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The clue to Gordon Brown Samuel Brittan: The Financial Times 26/09/03 If you want to know what the Blair government has been doing, as distinct from spinning, the best way into the subject is via the activities of the Chancellor, Gordon Brown, who has dominated the government's domestic agenda. Brown might not like to hear this, but it is doubtful if he could have achieved such domination if he had been Prime Minister. He would have been besieged by officials telling him that he must see the Ruritanian ambassador or fly to a conference in Montenegro and that he would have to accompany members of the royal family on key ceremonial visits. Even Brown would have been hard put to turn down all these requests in order to concentrate on "welfare to work". The British Chancellor's policy stances are seriously chronicled for the first time in a new book by William Keegan*. Brown comes from the heart of the Labour movement, for which Keegan has a strong affection, but he has also been controversial enough from the point of view of Labour orthodoxy to keep the author's critical faculties fully engaged. In the course of his narrative Keegan explains why - leaving aside Blair's charisma - Brown lost his position as front runner for the Labour leadership in the months up to the death of John Smith in 1993. As a conscientious shadow chancellor he lost popularity by his critical scrutiny of his colleagues' proposals for extra spending. There was another factor too. Although the undignified 1992 departure from the Exchange Rate Mechanism did most damage to the Conservative government of John Major, some of the blame rubbed off onto the Labour economic team, which had supported British membership enthusiastically. One aspect of this support that Keegan does not mention was that Smith had favoured ERM membership as a way of putting the lid on inflationary wage settlements - which would not be affordable under a fixed rate link - without having to go through the agonies of negotiating guiding lights and solemn and binding declarations with reluctant union leaders. This was not an argument that Smith shouted from the house tops, but I am pretty sure that I was not the only one present when he mentioned it to me. Brown's own beliefs went through at least three phases. First he was the red Scottish student who wanted to pull down the pillars of the establishment and who now seems to regret that the academic studies which he passed so brilliantly did not include enough political economy to tell him how to do so. There was the second Gordon Brown, Labour economics spokesman in opposition, who espoused the old economy mantra, also beloved by a section of British business: investment, training, the special importance of manufacturing industry, the export drive, a "competitive exchange rate" and all the rest. I have to admit that it is the middle period Brown for which I had least sympathy, but for which Keegan obviously feels affection. My first encounter with Brown was when I dared to ask whether the notable 19th century engineer Isambard Kingdom Brunel had any of the vocational qualifications on which the Shadow Chancellor seemed so keen. The greatest contemporary interest lies however in the third Gordon Brown, who began to emerge in the last years of opposition and who has espoused "prudent" finance with the aim of providing the wherewithall for a modern left of centre agenda. Brown's political instincts told him that the old Labour policies were risking a fifth election defeat, but he needed someone up to date in modern economics, but on whose political and personal loyalty he could rely one hundred per cent. "Cometh the hour, cometh the man." Keegan tells the story of how at the age of 26 Ed Balls became not only the shadow chancellor's economic adviser but his closest confidant. Although Balls had been a member of the Labour Party since the age of 16, his introduction to Brown apparently came about when the latter asked Richard Lambert, then editor of the Financial Times, if he knew of a bright young economist who might want to assist him. Balls was indeed the main architect of the monetary and fiscal framework which Brown established immediately after arriving at 11 Downing Street. Balls had been urging an operationally independent central bank even before he began to work full time for Brown; and he gradually won him over to the idea that such a bank need not bring a repeat performance of Montagu Norman's deflationary policies of the 1920s, but could release the chancellor's energy for supply side reforms. In the run-up to the 1997 election there were many meetings between Brown, Balls and Bank of England members which were authorised by the outgoing Conservative chancellor Kenneth Clarke. This was not quite as unprecedented as Keegan thinks. For similar contacts with Whitehall officials were authorised with Harold Wilson's team in the run-up to the 1964 election. Whatever else is the verdict of history, Brown will always be remembered for Bank of England operational independence. Balls is expected to stand for parliament at the next election. However far he goes in politics and in ministerial office he is unlikely ever again to have as much influence as he had in 1993-97 which he should remember in the words of an old British radio programme, as "the time of my life". There was nothing all that surprising in the low and stable rate of inflation, achieved once that was made the Bank's goal. What is striking was that this was accompanied by a drop in unemployment which went much further than a mere recovery from the 1992 recession and brought jobless levels to a low not seen since the 1960s. Part of the credit can be attributed to Gordon Brown's New Deal labour market policies, but at least as important have been the delayed effects of the Thatcher government's attack on union monopoly power, including its stand against the Scargill coal strike. There are long and variable lags in industrial as well as monetary policy; and it is ungenerous of Labour supporters to ignore this aspect. I am afraid that when the Chancellor loses the service of Balls he may come under the influence of more conventionally Labour economic advisers and try to reverse too much of the Thatcher legacy. I do not share Keegan's apparent regret that Brown has failed to soak the rich and has instead used the proceeds of stealth taxes both to attack child poverty and to finance in-work payments to low paid workers who would otherwise be hardly better off than on the dole. My main grouse is that Brown has carried selectivity - another name for the means testing he had denounced in opposition - to such extremes that one third of the tax credits are not taken up. This ties up with the frequent, but justified, criticism of Brown's obsessive micro-management. His recognition of entrepreneurship is all to the good, but is not best furthered by dozens of little initiatives and incentives, which the small businessman is likely to be far too busy to follow up or understand. Keegan is critical of Brown for accepting when he came to office in 1997 the first two years' spending plans of the previous Conservative government which he took more seriously than Clarke ever did. This was avowedly to create a platform for the public spending increases which have characterised Brown's later years. Keegan now feels obliged however to echo the now familiar fears that these spending plans may run into a funding crisis if they are carried forward many more years. With hindsight we can all think of better phasing. But the fact remains that there is no way in which public spending on services such as health and education can grow indefinitely faster than the national income without the tax burden having to rise to pay for them. Either the voters will have to lump this; or they will have to rethink the dogmas of that these services must be free at the point of delivery. Keegan's most serious economic criticism is of the "one club golfer", by which is meant exclusive use of interest rates for demand management. This has left, it is alleged, a divided economy with rising consumer spending and soaring debts but an enfeebled manufacturing and export sector. Here he would find an echo among many financial analysts. Consumer debt will eventually have to at least stop rising faster than the national income if it is not to become explosive. If we knew whether this can be done with a soft landing we would be able to give a verdict on Brown's prudence. As we do not, we will have, with the author,to wait and see. *William Keegan, The Prudence of Gordon Brown, Wiley
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