The politics of the financial crisis

By James Landale BBC Deputy Political Editor

The financial turmoil changed the conversation at Westminster

To show how politics has been so utterly transformed by the last twelve months of economic and financial crisis, let me take you on a journey back in time.

Twelve months ago the good folk of Westminster were obsessed with little more than yachts, bananas and Nick Clegg's sex life.

The Conservative leader David Cameron wanted to improve our "general wellbeing" and worried about the social breakdown.

His Shadow Chancellor George Osborne was being flailed for apparently discussing party donations on a Russian oligarch's yacht off the coast of Corfu.

BBC AFTERSHOCK SEASON The BBC reports on the first anniversary of the credit crunch across radio, TV, and online. See and hear the sights and sounds of the day of the crash in our audio slideshow Our crisis timeline shows the key events as the global recession unfolded And follow the money: Track the $11tn of bailout spending and see what it means for the taxpayers who funded it Listen to WS radio on the crisis Full coverage of Aftershock series

The Prime Minister Gordon Brown was assailed on all sides by obscure junior ministers resigning over his leadership.

The Foreign Secretary David Miliband was being tipped as a potential successor until he was photographed with a banana.

And the Liberal Democrat leader Nick Clegg was subject to a twitter titter campaign after admitting that he had slept with no more than thirty women.

Such then was the febrile, low-minded, introspective debate that sometimes passes for political discourse in SW1.

Everything changes

And then the world changed.

Banks collapsed, markets tumbled, credit was crunched. Instantly politics was transformed. Nothing but the economy mattered. And the financially-illiterate - MPs and journalists alike - struggled to keep up.

For Gordon Brown, this was both a help and a hindrance. Where once he was struggling to outline his vision for the future, he suddenly had a role, a role to which he was uniquely suited.

Overnight he became the global First Lord of the Treasury, an international Chancellor of the Exchequer, leading the way in recapitalising the banks and hosting international summits to agree an economic stimulus of unprecedented size.

It was, he told us, "no time for a novice". The leadership questions melted away - at least for a while.

As the months passed and the recession began to bite, No 10 spewed forth schemes designed to keep banks lending and protect jobs. The prime minister was in his element.

Brown's dilemma

But as time passed, ministers suddenly realised that Labour's fortunes were being tied relentlessly to the fate of the economy. They were trapped and their fears grew.

Critics said the scale of public debt and the less than adequate banking regulation under Mr Brown's watch as chancellor had left Britain vulnerable to the crunch.

If the economy did not improve, MPs thought, Labour would suffer at the election. Even if the economy did get better, an ungrateful electorate might not thank Labour for their efforts.

Voters might consider Mr Brown to be a good leader for the recession but not for the next five years.

Polticians from all sides struggled to map a path through the turmoil

Thus ministers now fear that they are locked into a strait-jacket, struggling to prove to voters that things would have been worse if Labour had not been in power.

Proving a such a negative is never easy. Thus far, attempts to own the recovery have yet to succeed.

In the meantime, the Chancellor Alistair Darling has seen his reputation improve, from an economic Cassandra to the man who has made some good calls.

The Business Secretary Lord Mandelson, too, is considered to have thrived, handing out taxpayers money in return for old bangers to give life to the car industry.

Tory positioning

For the Tories, the credit crunch has also been a mixed blessing. At first, they were uncertain, backing the government as if war had broken out. It was a time for national unity.

But it wasn't war and soon the Tories took a different line. They were one of the few political parties in the western world to oppose the idea of an economic stimulus.

They preferred monetary policy, boosting investment through low interest rates. Many Tories struggled with their gut support for markets as markets collapsed around them. Their instinctive opposition to government intervention left them open to Labour's charge as the "do nothing party".

George Osborne's apparent youth and inexperience was put to the test as voters and City types mulled how safe a collapsing economy might be in his hands. But slowly the Tories readjusted.

Their policy of "sharing the proceeds of growth" was ditched once it became apparent that there was to be no growth for a while. They shifted the debate.

Instead of focusing on what government action was needed now to protect people from the recession, they moved the spotlight to the future, namely the scale of public debt. People woke up to the idea of how much the government was in hock.

The key test of political virility became how tough you planned to be to cut back the budget deficit. Mr Brown lost credibility as he continued to promise Labour spending versus Tory cuts, the oldest of dividing lines, but one that was looking a little whiskery.

Eventually Mr Darling and Lord Mandelson changed the prime minister's mind, but the Tories had won the round. Now it is a question of my cuts are better than yours, details to be confirmed.

Liberal response

As for the Liberal Democrats, well they have had a reasonable recession.

Vince Cable outshone his leader but it did little for the party's poll ratings

The acute instinct and foresight of their Treasury spokesman Vince Cable has kept them in the game, the first to warn about the dangers of excessive public and private debt, the first to urge the nationalisation of the banks.

The Lib Dems backed the stimulus but preferred green investment to the VAT cut. They also thought the banks were getting too much public money in return for too few guarantees to the taxpayer.

But a fat lot of good it did the party. Mr Cable overshadowed his leader, Nick Clegg, the party was often squeezed out of the story, and the polls stayed rigidly low.

So politics has indeed been transformed by the credit crunch, changed out of all recognition.

The old norms are gone, the new questions unanswered. The events of the last 12 months will shape politics for years to come.

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