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The lost herd

When Gordon Brown became Prime Minister in 2007, he made great play of appointing figures from outs

On 11 May 2007, in a speech at the Imagination Gallery in the West End of London during which he announced his candidacy for the leadership of the Labour Party, Gordon Brown promised a "new politics" of openness, reform and change. He pledged to govern "in a different way", with a fresh style and new personnel. "I will reach out to put national interest before sectional interest," he said, "and I will form a government of all the talents, bringing people together to listen, to learn and solve problems, building on a broad sense of national purpose."

Within 48 hours of entering Downing Street as Prime Minister, on 27 June, Brown announced that the former United Nations deputy secretary general Mark Malloch Brown, the former first sea lord Admiral Sir Alan West, the former secretary general of the Confederation of British Industry Sir Digby Jones and Ara Darzi, one of the country's leading surgeons, would be ennobled and made ministers in government. Over the past two years, other non-politicians have joined Brown's ministerial ranks, including his former chief of staff and ex-head of the television regulator Ofcom, Stephen Carter, and the former City fund manager and multimillionaire Paul Myners.

Today, the Prime Minister's big tent is slowly being folded away, its frame dismantled, as one after another of the chief recruits to his "government of all the talents", called "goats" by Whitehall insiders, slips the ministerial tethers to graze in pastures new. Of the original quartet, only Lord West remains in office.

Should we be surprised? The Prime Minister is by reputation both a party-political tribalist and a keen centraliser of power - his former permanent secretary Andrew Turnbull described him as "Stalinist" and his former cabinet colleague Charles Clarke called him a "control freak". He always seemed an unlikely goatherd. Here was an opportunity for him to show the country his pluralist intentions and bipartisan credentials.

Tony Blair had been a strong advocate of big-tent politics: think of the late Roy Jenkins's report on proportional representation and Chris Patten's commission on policing in Ulster. Brown went beyond Blair, who deployed the great and the good from across the political spectrum only to advise, review and report, by bringing political outsiders directly into government.

Goats, however, are notoriously stubborn creatures, unpredictable and difficult to control. Malloch Brown became Lord Malloch-Brown of St Leonard's Forest in the County of West Sussex and was appointed minister of state for Africa, Asia and the UN at the Foreign Office. Within a fortnight of taking office, he had announced, much to the annoyance of Washington, that Brown and George W Bush would not be "joined at the hip" in the manner of Bush and Blair, a remark that seemed to suggest the end of the "special relationship".

When Malloch Brown resigned this month for "personal and family reasons", he said he remained "completely loyal to the Prime Minister". Yet reports since have suggested that the former international diplomat could no longer tolerate working in chaotic Whitehall, and had told colleagues that he had been party to better "strategic thinking" in Latin America and south-east Asia than in Downing Street. In a farewell salvo on Wednesday, Lord Malloch-Brown became the first senior minister to admit that British troops need more helicopters in Afghanistan - contradicting the Prime Minister and the Foreign Secretary - and he conceded that Brown's future looked "bleak". So much for loyalty.

His resignation was followed on 14 July by that of the Iraqi-born Ara Darzi - who, as Lord Darzi of Denham, was appointed by Brown as under-secretary of state at the Department for Health. Known as Robo-Doc for his pioneering work in the advancement of minimal invasive surgery and his use of surgical robots, Darzi fuelled speculation about an early election in October 2007 by publishing an unexpected interim report on his plans for NHS reform. He also angered campaigners, and Labour backbenchers, in a speech to the Lords in January 2008, by abandoning Lab­our's historic commitment to eliminate mixed-sex wards from NHS hospitals.

Darzi said he was resigning to focus on his medical work and academic research, but one has to ask: is this the time for a health minister to quit, as the Department of Heath grapples with a swine flu epidemic? He leaves the government having failed to see through the "once-in-a-generation" reforms he announced the government would be making to the NHS. Perhaps his only memorable contribution to political life is the time he leapt across the red benches in the Lords to save the life of a fellow Labour peer, Lord Brennan, who had collapsed after a heart attack.

Arguably the most controversial resignation - and appointment - among the goats was that of Digby Jones. The corpulent, conservative recent head of the CBI took the title Digby, Lord Jones of Birmingham, and became minister for UK trade and investment in the (then) Department for Business, Enterprise and Regulatory Reform. He quit the government after just 18 months in the post following a series of disagreements with Brown over spending and taxation, rows with civil servants, and a stream of gaffes - including some embarrassing remarks at a forum of Middle Eastern entrepreneurs. "We don't care what colour you are," he said. "We don't care if we can't pronounce your names and we don't care where your money comes from. We just want you to invest in our country." Jones then said: "I'm a goat, not a professional politician."

Since leaving government, Jones has spent his time criticising both Brown and civil servants, telling a Commons select committee in January this year that the job of junior minister was "one of the most dehumanising and depersonalising experiences a human being can have".

So who is left? The sole remaining goat from the original herd is the former first sea lord, Admiral Sir Alan West, who became Lord West of Spithead and was appointed under-secretary of state for security and counterterrorism at the Home Office by the Prime Minister in June 2007. Home Office press officers have since described him as "gaffe-prone", a "liability" and a "nightmare to manage". In November 2007, he questioned the government's plans to hold terror suspects for up to 42 days without charge, stating in a live BBC radio interview that he was not "totally convinced" of the case for change - only to perform a U-turn less than two hours later, after a hurried meeting with Brown.

His explanation: "Being a simple sailor, not a politician, maybe I didn't choose my words well." (The PM's spokesman issued his own memorable clarification: "I think he thought it was necessary to make sure his position was properly understood. I'm not sure he has changed his mind. Lord West made his position quite clear. Lord West gave his views quite clearly in his second statement.")

West is known for his bravery. In 1982, as the 34-year-old officer in command of the frigate HMS Ardent when it was sunk by Argentinian bombers during the Falklands conflict, he was the last to leave the sinking ship. His action earned him the Distinguished Service Cross. Nearly three decades on, the "simple sailor" remains the last man standing on the sinking ship of government. One source close to West says he has no plans to quit and that he is committed to his Home Office role - but adds "for the foreseeable future".

Brown's aides are curiously unwilling to lay any blows on the fleeing goats. One Downing Street aide told me each of them had "enrichgovernment" and that their contributions to public life "remain a genuinely positive story". What about Digby Jones? "Digby is Digby," I was told. "We knew he would be outspoken from the moment he was appointed."

But is this a genuinely positive story? One could argue that it was foolhardy to tread down this path in the first place. Political outsiders are, almost by definition, either ignorant of political rules, regulations, conventions and customs, or unwilling to conform to them. This was an accident waiting to happen.

Then there is the issue of ideology. As James Purnell (who resigned from the cabinet in June) has been busy pointing out, ideas matter, and constructing big tents in politics, welcoming as they may be, risks losing sight of this. New Labour was built on the assumption that modern politics is no longer ideological, substantive or divisive, that what matters is what works, and that there are bureaucratic, technical and pragmatic fixes to every political problem. This has proved to be a fiction. Bringing in outsiders to add expertise and experience to government is not new: Clement Attlee succeeded with the trade union leader Ernest Bevin, and Margaret Thatcher with the businessman David Young. Brown's mistake was to pretend that he could defy the laws of politics by appointing people who neither owed him party loyalty nor necessarily shared his political values. Jones, for example, is said to have discussed becoming a Con­servative MP once with the then Tory leader, Michael Howard. As head of the CBI, he had long opposed a range of Labour economic and social policies, chief among them the minimum wage. Why make him a Labour minister?

But, above all else, this is a story of a government of all the talents that could not keep those talents for long. On the one hand, we had a prime minister who thought he wanted independent goats in his administration but really needed loyal sheep; on the other hand, we had non-politicians who thought they could adapt to politics simply by virtue of their experience or expertise.

The shortsightedness identified by Lord Malloch-Brown and the bureaucracy singled out by Lord Jones are now hallmarks of modern British governance. The end result is a group of outsiders who have returned to the outside world, disillusioned, disappointed and depressed. That Lord Myners has announced he is leaving the Treasury to become a student of theology speaks volumes about life as a minister today. Whether we like it or not, politics will continue to be dominated by professionals.

Mehdi Hasan is senior editor (politics) of the New Statesman

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 27 July 2009 issue of the New Statesman, On tour with the far right

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt