They’re coming up with all sorts of contorted rationales against PR. The Mail keeps going on about postal vote fraud. The Sun rabbits on and on about boundaries and Scotland. The Express is simply incoherent with rage. The Mirror is downright smug” said Huhne glumly. “If we prop him up, we could get the toxicity rubbing off on us very quickly. There was the ‘Vote Yellow get Brown’ theme – we prop him up, we just endorse that”
“What choice do we have? I agree with Nick”, said Laws.
“What about a new election when it runs out?”, asked Huhne.
Laws shrugged. “Well, we’re pretty much broke, but so’s Labour. The Tories still have some in their war chest and UKIP have had the vast majority of their deposits returned, so they’re far better off than usual at this stage.”
“But if UKIP and the Tories are mostly focussed on poaching from each other … ?” said Cable, encouragingly.
“I’ve been speaking with Mark Pack and the stats gurus”, said Harris. “Firstly – UKIP really did nick votes from everyone, but it’s true that the main losers were the Tories. The question is whether that will remain true next time – and whether there’s any more for them to lose. The anti-EU sentiment is obviously a main driver for them …”
“No shit”, muttered Clegg.
“… but that’s not just a Tory thing. In the South West, for example, it hits us. In the North, it hits Labour. The social policies are a mix of libertarian and reactionary and can hit anyone. Probably us less than the other two, though. The ‘a plague on both your houses’ vote has been ours for a long time, so that hurts us disproportionately. Localised support structures are good for us, though – we’ve built them up over a long time and no-one can hold a candle to us on ‘pavement politics’ ”, continued Harris.
Huhne narrowed his eyes. “So … what’s the upshot?”
“The long and short of it is that we reckon the local campaign will be crucial. Incumbency and targeting, as well. UKIP totally failed in targeting last time and had only one incumbent – even this time, they’ll have only three. There’s a decent chance that if UKIP’s vote holds up, we’ll be the least affected. The worst affected is likely to be the Labour vote, actually”, said Harris.
“The Labour vote?” said Cable, surprised. “Not the Tory vote?”
“The Tories have got far more money for campaigning and a bunch of new MPs building up incumbency. Those are a double whammy – loss of the personal vote of the old MP plus personal vote from the new one. Plus the fact that the Tories have had to funnel more resources into their safer seats over the past few elections, because that’s where the battle was. There are loads of Labour safe seats which haven’t seen a real fight in a very long time – and UKIP can threaten those in ways the Tories never could. Add to that the fact that the low-hanging fruit from the Tory vote has probably all been picked.”, explained Harris.
There was a pause as the men digested that. Huhne pushed back from the table.
“So, in summary: for the country to get a little financial stability, we really, really have to prop up Brown for a few months, but we want to do it in such a way that we’ll have the least blame for it”, said Huhne.
There were reluctant nods from around the table.
“When it all falls down and there’s a new election, we’ll have a hard fight with minimal resources, but we expect that Labour will have it worse”, he continued.
“Especially if they degenerate into infighting”, added Clegg”
“Indeed. The Tories would probably do better, yes?”, said Huhne.
Harris and Law both nodded. “We might even end up in a kingmaker position even if we lose a few seats, which would give us much more negotiating power next time round – especially if Brown departs the scene”, added Harris.
“Well, it seems as though there’s not much left to actually decide”, summarised Huhne. “We have to prop them up for those six months in the deal on the table, but by abstention rather than positive votes – and we highlight every time we help to defeat them on areas outside of confidence or supply. We come up with the next campaign as soon as we can and push a handful of simple lines every time a prominent Lib Dem gets interviewed. Focus on local politics again, and mainly on holding what we have”
Harris nodded ruefully. “It was way too close in my seat last time – we sent far too many people to attack Oxford East and were short on defence”
“Well, we all learn from that, okay?”, said Huhne. “We’ll have to square the Federal Executive, of course, as well as the MPs – it definitely counts as ‘a substantial proposal which could affect the party's independence of political action’ - but with an agreement as minimal as this, I don’t foresee any issues there. Is there anything else useful we can do right now?”
There was silence, with head shakes and shrugs.
“In that case, gentlemen, let’s get this over with and let the Government form”