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24 April 2008

Gordon’s big test

The authority of the Prime Minister is based on economic competence and on knowing how to win electi

By Martin Bright

It is tempting, in the light of the rebellion over the abolition of the 10p rate of income tax, to write off Gordon Brown’s last Budget as chancellor as an unmitigated disaster.

In March 2007, however, it was seen by many as genuinely redistributive: the abolition of the blunt instrument of the 10p rate for those on lower incomes would allow him to target tax credits at pensioners, the poorest families and their children. No one is denying this will be the case, but what few realised at the time (including many on the Labour back benches who threatened to vote against the government before Alistair Darling’s last-minute concessions) was that significant numbers of people on lower incomes would be worse off as a result of the change, including many under-25s, older people who retired early and part-time workers who do not qualify for tax credits. The Treasury select committee, which will now carry out a mini-investigation into 10p-rate “losers”, has estimated that single people earning under £18,500, for example, could lose up to £232 a year.

The frustration in Downing Street at the reaction is tan gible. “It’s ridiculous to look at one measure in one Budget,” said an irritated source. Unfortunately for Brown, that is precisely what people did. The March 2007 Budget, in which this measure was announced along with a 2p cut in the basic rate of income tax, also contained a huge boost in education spending from £76bn to £90bn by 2011, new taxes on gas guzzlers, and a cut in corporation tax. But all that is forgotten now. Those around Gordon Brown rightly point out that the reforms introduced in the Finance Bill at present having such a troubled passage through parliament amount to some of the farthest-reaching changes to the tax system for a decade. There was always likely to be some tweaking of the detail. But there is little appetite for giving the Prime Minister the benefit of the doubt on this one. To a growing group of backbenchers, Brown was prepared to stuff the poor.

When Brown was chancellor, he always defied the doom-mongers. Wise commentators would regularly advise that the downturn was just around the corner, that he couldn’t sustain his juggling act of increasing investment in the public services while keeping the economy on track. Those in No 10 who have been with Brown since his Treasury days (of whom there are many) point to the now famous Budget of 2002, when the then chancellor put a penny on National Insurance contributions to pay for a huge injection of cash into the NHS. According to one furious Sunday Telegraph commentator at the time, this amounted to “a £4bn tax on jobs”, which would “damage Britain’s competitiveness and could increase unemployment”. This was total nonsense, of course. Despite such warnings, the “NHS Budget” of 2002 turned out to be one of the most popular in recent memory, though people are now beginning to wonder where all that money went.

When the naysayers wake up to the reality of the 2007 Budget, they will realise that Gordon Brown was right all along, or so those in the Downing Street bunker believe – just as they did six years ago. There are big differences between 2002 and 2008, however. In 2002, Brown’s first tax-raising Budget came after a second landslide Labour victory. At that time the sceptics in parliament were to be found on the Conservative benches, and who cared about them? No one on the Labour back benches was likely to complain about a cash investment in the health service taken from employers’ contributions. But one factor above all made the context of that Budget completely different: the economy was in a rude state of health.

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In such circumstances, the government knows stories about the public concern over the 10p rate become self-fulfilling. The issue is first raised by constituents. MPs then repeat those concerns publicly; journalists naturally report this and then people read what is said in the newspapers and get even more worried. And so the concern gathers deadly pace. Such a cycle is very difficult to break, especially against a background of extreme economic uncertainty. The government’s compromise with the tax rebels demonstrates the vote on the 10p rate was a confidence issue for the Prime Minister. Poor results in the local elections and the loss of the London mayoral race would combine with a growing sense of doom in Labour marginals to fuel further speculation about whether Brown is the right person to lead the party into the next election.

But speculation about Brown’s fitness to lead the party did not begin over the Easter 2008 recess. Three weeks before the 2007 Budget, one poll showed Labour 13 points behind the Conservatives in the event of a Brown-Cameron contest. As the chancellor finalised his figures, his long-time foes within the party Charles Clarke and Alan Milburn were preparing an alternative vision with the launch of a website to promote their ideas. At this point backbenchers were beginning to discuss the option of putting Brown on probation for a year as prime minister and then deciding on his fate. “What if Gordon is still ten points behind in the polls in a year’s time?” one backbencher asked the New Statesman back in March 2007.

In the event, the 2007 Budget marked the beginning of Brown’s growing confidence as he moved towards No 10. A Blairite alternative candidate never emerged, and by the summer Labour’s fortunes in the polls had been reversed to such an extent that talk turned to a snap election.

Poll-obsessed allies

Since then, the Brown government has endured “the election that never was”, the Northern Rock crisis, a string of damaging party-funding stories and a rebellion over the proposed 42-day detention without charge for terror suspects. Precisely a year on from the 2007 Budget, Brown was trailing Cameron by anything between 13 and 16 points and, sure enough, speculation began about a possible stalking horse or the Prime Minister falling on his sword for the greater good of the party.

It is therefore something of a miracle that MPs returned from the Easter recess on Monday 21 April to find that a Guardian/ICM poll had Labour closing the gap on the Tories to five points. After weeks of attrition, there is a hint of optimism in Downing Street as a result – just the merest inkling that perhaps the worst is over. The mantra in the bunker is that if the government can ride the economic turbulence and begin to focus on the big policy issues, support will return. Perhaps they are right. It is certainly the case that David Cameron has still failed to make the breakthrough that makes a Conservative victory in the next election inevitable.

Brown and his poll-obsessed allies may find some comfort in the latest figures, but there is rebellion in the air. It is im portant to remember that he does not have the authority of an electoral mandate to face down backbenchers who defy him. His authority is based largely on economic competence and a reputation for knowing how to win elections, and on both counts it has been seeping away. Recovery is still possible, but as spring turns to summer, the Prime Minister’s year on probation will end. If the judgement of the people is harsh on 1 May, there is a real possibility that an increasingly unhappy Labour Party will move against him. It was a suicidal thought a year ago and now it is even more so. But such is the feeling on the Labour back benches that anything is possible.

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