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Ten years on from the Credit Crunch: political impact

Monday 7 August 2017

August 9 2007 is seen by many as the start of the ‘Credit Crunch’, when banks stopped lending to each other and Governments had to inject funds into financial systems. It led to queues outside Northern Rock branches and the collapse of Lehman Brothers Bank, as well as record falls in house prices. Ten years on politics experts from the University of Salford look at the impact of those events and ask if we could be heading for more of the same.

Dr Ben Williams, lecturer in politics and political theory, said: 

“A narrative developed following 2007-08 that overlooked the fact that the crash was globalised in its origins and nature, and which largely blamed Labour for these events, which in turn stuck in the minds of many voters. Labour's reputation for economic competence took a battering in the process, from which it has never fully recovered. 

“Indeed, such has been the widespread legacy of the 2007-8 crash, that it could be claimed it has fundamentally affected the outcome of the last three UK general elections.

“The high-profile policy of economic austerity has been arguably the most prominent feature of UK politics over the past decade, and its short and longer term consequences have therefore been one of the lasting legacies following the crash. 

“This has signalled the end of a period of general economic consensus between the major parties dating back to the 1980s, and has contributed to the polarisation of British politics in the process, with the emergence of a more ideologically right-wing Conservative economic agenda and a more left-wing Labour one." 

John Callaghan, Professor of Politics, said: 

“The bank bailout following the crash organised by the Labour Government amounted to £850b by 2009 according to the National Audit Office, so the deficit was inevitable, given that the main Opposition parties had no alternative plan, unlike Iceland which allowed its banks to go bust. 

“Conservative rhetoric however focused on Labour’s responsibility for the economic downturn and this argument largely prevailed in the years that followed. 

“One reason for Labour’s inability to challenge that story effectively was its own lack of interest in reining-in the financial markets when it had the chance during the boom which coincided with Tony Blair’s electoral triumphs. Of course, the Conservative Opposition of those years was happy to endorse the permissive regime of ‘self-regulation’ which Blair and Brown lauded.

“The upshot was that Labour fell from government in 2010 saddled with the legend that they had somehow caused the economic mess which the Conservative-Liberal Democrat coalition would have to fix.

"Meanwhile no senior bankers were prosecuted for the irresponsible speculation, fraud and dishonest book-keeping which were among the contributory causes of the crisis. Again, the Icelanders did things differently and jailed 26 financiers for practices that were common in the City of London.

“Fred Goodwin, Chief Executive of RBS, presided over the world’s largest company by assets before the crash – a company which announced a loss of £21.4b in 2008. For this unequalled disaster his knighthood was annulled in 2012 – and that was the worst penalty imposed in Britain on anyone involved.

“The financial crisis contributed to the demise of New Labour and the rise of political narratives beyond the control of the main Westminster parties, but which favoured UKIP and the extreme Conservative Right and the Left populism of Jeremy Corbyn. The Labour and Conservative parties remain deeply divided within themselves, the British economy is weak and great uncertainty attaches to both the process and end result of leaving the EU. Turbulent times lie ahead.”

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Sam Wood

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