On the edge of a volcano

The Prudence of Mr Gordon Brown

William Keegan <em>John Wiley & Sons, 356pp, £18.99</em>


This extremely important book explains very thoroughly the achievements and limitations of Labour's economic policy since 1997. The achievements - not least full employment - are considerable. But the lessons of underachievement in reducing inequality, bolstering manufacturing and investing in the public services could be valuable, if only we could get the conditions right to win that third term and retain a commitment to Labour values.

Although broadly sympathetic, this book provides a "warts and all" account of Brown's work at the Treasury. It makes clear the price that has been paid for the pledge to live within Tory spending plans for the first two years. This resulted in lower capital spending on public services in Labour's first term than in any comparable period in recent decades. The figures are shocking.

Net capital expenditure in the public sector was cut in successive years from £29.2bn in 1975-76. In the four years of Kenneth Clarke's chancellorship (1993-97) it ran at £12.3bn, £12.2bn, £11.7bn and £5.8bn. Thus Labour's voluntary two-year freeze was imposed at a very low level. During the first four years of Brown's chancellorship (1997-2001), net capital expenditure in the public sector stood at £5.2bn, £6.1bn, £4.8bn, and £5.7bn (all based on 2000-2001 prices). Thus we still have private affluence and public squalor, a degraded transport system and huge underinvestment in health and education.

It would not be fair, however, to conclude that Brown has given up on Labour's long-standing commitment to reduce inequality and increase investment in the public services. Brown's upbringing as a son of the manse - he said of his father: "He taught me to treat everyone equally, and that is something I have not forgotten" - and his early allegiance to the Labour movement have ensured that his Labour values are deeply embedded. However, he and Blair shaped new Labour as an enormously defensive project built on the reforms pushed forward by Neil Kinnock and John Smith, but driven by the memory of the defeat of 1992. And thus we got the commitments to no rise in the standard or top rate of tax and to Conservative spending plans for the first two years, leading to a sense of growing disappointment and the unprecedentedly low turnout (59 per cent) in the election of 2001.

But Brown and his highly influential political assistant Ed Balls, later chief economic adviser at the Treasury, were playing a long game. They intended to expunge Labour's reputation for poor financial management - and the memory of every previous Labour government trying to spend and then being hit by financial crisis - in order to be able to pursue Labour goals with a solid economy behind them. Brown's refusal to stray from this agenda probably cost him the party leadership, as he brutally slapped down shadow cabinet colleagues who tried to make or to hint at future spending commitments when he was shadow chancellor from 1992. The courageous decision to make the Bank of England independent and the wisdom of an inflation target of 2.5 per cent (in contrast with the European Central Bank's deflationary "less than 2 per cent") have helped restore Britain to full employment and given Brown probably the best reputation of any Labour chancellor.

There are, however, important lessons to be learnt from the way the high exchange rate that has helped to secure this very reputation has squeezed manufacturing and worsened long-term balance-of- payments and productivity problems. There are also important conclusions to be drawn from the failure of the Private Finance Initiative to deliver the hoped-for gains of improved investment and efficiency in the public sector. But Brown's determination to reduce poverty has been sustained through his policy of redistribution by stealth and his interest in efforts to reduce global poverty.

Keegan provides a very clear account of the disputes over the euro. He records the fascinating changes in the positions of Tony Blair, Robin Cook and Gordon Brown and provides a persuasive analysis of the decisions that have been made.

The book fully catalogues the problems resulting from addiction to spin, multiple announcements and control freakery in the first term, and an obsession with targets in the second. A senior official commented of Brown's first term: "Every battle has to be won. If not, the Chancellor is terribly angry. He lives life on the edge of a volcano. He drives himself extraordinarily hard and has incredibly high expectations of himself and the people around him . . ."

The Prudence of Mr Gordon Brown is an invaluable read for those who want to see Labour values prevail into a third term. It shows a Gordon Brown with feet of clay - like everyone else - but also Brown as a big man with core beliefs, playing a long game on behalf of those values. It leaves me with an enhanced belief that if he does become the leader and learns from the mistakes of the Blair years, he could rescue the best of the Labour Party and bring in a government of which we could be proud.

Clare Short is MP for Birmingham Ladywood

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