by Gordon Brown
Ed and Geoffrey assembled a small team of tax experts, including Chris Wales, who had vast experience in the private sector and an incisive and original mind that also helped devise the £6 billion a year reform of dividend tax credits we introduced in our first Budget. Chris had provided advice to John Smith and later joined me at the Treasury.
No papers about the windfall tax were ever circulated and meetings were held at Geoffrey’s London flat rather than in the House of Commons or the Labour Party headquarters in Millbank. Any challenge under EU law, our advisers concluded, would fail and one of the reasons was that the revenues were being used to fund the New Deal and would thus be in the public interest. We now felt we had a watertight plan that could raise at least £5 billion.
Then, out of the blue, Tony told me that he wanted to exempt British Telecom from the windfall tax because of a separate arrangement he was negotiating with BT’s chairman, Iain Vallance. The company would get a broadcasting licence if it provided free Internet links to schools, hospitals, libraries and other public buildings. I agreed that widening access to the Internet was an important advance, but I told him that if one company was arbitrarily exempted from the windfall tax, even for the best of reasons, our whole plan would be struck down and, without a consistent justification for our actions, we would be accused of discriminating against individual companies.
Tony was persistent: a few months before the election, in January 1997, he demanded BT’s total exclusion from our Windfall Tax. I said that would mean the tax was not legally watertight. I said I would resign rather than abandon it. That March I was lobbied directly by Iain Vallance to drop the idea. I bluntly told him no. Iain was a decent man who would later become a Liberal Democrat peer, but his glib comment that the hardship of running BT justified his salary – being a junior doctor in the NHS might be more relaxing than his current position, he suggested – enhanced my confidence that this was a public debate we would win.
When the windfall tax was introduced after our electoral victory, BT threatened that they might take us to the European Court. In my desk in the Treasury, however, I had a note Iain had generously sent to me on the day I became chancellor that struck an altogether different tone: ‘I write to offer my warmest congratulations on your confirmation as chancellor, and in what overwhelming circumstances. The tectonic plates have moved, in no small part due to your rigour on matters financial and economic. We are, of course very aware that Labour has a clear mandate for the windfall levy and I know from our conversation in March, that we fall within the scope of the tax.’ It was clear to me that the BT PR team was bluffing.
All along, while formulating detailed plans on how to raise revenues, we also had to fend off pressure groups who wanted to spend them in many different ways. With an election obligatory by the summer of 1997, the 1996 Labour conference in Blackpool would be our last before polling day. The conference was designed to symbolise our unity, but a dispute about the level of pensions threatened to derail that and reveal glaring divisions.
Barbara Castle and Jack Jones, two of my best friends in the Labour movement, were leading a campaign to re-establish the across-the-board link between pensions and earnings that had been scrapped by the Thatcher government in 1980. By my team’s calculations, re-establishing that link would now cost £5 billion and mean a substantial rise in tax. It was something that at this point we just could not afford.
Jack was no respecter of seniority. When he was shown around Windsor Castle on his appointment as a Companion of Honour during the ‘Winter of Discontent’ in 1978, he had observed that one of the paintings looked a bit amateurish. ‘That’s mine,’ replied the Duke of Edinburgh. I spent the weekend before the conference thrashing out a compromise with Jack, who was one of the country’s most successful negotiators. The breakthrough came in a late-night telephone call on the Saturday. I promised that the next Labour government would set up a commission to conduct a full review of pensions which would then report back to the government.
But while Jack offered me support, Barbara went ahead with her motion to conference and won the vote. Always principled and passionate, Barbara perhaps did more than anyone else to break the glass ceiling faced by women in British politics, and her loyalty to the Labour movement never faltered. I remember joking at the conference that she was both my ‘mentor and tormentor’. She was a great politician right to the end. A few years later, Barbara kindly asked me to be present and speak at her eighty-fifth birthday party. She said that in return she would not speak about pensions at the next Labour conference. I attended the birthday party. She spoke about pensions at the conference.
In government, we created the pension credit which boosted the incomes of poor pensioners, and this was the biggest reason why pensioner poverty was halved between 1997 and 2010. We later established a Pension Commission, which recommended the restoration of the earnings link, financed by a rise in the age for receipt of the state pension for men and women from sixty-five to sixty-six by 2026, to sixty-seven by 2036 and to sixty-eight by 2046. The Pension Act 2007, which incorporated the main findings of the Pension Commission, was made law one month after I became prime minister. The reforms included the introduction of automatic enrolment, minimum employer contributions and new personal accounts for people saving in a workplace pension scheme, making it possible for every employee to have a work pension guaranteed for the first time.
Still, despite all our efforts, as 1997 began, the Conservatives, who had nothing else left, were accusing us of being a tax-and-spend party. Only Tony, Ed Balls and I were present at Tony’s home on 5 January, the first Sunday of the year, when we discussed how to counter this. Tony was due to launch the party’s New Year campaign at a Westminster press conference three days later. He wanted to say there would be no rises in personal tax rates, but accepted that, to keep room for manoeuvre, he would refuse to rule out an overall increase in the tax burden. In speeches and interviews, he had already been moving ahead with his pledge on the top rate, insisting that there was nothing in the party’s programme that required or implied an increase in personal taxation, and the newspapers understood that as ruling out a new top rate.
I knew we were boxed in on what taxes we could raise but that meant we had also to be clear about what spending we could afford. This was the problem we now had to resolve – and quickly. If we merely promised to hold taxes down but still pledged more spending, the policy would be incoherent. This was the attack the Tories were preparing. I now had to make the announcements that locked in beyond any doubt our commitment to prudence.
The way to do so was to stick with current Tory public spending totals and to do so for at least two years. It was, of course, not an actual freeze, though it was often portrayed that way. It was an announcement that we would hold to the Conservatives’ already published spending totals, an undertaking that we not only upheld but met with tougher discipline, as Ken Clarke has conceded, than the Tories themselves would have imposed. Indeed, Ken subsequently admitted that he would have relaxed the discipline if in power, whereas we tightened it.
By simultaneously ruling out an income-tax rise for the whole parliament and freezing spending for two years, I could dispose of the Tory tax-and-spend attack, at least for the coming election.
Once I had thrashed out the details of my speech I tried to contact Tony over the weekend to review it with him. He was not taking calls, something unusual for him. We then faxed the details to him at home. He did not pick them up. But we had already committed to the speech, and my most significant announcement of the campaign was now to be made without approval or even his prior knowledge.
The evening before, Charlie Whelan had already contacted Jim Naughtie, the BBC Today presenter, saying it would be worth his while to ask me about tax. The story we had given to the Monday papers was the freeze in overall public spending levels for the next two years; but Charlie then lined up all the main broadcasters to alert them to my Today interview.
My coll
eagues had to know where I was heading. During Sunday, I personally explained to each of them our tax-and-spending plans; those who wanted to see it were faxed the speech itself. But John Prescott was staying that night with the governor of Hong Kong and former chairman of the Conservative Party, Chris Patten, and we felt we could not fax him there. Senior union leaders, such as my friends John Monks, the TUC general secretary, and Rodney Bickerstaffe from UNISON, were also alerted.
It was not until the second half of the Today interview that Naughtie finally broached the tax question. He was startled when I responded: ‘I will be making commitments for a parliament, and the basic rate and the top rate of tax will remain unchanged.’ Naughtie’s voice rose incredulously: ‘For the lifetime of a parliament … that’s a very important announcement.’
After that the election campaign went smoothly. And every day, after I sat down to chair the Strategy Group, we rolled out a series of attacks that put the Tories on the back foot – for example, on their plan for the abolition of capital gains tax (which would benefit the wealthy) and their last-minute change of policy on pension reform (which, we argued, had simply left people confused). But most of all our clarity on tax-and-spend made it easy to focus on their record and on the condition of Britain. It was like a political symphony, with an overall theme running through it but different sub-themes emerging each day.
In 1997, there was no TV debate between the prime minister and leader of the Opposition, but there was one between the chancellor and the shadow chancellor. Ken Clarke was the most formidable Tory debater of all. Fortunately, for me, he was off form on the night we went head to head, constantly on the defensive in the face of my references to the VAT shambles and my attacks that the Tories could not be trusted on tax. I fought him to what I considered a draw. Most commentators concluded I had won.
And I did not doubt that we would win on election day. Tony deserves great personal credit for the verve, eloquence and determination with which he fought the campaign from beginning to end. And for the first time in twenty years, we had not only put the Conservatives on the defensive on the economy but were confident in every answer we gave about our economic policy. We had largely put to rest doubts about our economic competence. We had utterly reversed the political equation of previous elections, taking step after step to position ourselves as the party of fiscal responsibility. Our standpoint on the economy was so strong and our victory was so decisive that I believe that we would have prevailed even if we had announced a top-rate tax on earnings above £150,000.
From 1994 to 2007 I worked for and with Tony in opposition and in government. There were fallouts and reunions, but our relationship was never again to be anything like the partnership we had built in the previous decade when together we were making the argument for change. After Labour won power, we still talked almost every day, sometimes four or five times. The meetings were not formal usually: we rarely talked to a written agenda. Most of our important discussions occurred with no one else present. Most of what was said between us is not recorded in minutes or documents. We didn’t exchange letters or communicate by email. We talked on the phone or face-to-face.
The tensions between us reflected not only disagreements over substance but our very different styles too. Tony seldom told you exactly what he was thinking. On the other hand, I am probably too direct, usually blunt and sometimes uncompromising. While I said exactly what was on my mind, he was often reluctant to commit – and people could go away from his meetings with varying interpretations of what was agreed. There were to be fallouts over advisers, press briefings, leaks, personalities, appointments – for example, we were to row over my promotion of Douglas Alexander as the candidate for the Paisley South by-election and over some of my appointments to the Treasury in 1998 – but on the big issues, with few exceptions, we worked well together. The fact we worked side by side in opposition for fourteen years and in government for ten years – a remarkably long time given our histories with each other and the intense atmosphere at the top level of British politics – shows that the stories put around about an impossible relationship were vastly exaggerated.
A clear division of labour – I did the economy, tax and public spending – and my decision not to engage with him on every issue, especially foreign policy, made things more manageable. Tony deserves credit for great reforms our government brought in. His role in the Northern Ireland peace process, humanitarian intervention in Kosovo, many public sector reforms, the Human Rights Act and in introducing civil partnerships delivered lasting benefits. Still, I think he would agree that many of the changes we made – like funding for the NHS, tax credits to tackle child poverty, the push for increased overseas aid, and of course Bank of England independence and the eventual decision on the euro – were driven by the Treasury.
CHAPTER 5
TAKING POWER AND GIVING IT AWAY
While I had been a Member of Parliament since 1983, I had never once, in those fourteen years, crossed the road from the House of Commons into the Treasury. I had never been inside it or sat down with any of its senior officials. On the Friday afternoon, following the general election in 1997, I entered the Treasury building for the first time.
To my surprise I did so to a warm and enthusiastic welcome from civil servants lining the lobby, the stairways and landings above. TV cameras pictured me shaking hands with my new officials and acknowledging the cheers of a normally reserved group of economic experts. Within minutes of arriving at my new office, accompanied by Ed Balls, I met Terry Burns, the permanent secretary, and Nick Macpherson, now my principal private secretary and later to hold Terry’s job. On my arrival, I handed Terry an important paper on the reforms we intended to implement.
My day had started late. It was not until early Friday afternoon that Tony had called me to confirm my appointment as Chancellor of the Exchequer. I had not seen him on election night. I had flown down on a chartered plane from Edinburgh to London after 3 a.m. with Robin Cook, who had also retained his seat, and we then dropped by the celebrations at the Royal Festival Hall at around 5 a.m. The atmosphere was unqualified exhilaration; not so long before, it had seemed Labour might never be back in power. But I did not stay long. I had to get some sleep so I could be ready for work later that day.
The Monday before the election, I had said to Ed Balls that if I became chancellor on Friday I wanted to go ahead immediately with Bank of England independence. Prior to that conversation, we had been working on the assumption that we would deliver independence sometime in a first term. I asked him to draw up a letter for the governor of the Bank of England which we would send to him in the event of winning. By the time we arrived at the Treasury, Ed had a draft setting out our new policy framework. This draft evolved into two letters over the next few days: one on monetary policy, one on financial stability.
On Saturday, we sat around an oval conference table in a gigantic oak-panelled meeting room unlike any I had ever been in. The table was so expansive that somebody speaking at normal volume at one end of it could not be heard by anybody sitting at the other end. This room, with its panoramic views of Whitehall, was also my new office. It certainly was a step up from the windowless cubicle I had shared with Tony in 1983. When we later renovated the building, I took the first opportunity to move to a more convenient office just down the corridor – which was actually one of the smallest in the Treasury.
The way the Treasury then worked was, in my view, unmanageable – gatherings of countless officials assembled around this massive oval table. It was also a waste of valuable time for senior officials, since only one or two of them were ever expected to speak. Almost immediately, I put decision-making on a more focused and professional basis – small meetings, with only relevant officials and advisers present – and I made a point of inviting the person doing the actual work on a project, rather than their superior two or three rungs up, who in the past would attend on grounds of seniority.
There were around twenty senior civil se
rvants at that Saturday meeting: with Terry Burns and Nick Macpherson were the second permanent secretaries, Sir Nigel Wicks and Sir Alan Budd, alongside the department heads. Apologising for ruining their bank holiday weekend, I instructed them to prepare for a Tuesday announcement declaring Bank independence. I left them in no doubt that whatever hurdles we had to cross, we must do so to be ready for the day after bank holiday Monday. That weekend we went through a rolling series of meetings to prepare the ground on all aspects of the change.
For most people Bank independence came as a bolt from the blue. A week before the election, I had read with interest The Economist’s editorial ‘Labour doesn’t deserve it’, in which the venerable magazine offered a lengthy explanation as to why it could not support Labour. Not that an explanation was necessary; they had invariably opposed us. But on this particular occasion the reason they urged a Conservative vote was because, in their view, a Labour government would never make the Bank of England independent. They could not have been more wrong.
In 1995, I had undertaken a hard, detailed reading of everything I could get my hands on about independent central banks. But the argument that convinced me independence was essential was a basic one – that for too long in Britain, political expediency had dominated economic decision-making. Too often interest-rate decisions were made cynically for the here and now to deal with a political problem or in response to just one economic event. An operationally independent Bank would depoliticise the process. The long term would take precedence over the short term.
I agreed with the standard criticism of post-war British economic policy: that our economy was inflation-prone, slow-growing and weighed down by unnecessarily high levels of unemployment, underinvestment, poor infrastructure and, hence, low productivity. Whenever recession hit, it always seemed the case that Britain was ‘first in and last out’. Inflation had averaged 12 per cent in the 1970s and 6 per cent in the 1980s. The overriding priority was to move Britain from its post-war stop-go economic volatility towards a new macroeconomic stability.