Alan Watkins: Brown's control of the crisis is illusory

The Prime Minister has run an effective PR campaign, but he has little real idea of how to regulate the banks

In Anthony Crosland's last phase, at the Environment and then in his short spell as Foreign Secretary before his early death in 1977, his relations with Iceland had been troubled. The cause was the Cod War. HMG did not send a gunboat, even though there were spasmodic naval engagements, but it sent a junior minister, Roy Hattersley, instead.

Anxious to do my own bit, I suggested to the Foreign Secretary that he should try to vary the national diet by replacing cod and chips with mackerel and chips. This last fish was delicious, nutritious and in abundant supply. Something of the sort had been tried by the old Ministry of Food during the war or in the years of even greater privation immediately afterwards. Crosland considers the matter carefully – for he was an open-minded man – and concluded that the work of public re-education would take too long or fail completely.

I then tried another idea. Why not throw the cod back into the sea? In that way employment would be maintained and fish stocks preserved. Marine conservation was not then a topic of fashionable concern: my precedent came from what I had been told of big-game fishing. Crosland clearly thought it was time to bring the discussion to an end. "Wouldn't work," he said succinctly, and there the matter rested. Finally a compromise of some kind was patched up and the quarrel with Iceland sank beneath the waves.

Crosland was much in my thoughts last week, not because of the dispute between the British and Icelandic governments, but because the financial crisis marked the end of an era, from Ronald Reagan and Margaret Thatcher to George Bush Jr, Tony Blair and Gordon Brown. In his great work, The Future of Socialism, which was first published in 1956, Crosland made at least two judgements.

One was that the problem of production was solved: the problem was to divide the fruits of production more equitably. The other judgement, or prediction, was that capitalism had been tamed, or was about to become so: national governments, aided by compliant trade unions, with a few international organisations, would order large corporations to behave themselves.

He wrote in the introduction to his big book that he had chosen to treat this country as a "closed" economy. This was a bit silly, but there it was. The reader looked in vain for guidance on the position of sterling as an international reserve currency or on the balance of payments, a topic that obsessed the political classes until the 1980s. Crosland was opposed to further nationalisation but he was not opposed to public control.

The pattern of postwar nationalisation had been established by Mr Peter Mandelson's maternal grandfather, Herbert Morrison, who had fixed on an early form of quango, the public corporation. Morrison had been a pillar of the Labour Right, while nationalisation had been welcomed, paradoxically but enthusiastically, by the Left. By a further paradox, the leader of the Left, Aneurin Bevan, was as suspicious of the public corporation as he was of Morrison personally.

In the 1950s, with Hugh Gaitskell as leader, an attempt was made to change party policy by acquiring state shares in public companies. This was rejected contemptuously by the speeches at the conference, on the basis that Labour should not soil their toes with capitalism. In the late 1970s Mr Tony Benn, as Energy Secretary,

got rid of the Treasury's "golden share" in British Petroleum. This had less to do with any doctrinal purity on Mr Benn's part than with a desire to raise money on behalf of the hard-pressed Labour government.

Not long before he became leader in 1994, the young Mr Blair, a shadow minister, came to the rostrum at the Labour conference and proposed acquiring shares in public companies. He spoke pleasantly, even persuasively, if he had managed to persuade anyone. Alas there were murmurs of hostility. Mr Blair had lost his audience. The acquisition of shares was clearly the devil's work. He did not return to the subject ever again, as far as I know. The most recent promise to nationalise the banks was in the Labour manifesto for 1983.

Harold Wilson used to maintain, even in his brief Bevanite period, that there was no need to nationalise the banks. What was the Bank of England for, now that it had itself been nationalised in 1946? And what was a Labour government for, if not to give instructions to the Bank of England and, indeed, to all the other banks?

Since then we have seen more than 30 years of financial banditry and, with the advent of Mr Brown as Chancellor, a tripartite system of regulation, of which he was clearly very proud, to begin with at any rate. It is characteristic of all British public bodies to prefer a series of understandings, many of them unspoken, and some of them imperfectly understood (sometimes deliberately so), to a set of clear rules.

It was so with the original triple authority of 11 years ago. It is so today with the agreement between the Treasury and the seven banks together with the Nationwide building society. It was so, likewise, with the Bradford & Bingley. The morning's news was that the bank had been "nationalised". Whether this was what the Government called it, or the news channels adopted a form of shorthand, it was not exactly what happened. The bank's mortgage liabilities were assumed by the taxpayer. The bank itself was acquired by the honest citizens of Spain, including additionally a number of British subjects who had previously been shareholders in the Abbey bank, formally the Abbey National building society. There do not seem to be any flies on these shrewd senores of Santander.

Similarly not a single share has, as I understood the position, been issued by any of the seven banks for acquisition by the Treasury. If they want shares, they can ask – that seems to be the situation. In the meantime, the Government is supplying not only guarantees – for guarantees are easy to supply – but actual cash. As for Government appointments to bank boards, one might as well ask for all Treasury civil servants to be made honorary members of White's Club.

This brings us to Mr David Cameron, a somewhat shamefaced former member of that institution. He has not exactly covered himself with glory, any more than Mr George Osborne has: they have kept changing their minds. And in politics, it is usually a great mistake to turn on your friends. Sometimes, it is true, the brute realities of politics compel that course. But this was not one of them. It is one thing for the tricoteuses of The Guardian to lay aside their knitting and demand the supreme penalty for the oppressors of widows and orphan: quite another for the Leader of the Opposition to demand the guillotine for old friends and benefactors.

As we know, Mr Brown was a beneficiary too. He also has been talking about punishing people. Mr Alistair Darling has stayed fairly quiet. The truth, however, is that Mr Darling and Mr Brown do not have much real idea of how to control the banks. It has been a successful exercise in public relations on Mr Brown's part. He is restored to the gloomy form he struck in July-October 2007. I still do not think that is going to win him the election.