There are many admirable aspects of the British finance minister’s strategy but it risks being spoilt by fussy interventionism

It is no news that the economic and social programme of the British Labour government is largely the creature of Gordon Brown, the finance minister. But what exactly is the strategy he is following and how valid is it?

The first contribution made by Mr Brown was to sell the idea of sound finance to the Labour party. He saw previous Labour governments come adrift, running into unexpected economic crises. He saw no reason why a radical government should be an inflationary one. Hence the operational independence for the Bank of England. Nor does his kind of social democracy see any virtue in budget deficits. What has enabled him to arrive at this position is his acceptance of Milton Friedman’s view that there is no long-term trade-off between unemployment and inflation. Here Ed Balls, his adviser, has played a key role.

The technical objection of the International Monetary Fund and the European Commission to the UK strategy is that it ultimately involves government borrowing of 1 per cent of the national product to help pay for public investment. Even so, expected debt is far below the Maastricht limit. The real argument is on the realism of Treasury projections.

All this, however, is preliminary in the Brown catechism, which is “prudence for a purpose”. One purpose is the reduction of the productivity gap between Britain and its trading partners. Here I am more sceptical both of the aim and of the statistics. More people are in the labour force in the UK than in other European countries, more of the labour force is at work and working hours are longer. All these aspects are almost inevitably associated with lower output per hour. British governments have been preaching about productivity since the missions that a former finance minister, Stafford Cripps, sent to the US in the late 1940s. It is difficult to get them to understand that growth and productivity are - like happiness - best achieved by not aiming for them directly.

A further pillar of the Brown strategy, and probably the most important, is redistribution. The great virtue of free markets is the scope they give for freedom of choice. There is, however, nothing inherently just in the pattern of market rewards that reflects the accidents of heredity and the skills that happen to be in demand, whether for pop stars or chamber musicians. The most difficult and subtle art is to accept this fact without jumping to the totalitarian conclusion that all income belongs to the state. In practice Mr Brown has redistributed income to lower paid workers and to families with children. This is admirable. Poverty is chiefly associated with large families or lack of work; and the children did not ask to be born.

Redistribution has acquired a bad name because it has been associated with the politics of envy. It has also sometimes been carried out in such a way as to interfere quite unnecessarily with incentives. The most objectionable kind of penal taxation is high rates on marginal income, which under previous Labour governments have exceeded 90 per cent. This entrenches the position of those who already own wealth or who can take their rewards in the form of capital or profes-sional perks, while discour-aging those who want to better themselves without the aid of tax consultants.

So far the finance minister has a good record here, although the veto imposed by Tony Blair on raising the higher rate of income tax above 40 per cent has contributed a great deal. What some of Mr Brown’s allies do not understand is that a top income tax rate of 50 per cent, which some of them would like, in practice amounts to 60 or 70 per cent if indirect taxes are taken into account.

The focus on getting back to full employment fits in with the rest of the pattern. Full employment is an admirable goal if it means that workers are not prevented from taking jobs because of lack of demand for their services or because it does not pay them to move from the dole to low-paid jobs. But the exercise changes from enlightenment to harassment once pressure is put on people, whether unmarried mothers or lotus-eaters who would rather sit in the sun. There is a slight chance that a modest “stakeholder” endowment for every adult on coming of age may appear in the Labour manifesto, thus starting in a very small way to spread the benefits of capital ownership and unearned income to everyone. If it does not, it will be a victory not for prudence but for the more authoritarian part of Labour’s tradition.

Finally, I come to a genuine philosophical divide. Mr Brown believes that the distinguishing feature of the left in politics is its belief in a positive role for government, whereas others believe that its most valuable tradition is its opposition to oppression of all kinds. The finance minister cannot advocate motherhood or apple pie without providing a tax incentive for one and regional bodies for the other. The many special schemes and concessions, which are meant to encourage businessmen, are driving many up the wall.

The minimum wage has been justified by some with the cynical thought that it is too low to do much harm. With the latest increase of 10 per cent, we may start to see damage to employment prospects.

But the real harm of such measures, as Friedrich Hayek explained in The Road to Serfdom, is that “persons whose qualifications are not of the standard type, or whose temperament is not of the ordinary kind, will no longer be able to come to special arrangements with an employer”. Someone “who prefers irregular hours or even a happy-go-lucky existence with a small and uncertain income to a regular routine will no longer have the choice”. Mr Brown, who is a historian, may remember a remark of an earlier radical, Thomas Jefferson: “That government is best which governs least.”