ECONOMICS: It should have been three hours longer
Budget 2003
Moaning that things are not what they used to be is often a sign, if not necessarily of senility, then at least of middle-aged hardening of the arteries and a tendency to see the past through rose-tinted spectacles. In this case, however, there is objective evidence for saying that budgets aren’t what they used to be.
Once upon a time, budgets used to be exciting. Gladstone and Lloyd George set the precedent, and the political agenda, by delivering great theatrical occasions. Churchill clothed his lack of any economic strategy with splendid rhetoric. Hugh Dalton was sacked in 1948 for leaking the budget to a journalist as he was on his way to deliver it – it appeared in the evening papers before he got to his feet. In truth, Dalton was a scapegoat for the convertibility crisis of 1947, in which the US loan was squandered and the country ran out of coal for domestic use. Dalton’s successor Stafford Cripps had to restore economic balance by two years of unprecedented austerity, including bread rationing, before finally seeing sense and devaluing the pound in 1949. (Incidentally, Cripps cost Labour her majority in 1950, by insisting the election be held in February, as he thought it morally wrong to influence the electors by having a budget before the election). Cripps’ successor Gaitskell split the cabinet by introducing prescription charges – an early example of the friction which ensues when socialist aspirations meet reality – and won a reputation for integrity which made him party leader, in which post he antagonised his entire party. Rab Butler, in 1955, cut taxes to get the Conservatives re-elected, then later in the year held a second budget and put them up again, which I suppose proves that people get the politicians they deserve. Another Labour chancellor, Jim Callaghan, was greeted in Downing Street every night by a picket of Young Conservatives chanting “Traitor! Resign!” followed after a pause by “Goodnight, sir”.
More recently, I have an early childhood memory – it would have been about 1976 or so, in the days when TVs came one to a household, Mums took no interest in politics, and Labour had bankrupted the country within two years of coming to power – of being thrown off children’s television so that my Dad could watch the budget news (not the budget itself, as this was long before the House of Commons was televised). More recently still, Lawson’s 1988 Budget, which boosted the budget surplus by reducing to 40% the discriminatory confiscation suffered by the successful, caused outrage among bien pensant liberals everywhere. I was on a schools’ debating tour at the time, so I had the benefit of my teacher exchanging spasms of self-righteous indignation with his counterparts at every school we visited (my teammate’s name happened also to be Lawson, a fact which seemed to act as a permanent irritant, as was our insistence that if he thought the tax cut morally wrong he should donate his extra money to charity).
The 2003 budget, by contrast, was not exciting. I spent lunchtime down the gym, as I generally do midweek, and found on my return that the budget had passed without incident. Nobody could remember what had happened, and the proposals, when I found them five hours later on the front page of the Evening Standard, were of very little interest. “Not really sure how the Budget speech managed to last for 1 hour” as one of my brokers put it in his morning summary. The possible reasons for this will be explored below, but a few further thoughts on the dullness of recent budgets are in order.
Spreadbetting companies have been suffering great difficulty in attracting bets on the budget. The length of the speech is no longer worth betting on – Brown sticks to a regular 55 minutes or so. His number of sips of water, another traditional subject of betting, is also equally well-disciplined. The actual proposals are usually too well-trailed in the press, to gauge public opinion, to be worth betting on. Instead the bookies have been reduced to offering spread bets on Brown’s rhetoric – how many times he mentions words like “Saddam”, “Iraq”, “war” (meaning: don’t blame me for the tax rises), or “enterprise” and “flexibility” (meaning: talk about these things, and hopefully people won’t notice that I’m doing the opposite). Or, as a work colleague put it, “Why not just bet on how many times he says 'I’m a wanker'? ”
As the last comment reminds us, the shine has rather gone off Gordon Brown’s reputation in recent years. This Labour government was supposed to mark a new departure in economic policy. Every previous Labour government, except for the brief one in 1924, has messed up its economic management through overspending, requiring devaluation and stringent spending cuts or tax rises to get the budget back in balance. The pattern was broken by the Major government, re-elected by fluke in 1992, which did what Labour governments traditionally do – trying to hold a fatuous fixed exchange rate (the DM2.77 ERM floor), with the inevitable messy devaluation, and putting up taxes (VAT on fuel in 1993) to pay for the pre-election spending spree – and cost the Tories their reputation for economic management. Brown, by contrast, was able to look “prudent”, and take the credit for eighteen years of Conservative tax cuts and labour market deregulation. Make no mistake about it, for at least two generations prior to 1979 Britain was the worst-performing of the major economies – and during the 1990s it has been the best-performing, so far even managing to avoid the post-2000 recession altogether. Brown was able, rather unjustly, to take the credit for this.
Among those who follow economics, this reputation is now starting to change. Listening to the budget, you would never have thought that his forecasts had turned out to be badly wrong (had he admitted the error, steps could perhaps have been taken to improve the accuracy of forecasting in future). In 2002 he forecast growth of between 3 and 3.5% in 2003. This has now been cut to 2 to 2.5% (the IMF think 2% is nearer the mark), leaving a £10 billion shortfall. With public spending rising at the fastest rate since 1975 (all those public sector jobs in The Guardian's 'Society' supplement, for you see, there is such a thing after all), he is having to borrow £96 billion over four years, the largest deficit since Lamont’s time, and three times what was planned for. Unless growth picks up, sooner or later interest rates or taxes will be pushed higher. On top of that, pension funds have been decimated by a then-little-noticed tax introduced back in 1997, and last year’s post-dated NI rises are about to come into effect. The freezing of personal allowances (another de facto tax rise) was glossed over with little comment. Council tax has gone up 15% or more in some London boroughs, to pay for spending in the north of England.
A lot of attention was given to the change in the method of calculating inflation, which Brown clearly hopes will enable further interest rate cuts, and in turn a boost to growth. Well, he may get lucky, but my recollection of the early nineties is that, once recession starts to bite, it takes a year or two of low interest rates for any benefit to start to appear.
For all his sceptical noises about the euro, he has always seemed bent on imposing all the other regulatory burdens of euroland upon Britain. You would never think, to listen to his recitation of complicated tax breaks for industry, that productivity growth has halved since 1997. But there was no admission of error amid the barrage of statistics. All we needed to complete the picture was al-Sahaf, the comical Iraqi Information Minister, announcing that house prices were rising and taxes had been cut, whilst bullets flew in the background and jubilant mobs tore down statues of Tony Blair.
How did it all go wrong? How did “prudent” management allow the housing boom to take place, for example? To be fair booms are hard to spot until they are really out of control, as there is never any shortage of economists explaining that this time it is different. Genuinely prudent policies are never popular – one of the most unintentionally comical moments of my time in politics was listening to a speech by Cecil Parkinson back in 1995, in which he berated Nigel Lawson for having failed to keep a lid on inflation, and then spent the rest of his speech attacking Eddie George, Governor of the Bank of England, for: keeping a lid on inflation. The rest of the audience sadly didn’t see the funny side, but instead lapped it up. Once a boom is out of control, the unpopularity of reining it in is usually too horrible to contemplate; instead slight measures are resorted to, and a soft landing hoped for. We saw this with Alan Greenspan, another man whose reputation now looks distinctly tarnished, and his talk of “irrational exuberance” in the US stock market. Of course, this seldom works, and by then the crash is usually, sooner or later, inevitable. Now that we are in this mess, “An end to Tory Boom and Bust” is one piece of rhetoric which has been quietly dropped from the Brown lexicon.
Why didn’t he do more to cut the deficit (the option of cutting the “prudent” spending now that the growth is no longer available was apparently not considered)? It is hardly likely, with the economy continuing to turn down, that things will improve naturally. If he had wanted to put taxes up, now, with the General Election still two or three years away, was the best chance he was ever going to get. There was talk of increasing VAT to 20%, or putting the top rate of income tax up to 50%, but nothing actually came of it. My guess is simply that he did not want to court unpopularity and risk his chance of succeeding Blair if any foreign policy disaster yet leads to regime change at Number Ten.
In two months’ time a decision needs to be made on British entry to the euro, but as Brown’s supposed opposition is largely a tactical power-play, this is unlikely to lead to an open breach. Nor should anyone ignore the possibility that Blair might want to carry on dominating the agenda by taking Britain into the euro whilst trying to bring about a “New Europe”. Domestic reforms are a more fruitful potential source of trouble. Brown is an enemy of reform of social security, health or education. It was painfully obvious last year that his answer to the problems of the NHS was simply to throw money at it, a policy which has so far led to a spending rise of 20%, and a 2% improvement in treatment. Actually, the answer to the problems of the NHS is for the public to stop expecting all healthcare to be provided for free by the state, but that day is probably still a while off. In the meantime confrontation looms over Foundation Hospitals, which may yet see further friction between Blair and his own backbenches. Gordon has positioned himself to take advantage if catastrophe does strike Blair, and for that reason alone it is hard to imagine Blair actually sacking him.
Napoleon is supposed to have said that, to understand a man, you have to know what was going on in the world when he was twenty (actually Captain Bonaparte was just short of twenty-three when he saw the Paris mob storm the Tuileries and butcher the Swiss Guards, but we’ll let that pass. There are reliable contemporary accounts that he told bystanders that such things would not be allowed “if he were King”.) When Gordon Brown was twenty, in 1971, Labour was beginning its swing to the hard left. The trade unions were out of control – having prevented Barbara Castle from reforming them, they brought down the Heath government, and then made a misery of the Callaghan government. Tony Benn, the Industry Secretary who famously “immatured with age”, was planning to nationalize great chunks of British industry. It is hard not to believe that Brown, in his addiction to the public sector, and lack of any real understanding of what business is for, except as a source of profits to be confiscated, was moulded by this.
Brown first emerged to public prominence in 1988-9, particularly when he acted as acting Shadow Chancellor after John Smith’s first heart attack, and was able to score off Nigel Lawson when the latter had allowed the boom to run out of control and was perceived to be failing (if only the Tories had some up-and-coming figure to do the same to Brown now. A skilled debater could make a laughing-stock of the Chancellor). After the 1992 election he was Shadow Chancellor, and played a key role in having Labour abandon any notion of a socialist macroeconomic policy, a stance epitomized by Bryan Gould. Ironically, his support for the failed Exchange Rate Mechanism contributed to his decline in popularity in 1993, as did his prominence in cutting the role of trade unions at Labour conferences. John Smith’s death in 1994 thus came at a bad time for Brown, and Tony Blair, who had only just emerged as a First Division player with his “tough on crime, tough on the causes of crime” soundbite (a hollow boast now and a soundbite which, ironically, Brown had invented for him) seemed like a fresh, new face, better suited to appeal to Middle England.
Brown, knowing he would lose, did not even stand for the leadership against Blair. Since then, he has positioned himself carefully slightly to the left of Blair on almost every issue, whilst nursing an ill-disguised grudge about Blair’s failure to retire and allow him to take over, supposedly promised over dinner at an Islington restaurant back in 1994.
Brown showed his true colours in the disgraceful Laura Spence affair of 1999. A girl from a northern comprehensive was turned down for a place at Oxford to read medicine, and her headmaster complained that this was as a result of discrimination – a claim loudly taken up by Brown and a claque of Mirror hacks. Brown was completely wrong on the facts of the particular case – many of the dons who interviewed her were Asians (hardly the old school tie in action), the successful candidates were all equally well qualified (a comment, in itself, on exam grade inflation), and Laura Spence, who later denied having been ill-treated by Oxford, was offered a place to read a different subject, which she instead decided to read at an American university. As to the general case, anybody who knows anything about Oxbridge could have told Gordon Brown that public schools do well despite being actively discriminated against by (often chippy) admissions dons. But no apology was forthcoming from Mr Brown. What was worrying about the whole business was that, instead of tackling the root of the matter – academic underachievement and stifling of ambitions at comprehensive schools – Brown’s first instinct was instead to attack and seek to level down the centre of excellence. Since then it has become government policy to persecute universities that fail to recruit students according to Labour’s socio-economic criteria.
Brown is often praised for his intellect (i.e. his grasp of nitpicking detail – the lack of strategy has lately become painfully apparent), but as is so often the case, his dominance comes from force of character, both moral and physical. In the flesh he is, like Kenneth Clarke, physically large and threatening in a way which doesn’t come across on television. There are plenty of stories of him knocking doors open and barging into meetings, sometimes even those chaired by the Prime Minister. We never hear the last of Brown’s feuds with Robin Cook, Peter Mandelson and others – although, since we don’t hear of their feud with Brown, it is fair to assume that the bulk of the bile probably comes from his side. He is a man who likes to get his own way, and it is easy to imagine him being almost impossible to argue with.
If Blair fell under the proverbial bus, it’s hard to see who else other than Gordon Brown would succeed him, no matter how much others dislike him. Labour also have something of a tradition of Buggins’ Turn in these matters – Callaghan and Foot being cases in point, although Denis Healey was for some reason not seriously considered in 1983. John Smith in 1992 was another example. It is hardly likely that Gordon Brown as leader would increase Labour’s electoral appeal to Middle England.
It was thought in 1989, after the Berlin Wall fell, ending communism, that socialism was finished as well. Instead, socialism reinvented itself and conservatism, lacking an enemy, went into eclipse. After five years or so in which Labour governed moderately with the express purpose of getting themselves re-elected, politics has recently got a lot more interesting. Brown’s line “If you want tax cuts, which schools and hospitals would you cut?” is a lot less convincing when people have paid more tax and got no result, when the NHS has more administrators than beds, and when the North London primary school of which I am a governor is currently cutting staff numbers to accommodate teachers’ pay rises. In Foreign Policy as well, a real divide is emerging between those who hate Israel and the United States, and those who think the current crisis shows once and for all that Britain is part of the Anglosphere, not of euroland. The purpose of the Tory Party has since the 1790s always been to oppose the agenda of the Left. Now that a new Left agenda is emerging, the Tories, whatever their current difficulties, should soon be back in business.
James Steerforth works in the City.
James Steerforth, October 4, 2003 10:34 AM