This article is taken from the November 2022 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

“Gordon Brown economics” was one of the more memorable phrases to emerge from the recent Conservative leadership contest. Liz Truss used it to criticise Rishi Sunak’s support for strong public finances. At one point, Truss widened the attack and claimed that Gordon Brown economics had led to “a slow-growth economy”.

So much has gone wrong here that it is difficult to know where to begin. First, the interesting and unexpected feature of Gordon Brown’s economics as chancellor of the exchequer was that it continued policy trends in the preceding Conservative years. With one important exception, Gordon Brown’s economics wasn’t really his at all. 

At some point in the mid-1990s New Labour’s leaders realised that Old Labour — public ownership and government intervention — was history. They also saw that they had to adjust their ideas on macroeconomic policy as well as become more friendly towards the free market. They sensed that an emerging framework of fiscal and monetary control, with a balanced budget objective and inflation targets, was working well. 

To guarantee that Labour would go into the 1997 election with maximum credibility on economic policy, Brown gave two commitments. The first was that, in its first two years, a Labour government would maintain the same levels of public spending and debt as envisaged by the Conservatives, and the second was that it would not raise tax rates — including the then top rate of 40 per cent during the lifetime of the next Parliament. 

The left was outraged. But the economy was stable, while inflation and interest rates stayed down. The political reward was another landslide election victory in 2001. 

In what important respect did Gordon Brown’s economics differ from the Tory template? It was Brown’s decision at the very start of the government to grant operational independence to the Bank of England. This was a huge departure from traditional socialist thinking. The contrast with the attitudes of, say, Tommy Balogh, economic adviser to Harold Wilson (Labour Prime Minister, 1964-1970, and 1974-76) was almost total. 

In one of his pamphlets Balogh sneered at the widespread support in post-war Germany for an independent central bank. He described its leading politicians — who could remember the devastation wrought by the Weimar hyperinflation of 1923 — as “hagridden by obsolete monetary theories”. In Balogh’s view, they were deluded by “quaint opinions” like those of “the late Mr. Montagu Norman on the proper role of the central bank”. 

Gordon Brown’s economics in his period as chancellor were to a remarkable extent that which a Conservative chancellor and a sound-money central bank governor could endorse with few qualms. It was relatively easy for George Osborne to work with the Treasury and the Bank of England when he took over as Chancellor from 2010. 

Officials in both institutions recognised certain basic principles. Osborne shared them, not least because they originated in the earlier 1979-97 Conservative governments. 

Specifically, everyone involved in policy-making agreed that the Bank of England should be assigned the task of inflation control and that public finances had to be set on a sustainable medium-term course. 

Taxes and public spending must still be managed

The budget balance might occasionally be knocked about by shocks of various kinds, as had indeed happened in the Great Recession. But taxes and public spending must still be managed to ensure debt would be stable or falling relative to national output. Osborne tried to entrench the orthodoxy by creating the Office for Budget Responsibility (OBR) as a fiscal watchdog. 

Liz Truss mocks this kind of economics because she regards it as having led to slow growth. In fact, national output increased during Brown’s decade at the Treasury at an impressive compound annual rate of 2.9 per cent. The Brown premiership is another matter entirely, since it saw large output falls. 

But it was only in his premiership that Brown indulged in the Keynesian supposed “fiscal expansionism” of the university textbooks and, like many other people, lost the plot. In the three years to the second quarter of 2010 the budget deficit soared, and the ratio of net public debt to GDP leapt upwards from 35.3 per cent to 66.3 per cent.

If large budget deficits were good for growth, the decade from mid-2007 should have seen faster increases in national output than 2.9 per cent a year. That was not what happened. Instead, the compound annual growth rate of national output in the decade was a meagre 1.1 per cent. But at least Osborne and his successor, Philip Hammond did eventually curb the deficit and restore fiscal sustainability.

Trussonomics seems to rest on the premise that if taxes are cut regardless of the medium-term damage to the public finances, the disruption itself will somehow restore economic dynamism. 

Notoriously, Kwasi Kwarteng ignored the OBR altogether in preparing his mini-Budget of 23 September. One is reminded of Mr Polly, in the H. G. Wells novel, who thought his business could not go bankrupt if he dispensed with an accountant.