My Life, Our Times

by Gordon Brown

  Given our plans for the NHS, Labour’s 2001 manifesto had to be very carefully sculpted. It repeated the pledge of 1997 that we would not raise the basic or top rates of income tax in the next parliament, but I refused to rule out increases in National Insurance and other taxes, despite pleas from some in our election team to make life easier by doing so. This led to some difficult and tense moments. Whenever I was asked the obvious question – whether I would rule out a rise in National Insurance – I could only repeat that we had already ruled out changes in income-tax rates. When Patricia Hewitt, who was then a junior minister in the Department for Trade and Industry, announced that we would not raise National Insurance at all, I had to issue a statement denying this. We were now facing a major front-page story the next day and an embarrassing week of tax questions clearly lay ahead, when suddenly John Prescott threw a punch at a man who pelted him with eggs during a visit to Rhyl in Wales. This turned out to be a blessing in disguise as it became the front-page story for days. Some advisers panicked about the punch and thought John would have to resign, but the focus groups we held all cheered him on: it was about time someone stood up to hooliganism. Without knowing it, he had also struck a blow for us on tax.

  In the event, middle-class voters turned to us to an even greater degree than they had in 1997. But, of course, elections are won not as a reward for what you did in the past but on how voters see their prospects in the future. And I am not alone in the view that while voters were not unhappy with the achievements of the first four years of Labour government, it was our pledge to improve public services, especially health and education, that did most to cement our vote.

  As we moved towards the 2002 Budget, I decided that to win the argument for a tax rise, we had to prosecute our NHS case from first principles.

  Our planning for this campaign was detailed, forensic and – for a few months – all-consuming. First, we would explain what was wrong, then we would look at every alternative model for rectifying the problems, and finally we would show the virtues of a publicly funded expansion as the best way forward.

  Over the course of the next nine months, I went around the country arguing that there was no better way to finance healthcare than through the tax system. American and continental models for funding health would not work in Britain and I made the principled argument for the British model of pooling and sharing risks and resources to pay for healthcare.

  Few people were in any doubt that the NHS we had inherited in 1997 was not fit for purpose. The UK had the fewest number of doctors for every 1,000 people in the population of all developed nations. The NHS budget we inherited amounted to only £975 per person a year – that is £19 a week to cover the full range of hospital and GP services – which was hardly enough to pay the costs of a single week in hospital or a standard operation. True, total health spending had risen in real terms over the past fifty or so years, but this increase was slight compared to the much greater advances in life expectancy, public expectations of what healthcare could offer and medical technology, all of which had major funding implications. Operations like heart and lung transplants under a privatised system could only be afforded by the wealthy. Only by sharing the costs through insurance, I argued, could we now pay for such advanced care.

  Derek Wanless’s assessment of funding needs had also to take into account that at least one-third of the hospital and community health services buildings needed to be rebuilt or renovated, as well as patients’ demands for single rooms – or, at the least, small wards – in place of the long line of beds in old, oversize wards. As Wanless was to remind us: ‘The NHS has not replaced and refurbished its assets at an appropriate rate.’

  I also made an argument that no one could have imagined when Aneurin Bevan created the NHS: as genetics enabled us to identify in advance those most likely to require expensive life-saving treatments, a private insurance model was far more likely to punish those whose needs were greatest. Only the more inclusive and comprehensive model of public insurance that pooled and shared all risks was a patient’s best guarantee for receiving the best care.

  Popularising the idea of National Insurance for a new century was at the heart of our strategy. Originally, National Insurance had been set up in 1911 by Lloyd George, who had been inspired by seeing the German welfare system at work. The principle of National Insurance was a simple one: you paid in when able and received help when you needed it. Under this arrangement, a person paid National Insurance not into a general amorphous pool which might go towards paying off the debts of the past, but into secure tangible future benefits for their family in the event of unemployment and sickness.

  However, National Insurance, as originally envisaged, was by now a fiction: it was guaranteed by the Treasury, and, to all extents and purposes, contributions went straight into the general coffers. There was now only a theoretical link between health funding, most of which came out of general taxes, and the National Insurance fund. But weak as the connection was, the little that remained of it was still important in people’s understanding of the link between payments and benefits. And it was central to our argument on the NHS: a tax rise would not be used to pay off past mistakes or be lost down a general hole in the Treasury; it would be explicitly earmarked for funding a person and their family’s healthcare.

  We sought therefore to establish a direct connection between the taxation an individual paid through National Insurance contributions and the visits they and members of their family made to a GP or hospital. We presented it as a ‘something for something’ payment.

  We had, of course, learned from the detailed preparations done when we abolished the married couple’s allowance and mortgage tax relief – two sacred cows of the Daily Mail and Murdoch newspapers. Again, we sensed that the biggest resistance would come from the Murdoch press, so we made a special effort to meet their editors, correspondents and even their readers to explain what we were setting out to do. If taxes were raised it was important that people understood there was a purpose to it. We had had years of explaining ‘prudence for a purpose’, now we had to explain ‘taxation for a purpose’. At the same time, we worked hard to secure the backing of the most popular public servants – nurses, midwives and doctors. I believe we will look far and wide to find a government that was better prepared for a Budget than ours was in 2002.

  At the last minute, Tony attempted to force a change which would have ruined our Budget’s carefully calculated arithmetic. This was not unusual. On the night before our Budget of 1998, for example, he had asked that we announce the abolition of inheritance tax, thinking we could do it at no sizeable cost. I had to tell him that loss of revenue would have been £2 billion. In the spring of 2002, at the final moment, Tony said he wanted a watering down of the National Insurance rate increase. He wanted us to announce that the rise would be followed by a tax cut. Frustratingly, I had to remind him that he was the person who had announced our commitment to matching average EU health spending in the first place – and this, as I pointed out, was a cost that had to be funded.

  He came up with a proposal for a sliding scale for National Insurance, which meant that our 1 per cent rise would be followed by a 0.1 per cent fall every year thereafter until, eventually, the rise would be wiped out. Had we been budgeting for something with major start-up costs that would then fall over the years, this would have made sense. But the NHS was in the opposite position: it needed an ever-rising share of national income year after year to meet rapidly growing demographic pressures – people living longer yet needing a higher standard of end-of-life care – and the escalating costs of technological advances.

  On Budget day, we published the final Wanless report, which recommended our eventual proposal: a cumulative increase of £40 billion in funding for the NHS, representing an average real-term growth of 7.3 per cent annually for five years until 2007.

  The next day, Tony announced major reforms of the NHS that I had not been informed about – most of which I welcomed, but s
ome of which led us into huge difficulties. One reform was to offer doctors a new contract. I had no doubt of the need for better remuneration, but I had wanted the pay rises to be conditional on reform, and I had not wanted to see so much of the new NHS budget consumed by pay. The eventual bill for the new doctors’ contract came to £7.7 billion a year, and the cumulative overspend on this alone in the first three years was £1.76 billion.

  At the same time, Alan Milburn, the Health Secretary, put forward proposals to establish new foundation hospitals. Under this model, managers of the best-performing hospitals and primary care trusts would no longer be subject to financial and managerial control from government and could set their own pay rates. In the original proposals, they would also be able to establish joint venture companies with private providers, perform private work and be subject to far less monitoring and inspection.

  Of course, I worried that if we went too far in treating private patients and creating a pricing mechanism for services we would open up a two-tier health service, where there would be a premium service for the wealthy and a basic one for the rest, with private sector capacity replacing NHS capacity. More broadly, as I would later argue in a speech to the Social Market Foundation in January 2003, there were fundamental limits to the ability of markets to provide a public service such as healthcare: because nobody can be sure if or when they will need medical treatment or of what sort, the consumer is simply unable – as in a conventional market – to seek out the best product at the lowest price. The results of a market failure for the patient could be long-term, catastrophic and irreversible.

  My main and specific concern, however, was that while the new hospitals would be permitted to borrow money against their assets, the government would remain ultimately liable for their deficits and debts. Alan thought he could reclassify the borrowing of foundation hospitals as belonging to the private sector and thus outside the government’s balance sheet. But there was no doubt that if a hospital went bankrupt, it would fall on the Treasury to bail it out. In other words, the foundation hospital scheme meant government accepting all the liability while ceding almost all control. I made it clear to him that foundation hospitals would not be allowed to borrow ‘off-budget’ and that any debt incurred would have to come out of the health budget.

  Whatever the validity of my reasoning, I was criticised simply for being an anti-moderniser, opposed to greater flexibility, freedom and choice. That August, Alan argued in The Times that ‘the battle in the party is now between consolidators and transformers’. The implicit depiction of Tony and himself as ‘transformers’ and of me and supporters of my position as ‘consolidators’ was both disingenuous and vacuous. To make my concerns known to colleagues, the Treasury circulated a fifty-page document setting out the case against allowing foundation hospitals to run up debts. Tony was furious. He phoned me in Washington, where I was for an IMF–World Bank meeting. It was as if I had issued a declaration of war: No. 10 claimed that the Treasury paper ‘had not been received’, and ministers’ private offices were phoned to be told that they were to say they had not received my document. It was to be treated as a non-paper. In his conference speech a month later, Tony made a defence of foundation hospitals, and the issue ran on until October, when I met with him, Alan and John Prescott at No. 10: it was agreed that the Treasury had to have control over how much foundation hospitals could borrow and that their debt would appear on the public sector balance sheet, as I had insisted, with a consequent reduction in the overall health budget on whatever they borrowed.

  This debate about the role of the private sector in health raged over the next few years and often divided the party. Ministers argued about what percentage of operations and procedures the NHS should contract out to private providers. At one point in 2006, Patricia Hewitt, then the Health Secretary, sparked even more profound controversy when, in launching her latest reform plan, she said there would be no limit to the role the private sector played in the provision of services to patients. Her intervention raised fundamental questions about what New Labour stood for and what modernisation meant. I was not against the use of the private sector when it was in the interests of patients to secure services. I also believed it was impossible to achieve some of our objectives without mobilising private investment – specifically, to meet our demanding target of building a hundred new hospitals by 2010. While controversial, private finance initiatives allowed us to have the largest hospital-building programme the country has ever seen, and this could never have been achieved using only public funds then available. But I was against a definition of modernisation that implied the private sector was somehow better than the public sector and that the way forward for the NHS lay in deregulation and privatisation. There were, and are, real limits to the capacity of markets to deliver public services like healthcare, and limits to the desirability of them doing so. The test had always to be the public interest.

  By 2010 the NHS had £118 billion to cover its costs, compared to £57.3 billion spending in real terms in 1997. Between 1997 and 2010, year-on-year growth in NHS expenditure meant that the percentage of national income going to health rose from 5.3 per cent to 8.4 per cent. It meant we were now spending on average just under £2,000 a year for every person purely on their healthcare. In 1997, we spent among the lowest share of national income on health of any European country, with the gap in spending much higher between the UK and our two major competitors, France and Germany. Raising overall health spending over the period of the Labour government by 5.8 per cent a year meant we outpaced France and Germany, whose health spending grew half as fast. And this happened because we presided over the biggest single rise in health spending in the history of the NHS.

  CHAPTER 9

  IN OR OUT? THE EURO AND AFTER

  ‘Consider your position!’ – the last words from Tony as I wheeled and walked out of No. 10 towards the sanctuary of No. 11, where the chancellor has both a flat and, conveniently, a second office just up the road from the Treasury. I didn’t know how much longer I would be there, but I was not prepared to give way on a decision that could inflict damage on the British economy. In my view, you are in office to do a job, not to hold on to a job. The row with Tony that day had been brewing for months. It was 2 April 2003. At the time, joining the euro was portrayed in black-and-white terms: between a No. 10 overeager to join, and a Treasury desperate to halt their ambitions. The reality was, as so often, rather more complex.

  Of course, 2003 will be remembered in history more for the outbreak of the Iraq War than any other single event. It was also a year when our health-service reforms were moving ahead with speed, and divisions over tuition fees were moving to centre stage. At a personal level, I will remember it best as the year when, after the loss of our daughter Jennifer and a later miscarriage, Sarah gave birth to our first son, John. His arrival in October was such a joyous event and his presence with us so precious that for months afterwards we could not bear to let him out of our sight.

  There are some political events – like arguments over which tax to raise or what spending to approve – that are controversial but come and go because, for all the ‘sound and fury’ at the time, in the end they signify little difference except at the margins. But there are some choices which are so momentous that they are transformative. They can include decisions not to act as well as to act. So it was when Britain finally rejected a long-standing option to abandon the pound in favour of the common European currency – a decision that I knew was fraught with difficulty and in the end would damage, almost irreparably, my relationship with Tony.

  Between 2001 and 2003, Ed Balls and Dave Ramsden – later the Treasury’s chief economic adviser and now a deputy governor of the Bank of England – led a two-year Treasury assessment of the five tests we had developed to judge whether we could join the euro. The 2,000 pages of analysis, set out in eighteen separate studies and amounting to more than 1.5 million words – the most extensive review of its kind ever conducted, and certain
ly the only such one carried out by any country contemplating the euro – had just landed on Tony’s desk ruling out membership. It was in the tense exchange immediately afterwards when Tony said that, if I would not agree to join, I would have to consider my position. ‘I’ll do just that,’ I replied. Straight after I retreated to No. 11, Ed Balls asked if I was still chancellor. ‘I don’t know,’ was all I could honestly say. ‘In or out’ did not just mean whether Britain would join the euro but whether I was in the government.

  How had we reached this point? How did we overcome the deeply felt divisions on Britain’s potential membership of the euro to reach the right decision for the British economy?

  At no time has the idea of ‘Little Britain’ held any attraction for me. Born in 1951, I grew up in the shadow of the war and a Europe seized of the need for peace and preventing any return to conflict. My father was a committed European from the 1930s onwards. Like him, I believed that Europe should reach out as widely as possible.

  I knew that to win support for the European Union, however, we needed to show the benefits to Britain. I felt I had a patriotic pro-British argument that could persuade people to be more enthusiastic about European engagement. The real challenge was to balance the national autonomy countries like ours thought right with the international cooperation we needed. On that basis, I argued for greater economic and security cooperation and favoured the immediate adoption in 1997 of the European Social Chapter that guaranteed workers’ rights. But for the same reason I resisted European Union interference in our domestic tax affairs when they tried to block our cut in VAT. In our first month in government, I had waved aside European objections and reduced VAT on fuel to 5 per cent. Then in 2000 I had countered plans for a harmonised pan-European savings tax that every EU citizen might pay. Even when in a minority of one, I stood firm at countless European finance ministers’ meetings when under pressure to accept a compromise; I insisted that a one-size-fits-all savings tax would merely shift savings out of Europe to Switzerland, Liechtenstein and even Hong Kong. The best way forward was to drop the uniform European tax and agree that each country had autonomy in its tax decisions as long as it exchanged information with tax centres across the world. This was the essence of the balanced approach to Europe that I championed in other areas too – in preference to a blanket imposition of uniform standards and laws, I wanted, wherever possible, the mutual recognition of national practices.