Gordon Brown served as Chancellor of the Exchequer of the United Kingdom from 2 May 1997 to 28 June 2007. His tenure was marked by major reform of Britain's monetary and fiscal policy architecture, transferring interest rate setting powers to the Bank of England, by a wide extension of the powers of the Treasury to cover much domestic policy and by transferring responsibility for banking supervision to the Financial Services Authority. Brown presided over the longest period of sustained economic growth in British history.
Brown was appointed chancellor by Prime Minister Tony Blair following Labour's victory in the 1997 general election, its largest landslide general election victory in history, and served in the role throughout Blair's premiership. One of Brown's first acts as chancellor was to grant the Bank of England the freedom to set the UK's interest rate, a decision that had previously been the responsibility of the chancellor. Brown was reappointed chancellor following Labour's landslide victory in the 2001 general election, and won a third term after the party also won the 2005 general election, though with a vastly reduced majority. During his chancellorship, Brown outlined five economic tests, which resisted the UK adopting the euro currency. Controversial moves included the abolition of advance corporation tax (ACT) relief in his first budget, the sale of UK gold reserves from 1999 to 2002, and the removal in his final budget of the 10% starting rate of income tax which he had introduced in the 1999 budget.
Brown's tenure as chancellor set several records. He was the longest-serving Labour Party chancellor ever, beating Denis Healey, who was chancellor for 5 years and 2 months from 5 March 1974 to 4 May 1979. In 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,"Budgeting for stable economic growth" although part of this growth period started under the preceding Conservative government under John Major 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.
Major acts as Chancellor Following Labour's victory in the 1997 general election, its largest landslide general election victory in history, Prime Minister Tony Blair appointed Gordon Brown as Chancellor of the Exchequer. He had previously served as Shadow Chancellor of the Exchequer in Tony Blair's Shadow Cabinet from 1994 to 1997. As Shadow Chancellor, Brown as Chancellor-in-waiting was seen as a good choice by business and the middle class.
It has long been rumoured a deal was struck between Blair and Brown at the former Granita restaurant in Islington, in which Blair promised to give Brown control of economic policy in return for Brown not standing against him in the 1994 Labour leadership election. Whether this is true or not, the relationship between Blair and Brown was central to the fortunes of New Labour, and they mostly remained united in public, despite reported serious private rifts.
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).Figures from A survey of the UK tax system Adam, S. and J. Browne, Institute for Fiscal Studies, Briefing note No. 9, March 2006
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.Spectrum pricings uncertain future, Electronics World, Vol 108. September pp.24–25 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 also 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.More get tax credit overpayments BBC News, 31 May 2006 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 impact of tax and benefit changes between April 2000 and April 2003 on parents' labour supply Blundell, R., M. Brewer and A. Shepherd, Institute for Fiscal Studies, Briefing Note No. 52, 2004
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., The Times 3 September 2006.
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.General Government Outlays as percentage of GDP OECD 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.Brown's raid on pensions costs Britain £100 billion, The Daily Telegraph 16 October 2006. 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.That pensions raid, Evan Davis 2 April 2007.
Growth development and employment
Brown pointed to two main accomplishments: growth and employment. An OECD reportOECD Economic Outlook No. 78 Annex Tables — Table of Contents OECD 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 testsThe five tests The Guardian 29 September 2000 to ascertain whether the economic case had been made. In June 2003, the Treasury indicated the tests had not been passed.UK 'not yet ready for the euro' BBC, 9 June 2003
Between 1999 and 2002, Brown sold 60% of UK gold reserves at $275 an ounce.HM Treasury review of UK gold reserves sales It was later attacked as a "disastrous foray into international asset management"Brown's gold sale losses pile up as bullion price surges Scotsman.com website 28 November 2005extrac 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.a b c Gold: Does Gordon Brown's regret selling half of Britain's gold reserves 10 years ago?, The Daily Telegraph, 8 May 2009 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 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:
Other statements and events Higher education