BLAIR’S BRITAIN, 1997–2007
Page 35
claw-back rate lower down. The balance of informed observer opinion is
generally with him in this. Whether MW raises or reduces total employment depends critically on where it is set. A modest MW will tend to raise
rates of pay – and, critically, the number of jobs available – for very low-paid
workers in narrow labour markets where employers do not discriminate in
the wages they pay for such workers, and find – or at least believe – that they
have to raise the common rate of pay to attract extra staff. This is known as
‘labour monopsony’. In markets where labour varies widely according to
perceived productivity, and firms can hire any amount of labour of a particular quality at a given price, imposing a MW anywhere will either be
irrelevant (for those whose productivity exceeds the MW) or unambiguously job-destroying (for those below it). Evidence on the issue is contested, but most good studies34 tend to find that MW increases are good for
raising the earnings of the low paid without endangering employment.
Brown’s labour market reforms appear to have had Blair’s blessing.
And if they squabbled on many matters, particularly Europe, and gave
their civil servants what became known as ‘teebeegeebees’ at times when
the two men were due to meet, there were other issues, too, on which they
clearly saw eye to eye. One was Africa; another, climate change. Both
became increasingly important in the later years. In 2005, Brown drove
through an historic set of international agreements on debt relief for the
world’s poorest countries, most of them in Africa, with keen support
both from Blair and from the exceptionally talented Secretary of State,
Hilary Benn. Blair’s intervention here was important, since he will have
helped to neutralise official opposition from Washington on this issue.
And 2006 saw the publication of Sir Nicholas Stern’s Review on the
Economics of Climate Change, which was prepared inside the Treasury,
with Brown’s blessing, but as a submission in the first instance to Blair.
Climate change is also a matter of distribution, of justice, but this time of
34 D. Card and A. Krueger, Myth and Measurement: The New Economics of the Minimum
Wage (Princeton, NJ: Princeton University Press, 1997) is probably the most influential
US study of this.
distribution across generations, not within them. Much of Blair’s final
year in office was devoted to informing (and raising the profile of) the
debate that threats that global warming posed for the world, and trying
hard to counter the reluctance of several governments, most notably the
American and the Chinese, to consider what most experts now consider
appropriate, indeed urgently necessary, policy responses to them. Perhaps the two men sometimes competed for the limelight on these two
issues, almost as much as they cooperated. Perhaps the view they took on
both issues reflected an emotional, moral commitment to do good today
that took precedence over some of the analytical longer-run complexities.35 Perhaps, in the evening twilight of his premiership, Blair was
becoming desperate to salvage a reputation so grievously tarnished by
Iraq. Yet it may be that, in time, these achievements of the Blair–Brown
partnership come to be regarded as no less important than the Blair years’
record of macro-economic stability.
Conclusions
How new was New Labour economic policy under Blair? And how
Labour? Labour participated in Churchill’s coalition from 1940 to 1945,
and had formed two short-lived minority governments between the wars.
But it was in and after 1945 that Labour came into its own. It was in power
for three spells of five to six years, usually (but not always) with a working
majority: 1945–51, 1964–70 and 1974–9.
Labour devalued sterling in 1949 and 1967, and saw it depreciate
sharply in 1974–6. Labour extended public ownership marginally in
1964–70 and 1974–9, and massively in 1945–51. Labour increased
income tax rates in all three periods, reducing the post-tax income of top
earners most. It was here that the contrast with Blair’s administrations
was starkest. Sterling appreciated by some 14 % in his decade. Labour
nationalised nothing in these years, and actually continued privatisations
that had begun under Thatcher. The main structure and rates of income
tax were changed very little under Blair. In his decade,36 the few changes
that were enacted were mostly downwards.
35 Writing off a deeply indebted debtor’s debt may, for all its merits, have the unfortunate sideeffect of discouraging future lending. And responding to climate change by a big jump in
taxes on oil may do nothing to alleviate the problem, or curb emissions, if all it does, as
argued in Sinclair, ‘The Optimum Rate of Inflation’, is to squeeze the price the oil seller gets.
36 This observation is only slightly qualified by the facts that a 1% contribution, seemingly
indefinitely postponable, to National Insurance has been levied since 2003 on top earnings, and the point at which the 40% rate first applies has slid, relative to incomes.
In some other respects, there is more continuity with previous Labour
governments. The principle that Labour governments could not, and
must not try to, spend their way to full employment was first expounded
forcefully by Callaghan in 1976. It was Callaghan’s premiership that saw
the introduction of cash limits on departmental spending, and also of
monetary targets, the rather clumsy and indirect forerunner of inflationtargeting. Brown’s decision to say ‘No, not yet at least’ to the euro in 2003
mirrors the Callaghan government’s decision to keep Britain out of the
European Communities’ fledging Exchange Rate Mechanism in March
1979. And Blair’s successful campaign to delete Clause 4 from Labour’s
traditional constitution (the commitment to extend public ownership)
counterpointed his predecessor Gaitskell’s spirited but failed attempt to
achieve this back in 1962.
Where previous post-war Labour governments had failed, Blair and
Brown reasoned, was in the way they had allowed supporters’ expectations
about what could be achieved early on to run out of control – and then
drive the government into a shaming retreat in the face of hostile financial
markets. Under Blair, therefore, Labour courted big business and big
finance sedulously in opposition and in power. The trades unions,
Labour’s traditional paymasters, were sidelined and ignored. None of the
Conservative government’s main anti-union legislation was repealed. Any
resulting shortage in Labour’s election war funds was to be filled by gifts,
or later loans, with no binding commitment to repay, from very rich businessmen. And after the election victory in 1997, supporters’ early hopes
were restrained (and financiers’ nerves soothed) by the simple device of
adhering rigidly to the previous government’s rather restrictive spending
limits.37 In the dark arts of public relations, it is a sacred principle to ‘Get
the bad news out first’. Blair and Brown obeyed this
tenet to the letter.
When the lid came off, in 1999, it was not long before health spending
came to be raised sharply. But a hasty John Reid, the then Health Secretary,
was cleverly outmanoeuvred and succumbed to the wiles of the British
Medical Association. So much of the extra money, it turned out, was lavished on extra pay in return for reduced work. Some was frittered on extra
staff and extra pay for hospital administrators. And some was spent on an
ambitious computerisation project, which revealed all too clearly how the
Prime Minister’s imagination, and distaste for slow traditional administrative procedures, could run ahead of good reason and careful decisiontaking. Furthermore the Blair–Brown partnership’s devotion to PFI
37 Limits that, it is thought, the outgoing government might well have relaxed had they won
the election.
projects, in health and education, at least led, unlike Scotland’s new
Parliament, to timely completions. But government’s inability to understand the private companies’ small print and fee structure was to bequeath a
legacy of financial poison for the health trusts that had been induced to enter
them. In these details, Blair’s administration was blind and incompetent.
Yet in many, even bigger things, Brown did well. And Blair did well too,
whatever his motives, by just letting Brown get on with it. In granting
operational independence for the Bank, in retaining the Lawson–Thatcher tax structure and anti-union laws, and in not joining the euro,
the Blair–Brown duumvirate showed considerable wisdom. They inherited a strong macro-economy from Major, and a policy framework set
mainly by Thatcher. But their greatest achievement was to consolidate the
revolution of their Conservative predecessors.
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11
New Labour, new capitalism
‘Labour as a party not only believes that economic dynamism and social
justice must go hand in hand but that creating and maintaining the right
environment for enterprise and wealth creation is a policy priority.’
Tony Blair launching the 2005 general election manifesto
‘The challenge of globalisation needs a strong and vibrant trade union
movement standing up for its members in a coherent and intelligent way.’
Tony Blair to the TUC annual conference in 2002
‘The partnership between us is essential and I intend to ensure that it
remains positive and firm.’
Tony Blair speaking at the Confederation of British Industry annual
conference on 17 November 2003
Tony Blair spoke in Manchester on 30 April 2007 as part of his legacy
tour. His subject that day was the world of paid work and the
New
Labour government’s contribution to its evolution during his ten years
as Prime Minister. In a comprehensive presentation Blair set out what he
believed had always been a coherent and credible programme, designed
to modernise Britain’s labour markets and its employment relations in a
strategic political response to the pressures imposed on the country’s
economy by the dynamics of globalisation and relentless technological
innovation.
‘Work, the fact of work and the changed nature of work were central to
the government’s economic and social policy from the beginning’, he
claimed.1 Unlike previous Labour governments, his administration had
sought to develop a new role for the state in its engagement with the wider
political economy as it tried to encourage economic efficiency with social
justice in the workplace. The state’s primary purpose was no longer either
to control or regulate, not even to protect employees from the adverse
11 For the full text of Blair’s Manchester lecture see the Downing Street website: www.gov.uk.
,
consequences of structural change or ‘intervene to make employers more
flexible’ in their management of labour. Instead, modern government
was needed to assist in meeting the insatiable demands of capital, to
ensure private companies could compete effectively in open markets and
to provide more investment in education and training to assist in ensuring that the UK could boast a high-quality, high-productivity economy. A
positive approach by the state that encouraged risk-taking and wealth
creation was the way forward. The New Labour project was to embrace
global capitalism with enthusiasm in a radical break with Labour’s troubled socialist past.
Blair’s most important achievement was to identify his government
with the forces of international finance capital. Under his government the
City of London grew into one of the successful centres of globalisation.
By 2007 nearly half the country’s two million people employed in financial services were concentrated in the booming world of banks, insurance
houses, venture capital companies and management consultants that