Chancellorship of Gordon Brown

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Gordon Brown speaking at the annual World Bank/IMF meeting in 2002
Gordon Brown speaking at the annual World Bank/IMF meeting in 2002

Gordon Brown's period of office as Chancellor of the Exchequer lasted from May 2, 1997, when Labour returned to power in the United Kingdom for the first time in 18 years, to June 27, 2007, when he resigned to become Prime Minister. It was the longest continuous period of office of any Chancellor since Nicholas Vansittart nearly two centuries before. Brown's time as Chancellor was marked by major reform of Britain's monetary and fiscal policy architecture, by a wide extension of the powers of the Treasury to cover much domestic policy, and by largely benign economic conditions.

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[edit] Records

Brown's ten years and two months as Chancellor of the Exchequer set several records. He was the longest-serving Labour Chancellor of the Exchequer ever, ahead of Denis Healey, who was Chancellor for 5 years and 2 months from 5 March 1974 to 4 May 1979. On 15 June 2004, he became the longest continuous serving Chancellor of the Exchequer since the Reform Act 1832, passing the figure of 7 years and 43 days set by David Lloyd George (1908–1915). However, William Gladstone was Chancellor for a total of 12 years and 4 months in the period from 1852 to 1882 (although not continuously). Brown stated his Chancellorship had seen the longest period of sustained economic growth in UK history,[1][2] although part of this growth period started under the preceding Conservative government in 1993, and the details in Brown's growth figures have been challenged,[3][4] as have his more general claims to have created the conditions for prosperity and declining poverty levels.[5]

[edit] Major acts as Chancellor

[edit] Bank of England Independence

On taking office as Chancellor, Brown gave the Bank of England operational independence in monetary policy, and thus responsibility for setting interest rates.

[edit] Taxation and spending

Brown adhered to Labour's 1997 election pledge of not increasing the basic or higher rates of income tax. He reduced the starting rate from 20% (pre-1997) to 10% (1999) before abolishing the starting rate in 2007, and reduced the basic rate from 23% (pre-1997) to 22% (2000) and then 20% (2007).[6]

Brown increased the tax thresholds in line with inflation, rather than earnings, which rise more quickly during periods of economic growth. This results in fiscal drag in which more taxpayers are drawn into the upper rates (e.g. in 2000-01 there were 2,880,000 higher-rate taxpayers, whereas in 2005-06 there were 3,160,000).[6]

Corporation tax fell under Brown, from a main rate of 33% (pre-1997) to 30% (1999) and then 28% (2007), and from 24% to 19% for small businesses (although the lower rate is set to rise to 22% by 2010).[6]

Under Brown the telecoms radio spectrum auctions gathered £22.5 billion for the government, by using a system of sealed bids and only selling a restricted number of licenses, they extracted the high prices from the telecom operators.[7] The German government at this time applied a similar auction, and these together contributed to a severe recession in the telecoms development industry (2001 Telecoms crash) in Europe with the loss of 100,000 jobs across Europe, 30,000 of those in the UK.[8]

Once the two-year period of following the Conservative's spending plans was over, Brown's 2000 Spending Review outlined a major expansion of government spending, particularly on health and education. In his April 2002 budget, Brown raised national insurance to pay for health spending. Brown has changed tax policy in other ways, such as the working tax credits. This is one of several ideas borrowed from the US Clinton administration whereby welfare payments are accounted for as negative taxation. The separate means-testing process for tax credits has been criticised by some as bureaucratic, and in 2003-04 and 2004-05 problems in the system led to overpayments of £2.2bn and £1.8bn respectively.[9] However, economic theory suggests tax credits can strengthen work incentives for those at the margin between employment and unemployment, and the IFS has estimated the reforms brought at least 50,000 single mothers into part-time work.[10]

The Centre for Policy Studies found the poorest fifth of households, which accounted for 6.8% of all taxes in 1996-7, accounted for 6.9% of all taxes paid in 2004-5. Meanwhile, their share of state benefit payouts dropped from 28.1% to 27.1% over the same period.[11]

According to the OECD UK taxation has increased from a 39.3% share of GDP in 1997 to 42.4% in 2006, going to a higher level than Germany.[12] This increase has mainly been attributed to active government policy, and not simply to the growing economy. To have brought this about with only one explicit tax rise has led to accusations of Brown imposing stealth taxes. A commonly reported example resulted in 1997 from a technical change in the way corporation tax is collected, the indirect effect of which was for the dividends on equity investments held within pensions to be taxed, thus lowering pension returns and allegedly contributing to the demise of some pension funds.[13] The Treasury contend that this tax change was crucial to long-term economic growth: the existing corporation tax system created biased incentives for corporations to pay out profits as dividends to shareholders (including pension funds, who could then reclaim the tax paid) rather than to reinvest them into company growth (which would result in corporation tax being paid). The old system of corporation tax was widely viewed by economists as a constraint on British economic growth.[14]

[edit] Growth development and employment

Brown pointed to two main accomplishments: growth and employment. An OECD report[15] shows UK economic growth averaged 2.7% between 1997 and 2006, higher than the Eurozone's 2.1%, though lower than in any other English-speaking country. UK unemployment is 5.5%,[16] down from 7% in 1997 and lower than the Eurozone's average of 8.1%.

In October 1997, Brown took control of the United Kingdom's membership of the European single currency issue by announcing the Treasury would set five economic tests[17] to ascertain whether the economic case had been made. In June 2003 the Treasury indicated the tests had not been passed.[18]

Gordon Brown meeting Russian President Vladimir Putin in 2006
Gordon Brown meeting Russian President Vladimir Putin in 2006

Between 1999 and 2002 Brown sold 60% of the UK's gold reserves at $275 an ounce.[19] It was later attacked as a "disastrous foray into international asset management"[20] as he had sold at close to a 20-year low. Prices went on to reach $700 an ounce in May 2006 – he could have raised £4bn for the public had he waited.[21] He pressured the IMF to do the same,[22] but it resisted.

Brown believes it is appropriate to remove much of the unpayable Third World debt but does not think all debt should be wiped out.[23]

On 20 April 2006, in a speech to the United Nations Ambassadors, Brown outlined a "Green" view of global development:

"... far from being at odds with each other, our economic objectives and our environmental objectives now increasingly reinforce each other. ... Environmental sustainability is not an option – it is a necessity. For economies to flourish, for global poverty to be banished, for the well-being of the world's people to be enhanced - not just in this generation but in succeeding generations - we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depends. ... A new paradigm that sees economic growth, social justice and environmental care advancing together can become the common sense of our age."[24]

[edit] Other statements and events

[edit] Higher education

In 2000, Brown started a major political row about higher education (referred to as the Laura Spence Affair) when he accused the University of Oxford of elitism in its admissions procedures.[25] He described the University's decision not to offer a place to state school pupil Laura Spence as "absolutely outrageous" and implied its decision was based on her background rather than her academic potential. This started a major and hotly argued row in the media in which Oxford strongly denied these accusations. With his comments, Brown can arguably be credited with raising widening participation to Higher Education up the political agenda. However many of his opponents said Brown's comments were ill-founded, including Lord Jenkins (then Chancellor of the University of Oxford) who said "nearly every fact he used was false," and that Brown's speech had been a "little Blitzkrieg in being an act of sudden unprovoked aggression".[26]

[edit] Anti-racism and popular culture

During a diplomatic visit to India in January 2007, Brown responded to questions concerning perceived racism and bullying against Bollywood actress Shilpa Shetty on the British reality TV show Celebrity Big Brother saying, "There is a lot of support for Shilpa. It is pretty clear we are getting the message across. Britain is a nation of tolerance and fairness."[27] He later said the debate showed Britain wanted to be "defined by being a tolerant, fair and decent country."[28]

[edit] References

  1. ^ "Budgeting for stable economic growth"
  2. ^ His record - 304 years and counting | Politics | The Guardian
  3. ^ Sleight of hand fails to hide gaping holes in public purse - Tax, Money - Independent.co.uk
  4. ^ BBC NEWS | Election 2005 | Issues | Election fact check: Economic growth
  5. ^ "New Labour's Economic Record", Chris Harman, International Socialism
  6. ^ a b c Figures from A survey of the UK tax system Adam, S. and J. Browne, Institute for Fiscal Studies, Briefing Note No. 9, March 2006
  7. ^ Dial-a-fortune | Guardian daily comment | guardian.co.uk
  8. ^ Spectrum pricings uncertain future, Electonics World, Vol 108. September pp.24-25
  9. ^ More get tax credit overpayments BBC News, 31 May 2006
  10. ^ The impact of tax and benefit changes between April 2000 and April 2003 on parents' labour supply Blundell, R., M. Brewer and A. Shepherd, Institute for Fiscal Studies, Briefing Note No. 52, 2004
  11. ^ Poor lose out in Brown's tax reforms, The Times 3 September 2006.
  12. ^ General Government Outlays as percentage of GDP OECD
  13. ^ Brown's raid on pensions costs Britain £100 billion, The Daily Telegraph 16 October 2006.
  14. ^ That pensions raid, Evan Davis 2 April 2007.
  15. ^ OECD Economic Outlook No. 78 Annex Tables - Table of Contents OECD
  16. ^ National Statistics Unemployment rate
  17. ^ The five tests The Guardian 29 September 2000
  18. ^ UK 'not yet ready for the euro' BBC, 9 June 2003
  19. ^ HM Treasury review of UK gold reserves sales
  20. ^ Brown's gold sale losses pile up as bullion price surges Scotsman.com website 28 November 2005extrac
  21. ^ Fury over the great gold sale, opinion piece by Alex Brummer, Gold Anti-Trust Action Committee website.
  22. ^ Gordon Brown & IMF Gold Sales. Tax Free Gold. Retrieved on 2007-03-30.
  23. ^ BBC News | Forum | Gordon Brown answers your questions
  24. ^ Speech by Gordon Brown, New York, 20 April 2006
  25. ^ Oxford 'reject' wins Harvard scholarship. BBC News. BBC (2000-05-22). Retrieved on 2007-03-30.
  26. ^ Peers condemn Oxford attack. BBC News. BBC (2000-06-15). Retrieved on 2007-03-30.
  27. ^ Brown throws weight behind Indian star. Retrieved on 2007-06-27.
  28. ^ Full text of Gordon Brown's speech. Guardian Unlimited. Guardian News and Media Limited (2007-02-27). Retrieved on 2007-03-30.
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