The state would be prioritised over everything else. Taxes would be constantly, if stealthily, raised. Spending would be reclassified as investment, and shifted off the balance sheet wherever possible. And macro stability would be out-sourced to the Bank of England, while the Treasury would take total control of domestic policy. A quarter of a century ago this weekend, as New Labour was swept into power in a landslide election victory, Gordon Brown, then a relatively fresh-faced Chancellor, completely overhauled economic policy. In a whirlwind week, he put in place the most far-reaching reforms in a generation. And yet, 25 years on, that consensus is still in place. Twelve years of Conservative rule, either alone or in the coalition, has barely shifted it. Surely it is time to move on, and try something different – after all it is not as if the results have been that great.
Brown was, without question, the most significant Chancellor of the post-war era. True, Nigel Lawson achieved far more alongside Mrs Thatcher, and was far more instinctively radical, but he operated largely in small rather than huge steps. Along with his Mini-me Ed Balls, Brown overhauled the machinery of economic management, granting independence to the Bank of England, taking control of domestic policy for the Treasury, and creating new ways of managing the public finances.
In fairness, the results were not terrible. Brown inherited a golden legacy, but he didn’t make a complete mess of it. The economy grew at a respectable pace at least until the financial crisis of 2008 and 2009. And yet, wage growth has been weak. Productivity has been dismal, with companies reliant on cheap imported labour to keep going. The tax system has become a mess, designed to discourage effort and demoralise initiative. State spending has risen to such punishing levels that no one really has any idea how it can be paid for anymore. A golden era? Not really.
It is surely time for a complete overhaul. First, and most importantly, the UK should redesign the state so that it consumes less – even if that means excluding huge budget items such as pensions or healthcare. Next, we should be bolder on taxation, cutting rates and letting the growth that unleashes pay for them. We should deregulate, repealing three rules for every one enacted. We should curb the power of the Treasury, a department that manages to be both over-mighty and over-cautious at the same time, and give other departments room to breathe. And finally, we should scrap the Monetary Policy Committee – it is a waste of time and money – and we should let the Governor and the Bank staff set interest rates.
In truth, New Labour economics has delivered very little. We have stuck with the formula for far too long – and it is time for a dramatic change of course.