My Life, Our Times

by Gordon Brown

  Our plan changed to publication in June. On 2 April, we sent the full results of the Treasury’s assessment of the five tests to Tony along with the conclusion that I had already conveyed to him in our conversations – four of the five tests were not met. The document and its appendices were so heavy that they had to be walked over to No. 10 by Treasury messengers. That itself became a source of tension. Tony’s staff felt that I should have handed all the papers over to him in person.

  And so began a furious shouting match between Tony and me. We argued when our advisers were in the room, then cleared it and tried but failed to sort out our differences. In truth, the disagreement was not so much about the assessment itself as what conclusions we drew from it and how we should present these to the public.

  Tony was of the view that I was sabotaging his efforts to get us into the euro. I was saying to him that, try as we might, we could not make the economic case. By the time I left the meeting we were still in limbo.

  The stand-off was only broken a couple of hours later when Tony asked his principal private secretary, Jeremy Heywood, and Ed Balls to thrash out a new text of the document with language that was more to his liking, but which did not change the central recommendations. All that was now left to decide was whether we would keep the door open for a revised decision further down the line; and, if so, when that might be.

  In mid-May 2003, Tony and I talked to Cabinet ministers one by one. Each was given the eighteen studies on 17 May to inform discussions, with a promise of a final decision by the Cabinet on 5 June. Then on 9 June, I would set out the government’s position to the House of Commons. At the start, most of the Cabinet had been for entering the euro. I explained to each Cabinet member that, while I too was strongly pro-European, the evidence we had assembled showed that the economics of the single currency currently did not work for Britain.

  On 22 May, I gave a detailed presentation on euro membership to the Cabinet. I said that it was clear that membership of the Eurozone would involve lower transaction costs worth 0.1–0.2 per cent of GDP, with the gains greatest for small companies. There were also real gains to be made from diminished exchange-rate volatility, with benefits for large and small enterprises, especially the latter. Intra-Eurozone trade had increased strongly as a result of EMU, perhaps by as much as 20 per cent. As a result of membership, the UK could enjoy a significant increase in trade with the Eurozone, boosting output by up to a quarter percentage point a year. The case in principle for joining, I said, was made very strongly by these examples. But we could not reap these benefits without sustained convergence. There had been convergence between the UK and the euro area since 1997, but sustained convergence had to be structural and long-term, not just cyclical and temporary. If we were to enter, we would have to do more to protect our housing market, secure price and wage flexibility so that we could withstand any shock, and in the absence of an ability to set interest rates we would have to use fiscal measures, like varying our taxes, to moderate the economic cycle.

  On 5 June, the entire Cabinet agreed that membership of the euro was not right for Britain at this time. When it came down to what my Commons statement would say, Tony and I agreed to continue our ‘prepare and decide’ approach; we would publish a draft referendum bill in the autumn, and then a new Changeover Plan and possibly a paving bill to make it easier to join the euro if we chose to do so. We also agreed that in each annual Budget we would report on whether progress was sufficient to justify a further Treasury assessment of the five tests.

  The conclusions that the Treasury reached have stood the test of time. Our economy was out of sync with the rest of Europe and was likely to remain so for some time. Our housing market – already overpriced – would overheat if interest rates fell further and might lead Britain into recession. So the decision on the euro, I believe, was right. The single currency could not have worked for us; increasingly it was not working for the rest of Europe. Ultimately, I came to the view that the euro, as planned, could not avoid regular crises and under its guidelines Europe would be pushed towards becoming a low-growth, high-unemployment economy.

  Looking back on it now the euro decision was not just an economic but also a political turning point. My relationship with Tony never quite recovered. And all the time the government was bogged down by Iraq – the abuses and torture at Abu Ghraib prison, the Hutton Inquiry into the death of the weapons expert Dr David Kelly, and controversy over troops and equipment.

  I had already sensed a change in No. 10 from the time Tony secured re-election in 2001. The arguments I recount in other chapters – over the NHS and tuition fees – now reflected a different interpretation of what modernisation meant. In the autumn of 2002, I had been accused of being a ‘consolidator’, not a ‘moderniser’, when the battle between ministers was, at least in the media, at its height. The truth is I was always up for modernisation. However, I was never up for a narrow interpretation of it that made the test of being a moderniser how much privatisation and liberalisation I bought into and whether I was now agnostic on inequality. The Treasury was, anyway, moving ahead with controversial public-private partnerships; sales, from the Royal Mint and Ordnance Survey to the nuclear company Urenco and Air Traffic Control; and with sweeping reforms to raise productivity and cutting capital gains tax to encourage entrepreneurship. Moreover, during 2003, we had commissioned a report by Sir Peter Gershon on efficiency in the public sector, whose recommendations – £20 billion of savings by 2007–8, including back-office efficiencies that would be used to improve front-line services – became the centrepiece of the Budget in 2004. They were highly controversial, involving the loss or relocation of 100,000 public sector jobs. We could not, I felt, have been accused of slowing down on reform. What’s more, in 2004, we had appointed Sir Philip Hampton, later to become chairman of Royal Bank of Scotland after it became 81 per cent state-owned, to undertake a major review to reduce red tape and regulatory burdens on business. His final report was to become a central theme in the pre-election Budget of 2005. Once again, I felt, the Treasury was taking the lead with a common-sense approach to modernisation.

  For more than six months from the end of 2003, Tony talked to me about leaving during 2004. Whether he intended to and simply changed his mind, I will never know. We actually discussed whether he would preannounce his intention in spring or wait for autumn; even though it was not to my personal advantage, I thought the latter the better option for the stability of the party and government.

  But out of the blue in mid-July 2004, the Sun headlined a scoop that Tony would serve another five years. Of course, every story that does not contain direct quotations is deniable and Tony immediately assured me that this one was wrong and he would have it corrected. However, while it later emerged that he had spoken with the Sun editor Rebekah Wade only four days before the story appeared, no one could be sure what was going on.

  Not for the first time, John Prescott tried valiantly to be an honest broker, but at a dinner he arranged the following Sunday, Tony now equivocated. He said that he had indeed changed his mind about resigning and would need the summer to decide how to proceed. His reasoning was that he did not want to look as if he was leaving because of problems over Iraq. By the time he returned from his summer holiday, he had clearly determined to do things differently – and to do something else as well. He announced that Alan Milburn would replace me as head of the 2005 election campaign. Although I was both sad and angry to be frozen out of election planning for the first time since the mid-1990s, I kept my counsel.

  At the Labour conference in September, there was a light-hearted and seemingly unifying moment when Bono praised Tony and me as the ‘John Lennon and Paul McCartney’ of the global development stage. But after I addressed the conference and then, as usual, flew across the Atlantic for the annual round of IMF and World Bank autumn meetings, I arrived in Washington to find that during my flight Tony had given another interview, revealing that he was about to undergo a minor heart operati
on and that he had now decided to serve a full third term. This led to a sensational and what now seems comical headline in the Guardian, quoting one of my staff as saying: ‘It’s like an African coup. They waited until he was out of the country.’

  Cabinet members had been informed of his change of mind by phone an hour before the news was broadcast – of course I had not. Tony’s later interviews were to be covertly but transparently hostile to the idea of my succeeding him – ‘There are a lot of people who want to do the job,’ he now stressed – and it was clear his plan to serve a full term meant staying until 2010 or 2011. From being about to leave he was now intent, it seemed, on staying another seven years in No. 10.

  I also did not know that around this time Tony had commissioned his strategy adviser, John Birt, to devise a plan to split the Treasury in two – with transfer of its public spending function to a new ‘Office of Management and Budget’ in the Cabinet Office and thus effectively across to him. This highly secret plan, which was developed over the winter and spring into a 200-page document, would, of course, inevitably be a prelude to my removal from the Treasury. Even if Tony had not sacked me, I would have resigned if he had attempted to impose such a change. His plan was in breach of the promises he had made to me as long ago as 1994 about my role as chancellor. The plan was such a closely held secret that only a few of his friends at the time knew of what he was planning.

  For those autumn, winter and early spring months I was out in the cold. But in March 2005, as the fallout from Iraq rumbled on and criticism of a presidential style of leadership grew, Tony read opinion polls that suggested our majority was at risk. In particular a targeted poll of the marginals showed we were falling behind badly in seats we had to win.

  Before that, on the assumption that our support was solid, Tony had planned to finish his 2005 general election campaign with a series of seaside visits with his family. Our strategy had to be revised and, on his pollster’s advice, Tony changed tack. He now asked me to return to the work I had done for years on strategy and join him on Labour’s battlebus in barnstorming the marginals together. At one stop, in a much-viewed television moment, he approached an ice-cream van and ordered two cones. One of the vendors asked who the other cone was for. He replied, ‘Gordon,’ before somewhat awkwardly passing the ice cream to me. I brought the economy back centre stage in the election campaign and held a series of joint events where ministers exposed in meticulous detail how the Conservatives’ tax-and-spending plans did not add up. At one of the later press conferences I had to step in to defend Tony from heated interrogations about Iraq.

  I think that our campaigning made a difference. At one point Tory posters had been put up across the country, saying: ‘Vote Blair, Get Brown’. However, they quickly came down, presumably because the Tory focus groups showed they had no resonance. And our shift from some complacent final days of campaigning to a concerted push in the marginals may have averted an even less happy result than the one we achieved. In the end, there was a swing of 5.5 per cent against us, resulting in a Labour loss of forty-eight seats. While we had won a third term, we did so with the lowest popular vote of any majority government in British history. The Liberal Democrats took 22 per cent of the vote and, with sixty-two seats secured, their best performance for eighty years – and, as it was to transpire, a better performance under Charles Kennedy than they would enjoy in 2010 with Nick Clegg.

  On the day after the election Tony delayed his Cabinet appointments for some hours. He had to consider – as he did – whether to bring out of cold storage his scheme to split the Treasury in two. When we finally met he had not given up on his plan: he offered me Foreign Secretary which I politely refused. I told him that I had no desire to leave the Treasury. He agreed – but with evident reluctance – and while I was reappointed chancellor, I wanted to convince myself there was a reconciliation: in practice, it was more like a truce. I am told that it was not until a meeting at Chequers in the winter of 2005 that the idea of dismembering the Treasury was finally killed off. The focus groups suggested the public did not like a divided leadership. All that came out of Lord Birt’s review was the renaming of the Department of Trade and Industry as the Department for Productivity, Energy and Industry, but that plan also went wrong. Within days of taking office, it was revoked by the new minister, Alan Johnson, when we realised that the initials could be pronounced ‘DIPPY’.

  The Sword of Damocles thus hung over the Treasury for months. While we had fought the last stages of the election together, Tony seemed determined to strike out on economic policy on his own. But there was, I thought, scope for collaboration. The Treasury and No. 10 had worked together on the Hampton Review into red tape and regulation. This formed the basis of our agenda for our upcoming presidency of the European Union in 2005. Fed into it also was the ongoing work of the task force focused on the needs of small businesses led by David Arculus.

  I was fascinated by, and determined to, push through a streamlining and improvement of our regulatory system. Our plan was founded on a new evidence-based approach to measuring and assessing levels of risk. The theme was regulation only when necessary and, where possible, the elimination of unnecessary red tape. What was called the Better Regulation Initiative was directed, in part, at what we saw as the blanket uniformity demanded by an increasingly bureaucratic European Union; and there was common ground between Tony and me in simplifying British regulatory systems and challenging our European partners to support a wider agenda for change.

  But only a few days after the election, again out of the blue, Tony redefined the whole basis of our approach. In a speech, clearly long in its preparation and planning, he called for massive deregulation and a bonfire of controls. He appeared to be defending a financial sector ‘free-for-all’ and denounced the City’s regulatory body, the Financial Services Authority, for being ‘hugely inhibiting of efficient businesses’. He accused pension protection plans of ‘inflating dramatically the cost of selling pensions’. All this brought a fierce response from the head of the FSA, Callum McCarthy, who in a letter to Tony and myself bemoaned the remarks as damaging to our influence and abilities to support the principles of better regulation. Little did Tony know that his remarks would be used by unscrupulous dealers trying to fend off the proper monitoring of their dubious transactions in the shadow banking system. His timing, only two years away from the biggest meltdown in modern financial history, was unfortunate to say the least. Tony’s speech was billed as an attack on the ‘compensation culture’ forced on the City. It could be seen in retrospect as a defence of the City’s ‘non-cooperation culture’ when it came to proper supervision.

  What followed was an unhappy few weeks, with one part of the government wanting a better way of regulating, the other to get rid of regulating. This laid bare a larger difference in perspectives. Tony’s speech was briefed by supporters as his bid ‘to mark his third term with a wave of deregulation’. Instead I favoured basing regulatory requirements – not just in finance but health and safety, consumer protection and the environment – on a proper measurement of risk. That, in my view, was the modern approach: only the regulation needed. But for all the caveats he introduced into his arguments, Tony’s speech exposed modernisation to the critique that it and an ideology of deregulation went hand in hand. The cement was being set. The question in No. 10 was no longer ‘Are you for modernisation?’; it was ‘Are you for my modernisation?’

  By 2005 I was about to enter the stormiest period of any political relationship that I have had. It was not with Tony or with any Conservative, Liberal Democrat or SNP adversary, but with a few British newspapers. The hostility of some of the Murdoch press was, initially, an unwelcome distraction; then, as it intensified, it became a sad fact to be reckoned with; when in full flow, it was nothing less than a direct attempt to distort and suborn the policy of the government. While I never expected an easy run from the press, I could not have anticipated how much the Sun would effectively become the leader of
the Opposition.

  It was a force that had been long in the making. In 2000, one Murdoch paper, the Sunday Times, had run a lengthy campaign to suggest I was corrupt. On at least six occasions they broke the law by impersonating me in phone calls with my building society to gain access to my finances. They then employed someone who was to become a well-known criminal to deceive his way into obtaining information from my solicitors. And then their reporters reverse-engineered my phone, allowing them to trace my movements. The story they subsequently ran – that I had bought my London flat under-the-counter and at a knockdown price from the estate of the deceased and disgraced Robert Maxwell – was completely untrue. It would be a decade later, in 2011, that their then editor finally admitted to the Leveson Inquiry into the behaviour of the press following the phone-hacking scandal that they had used untoward methods. At no time, however, did they backtrack on their false claim that the flat had not been advertised on the open market, despite the fact that it had been advertised in the property columns of their own newspaper.

  I understand the power and importance of investigative journalism. But the law-breaking of the Sunday Times was just the start of a sequence of unwarranted intrusions into my private life over the next few years. My tax returns were stolen. My medical records were hacked into by an NHS employee. A police officer was bribed by a private investigator to enter the UK’s National Police Computer to check on me. I do not know to this day who was behind all this but well before phone-hacking the long descent of the media into malpractice and law-breaking was under way.

  The Sun’s activities at this time were increasingly and overtly political as well. I could live with them taking sides against me as they invariably did, but after 2007 their editor Rebekah Wade (who took the surname Brooks after her 2009 marriage) began running campaigns – first on Europe, then on crime and then, as I describe later, on Afghanistan – directed against me in personal and often inaccurate terms. On one occasion, she put in a text to Sarah what she had been saying directly to me: that I had to sack one of our ministers, Tom Watson, immediately. Tom was not someone to take this lying down; it was the prelude to his leading role in the exposure in 2010 of media wrongdoing, especially by News International, in the phone-hacking scandal.