It's time to put the Tory spin aside and re-assess Brown's economic recordby Robert Skidelsky / December 10, 2017 / Leave a comment
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.