Brown and Economic Policy (AQA A-Level History): Revision Notes

Brown and Economic Policy

Brown and Blair: the partnership

Blair's premiership presented a notable contradiction. While he developed an almost presidential style of government unprecedented in British history, he simultaneously shared substantial authority over his administration with his most senior cabinet colleague, Gordon Brown. Both men occupied central positions within the New Labour project, though their political perspectives diverged in important ways. Brown's politics drew more deeply from Labour's traditional values, and he held somewhat different views about the type of society Labour should ultimately create—one where Labour values of fairness and equality remained firmly embedded. Despite these differences, both men agreed on the party's recent failures and shared a common analysis of what needed to change to restore Labour to power.

Their careers had advanced in parallel. Entering parliament together in 1983 as personal friends, their abilities soon secured front-bench appointments and subsequently positions in the shadow cabinet. When the leadership vacancy arose following John Smith's death in May 1994, Brown commanded recognition as the senior partner. Most observers agreed he possessed superior intellectual capabilities, and as Shadow Chancellor his hierarchical position within Labour appeared clear. However, Blair's affability had won friends throughout the parliamentary party, whilst Brown's abrasive and sometimes gloomy personality had generated enemies. Blair's decision to contest the leadership permanently altered the relationship between the two leading architects of the modernisation project. Brown viewed as treachery Peter Mandelson's decision—the third member of the New Labour triumvirate—to support Blair's candidacy.

Such a commitment seems improbable, though Blair's subsequent career revealed a remarkable capacity to leave interlocutors believing he had endorsed their views. If Blair did offer such assurances, his will to honour them appears to have eroded during the course of the Labour government, hampering Blair's achievement of his policy objectives. Equally problematic was Blair's apparent surrender of authority over extensive areas of future economic and social policy, creating what Anthony Seldon describes as "a very different kind of premiership to anything previously known in British history; to a substantial extent it would be shared".

The deteriorating relationship

Whilst the Blair-Brown axis at its best delivered substantial advantages for New Labour, with increasing frequency it paralysed Blair's premiership. The relationship became poisonous at times, each man seemingly reluctant to engage directly with the other. By early 1998 Brown's team briefed journalists that the Chancellor operated, in practice, as the government's chief executive, with Blair serving merely as its nominal chairman. The Prime Minister's supporters countered that Brown was "psychologically flawed". Brown exercised his authority to devise economic policy within his own circle without consulting Blair who, rumours suggested, lacked the capacity for such complex matters. Brown's secrecy regarding the contents of the 1999 budget caused particular irritation to his Downing Street neighbour. The Chancellor also succeeded in extending the range of government policy falling within his autonomous control.

The European currency (the euro)

Blair harboured ambitions to bring Britain into the European single currency. Whilst this reflected his wish for Britain to occupy a central position within the European project, it represented primarily a political judgement. As early as November 1997, however, Brown succeeded in making membership of the euro dependent upon five economic tests:

1. Had the UK achieved economic convergence with Europe?
2. Was the UK flexible enough to adapt to the change of currency?
3. How would UK investment be affected?
4. What would be the impact on the UK's financial services sector?
5. What would be the likely impact on employment and growth?

The Exchequer: economic policy in opposition and government

During their time in opposition, the Brown-Blair partnership functioned effectively. Both recognised that a primary priority involved dispelling Labour's image as a party that would inevitably increase both taxation and borrowing to finance its expenditure plans. They therefore agreed upon a formal commitment not to increase existing rates of income tax and to maintain the Major government's spending limits during Labour's first two years in power. This approach proved wise in electoral terms but inevitably circumscribed the policy objectives a first-term Labour government could achieve. Overall government expenditure as a percentage of the national economy did not return to the level reached in the final year of Major's government until Blair had already served five years as Prime Minister. As Peter Sinclair observed, "tax policy in the Blair years was not just remarkably conservative; it was strictly Conservative in key respects". An economist unfamiliar with British politics might reasonably have concluded that the same government had remained in power throughout the second half of the 1990s.

Brown's two major early decisions

During his first month in office, Brown made two decisions of substantial importance. The announcement that the Monetary Policy Committee of the Bank of England would assume responsibility for setting interest rates received widespread applause. Chancellors had previously used this mechanism cynically to manufacture short-term economic booms for party political and electoral advantage. By surrendering this power, however, Brown clearly intended to transform the Treasury into a policy department with overall responsibility for domestic administration.

Brown's second initiative involved the Bank of England surrendering its regulatory powers over the City to a newly created Financial Services Authority. This reflected Brown's admiration, shared by Blair, for the American neo-liberal model of deregulation and incentivised capitalism—a model which, by the end of Brown's chancellorship, had elevated Britain's attractiveness as a venue for foreign capital to rival that of the Cayman Islands in the IMF's estimation.

Brown's tenure and achievements

Brown held office for ten years and appeared, at least initially, remarkably successful. Despite his deteriorating relationship with Number 10, he operated in the manner of a medieval baron, beyond the reach of even the monarch. Occasional rumours suggested his possible removal from the Exchequer to the Foreign Office, but these never materialised. His ability to deliver economic success provided his greatest protection.

In the comprehensive spending review of July 1998, Brown announced his plans following the government's two-year spending freeze. These included £40 billion of additional spending over the following three years, directed especially towards health and education. Overall, Brown's tenure witnessed a decade of continuous, reasonably steady growth. He possessed one substantial advantage denied to previous Labour governments. Upon vacating Downing Street, Major claimed that the incoming government would inherit the most benevolent set of economic statistics since before the First World War. Though easily dismissed as self-serving rhetoric from a defeated Prime Minister, this assessment proved essentially accurate. Following ejection from the ERM, the Conservatives had discovered a successful economic strategy that had already produced nearly five years of sustained improvement, leaving the Tories expecting but never receiving the electoral benefits of a feel-good factor.

Under Brown, living standards continued to rise whilst unemployment moved downwards, inflation never escaped control, interest rates remained low and the pound strengthened by approximately 14%.

Assessment and subsequent criticism

Unlike any previous Labour Chancellor, Brown proved able to produce a continuous supply of figures and statistics whilst brooking no criticism. He convinced many observers that the "prudent" Chancellor had finally broken the cycle of boom and bust. This assessment represented nonsense, however. No Chancellor, however talented, could escape the economic cycle nor fully protect the country from downturns in the globalised world economy.

Since 2008, many of Brown's supposed achievements have been viewed in a substantially different light. Besides excessively light regulation of the banks, critics contend that he borrowed to excess, allowing the annual deficit and consequently the accumulated debt to rise remorselessly. By failing to build a budget surplus during good times—"mending the roof while the sun was shining"—he left Britain's economy more vulnerable than necessary to the international banking crisis. Additional Brown decisions—such as scrapping pension dividend tax credits in 1997 with damaging consequences for many company pension schemes, and the 1999 sale of a substantial portion of Britain's gold reserves at what proved to be deflated prices—now appear ill-advised.

Key figure: Gordon Brown (1951–)

Gordon Brown entered parliament in 1983 representing the Scottish constituency of Dunfermline East. As Shadow Chancellor from 1992, he developed Labour's economic policy in opposition and served as Chancellor of the Exchequer from 1997 to 2007—the longest continuous tenure since the nineteenth century. He succeeded Blair as Prime Minister in June 2007, serving until the 2010 general election defeat. Known for his intellectual capacity, command of detail, and often difficult personality, Brown exercised remarkable autonomy in economic policy-making, transforming the Treasury into a department with influence extending far beyond traditional fiscal matters. His relationship with Blair, initially a partnership, became increasingly strained, though both remained committed to the New Labour project.