POLITICS
Gordon Brown should be more simple-minded and work less hard
BRUCE ANDERSON
The Tory front bench knows what it would like to do to Gordon Brown. It would like to wipe that smug smile off his face. But this will not be easy. Inflation is under con- trol, as are the public finances. The British economy is growing steadily; so is the world economy. It is hard to see what can go wrong between now and the next election. This is a Chancellor with a lot to be smug about.
The Tories also know that there is no point in saying what they would most like to say: that this is all so unfair. That, of course, is true. Gordon Brown did not create the favourable economic circumstances of which he now boasts; he inherited every one of them, and especially low inflation, the sine qua non of success. Here the Tories feel especially frustrated. It was they who had to pay the bills for that successful counter- inflation policy: in electoral blood. Without the recession of the early Nineties, inflation could not have been controlled. That reces- sion fell hardest on Tory supporters in south- ern England, who have still not forgiven the Conservative party and who obstinately refused to accept that there was an economic recovery — until 2 May 1997. Green shoots? By the time the Tories left office, those shoots had burgeoned and ripened. So it is maddening for the Tories to watch Chancel- lor Brown gathering in their harvest, and there is nothing that they can do. The voters are not interested in fairness, nor, thus far, in the Tories' intellectual critique of the Brown chancellorship. But there are strong reasons for arguing that Mr Brown is a much less good Chancellor than he appears to be.
The first is the stealth taxes, levied on savings and on business. Because of the gov- ernment's failure to keep its pm-election pledges to cut welfare spending, the revenues from the stealth taxes are being used on higher social-security bills. This huge switch of resources from productive sectors to unproductive ones will undermine the econo- my's longer-term performance.
So will European-style labour market reg- ulation. When he talks to European audi- ences, Alan Greenspan enjoys repeating his favourite paradox. 'You Europeans believe in protecting labor, and never stop passing new laws to do this. We Americans are not interested in protecting labor. We want nothing to interfere with the boss's right to hire and fire. What is the outcome? Your unemployment rate is ten per cent; ours is under four per cent — which means that any American who really wants a job can have two of them.'
When he addresses Continental European audiences, Tony Blair usually sounds like a Greenspanite, telling them — though he does not put it quite as explicitly — that it is time for them to embark on Thatcherite labour-market reforms. That is what he says; he then comes home and does the opposite, with Chancellor Brown's enthusiastic sup- port. John Major's opt-out from the Social Chapter proved not to be as effective as was originally thought; the Europeans were able to find other ways of inflicting their labour- market rigidities on us. But the opt-out did offer some protection, which Mr Blair blithe- ly abandoned. The past two and a half years have seen the creeping Europeanisation of the British labour market, which will have one inevitable longer-term consequence. It will push up our NAIRU — the non-acceler- ating-inflation rate of unemployment towards European levels. It jeopardises the supply-side reforms of the 1980s: the founda- tion for all subsequent economic successes.
Gordon Brown sometimes acknowledges the importance of the supply-side, without convincing one that he really understands it. There is a reason for this: the Chancellor's basic intellectual weakness. He is not simple- minded enough. An obsessive worker, his first instinct on any complex policy question is to see how it can be made more complicat- ed. Tuesday's measures were a typical exam- ple: an array of exemptions, reliefs and spe- cial measures. All chancellors should ask themselves a question which few could answer in the affirmative: will my Budget reduce accountancy firms' profits next year? But even by previous standards, this Chan- cellor is the accountants' friend.
Not that there is anything wrong with most of the specific proposals. Some of them, especially the reductions in long-term capi- tal-gains tax and in industry's energy costs, are desirable and indeed overdue. But them is still a basic misconception. Mr Brown gen- uinely believes that he can tinker and fine- tune and small-print his way to an enterprise economy. He is ignoring the essential, easy lesson of the 1980s: that if the supply side is working well, every area of economic man- agement becomes easier. Inflation stays under control, because monetary growth ends up as output and jobs, not as wages and prices. So the economy grows while the NAIRU falls, and with it welfare bills, public- sector debt — and taxes. Everyone can work; everything does work.
Compare and contrast with the 1960s and 19705, when the problems of the British economy appeared insoluble. As soon as it began to expand, it ran into supply-side bot- tlenecks. It seemed as if economic growth was incompatible with counter-inflation; that chancellors had to choose between the fur- nace and the freezer; that the British people would never be able to prosper. Finally, Mar- garet Thatcher found a way out, though it was a much more haphazard, much less planned journey than she would wish us to believe. In retrospect, much of the mone- tarist agonising of the late 1970s and early 1980s was irrelevant. While some of the PM's advisers persuaded themselves that Britain's whole future depended on the correct choice of monetary indicator, the government stum- bled into the right policy: to unchain the sup- ply side and free the labour market.
It also cut taxes, and discovered that, with- in reason, the Laffer curve does work. Lower tax rates can produce higher tax yields. Now it is time to go further. Admittedly, Gordon Brown does sometimes sound enthusiastic about tax cuts: a first for a Labour Chancel- lor. But there is an urgent need to turn words into deeds: we must have more tax competi- tion with Europe.
In some respects, the European single market could work to Britain's disadvantage. There will never be a common climate poli- cy. It will always be warmer in Tuscany and Provence, while housing will also be cheaper, especially in France, which has the same population as the UK and twice the land area. The food will also be better, and French state education offers parents good schools, free.
By temperament, many of those who work in software, financial services and other high value-added industries are rootless cos- mopolitans, immune to the appeal of patrio- tism. Effectively freelancers, they do not need to worry about European labour laws. So there is much to tempt them abroad. But there is one obvious way to keep them at home: lower taxes. The Chancellor should not just offer tax breaks for high-earners; he should abolish the top rate of tax. A chancel- lor who smiled on the supply side and simpli- fied the tax system would not have to work as hard as Mr Brown does. But such a chancel- lor would also have a clearer understanding of economic success than Mr Brown does.
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