Historically, trust in managing the economy was never seen as Labour’s strong card. Therefore, one of its great successes since the mid-1990s has been in establishing itself as a party that could be trusted with the economy. To that extent, Gordon Brown transformed the political landscape.
Since 1997, Labour has championed economic stability and responsible public finances. It has made institutional reforms – not least independence for the Bank of England – that have created unprecedented transparency, confidence and prosperity. In doing so, it has not only maintained the trust of the electorate – crucial to its electoral success – but also created the basis for one of the most radical and redistributive governments in history.
Recently, critics on the right have responded in two ways. The first, popular in Conservative-supporting newspapers, is to say that the wheels have now come off the British economy. As this year’s budget makes clear, this is categorically not the case. The UK economy has grown in every quarter since Labour came to power, with employment up by two million and 300,000 more businesses since 1997. Britain is enjoying the longest period of sustained low inflation and interest rates since the Beatles were in the charts. Lower mortgage rates are saving mortgage payers an average of £3,780 a year – that’s £315 a month – compared to rates under the Conservatives At the same time, Labour is delivering massive and sustained investment in our public services.
The other response from the Tories is that Labour’s success is due entirely to the legacy it inherited from the previous Conservative government. They say that Labour has unfairly reaped the political windfall of a golden economic legacy. A Progress pamphlet, written in 1998 by John Spellar and myself, sought to dispel this myth. More recently, Ed Balls, in the 2005 Lubbock lecture, provided an authoritative exposition of why 1997 marked a decisive change.
In his speech to Demos in January 2006, David Cameron claimed that Labour’s focus on social justice and economic efficiency ‘were not markedly different to Mrs Thatcher’s aims or John Major’s aims’. Nothing could be further from the truth. As well as being profoundly socially unjust, the Tories were also grossly inefficient.
This was all the more shameful when set in the context of North Sea oil revenues and privatisation receipts that the Tories wasted. According to research conducted for the Progress pamphlet, the Conservatives benefited from over £128bn (at 1998 prices) in revenues from North Sea oil from 1979 to 1997. Despite consistently under-valuing the national assets that were privatised, the Tories received around £80bn in privatisation receipts.
Despite a higher tax burden on the British people, the national debt doubled from 1990 to 1995 – even with the upturn in the economic cycle. The national debt was so bad under the Tories that interest payments alone were costing the country £25bn a year, the equivalent of £1,000 for every person paying income tax. In fact, the budget deficit totalled £175bn between 1992/93 and 1996/97, adding up to £6,500 for every working person in the land.
Under the Tories, Britain suffered the two worst recessions since the second world war. We had the highest long-term interest rates in the European Union (reaching 17 per cent in 1980 and 15 per cent in 1990). Average inflation was higher here than in any other industrialised nation except Italy. We had the lowest level of investment of any OECD country. We created fewer jobs and had lower growth than any other major industrialised country. At the same time, poverty and inequality increased and public services and infrastructure were neglected.
Bill Clinton understood that elections are fought and won on the economy (indeed, one of his campaign advisers famously said that ‘it’s the economy, stupid’). Everyone who campaigned at the last election knows that Labour’s handling of the economy was critical to its victory in 2005. If it is to keep on winning, it must remind the electorate that economic success has been hard won and is specifically because of the changes it made in government after 1997. Winners write history, and Labour cannot afford to let the Tories reinvent their own.