Europe's luckiest finance minister

Written by Chris Huhne MP and published in Finnews on Fri 4th Nov 2005

If you had to nominate Europe's luckiest finance minister, there would be little contest. Gordon Brown, Britain's Chancellor of the Exchequer, has now ruled the roost at the UK Treasury for longer than any of his equivalents in the larger European countries. That longevity in itself is testimony to either luck or judgement.

The great achievement of the period since 1997 is the relative stability of the macro-economy. Britain has traditionally had a highly volatile path of gdp growth, but during the current cycle gdp growth has been one of the least volatile of the leading industrial countries. That has enabled living standards and employment to prosper.

Mr Brown deserves the credit for the most important single change that he introduced: the granting of independence in setting interest rates to the Bank of England within weeks of his first election. It was a good judgement call that has benefited Brown's own reputation as much as the UK economy, even though Mr Brown's own pride in parentage verges on the hyperbolic.

After all, the UK was the last of the group of seven leading industrial countries to make its central bank independent. Britain had tried everything else first: broad money targets, shadow exchange rate targets, exchange rate targets.

As Churchill once said about the Americans, in the end they always do the right thing - but only after they have exhausted all the alternatives. Not even the details of Brown's central bank scheme were novel: he learned from best practice in New Zealand and Canada.

But central bank independence was undoubtedly the achievement that has overshadowed many less impressive initiatives. The charge sheet against Brown's Chancellorship includes an obsessive attempt to micro-manage, a cowardice about raising tax revenue fairly, and an inability to deliver the quality services that the taxpayer is entitled to expect.

The micro-management can be seen in the rococo additions to the tax system, now assuming gargantuan proportions. Quite why the accountancy firms are not giving millions to Labour is a mystery, because Gordon Brown is the patron saint of tax complexity. But it is also seen in the fraught relationship between Brown and many of his senior colleagues in the Cabinet, who are used to him meddling in the details of their briefs.

Look, for example, at the extraordinary Treasury insistence on the contractual arrangements for the running of the London Underground. Because Brown was not prepared to give Ken Livingstone the power to run the tube, there is a mesh of contracts that make a nonsense of clear accountability and control.

The cowardice about raising revenue may be no more than a modern expression of the dictum of Louis XIV's finance minister Colbert, who said that the art of taxation lay in extracting the maximum number of feathers from the goose with the minimum amount of hissing.

But the annual £5 billion raid on pension funds through changes in dividend tax credit - the first stealth tax of Mr Brown's Chancellorship - is now estimated to be responsible for about 40 per cent of the £100 billion shortfall of assets over liabilities (in present value terms) of Britain's sickly private pension funds.

There is no better example of the third item on the charge sheet - the woeful inability to deliver - than the mess of the tax credit system. A regular feature of the advice surgeries of members of parliament is the litany of complaints from low paid workers that their tax credits have been inaccurately calculated, and some inadvertent over-payment that has long since been spent is now being clawed back by the tax authorities leaving them much worse off.

Given the extraordinary surge in public spending, which is projected to rise in real terms by 41 per cent from 1996-7 to 2007-8, there ought to be far more tangible evidence of improvement in the key services of health and education.

However, both health and education have been bedevilled by strategic uncertainties - no fewer than twelve separate statements of education policy including the latest white paper since 1997 - and woeful over-centralisation. Thanks in large part to the instincts of Gordon Brown, Britain is the only large country in the world still attempting to run public services through centralised target-setting that would have warmed the heart of a Gosplan commissar.