River Wissey Lovell Fuller

Bad Government 4

December 2012

Gordon Brown

Gordon Brown was one of Tony Blair’s rivals for leadership of the Labour Party and at one time was seen as the obvious choice to follow John Smith.  When Labour was in opposition Tony Blair appointed him Shadow Chancellor of the Exchequer, and he was highly regarded in that role.  After the election in 1997 he was appointed Chancellor and served in that role for 10years, the longest time of any Chancellor.

Almost his first action was to take the task of setting interest rates away from politicians and transfer it to the Bank of England and supervision of the banks to a new Financial Services Authority.  This was widely seen as a very wise move and gained some praise.  Unfortunately he believed in regulation with a ‘light touch’ and the FSA was not given the powers that it needed to do the job properly.

In 1999 he helped the lower paid by introducing a 10% income tax band, a welcome move.  In an attempt to rationalise income tax bands he later scrapped the 10% band in 2007, but lowered the standard rate to 20%, not an unpopular move but there were a few losers in the lower income group and this was capitalised on by the Tory press.

In his time he was largely responsible for a number of decisions that could be regarded as good government:

Corporation tax fell from 33% to 28%

Introduced Working Tax Benefits for low paid workers

Removed Child Benefits from calculation of tax credits and housing benefits

Introduced the minimum wage

Free prescriptions for cancer sufferers

Reform of employment laws

Bus passes

Increased entitlement to paid holidays

Pressed for more shared equity schemes for house purchase

Although under pressure from some in the Labour Party he was lukewarm towards joining the Euro and declared five conditions that would need to be met before we should contemplate joining, those conditions were never met and we might regard ourselves as fortunate that he stood firm on that issue.

Overall he was well regarded as Chancellor, he aimed to keep inflation below 3% and, whilst not quite meeting this target, he did enjoy a long period of low inflation.

He did support Tony Blair’s decision to invadeIraq, however, but this may well have been forced by political considerations, and he did not object to the wide use ofPFI, but once again this may have been because he did not want a confrontation with Tony Blair, although there were rumours of significant disagreements.

In 2007, Tony Blair resigned and Gordon Brown became Prime Minister.  At the time he and Labour were riding high in the opinion polls and he was urged to call a General Election.  This highlighted a weakness in his suitability for the leading role in that he was indecisive and kept the nation waiting for a long time as he vacillated before finally deciding not to do so.  From his career point of view that was disastrous since he would almost certainly have been in power for five years, we will never know what he would have done.

As PM he proposed transferring some Prime Ministerial powers to Parliament, the power to make certain appointments, and more especially the power to declare war, unquestionably a piece of good government, (this move suggests that he probably was secretly opposed to the invasion of Iraq).  He was also keen to stamp down on corruption and established a Ministerial Code.

He also urged the establishment of more shared equity schemes to assist first time buyers.  All of these moves must be regarded as an attempt to move towards better government.

Suggest break here if necessary

In 2007 Northern Rock effectively went bust, in 2008 the whole house of cards that was the western financial service industries collapsed.  British banks and City institutions found that they had huge debts that they could not hope to service, they had gambled and lost and loaned money and/or bought debts that could not be repaid.  Gordon Brown realised that if the banks were allowed to fail the consequences would be disastrous.  He took the only course that he saw open to him and used government (or taxpayers) money to bail out the banks.  The cost was enormous, such that the government had to borrow large amounts.  It was not a disaster made solely inBritain, it effected the whole western economy, in theUSAmajor financial institutions collapsed or were in danger of collapse.  Gordon saw that the banks and financial houses had to be kept going and played a leading role on the world stage in convincing governments that the system had to be saved.  Paul Krugman a leadingUSeconomist and Nobel prize winner said quite recently that “Gordon Brown should have his own statue.  He saved the world.”

Prior to this catastrophic event the UK economy had looked fairly healthy, debt, as a proportion ofGDP, was quite modest and within normal limits and Gordon’s work had seemed competent, but after the event the need to find the money to prop up the banks meant that government debt soared.  Gordon Brown was, rather unfairly, largely blamed.  He was blamed for reckless spending, although, prior to the collapse of the banks spending had appeared to be under control.  In fact, in the campaigning for the 2007 election, the Tories promised to keep to Labour’s spending plans.

He has also been accused of failing to regulate the banks, fair comment except that the accusations come from the Tories, the Party that introduced deregulation and has always fought against regulation of almost everything favouring ‘self regulation’ that has rarely worked.  Gordon did make some attempt at regulation in that he created the Financial Services Authority, unfortunately he did not give it enough power to do the job.

Evidence of his indecisiveness on the domestic front increased, however, and he displayed some personality traits that led to questions as to his suitability for the role of PM and led to rumblings of discontent in the parliamentary Labour Party.  Murdoch and his News International decided to put the boot in.  He was attacked by the press for the abolition of the 10% tax band.

As Chancellor he was responsible for two very bad decisions:  He sold 60% of the nation’s gold reserve at a time when the price was low.  At today’s prices that amount of gold would fetch almost ten times as much.

He also raided pension funds that, at that time, were overflowing with assets, at the same time he changed the way in which corporation tax was collected in a way that was detrimental to pensions.  At the time this did not seem too unreasonable because the pension funds held more reserves than it seemed would ever be needed.  However, these decisions were to have serious consequences later, a pension situation made worse by demographic changes.

His time as PM came to an end after just over two years with a General Election, the Tories leapt at the chance to blame him for the mess that the country’s economy was now in, and he became more and more isolated and unpopular in the country.  He left behind an extremely difficult economic situation but it could never be argued that that was entirely his fault.

I would claim that, on balance, he was responsible for more good government than any of his three predecessors.  Nevertheless he made many mistakes but his worst mistake was undoubtedly that of believing that the City and the banks knew what they were doing and were competent and could be trusted to operate with light handed regulation.  He was not alone, of course, in failing to foresee that things were going wrong, many economists, financiers and politicians in the western world also failed.       The warning voices were ignored, and yet many ordinary folk were concerned that the boom in house prices and such things as 125% mortgages was a road to disaster, unlike those that were leading us, they knew it could not go on.

In the end, as Chancellor and PM he acquiesced over the invasion of Iraq, the disruption of our education system, attempts to introduce more private medicine into the National Health, one of the biggest waves of immigration that we have ever seen, (largely due to Tony Blair’s attitudes), he pursued further privatisation of public services and, as another member of Labour’s Friends of Israel, he did little to support UN attempts to curb Israel’s land grabbing.

He continued to preside over increasing inequalities in the British society with a widening gap in wealth.  Like his predecessors in recent decades he did little or nothing to foster science and manufacturing, apparently continuing to believe that our future lay with the financial services industry.  He appeared to be somewhat in awe of the city whizz kids, as demonstrated when he lavished praise on them in his Mansion House speech in 2006, and one must conclude that he was another failure.

Ron Watts

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