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Culpability Brown
His Scottishness reinforced his reputation for being careful with our money. Commentators praised him for his steadfast determination in structuring the British economy on the US private model rather than the French and German social models- resulting, we were told, in the UK being more enterprising and dynamic than the stagnant economies of France and Germany.
Although they were implemented without fanfare, his tax credit schemes, which redistributed money to low income working families, were ameliorating some of the absolute poverty which had grown under the Conservative Thatcher and Major governments.
He also seemed to be a master of the electoral game. When the Labour Party's most recent general election campaign began to falter, he was given charge of it, putting an end to the ambitions of Conservative leader Michael Howard. He was unscathed when it emerged that the Government had lied about Iraq. While Prime Minister Blair's visions seemed to have taken too much possession of him, Chancellor Brown exuded reliability.
In 2005, The Guardian reported on an opinion poll of British voters:
"The ICM poll... shows that Gordon Brown has replaced Tony Blair as Labour's biggest electoral asset with the chancellor enjoying the same kind of cross-party respect that the prime minister had before his 1997 and 2001 general election victories."
And according to the YouGov polling organisation:
"In YouGov’s 2005 post-budget poll Brown was seen as an asset rather than a liability by 63% to 16%, and his job approval figures were 61% to 19%."
But 2005 already seems like part of a previous era- before the emergence of David Cameron as leader of the Conservative Party; before prominent New Labour politicians, supposedly with the connivance of Tony Blair, used the media to impugn Brown's character and suggest that he is inadequately committed to the ongoing 'reform' of the public services (ie, that he is 'Old Labour' in disguise); and before the pro-Conservative newspapers succeeded in presenting Britain's future Prime Minister as "Greedy Gordon" the "conman" [Daily Express], the man who imposes stealth taxes, the man who:
"...claimed he was merely ironing out unfair tax breaks... [but] he knowingly took actions which devastated Britain's pensions industry" [Daily Telegraph]
The combined New Labour and Conservative anti-Brown campaigns have been highly effective. Reuters reported on 7th April 2007:
"...only 27 percent of 2,218 people questioned in a YouGov poll thought Brown was fit to be prime minister... Fifty-seven percent thought him unfit... The poll showed Britons were losing faith in Brown's stewardship of the economy -- his strong point until now."
The English local elections and the Scottish Parliamentary election will take place on 3rd May, and it is predicted that the Labour Party will lose seats to the Conservatives in England and to the Nationalists in Scotland. Although Gordon Brown will not take over from Tony Blair until June or July, the media is presenting these elections as a referendum on Brown's competence as future Prime Minister of Britain.
The contenders
What are the attacks on Gordon Brown all about? The onslaught against him by his own cabinet and ex-cabinet colleagues is particularly mystifying. Grudges built up over ten years of government, combined with personal opportunism, may account for some of it. And having spent months working to reduce Mr Brown's popularity, they now express concern about his low poll ratings; this concern then becomes a reason for seeking to challenge him for the leadership. This is how Bloomberg News puts it:
"Environment Secretary David Miliband is under pressure to mount a leadership bid as members of the ruling Labour Party and Cabinet colleagues grow increasingly concerned about Brown's standing with voters."
Fraser Nelson, Political Editor of the Spectator, (the Conservative intellectual magazine) notes that the structure and nature of the Labour Party make it almost inevitable that Brown will succeed Blair when the latter retires:
"A third of the votes go to the trades unions, whose only dilemma is whether to choose Mr Brown or a lunatic alternative such as [the left-wing candidate] John McDonnell. Next come Labour parliamentarians — and the Brown team now believe they have 200 of the party’s 352 MPs on board. Finally there are party members, who still believe, by some margin, that Mr Brown is their best option."
Given this fact, Fraser Nelson raises the question of why Dr John Reid, who is currently Home Secretary, is seeking to encourage David Miliband to declare himself as a leadership candidate against Brown:
"So what, then, is Mr Reid playing at? He knows Labour’s electoral dynamics better than anyone — yet is behaving as if the field is wide open."
Nelson, noting that Brown has been forced under this pressure to offer some top cabinet positions to politicians in the Blairite camp, suggests:
"...that may well be the goal: to force the Chancellor to share power, perhaps with Mr Reid in the Home Office and Mr Miliband in a green super-ministry."
So they want jobs and a part of power for their faction. But what of the policy differences between the factions?
Kaletsky's grid
Anatole Kaletsky, who is Associate Editor of the Times and its chief commentator on economic matters, recently wrote an article which throws some light on this issue.
Kaletsky asks:
"Is Gordon Brown far to the left of Tony Blair? Will Brown, an unrepentant socialist, abandon the ‘New Labour’ project? Will the Blair-Brown transfer of power signify a return to the miserable days of Old Labour? With the Blair government in its death-throes, these are the questions that will dominate British politics in the year ahead."
Kaletsky chose a little-known journal, the Liberal, to explore this matter; one presumes that consideration of these dominant questions was considered too obscure for publication in the Times, or even in the Economist, for which Mr Kaletsky also writes. He cautions:
"It is a platitude that modern politicians can no longer be positioned on a simple Left-Right axis, but this does not mean that Left-Right concepts are irrelevant in trying to understand the Blair-Brown transition."
Reviewing the history of socialist thought and practice, Mr Kaletsky draws up a grid composed of three axes to help us work out who is right and who is left. The first axis is, "who control[s] the economy and own[s] the means of production?"; the second is "income redistribution and poverty alleviation"; the third is the matter of "state provision of public services – especially health, education, pensions and housing."
Considering the first axis, Kaletsky remarks approvingly:
"Not only has Brown proved a competent steward of the capitalist economy, but his attitudes to regulation, taxes, employment legislation and European social initiatives have been generally pro-business. As Chancellor, he has been the main cabinet opponent of most business regulations, especially those emanating from Brussels. By contrast, the Blairites appointed to run the departments directly responsible for most regulations – employment, trade and environment – have generally been much more willing to intensify regulations, whether at the behest of European lobbies or in response to short-term political pressures, media scares or special interest groups. Thus, on the most fundamental question of socialism – whether the economy should be dominated by the state or the market – Brown is even less of a socialist than Blair."
On income distribution, Gordon Brown also passes Kaletsky's test:
"Brown has done more than most Chancellors for Britain’s poorest citizens, but his redistribution has not been of the traditional socialist kind. Instead of ‘squeezing the rich until the pips squeak’ with high income taxes, he has imposed less punitive ‘stealth taxes’ on the middle class. Meanwhile, for the rich, Brown’s cuts in capital gains and corporation taxes... have arguably been more generous than Margaret Thatcher’s reforms. In terms of income redistribution, therefore, it is difficult to see why Brown is to the left of Thatcher, never mind Blair."
Kaletsky might have added that, instead of increasing universal flat-rate state benefits, which have traditionally been supported by socialists, Gordon Brown has followed previous Conservative policy by relying on means-tested benefits to alleviate poverty- though again, he has been 'more generous'- to the poor as well as the rich- than his Conservative predecessors.
Kaletsky concludes by examining Brown's position on the third axis:
"While Brown has opposed Blairite policies on school and hospital autonomy, he has championed private financing for public transport and hospital construction. He was furious about Blair’s decision to increase NHS funding to EU levels and fought doggedly against the Prime Minister’s expensive plan to upgrade state pensions in line with average earnings, and seems genuinely determined to halve the growth of spending on the NHS.
"Brown may be more sympathetic than Blair to state monopolies in health and education, but he is also more worried about the economic implications of growing public spending, and more aware of the inevitable tensions between a capitalist economy and a welfare state. In this respect, then, as in many others, Brown is probably more ‘New Labour’ than Blair."
Kaletsky makes a good case that Brown is to the right of Blair, and in some ways to the right of Thatcher. And yet they, the post-Thatcherites of the press and the future post-Blairites of his own party, still hate him; and, as Guardian writer Polly Toynbee put it, they are busy trying to 'paint Gordon red'.
Kaletsky's grid is useful, but leaves much to be explained. Gordon Brown has been complimentary to, and in a way also the antithesis of both Blair and Thatcher. They were wild-eyed visionaries. Brown, steady and practical, made the necessary compromises which achieved some of their objectives while preventing, at least in the short to medium term, economic and social meltdown.
In doing so, his actions have revealed something which neither Conservatism nor New Labourism wishes to admit.
False springs
In the recent pages of the Daily Telegraph and the Daily Express, Gordon Brown's original sin, his first and worst 'stealth tax', is his abolition of the Advance Corporation Tax Credit for pension funds in 1997. But to find the roots of the New Labour 'stealth tax' phenomenon we must go back five years earlier.
Old Labour was honest Labour. It openly recognised that improvements in social welfare and public services had to be funded by higher taxation. The Thatcherism which followed the defeat in 1979 of the last Old Labour government, discarded the concept of social welfare and declared that the efficiency which would be created by market forces would lead to better public services being delivered at less cost.
The Thatcherite movement was an expression of frustration with the high rates of corporation and progressive income tax, state involvement in industry, and state social provision, which had been the pattern in Britain (and in most of the developed world) since World War 2; they regarded this 'mixed economy' or 'third way' (between full-blooded capitalism and socialism) as a hinderance to entrepreneurialism, restricting the scope for high profits and high disposable incomes, and allowing too much power for the trade unions.
These ideological Conservatives had forgotten that the post-war 'third way' had emerged not only in response to working class and socialist campaigns. It was also a means of saving capitalism from itself, by moderating the power of the free market. As had been seen during most of the 19th Century, and again during the 1920s and 1930s, when left to itself the market resulted always in mass impoverishment and recurring and increasingly catastrophic economic crises.
Paradoxically, the actual levels of both taxation and public spending under Thatcher increased; North Sea oil revenues filled government coffers, while state benefit payments to the millions of unemployed drained them.
By the early 1990s, public dissatisfaction with the effects of the Conservative 'rolling back of the state', which had caused crumbling infrastructure, a re-emergence of boom-to-bust in the economy, increases in absolute as well as relative poverty and even the establishing of cardboard shanty towns of homeless people in the major cities, was growing.
The last Old Labour manifesto, produced for the 1992 general election, opened with a poem by the Liverpool writer and performer Adrian Henri, which captured the sterility and desolation of the time and promised a gentle red dawn:
Winter ending
'A cold coming we had of it'
huddled together in cardboard cities,
crouched over shared books in leaking classrooms,
crammed into peeling waiting-rooms,
ice stamped into crazy-paving
round polluted streams.
Winter ending:
paintings, poems bud hesitantly,
tentative chords behind boarded facades;
factories open like daffodils,
trains flex frozen rheumatic joints,
computer-screens blink on
in the sudden daylight.
As the last cardboard boxes
are swept away beneath busy bridges,
the cold blue landscape of winter
suddenly alive with bright red roses.
John Smith, who was Shadow Chancellor under Labour's Leader Neil Kinnock, had produced a 'Shadow Budget' which showed how the necessary regeneration could be funded by modest tax increases for higher income earners.
But although it was ahead in the opinion polls, Labour lost the election. A likely explanation was that, on their way to the polling stations, middle to high income voters, who had been persuaded by the right wing press that the party's plan to increase the higher rate of income tax and raise the level of national insurance contributions for better paid employees would leave them financially worse off, felt their wallets and decided to vote Conservative.
The league of Chancellors
After re-branding the party as New Labour, removing the socialist 'Clause 4' from its constitution and winning the support of sections of big business including the Murdoch press empire, Blair and Brown entered government with a landslide victory in May 1997. Their manifesto was heavily infuenced by the idea of a new 'third way', this time not between socialism and rampant capitalism, but between the previous mixed economy 'third way' and rampant capitalism.
The New Labour manifesto pledged that the government would rectify the social division of the Thatcher and Major years, and make improvements in health and education, not only without increasing income tax but also while reducing government debt, which had grown to almost 44% of GDP under John Major.
The only tax rise proposed in their manifesto was the 'Windfall Tax' on highly profitable privatised utilities; this was a one-off which would raise a useful £5.2 billion over two years. But the new Chancellor knew that to deliver on these promises would require additional long-term regular sources of income, and/or reduction of other expenditure. Like John Smith, he had done the sums, this time with the help of experts from top US accounting firm Arthur Anderson, pioneer of 'creative accounting'.
The right wing press is stretching a point by describing the abolition of the Advance Corporation Tax (ACT) credit for pension funds as a 'stealth tax', a 'tax grab' or indeed as any kind of tax. As one of a range of measures introduced in the 1920s which sought to encourage the development of non-state pension schemes, such funds would, prior to 1997, receive from the Treasury a bonus of £20 for every £80 they received as dividends on their holdings of shares in limited companies; this was supposedly to compensate them for the fact that the companies they were investing in were paying corporation tax on their profits.
The pension funds were, at that time, in considerable surplus due to high corporate profits and rising share values- so much so that employers were taking extended 'contributions holidays' instead of paying into the schemes.
The allegation of 'stealth' against Brown is well-founded. But mouthed by Conservative newspapers and politicians, it is pure hypocrisy. By removing the ACT bonus, Brown was proceeding along a well-trodden path.
In his 1986 budget, Margaret Thatcher's Chancellor of the Exchequer, Nigel Lawson, introduced a tax on pension funds which held assets that were deemed to be worth over 5% more than their envisaged liabilities in terms of future pay-outs to pensioners. Lawson told Parliament that he was acting to iron out an unfair tax break:
"...excessive surpluses, even if they arise unintentionally, represent the misuse of a tax privilege which was intended to assist the provision of pensions, and for no other purpose."
This change discouraged employers from holding sufficient capital in their pension funds to tide them over future falls in stockmarket prices. It also raised revenue for the Treasury.
When John Major took over from Thatcher as Conservative PM, he appointed Lawson's deputy in the Treasury, Norman Lamont, to the post of Chancellor. Lamont reduced the pension funds' bonus on share dividends from 25% to 20%. Lamont prefaced his 1993 announcement of the reduction of this tax credit as follows:
"In discussions with business organisations over the last few months, one issue has come up again and again: the problem of surplus advance corporation tax, or ACT. Many believe that this feature of our tax system both penalises successful British-owned international companies and distorts investment decisions. This issue has, of course, been with us for many years, and it has so far defied solution. Nonetheless, I made a commitment in my Budget last year to return to this subject, and I am pleased to be able to report to the House that I have now found a way forward".
Perceptive critics noted that this change recouped for the government up to £1 billion per year in revenue.
While Brown's abolition of ACT credit brought in an additional net income of £5 billion for the government, it was not announced as a money raising or money saving measure, but as a means of correcting a distortion to investment decisions. In his 1997 budget speech, Gordon Brown echoed his Conservative predeccessor, announcing:
"[a] structural reform that will also encourage investment. The present system of tax credits encourages companies to pay out dividends rather than reinvest their profits. This cannot be the best way of encouraging investment for the long term as was acknowledged by the last Government.
"Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform. So, with immediate effect, I propose to abolish tax credits paid to pension funds and companies."
Gordon Brown's supporters are right to claim that the bulk of the subsequent damage to occupational pension funds was caused by continuation of 'pension holidays', the dot.com-led stockmarket crash and the subsequent overall decline in share dividend pay-outs; in other words, by the greed and instability of our market system. The newspapers neglect to mention that the USA, which has a personal and occupational pensions system which has similarities to that of the UK but does not have Mr Brown in charge of state finances, is also undergoing a crisis of future provision for retired workers, as US employers close their defined-benefit pension schemes.
It is notable that the Conservatives are not proposing that ACT credit should be re-introduced; and neither they nor New Labour are proposing any means of securing a reliable and comfortable retirement income for the majority of retired people in Britain.
Apart from increases in duty on cigarettes, petrol and alcohol, the other main tax change announced in the 1997 budget was a 2% reduction in corporation tax to 31%; by 1999 it had been brought down further, to 30%. This followed Consevative changes which had cut corporation tax from 52% to 35% and then to 33%.
Cuts in corporation tax, it should be noted, result in an increase, rather than a reduction, in the overall amount of corporation tax received by the UK government- in the medium term. This is for two reasons. Firstly, firms take the rate of tax on their profits into consideration when deciding where to invest, so the level of inward investment in low-tax countries increases; secondly, transnational companies use creative accounting practices to reduce their global tax burden by declaring profits in low-tax rather than high-tax countries. But this is a zero-sum game which reduces the total amount of tax revenue at European and world level, forcing other nations into a competitive downward spiral. By 2006, other EU and OECD countries had reduced their own corporation tax rates, causing Brown to make a further reduction in his March 2007 budget in order to regain competitive advantage.
The day after the 2007 budget, the Conservative Party put on a stunt outside Parliament, in which 99 biodegradeable red balloons were released by people wearing Gordon Brown masks, representing a supposed 99 tax rises since 1997. In fact there have been over 400 tax changes in the last ten years- some of them up and some of them down. Although the Conservatives have a point in that there has been an overall rise in taxes, most of the increase in taxation income has been generated by the maintennance under New Labour of tax changes introduced under Thatcher and Major, combined with the growth in the average earnings of the population. According to an analysis by the Institute for Fiscal Studies published in January 2007:
"The net tax increases announced by Gordon Brown since 1997 will yield the Treasury £17 billion next year (in 2007-08 terms). Adding 'fiscal drag' and Conservative policy changes that Mr Brown maintained brings the total up to £57 billion, offset by £17 billion lost through developments in the economy. The resulting increase in the tax burden of £40 billion expected between 1996-97 and 2007-08 is equivalent to roughly £1,300 per family."
'Fiscal drag' is the phenomenon by which tax thresholds rise in line with average prices rather than average incomes.
State-enmeshed capitalism
After fulfilling their election promise to hold down state expenditure for two years, during which the government ran a surplus and reduced its debts, state spending under Brown and Blair began to rise steeply in 2000; overall, there has been a significant increase in government expenditure. Former Conservative Chancellor Norman Lamont complained on 23rd March this year:
"The reason why the tax burden has increased and is increasing is galloping increases in expenditure. Since 1997, the economy has expanded by 69 per cent and the Government spending has grown by 98 per cent. Britain now has a bloated public sector and an unhealthy growth in public sector employment."
Most of those additional public sector workers are nurses, doctors, teachers, classroom assistants and other front line staff in health and education. But Lamont missed something else which is rather important. There has also been a large increase in private sector employment, and this too has resulted from the rise in state spending. As John Edmonds and Andrew Glyn detailed in the Financial Times on 30th June 2005:
"Since 2000, the government has commissioned construction companies to build new hospitals and schools, spent more on drugs and school books and employed more catering, cleaning and other private service contractors.
"Such expenditure, according to the Blue Book of national accounts, has been expanding faster than the public sector's own direct wage bill... calculations suggest that, between 2000 and 2003, some 550,000 extra private sector jobs were created as a direct result of public spending.
"We are left with the startling conclusion that the public expenditure programme of Gordon Brown, the chancellor, has been responsible for all the growth in private sector employment between 2000 and 2003.
"Many commentators have noted the increase in public sector jobs in recent years and the Office for National Statistics calculates the increase between 2000 and 2004 at more than 450,000.
"Our calculations suggest the rise in private sector employment as a result of public spending was as much again. Taking these increases together it is clear that Mr Brown's public expenditure programme has been directly responsible for all the growth in UK employment since 2000."
So, while resisting regulation and continuing with privatisation, Gordon Brown's Treasury has created a substantial increase in the number of public sector workers, and an even bigger rise in the number of workers who are employed by the private sector to work on public sector contracts. With this has come a deepening of the economic relationship between capitalist firms and the state; through PFI schemes alone, the state transfers at least £4 billion annually to private sector companies and has created debts of approximately £40 billion to the private sector. PFI was originated in 1992 under a Conservative Chancellor, Norman Lamont.
Brown has also led a massive extension of means-tested state benefits, with approximately five million people (out of an estimated seven million who are entitled) claiming an annual total of around £15 billion in 'tax credits'.
The 'tax credit' schemes may be beneficial to the British economy, by encouraging people to accept jobs which pay wages below subsistence level, thus giving an effective subsidy to low-paying employers. They may even serve a valid social purpose- it is arguably better that it becomes worthwhile to work, even for a minimal wage which is topped up by state 'tax credits', rather than to stagnate for years on unemployment benefit or single parent benefit.
It is worth remembering that in the 1960s and '70s, well-paid jobs were easily available- many of them in nationalised or directly state-subsidised industries. A house or a flat, at an affordable rent, would also be provided after a few months on the council waiting list. Very few people were in serious debt. But those were 'the miserable days of Old Labour', ended under Thatcher and Major.
Since then we have had Chancellor Brown, under whom absolute poverty has reduced and relative poverty has stabilised. The cardboard cities were swept away, the peeling walls are being knocked down and rebuilt.
Nobody can pretend that this has occured as a result of Thatcherite entrepreneurialism or even through a Blairite culture of choice and opportunity. It is being paid for through the state, by taxation and debt; and it is being organised by the state, through the extension of the benefits system, an increase in public sector employment and the engagement of the private sector in lucrative contracts with state agencies.
The romance of a free-market future, of capitalism without a taxing and subsidising state, has ended for good under Gordon Brown.
No wonder that they hate him.