Illustration: Eva Bee/The Guardian Thu 20 May 2021 07.00 BST
The Conservative party’s growing electoral dominance in non-metropolitan England, so starkly re-emphasised by results in the north-east, has been attributed to various causes. Brexit and the popularity of Boris Johnson both count for a great deal. But while Labour is busy telling voters how much it deserved to lose, this is only half the picture. A major part of Johnson’s appeal is the way he has escaped the shadow cast by one of Britain’s three most significant political figures of the past 45 years: not Margaret Thatcher or Tony Blair, but Gordon Brown.
The 1994 meeting between Blair and Brown at the Granita restaurant in Islington, north London, shortly after John Smith’s death, is the founding myth of New Labour: the moment when Brown agreed to let Blair stand for the leadership, on certain conditions. In addition to Blair’s much disputed commitment to serve only two terms in office should he become prime minister, there was also his promise that Brown, as chancellor, would get control over the domestic policy agenda. At least the second of these commitments was honoured, resulting in a situation where, from 1997 to 2007, the Treasury held an overwhelming dominance over the rest of Whitehall, while Brown was implicitly unsackable.
But, together with his adviser Ed Balls, Brown was also the architect of a new apparatus of economic policymaking designed for the era of globalisation. The central problem that Balls and Brown confronted was how to build the capacity for higher levels of social spending, while also retaining financial credibility in an age of far more mobile capital than any confronted by previous Labour governments. The fear was that, with financial capital able to cross borders at speed, a high-spending government might be viewed suspiciously by investors and lenders, making it harder for the state to borrow cheaply. The first part of their answer endures to this day: operational independence was handed to the Bank of England, accompanied by an inflation target. No longer could politicians seek to win elections by cutting interest rates, a move that aimed to win the trust of the markets.
On top of this, Brown also introduced a culture of almost obsessive fiscal discipline, as if the bond markets would attack the moment he showed any flexibility – the same paranoia that shaped Clintonism. His “golden rule”, outlined in his first budget, stated that, over the economic cycle, the government could borrow only to invest, not for day-to-day spending. The Treasury governed the rest of Whitehall according to a strict economic rubric, demanding every spending proposal was audited according to orthodox neoclassical economics.
Balls later wrote that their thinking had been guided by an influential 1977 article, Rules Rather than Discretion, in which two economists, Finn Kydland and Edward Prescott, sought to demonstrate that policymakers will produce far better economic outcomes if they stick rigidly to certain principles and heuristics of policy, rather than seeking to intervene on a case-by-case basis. Brown’s robotic persona and his mantra of “prudence” conveyed a programme that was so focused on policy as to be oblivious to more frivolous aspects of politics.
Elements of this Brownite machine remained in place during the David Cameron-George Osborne years: a chancellor acting as a kind of parallel prime minister, transforming society through force of cost-benefit analysis, only now the fiscal tide was going out rather than in. Even “Spreadsheet Phil” Hammond sustained the template as far as he could, in the face of ever-rising attacks from the Brexit extremists in his own party. The point is that, from 1997 to 2019, the government largely meant the Treasury. Those powers that are so foundational for the modern nation state – to tax, borrow and spend – were the basis on which governments asked to be judged, by voters and financial markets.
Various things have happened to weaken the Treasury’s political authority over the past five years, though – significantly – none of these has yet seemed to weaken the government’s credibility in the eyes of the markets. First, there was the notorious cooked Brexit forecast published in May 2016, predicting an immediate recession, half a million job losses and a house price crash, should Britain vote to leave. The referendum itself, a mass refusal to view the world in terms of macroeconomics, meant there could be no going back to a world in which politics was dominated by economists.
Consider how different things are now from in Brown’s heyday. Johnson’s first chancellor, Sajid Javid, lasted little more than six months in the job, resigning after one of his aides was sacked by Dominic Cummings without his knowledge. His second, Rishi Sunak, may have high political ambitions and approval ratings, but scarcely forms the kind of double-act with Johnson that Brown did with Blair, or Osborne with Cameron. Johnson’s cabinet is notable for lacking any obvious next-in-line leader.
What’s more interesting are the parts of Whitehall that have suddenly risen in profile under Johnson: communities and local government under Robert Jenrick, and the Department for Digital, Culture Media and Sport under Oliver Dowden. With the “levelling up” agenda of the former, (manifest in such pork barrel politics as the Towns Fund) and the “culture war” agenda of the latter (evident in attacks on the autonomy of museums), a new vision of government is emerging, one that is no longer afraid of expressing cultural favouritism or fixing deals. Balls and Brown were inspired by “rules rather than discretion”; now there’s no better way to sum up Jenrick’s disgraceful governmental career to date than “discretion rather than rules”.
In the background, of course, are the unique fiscal and financial circumstances produced by Covid, in which all notions of prudence have been thrown out of the window. With the Bank of England buying most of the additional government bonds issued over the last 15 months (beyond the wildest imaginings of Balls and Brown), and with the cost of borrowing close to zero, the rationale for strict fiscal discipline or austerity has currently evaporated. Paradoxically, a situation in which the Treasury can find an emergency £60bn to pay the country’s wages makes for a popular chancellor, but may make for a less powerful Treasury.
Amid all this, Labour is left in an unenviable position, which is in many ways deeply unfair. So long as the Tories are associated with Brexit, England and Johnson, the voters don’t expect them to exercise any kind of discipline, fiscal or otherwise. Meanwhile, Labour remains associated with a Treasury worldview: technocratic, London-centric, British not English, rules not discretion. What’s doubly unfair is that, thanks to the serial fictions of Osborne and the Tory press from 2010 onwards that Labour had “spent all the money”, it is not even viewed as economically trustworthy. In the end, it turned out that public perceptions of financial credibility were largely shaped by political messaging and media narratives, not by adherence to self-imposed fiscal rules.
In the eyes of party members, New Labour will be for ever tarred by Blair and Iraq. In the eyes of much of the country, however, it will be tarred by some vague memory of centralised Brownite spending regimes. The fact that Labour receives so little credit for Brown’s undoubted successes as a spending chancellor is due to many factors, but ultimately consists in the fact that the technocratic, Treasury view of the world was never adequately translated into a political story. Osborne simply presented himself as the inheritor of a centralised “mess” that needed cleaning up.
The recent elections demonstrated that all political momentum is now with the cities and nations of Britain: the Conservatives in leave-voting England, Andy Burnham in Manchester, the SNP in Scotland, Labour in Wales. Rather than making weak gestures towards the union jack or against London, Labour needs to think deeply about the kind of statecraft and policy style that is suited to such a moment, so as to finally leave the world of Granita and “golden rules” behind.
The Conservative party’s growing electoral dominance in non-metropolitan England, so starkly re-emphasised by results in the north-east, has been attributed to various causes. Brexit and the popularity of Boris Johnson both count for a great deal. But while Labour is busy telling voters how much it deserved to lose, this is only half the picture. A major part of Johnson’s appeal is the way he has escaped the shadow cast by one of Britain’s three most significant political figures of the past 45 years: not Margaret Thatcher or Tony Blair, but Gordon Brown.
The 1994 meeting between Blair and Brown at the Granita restaurant in Islington, north London, shortly after John Smith’s death, is the founding myth of New Labour: the moment when Brown agreed to let Blair stand for the leadership, on certain conditions. In addition to Blair’s much disputed commitment to serve only two terms in office should he become prime minister, there was also his promise that Brown, as chancellor, would get control over the domestic policy agenda. At least the second of these commitments was honoured, resulting in a situation where, from 1997 to 2007, the Treasury held an overwhelming dominance over the rest of Whitehall, while Brown was implicitly unsackable.
But, together with his adviser Ed Balls, Brown was also the architect of a new apparatus of economic policymaking designed for the era of globalisation. The central problem that Balls and Brown confronted was how to build the capacity for higher levels of social spending, while also retaining financial credibility in an age of far more mobile capital than any confronted by previous Labour governments. The fear was that, with financial capital able to cross borders at speed, a high-spending government might be viewed suspiciously by investors and lenders, making it harder for the state to borrow cheaply. The first part of their answer endures to this day: operational independence was handed to the Bank of England, accompanied by an inflation target. No longer could politicians seek to win elections by cutting interest rates, a move that aimed to win the trust of the markets.
On top of this, Brown also introduced a culture of almost obsessive fiscal discipline, as if the bond markets would attack the moment he showed any flexibility – the same paranoia that shaped Clintonism. His “golden rule”, outlined in his first budget, stated that, over the economic cycle, the government could borrow only to invest, not for day-to-day spending. The Treasury governed the rest of Whitehall according to a strict economic rubric, demanding every spending proposal was audited according to orthodox neoclassical economics.
Balls later wrote that their thinking had been guided by an influential 1977 article, Rules Rather than Discretion, in which two economists, Finn Kydland and Edward Prescott, sought to demonstrate that policymakers will produce far better economic outcomes if they stick rigidly to certain principles and heuristics of policy, rather than seeking to intervene on a case-by-case basis. Brown’s robotic persona and his mantra of “prudence” conveyed a programme that was so focused on policy as to be oblivious to more frivolous aspects of politics.
Elements of this Brownite machine remained in place during the David Cameron-George Osborne years: a chancellor acting as a kind of parallel prime minister, transforming society through force of cost-benefit analysis, only now the fiscal tide was going out rather than in. Even “Spreadsheet Phil” Hammond sustained the template as far as he could, in the face of ever-rising attacks from the Brexit extremists in his own party. The point is that, from 1997 to 2019, the government largely meant the Treasury. Those powers that are so foundational for the modern nation state – to tax, borrow and spend – were the basis on which governments asked to be judged, by voters and financial markets.
Various things have happened to weaken the Treasury’s political authority over the past five years, though – significantly – none of these has yet seemed to weaken the government’s credibility in the eyes of the markets. First, there was the notorious cooked Brexit forecast published in May 2016, predicting an immediate recession, half a million job losses and a house price crash, should Britain vote to leave. The referendum itself, a mass refusal to view the world in terms of macroeconomics, meant there could be no going back to a world in which politics was dominated by economists.
Consider how different things are now from in Brown’s heyday. Johnson’s first chancellor, Sajid Javid, lasted little more than six months in the job, resigning after one of his aides was sacked by Dominic Cummings without his knowledge. His second, Rishi Sunak, may have high political ambitions and approval ratings, but scarcely forms the kind of double-act with Johnson that Brown did with Blair, or Osborne with Cameron. Johnson’s cabinet is notable for lacking any obvious next-in-line leader.
What’s more interesting are the parts of Whitehall that have suddenly risen in profile under Johnson: communities and local government under Robert Jenrick, and the Department for Digital, Culture Media and Sport under Oliver Dowden. With the “levelling up” agenda of the former, (manifest in such pork barrel politics as the Towns Fund) and the “culture war” agenda of the latter (evident in attacks on the autonomy of museums), a new vision of government is emerging, one that is no longer afraid of expressing cultural favouritism or fixing deals. Balls and Brown were inspired by “rules rather than discretion”; now there’s no better way to sum up Jenrick’s disgraceful governmental career to date than “discretion rather than rules”.
In the background, of course, are the unique fiscal and financial circumstances produced by Covid, in which all notions of prudence have been thrown out of the window. With the Bank of England buying most of the additional government bonds issued over the last 15 months (beyond the wildest imaginings of Balls and Brown), and with the cost of borrowing close to zero, the rationale for strict fiscal discipline or austerity has currently evaporated. Paradoxically, a situation in which the Treasury can find an emergency £60bn to pay the country’s wages makes for a popular chancellor, but may make for a less powerful Treasury.
Amid all this, Labour is left in an unenviable position, which is in many ways deeply unfair. So long as the Tories are associated with Brexit, England and Johnson, the voters don’t expect them to exercise any kind of discipline, fiscal or otherwise. Meanwhile, Labour remains associated with a Treasury worldview: technocratic, London-centric, British not English, rules not discretion. What’s doubly unfair is that, thanks to the serial fictions of Osborne and the Tory press from 2010 onwards that Labour had “spent all the money”, it is not even viewed as economically trustworthy. In the end, it turned out that public perceptions of financial credibility were largely shaped by political messaging and media narratives, not by adherence to self-imposed fiscal rules.
In the eyes of party members, New Labour will be for ever tarred by Blair and Iraq. In the eyes of much of the country, however, it will be tarred by some vague memory of centralised Brownite spending regimes. The fact that Labour receives so little credit for Brown’s undoubted successes as a spending chancellor is due to many factors, but ultimately consists in the fact that the technocratic, Treasury view of the world was never adequately translated into a political story. Osborne simply presented himself as the inheritor of a centralised “mess” that needed cleaning up.
The recent elections demonstrated that all political momentum is now with the cities and nations of Britain: the Conservatives in leave-voting England, Andy Burnham in Manchester, the SNP in Scotland, Labour in Wales. Rather than making weak gestures towards the union jack or against London, Labour needs to think deeply about the kind of statecraft and policy style that is suited to such a moment, so as to finally leave the world of Granita and “golden rules” behind.
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