Chancellorship of Gordon Brown
Encyclopedia
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
served as a British chancellor of the exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
from 2 May 1997, when the Labour Party returned to power for the first time in 18 years, to 27 June 2007, when he became prime minister
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
. It was the second-longest continuous period of office of any chancellor, surpassed only by Nicholas Vansittart two centuries before. Brown's time as chancellor was marked by major reform of Britain's monetary and fiscal policy architecture, by a wide extension of the powers of the Treasury
HM Treasury
HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...
to cover much domestic policy, and by largely benign economic conditions.
His reliance on a policy of "fiscal prudence," which made low inflation the number one priority to spark growth, sometimes necessitating a resistance to public sector pay demands, earned him the moniker "the Iron Chancellor." His independence from and rivalry with Tony Blair
Tony Blair
Anthony Charles Lynton Blair is a former British Labour Party politician who served as the Prime Minister of the United Kingdom from 2 May 1997 to 27 June 2007. He was the Member of Parliament for Sedgefield from 1983 to 2007 and Leader of the Labour Party from 1994 to 2007...
, prime minister from 1997 to 2007, led political analysts to call him "the most powerful chancellor of modern times."
Records
Brown's ten years and two months as chancellor of the exchequer set several records. He was the longest-serving Labour Chancellor of the Exchequer ever, ahead of Denis HealeyDenis Healey
Denis Winston Healey, Baron Healey CH, MBE, PC is a British Labour politician, who served as Secretary of State for Defence from 1964 to 1970 and Chancellor of the Exchequer from 1974 to 1979.-Early life:...
, who was chancellor for 5 years and 2 months from 5 March 1974 to 4 May 1979. On 15 June 2004, he became the longest continuous serving chancellor since the Reform Act 1832
Reform Act 1832
The Representation of the People Act 1832 was an Act of Parliament that introduced wide-ranging changes to the electoral system of England and Wales...
, passing the figure of 7 years and 43 days set by David Lloyd George
David Lloyd George
David Lloyd George, 1st Earl Lloyd-George of Dwyfor OM, PC was a British Liberal politician and statesman...
(1908–1915). However, William Ewart Gladstone
William Ewart Gladstone
William Ewart Gladstone FRS FSS was a British Liberal statesman. In a career lasting over sixty years, he served as Prime Minister four separate times , more than any other person. Gladstone was also Britain's oldest Prime Minister, 84 years old when he resigned for the last time...
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
History of the United Kingdom
The history of the United Kingdom as a unified sovereign state began with the political union of the kingdoms of England, which included Wales, and Scotland on 1 May 1707 in accordance with the Treaty of Union, as ratified by the Acts of Union 1707...
, although part of this growth period started under the preceding Conservative government 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.
Bank of England
On taking office as chancellorChancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
, Brown gave the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
operational independence in monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
, and thus responsibility for setting interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s. At the same time, he stripped the Bank of England of its regulatory powers, giving them to the newly created Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
, whose board is appointed by the treasury.
Taxation and spending
Brown adhered to Labour's 1997 election pledge not to increase the basic or higher rates of income taxIncome tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
. He reduced the starting rate from 20% (pre-1997) to 10% (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).
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
Fiscal drag
Fiscal drag happens when the government's net fiscal position fails to cover the net savings desires of the private economy, also called the private economy's spending gap...
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).
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 business
Small business
A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
es (although the lower rate is set to rise to 22% by 2010).
Under Brown the telecoms
Telecoms crash
The 2001 Telecoms crash is often confused with the Dot Com crash which happened at around the same time. Unlike the dot com crash however, the telecoms sector relied on long engineering research and development cycles, and the development companies on the telecom operators buying software...
radio spectrum
Radio frequency
Radio frequency is a rate of oscillation in the range of about 3 kHz to 300 GHz, which corresponds to the frequency of radio waves, and the alternating currents which carry radio signals...
auctions gathered £22.5 billion for the government, by using a system of sealed bids and only selling a restricted number of licenses, they extracted the high prices from the telecom operators. The German government at this time applied a similar auction
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
, and these together contributed to a severe
recession
Telecoms crash
The 2001 Telecoms crash is often confused with the Dot Com crash which happened at around the same time. Unlike the dot com crash however, the telecoms sector relied on long engineering research and development cycles, and the development companies on the telecom operators buying software...
in the telecoms development industry (2001 Telecoms crash
Telecoms crash
The 2001 Telecoms crash is often confused with the Dot Com crash which happened at around the same time. Unlike the dot com crash however, the telecoms sector relied on long engineering research and development cycles, and the development companies on the telecom operators buying software...
) in Europe with the loss of 100,000 jobs across Europe, 30,000 of those in the UK.
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
Government spending
Government spending includes all government consumption, investment but excludes transfer payments made by a state. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final...
, particularly on health and education. In his April 2002 budget, Brown raised national insurance
National Insurance
National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
to pay for health spending. Brown has changed tax policy
Tax policy
Tax policy is the government's approach to taxation, both from the practical and normative side of the question.-Philosophy:Policymakers debate the nature of the tax structure they plan to implement and how they might affect individuals and businesses .The reason for such foitution effect]],...
in other ways, such as the working tax credit
Working tax credit
The Working Tax Credit is a state benefit in the United Kingdom made to people who work on a low income. It is a part of the current system of refundable tax credits introduced in April 2003 and is a means-tested social security benefit...
s. This is one of several ideas borrowed from the US Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
administration whereby welfare payments are accounted for as negative taxation. The separate means-testing
Means test
A means test is a determination of whether an individual or family is eligible for help from the government.- Canada :In Canada means tests are used for student finance , and "welfare" . They are not generally used for primary education and secondary education which are tax-funded...
process for tax credit
Tax credit
A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...
s has been criticised by some as bureaucratic, and in 2003-04 and 2004-05 problems in the system led to overpayments of £2.2bn and £1.8bn respectively. However, economic theory
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
suggests tax credits can strengthen work incentives for those at the margin between employment and unemployment, and the IFS
Institute for Fiscal Studies
The Institute for Fiscal Studies is an economic research institute based in London, United Kingdom which specialises in UK taxation and public policy...
has estimated the reforms brought at least 50,000 single mothers
Single parent
Single parent is a term that is mostly used to suggest that one parent has most of the day to day responsibilities in the raising of the child or children, which would categorize them as the dominant caregiver...
into part-time work.
The Centre for Policy Studies
Centre for Policy Studies
The Centre for Policy Studies is a British right wing policy think tank whose goal is to promote coherent and practical public policy, to roll back the state, reform public services, support communities, and challenge threats to Britain’s independence...
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.
According to the OECD UK taxation has increased from a 39.3% share of GDP in 1997 to 42.4% in 2006, going to a higher level than Germany. 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 tax
Stealth tax
A stealth tax is a tax levied in such a way that is largely unnoticed, or not recognized as a tax,. The phrase was generally used in the United Kingdom by Conservatives to attack the New Labour government's behaviour...
es. 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 dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s on equity
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
investments held within pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
s to be taxed, thus lowering pension returns and allegedly contributing to the demise of some pension funds. 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.
Growth development and employment
Brown pointed to two main accomplishments: growth and employment. An OECD report shows UK economic growthEconomic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
averaged 2.7% between 1997 and 2006, higher than the Eurozone's 2.1%, though lower than in any other English-speaking
English language
English is a West Germanic language that arose in the Anglo-Saxon kingdoms of England and spread into what was to become south-east Scotland under the influence of the Anglian medieval kingdom of Northumbria...
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 tests to ascertain whether the economic case had been made. In June 2003 the Treasury
HM Treasury
HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...
indicated the tests had not been passed.
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 were re-elected for a third successive term at the 2005 general election
United Kingdom general election, 2005
The United Kingdom general election of 2005 was held on Thursday, 5 May 2005 to elect 646 members to the British House of Commons. The Labour Party under Tony Blair won its third consecutive victory, but with a majority of 66, reduced from 160....
(though with a vastly reduced majority following the landslide victories at the previous two elections), many MP's
Member of Parliament
A Member of Parliament is a representative of the voters to a :parliament. In many countries with bicameral parliaments, the term applies specifically to members of the lower house, as upper houses often have a different title, such as senate, and thus also have different titles for its members,...
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 Britain into wars in Afghanistan
Afghanistan
Afghanistan , officially the Islamic Republic of Afghanistan, is a landlocked country located in the centre of Asia, forming South Asia, Central Asia and the Middle East. With a population of about 29 million, it has an area of , making it the 42nd most populous and 41st largest nation in the world...
and Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
, Brown was receiving credit for helping secure a strong economy for Britain.
On 20 April 2006, in a speech to the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
Ambassadors, Brown outlined a "Green
Green politics
Green politics is a political ideology that aims for the creation of an ecologically sustainable society rooted in environmentalism, social liberalism, and grassroots democracy...
" view of global development:
"… far from being at odds with each other, our economic objectives and our environmental objectives now increasingly reinforce each other. … Environmental sustainability
Sustainability
Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...
is not an option — it is a necessity. For economies to flourish, for global poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
to be banished, for the well-being
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
of the world's people to be enhanced — not just in this generation but in succeeding generations — we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depends. … A new paradigm that sees economic growth, social justice
Social justice
Social justice generally refers to the idea of creating a society or institution that is based on the principles of equality and solidarity, that understands and values human rights, and that recognizes the dignity of every human being. The term and modern concept of "social justice" was coined by...
and environmental care advancing together can become the common sense
Common sense
Common sense is defined by Merriam-Webster as, "sound and prudent judgment based on a simple perception of the situation or facts." Thus, "common sense" equates to the knowledge and experience which most people already have, or which the person using the term believes that they do or should have...
of our age."
Higher education
In 2000, Brown started a major political row about higher educationHigher education
Higher, post-secondary, tertiary, or third level education refers to the stage of learning that occurs at universities, academies, colleges, seminaries, and institutes of technology...
(referred to as the Laura Spence Affair
Laura Spence Affair
The Laura Spence Affair was a British political controversy in 2000, ignited after the failure of high-flying state school pupil Laura Spence to secure a place at the University of Oxford.-Background:...
) when he accused the University of Oxford
University of Oxford
The University of Oxford is a university located in Oxford, United Kingdom. It is the second-oldest surviving university in the world and the oldest in the English-speaking world. Although its exact date of foundation is unclear, there is evidence of teaching as far back as 1096...
of elitism
Elitism
Elitism is the belief or attitude that some individuals, who form an elite — a select group of people with intellect, wealth, specialized training or experience, or other distinctive attributes — are those whose views on a matter are to be taken the most seriously or carry the most...
in its admissions procedures. He described the University's decision not to offer a place to state school pupil Laura Spence as "absolutely outrageous" and implied its decision was based on her background rather than her academic potential. This started a major and hotly argued row in the media in which Oxford strongly denied these accusations. With his comments, Brown can arguably be credited with raising widening participation
Widening participation
The widening participation in higher education is a major component of government education policy in the United Kingdom and Europe. It consists of an attempt to increase not only the numbers of young people entering higher education, but also the proportion from so-called "under-represented...
to Higher Education up the political agenda
Political agenda
A political agenda is a set of issues and policies laid out by an executive or cabinet in government that tries to influence current and near-future political news and debate....
. However many of his opponents said Brown's comments were ill-founded, including Lord Jenkins
Roy Jenkins
Roy Harris Jenkins, Baron Jenkins of Hillhead OM, PC was a British politician.The son of a Welsh coal miner who later became a union official and Labour MP, Roy Jenkins served with distinction in World War II. Elected to Parliament as a Labour member in 1948, he served in several major posts in...
(then Chancellor
Chancellor (education)
A chancellor or vice-chancellor is the chief executive of a university. Other titles are sometimes used, such as president or rector....
of the University of Oxford) who said "nearly every fact he used was false," and that Brown's speech had been a "little Blitzkrieg in being an act of sudden unprovoked aggression".
Anti-racism and popular culture
During a diplomatic visit to India in January 2007, Brown responded to questions concerning perceived racismRacism
Racism is the belief that inherent different traits in human racial groups justify discrimination. In the modern English language, the term "racism" is used predominantly as a pejorative epithet. It is applied especially to the practice or advocacy of racial discrimination of a pernicious nature...
and bullying against Bollywood
Bollywood
Bollywood is the informal term popularly used for the Hindi-language film industry based in Mumbai , Maharashtra, India. The term is often incorrectly used to refer to the whole of Indian cinema; it is only a part of the total Indian film industry, which includes other production centers producing...
actress Shilpa Shetty
Shilpa Shetty
Shilpa Shetty is an Indian film actress and model. Since making her debut in the film Baazigar , she has appeared in nearly 40 Bollywood, Tamil, Telugu and Kannada films, her first leading role being in the 1994 Aag. Although she has been through years of decline during her career, Shetty has been...
on the British reality TV show Celebrity Big Brother
Celebrity Big Brother 2007 (UK)
Celebrity Big Brother 2007 was the highly controversial fifth series of the United Kingdom reality television series Celebrity Big Brother, a spin-off of Big Brother. The series was broadcast on Channel 4 in the UK , and involved a number of celebrities referred to as 'housemates', who live in the...
saying, "There is a lot of support for Shilpa. It is pretty clear we are getting the message across. Britain is a nation of tolerance and fairness." He later said the debate showed Britain wanted to be "defined by being a tolerant, fair and decent country."