There is an inevitability in politics that your unguarded, or newor that matter your carefully delivered words will come back to haunt you. Here are some of Gordon Brown’s.
During his Labour Party conference speech in 2000, Gordon Brown said “We will not put hard won economic stability at risk. No return to short-termism. No return to Tory boom and bust” and he went on to say “why did the Tory party give Britain twenty years of stop-go, twenty years of boom and bust. It is Labour that is now the party for stability and growth.”
Now we know that whenever anything goes wrong, Mr Brown always blames the “Tory party” or now, he prefers to say that our problems are as a consequence of “world economic issues and the credit crunch”. Okay, for a change, there is some truth in that statement, but that is only a recent phenomena, it does not really answer the question of how we got into this position of boom and bust.
On Gordon Brown’s watch, we have seen house prices rise some 200% (23% in 2003 alone) from 1997 to 2007, we have seen a massive increase in the availability of credit and people have felt relatively wealthy as a consequence of the increase in value of their homes. Easy credit meant that many people could remortgage their homes so that they could buy a new car or go on a fancy holiday. During the same period, 1997 to 2007, average wages rose by just 52%, so it was quite obvious that consumer spending had nothing to do with increased wealth through rising wages.
People were offered interest free credit for car and electronic purchases, 125% mortgages, equity release programmes and would receive credit card offers through the post every day. Because many people considered that the increase in their property value was a one way bet, they continues to borrow, believing that they could release equity as and when they needed to. Experts were telling us time and again that the level of consumer debt was at record levels and wasn’t sustainable. Gordon Brown chose to ignore this advice, in spite of the assurance he gave in his conference speech and on numerous occasions since, that he would not allow a return to boom and bust, what he termed a Tory disease.
Gordon Brown knew that the consumer boom was financed by debt, much of which was secured against property prices, which he knew could be volatile, he know that savings were down and debt has spiralled. But he did nothing, previous governments had put in credit controls to address these issues and risks, he sat there preening his feathers and claiming credit for growth figures, yet ignoring that one day it would all come to a dramatic end. It is unlikely he understood just how dramatic that would be, but he knew it would end up is a “bust”.
Gordon Brown’s relationship with prudence was a mere dalliance, personally, I am at a complete loss as to why political commentators and the tabloid press continue to refer to him as a good chancellor, an iron chancellor or one who places prudence first. At the same time as this country was experiencing an economic boom, financed on credit, he himself was, in spite of the fact that he had increasing tax revenues, on a government spending and borrowing spree. Fancy footwork ensured that the PFI initiatives, which will cost us £170bn between now and 2032, did not end up recorded as government debt, but it is still there and it has to be paid. In the good times he should have been repaying government debt, to place us in a better position when the inevitable “bust” came, he did not, he ignored it and continued to spend.
Rising commodity prices and the credit crunch have exacerbated the problem, but ask anyone with a little understanding of basic economics and they would have told you that the crunch was going to happen anyway, debt financed growth was not sustainable even in dreamland that was New Labour. Gordon Brown inherited, whatever he says, a steady and sustainable economy, he just blew it!
It is also worth noting, that manufacturing in this country has been in decline, yes, even under this government and our economy is heavily reliant on banking and financial services. Two areas that are under significant and sustained pressure. It remains to be seen how this will affect employment, tax revenues and our balance of payment deficits. With many banks and financial institutions making substantial losses, these will transfer, not just into an immediate loss of tax revenues, but, because they can accumulate these losses, a further reduction of tax revenues in the coming years.
Gordon Brown’s economic credentials and reputation for prudence is in tatters and we shall be paying the price long after he has left office.