Brown's economic legacy: Time to say sorry
Revered journalist Lord Rees-Mogg writes in the Mail on Sunday on the Government's economic mistakes...
Owed an apology: He, far more than anyone else, was responsible for British economic policy
Anyone with a record like this must say sorry Perhaps it would be a help if Gordon Brown were to say 'Sorry'. Apologies are rare in the world of business and even rarer in the world of politics.
Yet last week the chairman of the Royal Bank of Scotland, Sir Tom McKillop, and the chief executive, Sir Fred Goodwin, both made their apologies to the shareholders, staff and customers of the banking group.
The chairman said he was 'profoundly sorry about the position that we have reached'; the chief executive said he, too, was 'profoundly sorry'.
The RBS two were among the most admired bankers of their generation. They pursued a policy of aggressive expansion but they made a number of bad business decisions, though no one doubts their integrity. Unfortunately, honest and able men can make disastrous decisions, particularly when they are going with the tide.
That is how I would see the position of Brown. He, far more than anyone else, was responsible for British economic policy in the past 11 years. He was Chancellor of the Exchequer from 1997 until 2007, and since then has been Prime Minister.
When he was Chancellor, he enjoyed an excessive authority over the Government's economic policy. Tony Blair was not even a back-seat driver; inside the Treasury, Brown was the boss. I respect him as an able and serious Minister, but that also makes me regard him as responsible for the results of his policies. I should feel a little safer if he had been willing to recognise some of his errors.
What the RBS got wrong was its business plan. The individual mistakes that have proved so damaging came as a result of a business plan that was seriously flawed. The RBS was too expansionist, too concerned with maximising its share of the market, too keen to make acquisitions, perhaps too anxious to avoid being acquired itself, too willing to take the risks of high leverage. Its worst misjudgment was almost the final one. RBS acquired part of the Dutch bank ABN Amro at the top of the market. Other banks made similar mistakes.
The same criticism is true of Brown. He has tried to blame the credit crunch on the Americans, pointing out that sub-prime mortgages, which proved so toxic, originated in the United States. But Northern Rock was a British bank, and so were many of the banks that offered mortgages of more than 100 per cent of the value of a house.
No one who has had as much power for as long as Brown should blame his failure on external causes. It is like the ship's captain who blames the collision on the iceberg. The Chancellor of the Exchequer is employed to protect the British economy from these external shocks, just as the board of a bank is employed to protect the bank from external risks.
Brown failed to see the danger signals. He too had a business plan, a national strategy, which - as we now know - was based on high risk and rising debt. Britain could afford the risk much better than Iceland but, like Iceland, we were overtrading as a financial centre.
During Brown's time in office, there were two specific bubbles: the dot.com bubble of the late Nineties and the housing market bubble, which started in 2000. There was also a global banking bubble, which expressed itself in markets of derivatives, hedge funds and private equity.
Some countries steered clear of these dangerous shallows, or participated to a lesser degree than Britain. Some banks remained conservative in their policies. Brown had established a new regulatory system that took the power of supervising banks away from the Bank of England and gave it to the Financial Services Authority, which has less expertise in banking.
After the 2001 Election, Brown greatly increased public expenditure, which led to a rising budget deficit. He accepted higher risks and Britain is now paying the price.
We are now only 18 months away from the next General Election. All the evidence suggests that the global recession is likely to become more intense in that period. Unemployment will be higher; there will be more bankruptcies; there is a famine of credit; house prices will fall; there will be losses of jobs and homes.
How to spot a recession
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This provides a strong argument for an early Election, an argument similar to the one that persuaded Edward Heath to go to the country in February 1974. Heath was faced with global inflation, a falling stock market, a miners' strike and rising unemployment. The 1974 crisis was not identical to the crisis of 2008; in 1974 inflation was the problem and now deflation is the greater worry.
Heath was getting closer to the end of the 1970 Parliament, though it still had two years to run. He could not see a later opportunity that would have been more promising. He felt he might win a quick Election in early 1974 if he called it on the issue of 'Who rules Britain?' He lost, narrowly, to Labour.
Brown faces the same temptation, and there are senior people within Labour who think an early Election is their best chance. In Heath's case an early Election proved to be a mistake; that does not mean it would be a mistake for Brown to go to the country at his first opportunity. Indeed, he has already missed two attractive opportunities: October 2007 and October 2008, either of which might have been better for Labour than can be expected in May 2010. The next opportunity will come next March or May.
Whether or not Brown takes this opportunity will depend largely on the opinion polls. Labour does not currently have the momentum for victory. It has taken some of the momentum away from the Tories; that is all.
Labour could suffer a landslide defeat if Brown waits for 2010. 'Mr Recession' has won General Elections in the past; I have never heard of an Election that was won by 'Mr Slump'.
In any case, it might be a good idea if Brown did say 'Sorry'. He was, and still is, the man on the bridge.
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