A History of Modern Britain

by Andrew Marr

  One example of how, came in the debate over British membership of the euro, the single currency finally taking shape at the beginning of 1999. Though never a fanatic on the subject, Blair’s pro-European instincts and his desire to be the lead figure inside the EU predisposed him to announce that Britain would join – not in the first wave, perhaps, but soon afterwards. He briefed that this would happen. British business seemed generally in favour. But, as the former Liberal Democrat leader Paddy Ashdown revealed in his diaries, Blair had a problem. According to Ashdown, Roy Jenkins told Blair in the autumn of 1997: ‘I will be very blunt about this. You have to choose between leading in Europe or having Murdoch on your side. You can have one but not both.’ Ouch. Pro-euro journalists went to see him and came away thinking he was on their side. Anti-euro journalists had the same experience. He had a pro-euro adviser, Roger Liddle. But he also had an anti-euro adviser, Derek Scott. The briefing and guesswork in the press was completely baffling. Lord Simon, the former BP boss now in government working on euro matters, held up a wodge of papers at one evening speech, announcing that they represented the speech about the euro that had been written for him, before putting it down and confessing that he would not bother to read it; it had been completed an hour before so the policy had probably changed. It was a joke, but meant to sting.

  Gordon Brown, who had been generally in favour of the euro, munched his way through Treasury reports. For him, stability came first. He concluded that it was not likely Britain could safely enter in the first Parliament. He warned Blair. The two argued. Eventually they agreed a fudge. Britain would probably stay out during the 1997 Parliament but the door should be left slightly ajar. Pro-European business people and those Tories who had lent Blair and Brown conditional support, as well as Blair’s continental partners, should be kept on board. So should the anti-euro press. The terms of the delicate compromise were meant to be revealed in an interview given by Brown to The Times. Being more hostile to entry than Blair, and talking to an anti-euro paper, his team briefed more strongly than Blair would have liked. By the time the story was written, the pound had been saved from extinction for the lifetime of the Parliament. When Blair discovered this he was aghast and began to phone desperately around until he reached Brown’s press officer, the affable Charlie Whelan (a man Blair detested and had tried vainly to have sacked earlier in the year). Whelan was in the Red Lion public house in Whitehall and cheerfully confirmed to the Prime Minister on his mobile phone that his government’s policy was indeed that Britain would not enter during the lifetime of the Parliament. As Whelan put it later, ‘he was completely gobsmacked’. Blair told him to ‘row back’. Whelan replied it was too late.

  The chaos surrounding such an important matter was ended and patched up by Brown as he and his adviser Ed Balls quickly produced five economic tests which would be applied before Britain entered the euro. They required more detailed work by the Treasury; the underlying point was that the British and continental economies must be properly aligned first. Brown then told the Commons that though it was likely for economic reasons Britain would wait until after the next election, there was no constitutional or political reason not to join. Preparations for British entry would begin. It all gave the impression, not least to Blair, that once the tests were met there would be a postelection referendum, followed by the demise of sterling. In 1999, with tantantaras and a full-scale public launch at a London cinema, Blair was joined by the Liberal Democrat leader Charles Kennedy and the two former Tory cabinet ministers Ken Clarke and Michael Heseltine to launch ‘Britain in Europe’. This was to be a counterblast to the anti-euro campaign, ‘Business for Sterling’. Blair promised that together they would demolish the arguments against the euro, and there was alarmist coverage about the loss of 8 million jobs if Britain pulled out of the EU.

  But this expensive, brightly coloured and crowded bandwagon was going nowhere at all. The real significance of the Red Lion kerfuffle was that the power to decide over membership of the euro passed decisively and for ever from Blair in Downing Street to Brown, whose Treasury fortress became the guardian of the economic tests. Brown would keep Britain out, something which won him great personal credit among Conservative press barons. There would be no referendum in the Blair years, however much the Prime Minister fretted. During his second administration, according to the former cabinet minister Clare Short, Blair offered Brown an astonishing deal: he would leave Number Ten soon if Brown would ‘deliver’ the euro. Brown brusquely rejected the offer, telling Short that he didn’t make policy that way and in any case, could not trust Blair to keep his side of a bargain.

  But other historic changes went ahead. Both devolution and the Irish peace process reshaped the country and produced clear results. So did other constitutional initiatives, such as the expulsion of most hereditary peers from the Lords, ending its huge inbuilt Conservative majority, and the incorporation of the European human rights convention into British law, allowing cases to come to court here. Neither produced the outcomes ministers expected. The Lords became more assertive and more of a problem for Blair, not less of one. British judges’ interpretation of the human rights of asylum seekers and suspected terrorists caused much anguish to successive home secretaries; and the ‘human rights culture’ was widely criticized by newspapers. But at least, in each case, serious shifts in the balance of power were made, changes intended to make Britain fairer and more open.

  Other early initiatives would crumble to dust and ashes. One of the most interesting examples is the Dome, centrepiece of millennium celebrations inherited from the Conservatives. Blair was initially unsure about whether to forge ahead with the £1 bn gamble. He was argued into the Dome project by Peter Mandelson who wanted to be its impresario, and by John Prescott, who liked the new money it would bring to a blighted part of east London. Prescott suggested New Labour wouldn’t be much of a government if it could not make a success of this. Blair agreed, though had the Dome ever come to a cabinet vote he would have lost. Architecturally the Dome was striking and elegant, a landmark for London which can be seen by almost every air passenger arriving in the capital. Public money was spent on cleaning up a poisoned semicircle of derelict land and bringing new Tube and road links. The millennium was certainly worth celebrating. But the problem ministers and their advisers could not solve was what their pleasure Dome should contain. Should it be for a great national party? Should it be educational? Beautiful? Thought-provoking? A fun park? Nobody could decide. The instinct of the British towards satire was irresistible as the project continued surrounded by cranes and political hullabaloo. The Dome would be magnificent, unique, a tribute to daring and can-do. Blair himself said it would provide the first paragraph of his next election manifesto.

  A well-funded, self-confident management was put in place but the bright child’s question – yes, but what’s it for? – would not go away. When the Dome finally opened, at New Year, the Queen, Prime Minister and hundreds of donors, business people and celebrities were treated to a mishmash of a show which embarrassed many of them. Bad organization meant most of the guests had a long, freezing and damp wait to get in for the celebrations. Xanadu this was not. The fiasco meant the Dome was roasted in most newspapers and when it opened to the public, the range of mildly interesting exhibits was greeted as a huge disappointment. Far fewer people came and bought tickets than was hoped. It turned out to be a theme park without a theme, morphing in the public imagination into the earliest and most damaging symbol of what was wrong with New Labour: an impressively constructed big tent containing not very much at all. It was produced by some of the people closest to the Prime Minister and therefore boomeranged particularly badly on him and the group already known as ‘Tony’s cronies’. Optimism and daring, it seemed, were not enough.

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  Squeeze, Relax: New Labour Economics

  The events described so far were all, in different ways, secondary to the transformation of Britain that Blair had promised. Northern Irela
nd was a crisis needing solving. Scotland and Wales were inherited commitments which did not engage much of the Prime Minister’s time, nor any of his passion. The Dome was also inherited, a sally of optimism and opportunism which went terribly wrong. The death of Diana was one of Macmillan’s ‘events’, brilliantly handled. But none of this was what New Labour was really about. Its intended purpose was a more secure economy, radically better public services and a new deal for the people at the bottom. And much of this was in the lap not of Tony Blair, but of Gordon Brown. The saturnine Chancellor would become a controversial figure later in the government too but his early months in the Treasury were rumbustious, as he overruled mandarins and imposed a new way of governing. Like Blair, Brown had no experience of government and, like Blair, he had run his life in Opposition with a tight team of his own, dominated by his economic adviser (later an MP and Treasury minister) Ed Balls. Relations between Team Brown and the Treasury officials began badly and stayed frosty for a long time, rather as other civil service bosses resented the arrival of the rule of special advisers at Number Ten.

  Brown’s handing of interest rate control to the Bank of England was a theatrical coup, planned secretly in Opposition and unleashed to widespread astonishment immediately New Labour won. Other countries, including Germany and the United States, had long run monetary policy independently of politicians, but this was an unexpected step for a left-of-centre British Chancellor. It turned out to be particularly helpful to Labour ministers since it removed at a stroke the old suspicion that they would favour high employment over low inflation. It reassured the money markets that Brown would not (because he could not) debauch the currency. In a curious way this gave him more freedom to tax and spend. As one of Brown’s biographers put it, he ‘could only give expression to his socialist instincts after playing the role of uber-guardian of the capitalist system’. The Bank move has gone down as one of the clearest achievements of the New Labour era – tellingly, like the devolution referendums, actions taken immediately after winning power. Brown also stripped the Bank of England of its old job of overseeing the rest of the banking sector. If it was worried about the health of commercial banks but also in sole charge of interest rates, the two functions might conflict. His speed in doing so infuriated the Bank’s governor Eddie George who came close to resigning and so spoiling Brown’s early period as Chancellor.

  Labour won an early reputation for being economically trustworthy. Brown was the granite-and-iron Chancellor. Then a bachelor, his only mistress was the pinched-cheeked, pursed-mouthed Prudence. Income tax rates did not move. The middle classes could relax and feel free to vote Labour a second time, as they duly did in their droves in 2001. Even when Brown found money growing on trees he did not spend it. In 2000, at the most iridescent swollen glossiness of the dotcom bubble, when Britain was erupting with childlike candy-coloured names for companies promising magical profits, when anyone would pay anything for anything allegedly digital, Brown sold off licences for the next generation of mobile phones for £22.5 bn, vastly more than they were soon worth. The fruit went not into new public spending but into repaying the public debt, £37 bn of it. By 2002 government interest payments as a proportion of its income, were the lowest since 1914. Brown’s stock soared.

  Another consequence of the early squeeze was more immediately controversial. What became known as ‘stealth taxes’, like the stealth bomber itself, made a lot of noise and did not always hit the targeted area. Stealth taxes included the freezing of income tax thresholds, so an extra 1.5 million people found themselves paying the top rate; the freezing of personal allowances; rises in stamp duty on houses and a hike in national insurance (both of which provided huge new tax streams in the Labour years); the palming off of costs onto council tax, which rose sharply; and most famously the removal of tax credits for share dividends in 1997. This was sold at the time as a sensible technical reform, removing distortions and encouraging companies to reinvest in their core businesses. In fact it had a devastating effect on the portfolios of pension funds.

  By 2006, according to a paper for the Institute of Actuaries, this measure was responsible for cutting the value of retirement pensions by £100 bn, a staggering sum, more than twice as much as the combined pension deficits of Britain’s top 350 companies. Pensioners and older workers facing great holes in their pension funds were outraged. What is more, Treasury papers released in 2007 showed that Brown was given ample warning of the effect. The destruction of a once proud pension industry is a more complicated story than the simple ‘blame Brown’ charge. The actuarial industry, rule changes in pensions during the Major years, a court ruling about guaranteed pay-outs and Britain’s fast-ageing population are also part of the tale. But the pension fund hit produced more anger, directed personally against Brown, than any other single act in his time as Chancellor.

  Longer term, perhaps the most striking aspect of Brown’s running of the economy was the stark, dramatic shape of public spending. For his first two years he stuck fiercely to the promise he had made about continuing Conservative spending levels. These were so tight that even the former Chancellor Ken Clarke said he would not have actually kept to them had he been re-elected. But Brown brought down the State’s share of public spending from nearly 41 per cent of gross domestic product to 37.4 per cent by 1999-2000, the lowest percentage since 1960 and far below anything achieved under Thatcher. He was doing the opposite of what earlier Labour chancellors had done. They had arrived in office, immediately started spending, and then had to stop and raise taxes later on. He began as Scrooge and quietly fattened up for Santa. Then there was an abrupt and dramatic shift and public spending soared, particularly on health, back up to 43 per cent. So there were the lean years followed by the fat years, famine then feast, squeeze then relax.

  Prudence was a stern mistress. The first consequence of her reign was that the 1997-2001 Labour government achieved far less in public services than it had promised. During the 2001 election Blair was confronted outside a Birmingham hospital when a postmistress called Sharon Storer exploded with rage at him over the poor care being given to her partner who had cancer. Vainly he tried to stem the flow and usher her away from microphones and cameras. New Labour’s choreography was usually slick but for once Blair was pinned down and harangued by someone who was no longer prepared to hear his excuses. John Prescott had promised a vast boost in public transport, telling the Commons in 1997, ‘I will have failed if in five years’ time there are not many more people using public transport and far fewer journeys by car. It’s a tall order but I urge you to hold me to it.’ Because of Prudence, and Blair’s worries about being seen as anti-car, Prescott had nothing like the investment to follow through and failed completely. Prudence meant that Brown ploughed ahead with cuts in benefit for lone-parent families, angering Labour MPs and resulting in a Scottish Labour conference vote which called them ‘economically inept, morally repugnant and spiritually bereft’.

  Reform costs money, and without money it barely happened in the first term, except in isolated areas where Blair or Brown put their heads down and concentrated. The most dramatic programme was in raising literacy and numeracy among younger children, where Number Ten worked closely with the Education Secretary, David Blunkett, and scored real successes. But unequivocally successful public service reforms were rare. And the real drawback of the squeeze-then-relax Brown guide to fiscal fitness was that he did not entirely conform to it himself. Some new money had to be raised and it was.

  One curious thing a time-traveller from the seventies might notice in the Britain of the early twenty-first century would be unfamiliar uniforms and symbols in public offices, by roadsides, in hospitals and outside schools. The men and women on security duty in the Treasury in not-quite-official caps and jackets, the badges on construction workers’ jackets and helmets, the little logos of jumping manikins, bright flowers, bean-like blobs, and the new names, Carillion, Vinci or Serco, were all visual hints about the greatest change in how go
vernment was working. The name for it, public finance initiative, or PFI, was dull. Yet the change was big enough to arouse worry even outside the small tribes of political obsessives. The underlying idea was simple. It had started life under Norman Lamont, five years before Labour came to power, when he experimented with privatizing public projects and allowing private companies to run them, keeping the revenue. A group led by the Bank of America built and ran a new bridge connecting the Isle of Skye to the mainland. There were outraged protests from some islanders about paying tolls to a private consortium and eventually the Scottish Executive bought the bridge back. At the opposite corner of the country, another bridge was built joining Kent and Essex across the Thames at Dartford, the first bridge across the river in a new place for more than half a century; it was run by a company called Le Crossing and successfully took tolls from motorists.

  To start with Labour hated this idea. PFIs were a mix of two things, the privatization of capital projects, with government paying a fee over many years; and the contracting-out of services – waste-collection, school meals, cleaning – to private companies, which had been imposed on unwilling socialist councils from the eighties. Once in power, Labour ministers began to realize that those three little letters were political magic. For the other thing about PFI is that it allows today’s ministers to announce and oversee exciting new projects, and take the credit for them, while the full bill is left for taxpayers twenty or fifty years in the future. Today’s spending on schools or hospitals is a problem that will eventually land on the desk of an education minister who is presently still at primary school, or a Chancellor who has not yet arrived at the maternity unit. This was government on tick. It was invented in Britain. And for better or worse, it is now spreading round the world. PFIs were particularly attractive when so many other kinds of spending were so tightly controlled by Prudence. At the same time large swathes of money for new schools, hospitals, prisons and the like were declared to be investment, not spending, and put to one side of the national accounts. Was this clever, or merely clever-clever? The justification was that private companies would build things and run them so much more efficiently than the State, that profits paid to them by taxpayers would be more than compensated for.