Listen: Skidelsky discusses Brown's record with Prospect's Tom Clark in the latest episode of "Headspace"
Gordon Brown’s economic performance needs rescuing from the condescension of Conservative spin. The spin was that Labour’s self-styled “prudent” Chancellor left the public finances in a terrible mess, which needed to be cleared up by the incoming Cameron Government of 2010. It was Labour’s extravagance that caused Tory austerity. But this is a parody of the truth.
On arriving at No 11 in 1997, Brown declared his golden rule: “over the economic cycle, we will borrow only to invest.” He also decreed a “sustainable investment” rule that total public debt would not grow faster than the economy. Between 1997-8 and 2006-7, the balance on the government’s current account (that is, with investment spending stripped out) averaged 0.1 per cent. Over the same period, total public sector net borrowing averaged 1.6 per cent, which was more than manageable. Since economic growth averaged 2.8 per cent, the national debt fell from 43 per cent of GDP to 37 per cent. Meanwhile, unemployment fell from 7 per cent to 5 per cent, and inflation averaged a little over 2 per cent. All in all, Brown could—and did—claim he’d stuck to his fiscal rules.
But his claim was less robust than it seemed. First, the healthy pre-crash current account was achieved by balancing early surpluses against later deficits. In other words, the problem was increasingly kicked down the road. By 2006-7, it would have been challenging to have maintained the golden rule over the next cycle—even without the 2008 collapse. Secondly, the capital budget was flattered by extensive use of the Private Finance Initiative. Capital expenditure on hospitals, schools etc was kept off the government’s books but at the expense of higher costs later on.
Neither of these relatively minor blemishes, though, explains why the structural deficit—the bit, in George Osborne’s phrase, that “doesn’t go away” when the economy recovers—ballooned from 2.7 per cent in 2007-8 to 11.8 per cent in 2009-10. This was at the heart of the Conservative attack on Brown. The main reason for this ballooning, however, was the delusion, fully shared by the Tories, that the City of London was a reliable source of state revenue.
What was by then Osborne’s Treasury rightly pinpointed this as the source of the problem in June 2010: “a property boom and unsustainable profits and remuneration in the financial sector in the pre-crisis years drove rapid growth in tax receipts. The spending plans set out in the 2007 Comprehensive Spending Review were based on these unsustainable forecasts. As tax receipts fell away during the crisis, the public sector was revealed to be living beyond its means.” The pact with the Mephistopheles of high finance, undertaken for understandable reasons, was Brown’s undoing.
And yet his finest hour arrived following the collapse of Lehman Brothers in 2008, when he emerged as the de facto leader of the world economy. He was clear about what had to be done: first the banking system had to be rescued by a large injection of capital; then the world economy had to be restarted with a huge stimulus. Both steps needed to be coordinated with other countries. “Global problems,” he said, “need global solutions.” The G20 communiques of this period, mainly crafted by Brown, could have been important milestones in the development of global economic government. However, while Brown was engaged in “saving the world,” his domestic political base was crumbling.
The fact that “Keynesian” measures had averted a life-threatening collapse of the world economy somehow came to be seen as less important than the fact that governments were left with rising budget deficits. Brown was unable to see off the relentless political attacks, or what his Chancellor, Alistair Darling, called the “Taliban wing” of the Treasury, clamouring for retrenchment. This fine memoir will help give him the recognition and respect that is his due.
NOW READ: an exclusive look at the unused Gordon Brown posters for the election that never was
Gordon Brown’s economic performance needs rescuing from the condescension of Conservative spin. The spin was that Labour’s self-styled “prudent” Chancellor left the public finances in a terrible mess, which needed to be cleared up by the incoming Cameron Government of 2010. It was Labour’s extravagance that caused Tory austerity. But this is a parody of the truth.
On arriving at No 11 in 1997, Brown declared his golden rule: “over the economic cycle, we will borrow only to invest.” He also decreed a “sustainable investment” rule that total public debt would not grow faster than the economy. Between 1997-8 and 2006-7, the balance on the government’s current account (that is, with investment spending stripped out) averaged 0.1 per cent. Over the same period, total public sector net borrowing averaged 1.6 per cent, which was more than manageable. Since economic growth averaged 2.8 per cent, the national debt fell from 43 per cent of GDP to 37 per cent. Meanwhile, unemployment fell from 7 per cent to 5 per cent, and inflation averaged a little over 2 per cent. All in all, Brown could—and did—claim he’d stuck to his fiscal rules.
But his claim was less robust than it seemed. First, the healthy pre-crash current account was achieved by balancing early surpluses against later deficits. In other words, the problem was increasingly kicked down the road. By 2006-7, it would have been challenging to have maintained the golden rule over the next cycle—even without the 2008 collapse. Secondly, the capital budget was flattered by extensive use of the Private Finance Initiative. Capital expenditure on hospitals, schools etc was kept off the government’s books but at the expense of higher costs later on.
Neither of these relatively minor blemishes, though, explains why the structural deficit—the bit, in George Osborne’s phrase, that “doesn’t go away” when the economy recovers—ballooned from 2.7 per cent in 2007-8 to 11.8 per cent in 2009-10. This was at the heart of the Conservative attack on Brown. The main reason for this ballooning, however, was the delusion, fully shared by the Tories, that the City of London was a reliable source of state revenue.
What was by then Osborne’s Treasury rightly pinpointed this as the source of the problem in June 2010: “a property boom and unsustainable profits and remuneration in the financial sector in the pre-crisis years drove rapid growth in tax receipts. The spending plans set out in the 2007 Comprehensive Spending Review were based on these unsustainable forecasts. As tax receipts fell away during the crisis, the public sector was revealed to be living beyond its means.” The pact with the Mephistopheles of high finance, undertaken for understandable reasons, was Brown’s undoing.
And yet his finest hour arrived following the collapse of Lehman Brothers in 2008, when he emerged as the de facto leader of the world economy. He was clear about what had to be done: first the banking system had to be rescued by a large injection of capital; then the world economy had to be restarted with a huge stimulus. Both steps needed to be coordinated with other countries. “Global problems,” he said, “need global solutions.” The G20 communiques of this period, mainly crafted by Brown, could have been important milestones in the development of global economic government. However, while Brown was engaged in “saving the world,” his domestic political base was crumbling.
The fact that “Keynesian” measures had averted a life-threatening collapse of the world economy somehow came to be seen as less important than the fact that governments were left with rising budget deficits. Brown was unable to see off the relentless political attacks, or what his Chancellor, Alistair Darling, called the “Taliban wing” of the Treasury, clamouring for retrenchment. This fine memoir will help give him the recognition and respect that is his due.
NOW READ: an exclusive look at the unused Gordon Brown posters for the election that never was
