It's not Black Wednesday - it's a lot worse

Jack Straw, the "Minister for Justice", is furiously fighting back against allegations that Discgate is Labour's equivalent of Black Wednesday - when Britain was forced out of the ERM in 1992,under the Chancellorship of Norman Lamont (right).

He says: "The idea that this is an equivalent to Black Wednesday is utter nonsense."

He's quite right - it's much worse than that.

Black Wednesday was a short-term embarassment which had very beneficial consequences for Britain in the medium-term. It was foolhardy to lose money trying to fight what was a necesssary devaluation of the pound. But once we were ejected, interest rates could come down, enabling us to revive the economy in a way that would have been impossible within the ERM.

Nor did it 'ruin' the Tories' reputaton for economic competence, as is so often claimed. The Tories' reputation was ruined by trying to keep us inside the ERM, not in us being ejected from it. The effort to keep us inside it meant much higher interest rates which triggered a housing market crash and painful recession.

Most people had no idea what Black Wednesday meant, only that they couldn't afford their mortgage any more or were out of a job.

The Discgate saga, on the other hand, is a huge, catastrophic failure in the short-term which will probably have very negative long-term consequences for both the UK and the Labour Party.

For the UK it will probably undermine the public's already shaky faith in government management of data. Indeed why anyone would voluntarily give the government personal information, or tell them the truth any more, is beyond me. This is on top of the potentially disastrous consequences of organised criminals using the data to commit large-scale fraud.

Remember that before this happened the tax credit system was already responsible for nearly £2bn of fraud and overpayment. What's going to happen now?

For the Labour Party, it should - taken together with the numerous other cock-ups they have presided over - ruin their reputation for the prudent management of government affairs. Whether it does so depends largely on whether it does indeed end in large-scale fraud and how smart the Opposition are in exploiting this.