The good and the bad of Chancellor Brown

Labour's longest-serving chancellor is subject to divided opinion on his performance so far. So has he really done well? Philip Thornton reports

There is a joke that Gordon Brown seldom fails to tell in any speech to a business audience. "There are only two types of chancellors; those that fail and those get out in time." So which category is Mr Brown destined to fall into? After seven years, 10 months and 16 days in office, he is riding high as Labour's longest-serving chancellor. Only Disraeli held the post for longer, and it took him two separate sessions.

There is a joke that Gordon Brown seldom fails to tell in any speech to a business audience. "There are only two types of chancellors; those that fail and those get out in time." So which category is Mr Brown destined to fall into? After seven years, 10 months and 16 days in office, he is riding high as Labour's longest-serving chancellor. Only Disraeli held the post for longer, and it took him two separate sessions.

But the Chancellor, who has been described as dour and dashing, has fans and critics alike, depending on which aspect of his tenure is under scrutiny. As Richard Holt, the economist, puts it in his book Second Among Equals: "It depends on whose values and objectives you use a benchmark, and on how you assess the contribution of the Chancellor to the performance of the economy."

The headline economic data certainly speak in Mr Brown's favour. The UK has had a record 50 quarters of consecutive growth, 35 under his stewardship. Inflation, as measured on the index the Bank of England uses to set interest rates, has stayed below the 2 per cent target since 1998. Interest rates hit a 50-year low of 3.5 per cent in 2003 after having peaked at 7.5 per cent, compared with the heights of 15 per cent during the 1992 ERM crisis. Unemployment has fallen to a 30-year or 20-year low depending on which measure you use, while the number in work is running at a record high.

Much of this success can be attributed to the Chancellor's decision to give up the power to set interest rates by granting independence on monetary policy to the Bank of England. The Bank did the hard work of setting rates to ride out the Asian market crisis, the collapse in share prices, the fallout from 9/11 and the Iraqi war, but it all followed Mr Brown's self-denial.

"Overall, it has been pretty good," says Martin Weale, director of the respected National Institute for Economic and Social Research. "You have eight years without a disaster and there are few chancellors you can say that about."

But critics accused Mr Brown of rewriting modern economic history. Ruth Lea, director of the Centre for Policy Studies, says he inherited a "golden legacy" from the Conservatives. "He likes to give the impression the country was floundering in a swamp of economic chaos prior to 1997. Nothing could have been further from the truth."

But chancellors are judged on their own record, not that of their predecessors, and the current regime has built up an acknowledged reputation for forecasting economic growth. The same cannot be said for the state of the public finances, which could provide to be Mr Brown's Achilles' heel.

Analysis by the Conservatives shows the Treasury's forecasts for the public finances three years ahead have been wrong by about £11bn. Coincidentally, most independent think-tanks believe that is the size of the tax rises needed to bring the public finances back into balance over the next economic cycle.

But as things stand, Mr Brown appears to have met his self-imposed rule of ensuring that, averaged across all years of an economic cycle, he has not borrowed to fund day-to-day spending. By banking the results of the auction of 3G mobile phone licences at the start of the cycle in 1999 and reaping the rewards of tight spending controls in the previous two years, he was able to build substantial surpluses.

While avoiding increases on income tax and cutting corporation tax, Mr Brown has made enemies in the business community, with 66 stealth-tax increases. This allowed him to run up current deficits as the economy turned down. But the economic record is not wholly untarnished. Although the economy has created some 2 million jobs since 1997, almost 900,000 manufacturing jobs have gone. Only last week, figures showed that two out of five of these new jobs - 600,000 - have been created by Whitehall rather than the wealth-creating sector of the economy. Critics also say much of the recent economic boom has been supported by rising personal as well as government debt levels.

The volume of household debt recently broke through the £1 trillion mark as soaring house prices forced buyers to take out increasingly large mortgages. The house price boom has made voters richer and added to their so-called feel-good factor. But the boom that began within months of Labour taking power has now run out of steam, triggering speculation it might be headed for a crash.

Political folklore declares that it was memories of the property crash of the early 1990s, swiftly followed by Britain's humiliating ejection from the European exchange rate mechanism, that demolished the Tories before the 1997 election. By the same token, a crash in house prices, forecast by some serious commentators, would threaten to keep Labour out of power for a generation.

But there is one successful policy that Mr Brown is surprisingly reticent on. The Institute for Fiscal Studies believes he has redistributed from the rich to the poor. Although economic growth has worsened income inequality slightly since 1997, Mr Brown has done his best to ameliorate the pain. His fiscal reforms have the poorest 10th of society almost 7 per cent better off in terms of net income, and the richest in society are 7 per cent worse off.

Mr Brown's record is hanging in the balance. He has shown sign of wanting to quit frontline politics, but if he were to quit the Government after being offered the Foreign Secretary's job post-election, history may judge he got out before his chickens came home to roost.

THE STORY BEHIND THE BUDGETS IN...

1997

Income tax Mortgage interest relief cut to 10 per cent from April 1998.

VAT Rate on domestic fuel cut from 8 per cent to 5 per cent.

Excise duties Road fuel duties up to 6 per cent a year. Tobacco duty up to 5 per cent a year.

Capital taxes Graduated stamp duty introduced: 1 per cent for properties between £60,000 and £250,000; 1.5 per cent between £250,000 and £500,000; 2 per cent over £500,000.

Company taxes Windfall tax on privatised utilities. Small companies' rate cut to 21 per cent from April 1997. Dividend tax credit for pension funds abolished.

Tax take £17.8bn; Tax/GDP 35.4 per cent.

1998

Income tax Working families' tax credit. Married couple's allowance restricted to 10 per cent.

Excise duties Differential wider for diesel and unleaded petrol.

Taxes Personal capital gains tax reformed; Stamp duty raised to 2 per cent and 3 per cent.

Company taxes Main rate cut to 30 per cent.

Tax take £2.29bn; Tax/GDP 37.1 per cent.

1999

Income tax Basic rate cut from 23 per cent to 22 per cent; new 10 per cent starting rate. Married couple's allowance abolished from 2000 for under-65s. Children's tax credit announced from April 2001.

National Insurance Starting point for employee contributions aligned with income tax by April 2001. Self-employed structure reformed from April 2000. Employer rate cut 0.5 of a percentage point from April 2001.

Capital taxes Stamp duty raised to 2.5 per cent on properties between £250,000 and £500,000; 3.5 per cent over £500,000.

Company taxes New 10 per cent rate for companies with low profits introduced from April 2000.

Tax take £6bn

Tax/GDP 36.9 per cent.

2000

Income tax Working families' tax credit and child premiums in children's tax credit increased.

NI Employer rate cut 0.3 of a percentage point from April 2001, as reduction in climate change levy. Cut in employer rate by 0.1 of a percentage point from April 2002, to balance introduction of aggregates levy.

Excise duties Fuel duty frozen. Cigarettes up by 5 per cent.

Capital taxes Stamp duty 3 per cent on properties between £250,000 and £500,000, 4 per cent on properties over £500,000.

Company taxes Climate change levy cut £0.7bn from April 2001. Aggregates levy starts April 2002.

Tax take £6.23bn; Tax/GDP 37.7 per cent.

2001

Income tax Working families' tax credit and child premiums in children's tax credit increased. Overindexation of starting-rate band. ISA limit extended to £7,000 pa until April 2006.

Excise duties Duties for ultra-low sulphur petrol cut by 2p and for ultra-low sulphur diesel by 3p. Tobacco duties up with inflation; alcohol duty freeze.

Company taxes Abolition of withholding tax on intra-UK corporate interest.

Tax take £6.93bn. Tax/GDP 36.8%.

2002

Income tax Child tax credit replaces income-related payments. Working tax credit for families with and without children; working families' tax credit abolished. Allowances for those aged under 65 frozen in cash terms in April 2003.

NI Uncapped 1 percentage point increase for employee, employer and self-employed from April 2003.

Excise duties Fuel duty frozen.

Company taxes Small companies' rate cut to 19 per cent. Starting rate of corporation tax cut to 0 per cent. Research and development tax credit for larger companies at 25 per cent. Reform of North Sea taxation.

Tax take £12.85bn.

Tax/GDP 36.8 per cent.

2003

Income tax No change in rates. Launch of £250 to £500 child trust fund.

Company taxes Corporation tax, climate change levy frozen. R&D tax credit scheme extended. Three new tax reliefs for SMEs.

Excise duties Fuel duties frozen in cash terms until 1 October 2003. Duty differential of 0.5p relative to ultra-low sulphur fuels from September 2004. Beer up 1p a pint; tax on wine up 4p a bottle; spirits duty frozen; cigarette tax up 8p a pack.

Capital taxes Stamp duty frozen.

Tax take £645m. Tax/GDP 36.8 per cent.

2004

Income tax £100 one-off additional to pensioners' winter fuel allowance. No changes in rates.

Excise duties Fuel duties frozen (1.9p a litre rise deferred); 1p increase on pint of beer; 4p on a bottle of wine; cigarettes rise by 8p a packet.

Company taxes New rules on disclosure on tax avoidance schemes. Tax relief of 20 per cent of production costs for films with budget of less than £15m. Petroleum Revenue Tax abolished.

Capital taxes Stamp duty frozen. Clampdown on avoidance on inheritance tax.

Tax take £830m. Tax/GDP 37.3 per cent.