Chancellorship of Gordon Brown

Chancellorship of Gordon Brown 2 May 1997 – 27 June 2007
Chancellor	Gordon Brown
Party	Labour
Election	1997, 2001, 2005
Nominated by	Tony Blair
Appointed by	Elizabeth II
Seat	11 Downing Street
Coat of arms of HM Government

Gordon Brown served as Chancellor of the Exchequer of the United Kingdom from the Labour Party's 1997 general election landslide victory on 2 May 1997 to 27 June 2007, when elevated as Prime Minister of the United Kingdom. He was succeeded as Chancellor by Alistair Darling the following day. It was the second-longest continuous period of office of any Chancellor, surpassed only by Nicholas Vansittart two centuries before. Brown's time as Chancellor was marked by major reform of Britain's monetary and fiscal policy architecture, by a wide extension of the powers of the Treasury to cover much domestic policy, and by largely benign economic conditions.

Gordon Brown speaking at the annual World Bank/IMF meeting in 2002

Major acts as Chancellor

Bank of England

On taking office as Chancellor, Brown gave the Bank of England operational independence in monetary policy, and thus responsibility for setting interest rates. At the same time, he stripped the Bank of England of its regulatory powers, giving them to the newly created Financial Services Authority, whose board is appointed by the Treasury.

Taxation and spending

Brown adhered to Labour's 1997 election manifesto pledge not to increase the basic or higher rates of income tax. He reduced the starting rate from 20% (pre-1997) to 10% in 1999, before abolishing the starting rate in 2007; a decision that led to an immense backbench revolt, and reduced the basic rate from 23% (pre-1997) to 22% (2000) and then 20% (2007).

Brown increased the tax thresholds in line with inflation, rather than earnings, which rise more quickly during periods of economic growth. This results in fiscal drag in which more taxpayers are drawn into the upper rates (e.g. in 2000–01 there were 2,880,000 higher-rate taxpayers, whereas in 2005–06 there were 3,160,000).

In 1997, Brown also introduced taxation of pension funds. Documents subsequently released under the Freedom of Information Act showed that civil servants warned at the time that the move, which generated £5,000,000,000 in tax revenue, could lead to the closure of many occupational schemes, which subsequently came to pass. In 2008, a biographer of Brown, Tom Bower, claimed that Brown had originally sought a larger sum from pension funds, but backed down in the face of opposition.

In contrast, corporation tax fell under Brown, from a main rate of 33% (pre-1997) to 30% (1999) and then 28% (2007), and from 24% to 19% for small businesses (although the lower rate was set to rise to 22% by 2010).

Under Brown, telecom radio frequency auctions gathered £22,500,000,000 for the government. By using a system of sealed bids and only selling a restricted number of licences, they extracted high prices from the telecom operators. Germany at this time applied a similar auction; some allege that these together caused a severe recession in the European telecoms development industry (2001 Telecoms crash) with the loss of 100,000 jobs across Europe, 30,000 of those in the UK. But, as Paul Klemperer, one of the designers of the auctions, points out, "[t]he United States held no 3G auctions, yet telecoms companies lost just as much: in fact, they lost more."

Once the two-year period of following the Conservative's spending plans was over, Brown's 2000 Spending Review outlined a major expansion of government spending, particularly on healthcare and education. In his April 2002 budget, Brown raised National Insurance to pay for increased health spending. Brown has changed tax policy in other ways, such as the introduction of working tax credits. This is one of several ideas borrowed from the US Clinton administration whereby welfare payments are accounted for as negative taxation. The separate means-testing process for tax credits has been criticised by some as bureaucratic, and in 2003–04 and 2004–05 problems in the system led to overpayments of £2,200,000,000 and £1,800,000,000 respectively. However, economic theory suggests tax credits can strengthen work incentives for those at the margin between employment and unemployment, and the IFS has estimated the reforms brought at least 50,000 single mothers into part-time work.

The Centre for Policy Studies found the poorest fifth of households, which accounted for 6.8% of all taxes in 1996–7, accounted for 6.9% of all taxes paid in 2004–5. Meanwhile, their share of state benefit payouts dropped from 28.1% to 27.1% over the same period.

According to the OECD UK taxation had increased from a 39.3% share of GDP in 1997 to 42.4% in 2006, going to a higher level than Germany. This increase has mainly been attributed to active government policy, and not simply to the growing economy. To have brought this about with only one explicit tax rise has led to accusations of Brown imposing stealth taxes. A commonly reported example resulted in 1997 from a technical change in the way corporation tax is collected, the indirect effect of which was for the dividends on equity investments held within pensions to be taxed, thus lowering pension returns and allegedly contributing to the demise of some pension funds. The Treasury contend that this tax change was crucial to long-term economic growth: the existing corporation tax system created biased incentives for corporations to pay out profits as dividends to shareholders (including pension funds, who could then reclaim the tax paid) rather than to reinvest them into company growth (which would result in corporation tax being paid). The old system of corporation tax was widely viewed by economists as a constraint on British economic growth.

Growth development and employment

Brown pointed to two main accomplishments: growth and employment. An OECD report shows UK economic growth averaged 2.7% between 1997 and 2006, higher than the Eurozone's 2.1%, though lower than in any other English-speaking country. UK unemployment is 5.5%, down from 7% in 1997 and lower than the Eurozone's average of 8.1%.

In October 1997, Brown took control of the United Kingdom's membership of the European single currency issue by announcing the Treasury would set five economic tests to ascertain whether the economic case had been made. In June 2003, the Treasury indicated the tests had not been passed.

Between 1999 and 2002, Brown sold 60% of UK gold reserves at $275 an ounce. It was later attacked as a "disastrous foray into international asset management" as he had sold at close to a 20-year low. The UK eventually sold about 395 tons of gold over 17 auctions from July 1999 to March 2002, at an average price of about US$275 per ounce, raising approximately US$3,500,000,000. By 2011, that quantity of gold would be worth over $19,000,000,000. He pressured the IMF to do the same, but it resisted.

Brown believes it is appropriate to remove much of the unpayable Third World debt but does not think all debt should be wiped out.

When Labour was re-elected for a third consecutive term at the 2005 general election (though with a vastly reduced majority following the landslide victories at the previous two elections), many MPs spoke of the Labour election victory as being Brown's achievement rather than Blair's; while Blair was facing criticism as Prime Minister for leading the UK into needless wars in Afghanistan and Iraq, Brown was receiving credit for helping secure a strong economy for Britain.

On 20 April 2006, in a speech to the United Nations Ambassadors, Brown outlined a "Green" view of global development:

… far from being at odds with each other, our economic objectives and our environmental objectives now increasingly reinforce each other. … Environmental sustainability is not an option – it is a necessity. For economies to flourish, for global poverty to be banished, for the well-being of the world's people to be enhanced – not just in this generation but in succeeding generations – we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depends. … A new paradigm that sees economic growth, social justice and environmental care advancing together can become the common sense of our age.

Other statements and events

Higher education

In 2000, Brown started a major political row about higher education (referred to as the Laura Spence Affair) when he accused the University of Oxford of elitism in its admissions procedures. He described the University's decision not to offer a place to state school pupil Laura Spence as "absolutely outrageous" and implied its decision was based on her background rather than her academic potential. This started a major and hotly argued row in the media in which Oxford strongly denied these accusations. With his comments, Brown can arguably be credited with raising widening participation to higher education up the political agenda. However, many of his opponents said Brown's comments were ill-founded; including Lord Jenkins (then Chancellor of the University of Oxford) who said "nearly every fact he used was false," and that Brown's speech had been a "little Blitzkrieg in being an act of sudden unprovoked aggression".

Anti-racism and popular culture

During a diplomatic visit to India in January 2007, Brown responded to questions concerning perceived racism and bullying against Bollywood actress Shilpa Shetty on the UK reality TV programme Celebrity Big Brother saying, "There is a lot of support for Shilpa. It is pretty clear we are getting the message across. Britain is a nation of tolerance and fairness." He later said the debate showed Britain wanted to be "defined by being a tolerant, fair and decent country."

Records

Brown's ten years and two months as Chancellor of the Exchequer set several records. He was the longest-serving Labour Party Chancellor of the Exchequer ever, beating Denis Healey, who was Chancellor for 5 years and 2 months from 5 March 1974 to 4 May 1979. On 15 June 2004, he became the longest continuous serving Chancellor since the Reform Act 1832, passing the figure of 7 years and 43 days set by David Lloyd George (1908–1915). However, William Ewart Gladstone was Chancellor for a total of 12 years and 4 months in the period from 1852 to 1882 (although not continuously). Brown stated his chancellorship had seen the longest period of sustained economic growth in UK history, although part of this growth period started under the preceding Conservative government in 1993, and the details in Brown's growth figures have been challenged, as have his more general claims to have created the conditions for prosperity and declining poverty levels.