Gordon Brown
It seems to be generally accepted that whatever his failings as a Prime Minister, Gordon Brown was a brilliant Chancellor of the Exchequer. I find this very puzzling as he made so many fundamental mistakes during his stewardship of the economy.
When Brown took over from Kenneth Clarke, Britain’s finances were in very good shape. His first major error was to sell half of Britain’s gold reserves in 17 auctions from 1999-2002 at an average price of only $276.70 an ounce. The sales realised £2.2 billion compared with about £9 billion that would be realised today.
In 1997, Brown created a tripartite regulatory system that was both ill-conceived and badly executed. It was put in place with little consultation and against the advice of the then Governor of the Bank of England. As a result, the Bank of England, the Treasury and the FSA can all deny responsibility and blame each other for the lack of supervision that has led to the financial crisis.
Brown had the benefit of substantial income from North Sea oil but unlike the Norwegians he did not put away anything for a rainy day. Instead in each of his last five budgets there were very substantial deficits to finance further excessive government spending. This approach was in stark contrast to the 1997 Labour Party Manifesto which under the rules of government borrowing said ‘We will enforce the ‘golden rule’ of public spending – over the economic cycle, we will only borrow to invest and not to fund current expenditure. We will ensure that – over the economic cycle – public debt as a proportion of national income is at a stable and prudent level.’
In 1997, Brown’s infamous pension stealth tax removed the tax credits on the dividends received by pension schemes. Independent actuarial research in October 2006 showed that this tax had cost pension schemes over £100 billion – more than twice the deficits in the economy’s top 350 companies at the time.
The cumulative result of Brown’s period of stewardship left Britain very vulnerable and unprepared for the financial crisis leading to the current deficit. Even financial experts find it almost impossible to grasp the enormity of the numbers. The current oulook is now very bleak. Total government debt is set to rise to £1,180 billion by the end of 2010. For the next few years this will continue to rise by £150-200 billion each year. Add the £150 billion of off-balance sheet Enron-style accounting of PFI contracts and you get to about £1,700 billion. Then there is the problem of the unfunded liabilities of £1,200 billion for public service pensions increasing the total to about £3 trillion. Brown’s legacy is a debt of an astonishing £200,000 for each and every family in Britain. A frightening inheritance for our children and grandchildren. Some Chancellor!
Jim Slater