Technorama

Gordon Brown's 10 year stint at the tiller of the UK economy is almost over; but what is his legacy in this relatively stable period since the Major government of the mid-90s? An interesting question, even if I do say so myself ;)

We've seen how Gordon Brown has made a few changes, and used a lot of spin in his presentation. When he first came in, he introduced special rules:

1. Gordon Brown's first rule declares that over an "economic cycle" he will only borrow to invest, but that "economic cycle" term isn't fixed and is open to fiddling by his department of statisticians (first it was 7 years, then 9, 10 and now 12! increasing the duration to fiddle it, to average it out in effect); and that all other spending must come from taxation revenue.
2. Gordon Brown's second rule declared that public debt must be kept at a prudent and stable level (whatever that is, in a reasonable interpretation). The economy has been strong, so it's not been necessary to break rule two officially -- however, it has been heavily broken by using PFI contracts which hide the public debt behind a long-term contract with a private company.

The Auditor General, Sir John Bourn, highlighted that by Gordon Brown excluding Network Rail's billions of debt from the government accounts, Gordon Brown has not met his spending rules. He also said Gordon Brown's means-testing and constant meddling has put administration costs at a ridiculous level compared to the total cost of the benefit schemes introduced. Almost as bad as the £25 Billion PFI debts underwritten by the government.

In another case of subterfuge, Gordon Brown changed the way inflation rates are measured to keep them appearing lower. In his pre-budget statement on 10 Dec 2003, Gordon Brown announced he was switching the UK inflation definition from RPI (reasonably broad base, excluding mortgage though) to CPI (narrow), cleverly hiding our inflation rate going up. RPI inflation for February 2007 was 3.7%, but CPI was only... 2.8%! -- you can see why he wants to hide the rise, it keeps the Bank of England's monetary policy from setting interest rates (2% above inflation) at the higher rate they should be (as I figure it).

Pensions is a big one: Nothing was taken into account for the fact that people live longer. Nothing was taken into account for if the stock-market didn't continue to rise at a quick rate beyond the dot-com era. On top of this, abolishing share dividend tax credits (aka ACT, essentially no tax on dividends from companies in which they owned shares), took £6 Billion out of pension pots each year since 2000, which compounded means over £100 Billion has now been removed (No wonder over 60,000 company pension funds have been wound up!) -- what a result Gordon!

Public sector borrowing will probably hit £36 Billion this year, not surprisingly the treasury is desperate for cash and is offering great deals on NS&I fixed-term stock Government bonds these days. So much for prudence Gordon eh!? I'll admit I've never been one to Gordon Brown-Nose, but I don't put him down unnecessarily, his Bank of England call was a good one.

I've broken down my overall points into successes and failures.

Failures

• Not taking the UK into the Euro when they had the necessary public support in '97.
• Abolishing share dividend tax credits.
• The public pensions black hole is now close to £90 Billion, which will have to come from somewhere.
• Council tax doubled because Gordon Brown puts the responsibility for additional services on local council budgets (and central government keep blaming local councils for putting it up).
  
• Hiding the inflation rate, by switching from RPI to CPI.
  
• Selling the UK's gold reserves at rock bottom prices.

Successes

• Passing responsibility for setting interest rates to the Bank of England.

If Brown wanted a genuine legacy, he could have done a U-turn on means-testing, then increase the tax-free allowance to £12,000, making the poorest in society better off; closing the gap with the middle-class. Fund this by introducing a top tax rate of 45-50% if necessary. Or Brown could have voted against war with Iraq.

In summary, the economy hasn't been wrecked, but it doesn't have the GDP vigour it had in the Major years after the recovery from Black Wednesday. Gordon has squandered to a certain degree a fantastic legacy, replacing it with rampant consumer debt, a trade deficit, pensions crisis and pubic debt. Brown's kept the UK economy going on borrowed money, the next 15 years will show how in debt the UK is, and will suffer unfortunately. Will history give him a better legacy than William Patterson? Will Gordon have a Profumo moment? Would he give an honoury place to Boris Berezovsky around his cabinet table? Anyway, who knows what the future holds, if Gordon Brown gets the top job it will be interesting to see if he fairs better in No.10 at least! The BBC background on Brown's shows where he cut his teeth. Now let's hope the leadership election is a little more interesting than Michael Howard's coronation... ;)

Labels: Politics, UK