How Gordon’s policies left us unprepared for the present crisis.
New Labour is the bastard child of Thatcherism. Blair, Brown and Mandelson inherited from the evil witch the belief that the market (capitalism) was god and that the rich are the wealth creators we must all bow down to.
As Marxists know, and as the present crisis has shown, this is the opposite of the truth. But this has been the foundation of all the policies carried out by New Labour over the past years. Clearly the present crisis is international in scope (contrary to Brown’s tommy rot that he could immunise Britain from boom and bust), but the neoliberal policies pursued have exposed the British economy to global economic forces and left if unprotected to a dangerous degree.
Here is a sample of Brown’s saucer-eyed adoration for financial whizzkids from his Mansion House speech in 2007. “I congratulate you on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London ... I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created." Readers seeing this for the first time after the crash must be wondering what planet this bloke beamed down from.
Completely suckered by the arrogance and pushiness of the City elite, Brown was determined as Chancellor to let them have their head. He seemed to harbor the insane delusion that an island of 60 million souls could all make a living in the world on the backs of the mysterious activities of a few tens of thousands of people in the City and Canary Wharf.
He therefore called for ‘light touch regulation,’ in other words less regulation on the City and finance capital. Before his Mansion House audience in 2007, he called for, "a risk-based regulatory approach". It was an old theme. In the same hall three years before, he pledged that "in budget after budget I want us to do even more to encourage the risk takers" (2004). This is the approach that got us in the present pickle.
Likewise he told the CBI in 2005 how he proposed to crack down on red tape about boring stuff like health and safety standards that got in the way of profit-making. “No inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.”
His deregulation of the City was intended to make London a financial wild west and so the financial centre of the world, in competition with the position traditionally held by New York. How successful was he? Jill Treanor (Guardian 14.03.07) draws up a careful balance sheet. “The Financial Services Authority's (FSA) ‘light touch’ approach to regulation is proving crucial in luring business from overseas, particularly the US where the Sarbanes-Oxley rules introduced after the collapse of Enron are generally regarded as imposing high costs on business.
“Some bankers point out that business is booming in London not because of anything Mr Brown or any regulatory body has done, but due to location and language. English is the language of financial markets while London, a recent report by the Corporation of London pointed out, is ‘unrivalled as a geographic location’. Office hours in London overlap with trading hours in the rest of the globe, allowing the capital's footprint to cover 99% of the world's GDP. ‘In retrospect, London's position as a financial centre was always ours to lose,’ said Mr Thompson.
“The light-touch regulations that are luring foreign firms to the City are also causing concern. The London Stock Exchange's (LSE) junior market, Aim, has been described as a ‘casino’ by a senior US regulator.”
So, unless Brown is responsible for us all speaking English, and for our island’s position in the North Atlantic and its time zone, he can’t claim much credit for London’s recent flowering as a financial centre.
But Brown was leading a race to the bottom. It was assumed that the city that provided the most outrageous rogues’ charter would become the world’s premier centre. Brown should know. Of the 70 offshore tax havens in the world 30 are British. As Somerset Maughan said of Monaco, these are “sunny places for shady people.” If you are rich and don’t much care to pay tax, set up shop in Jersey, the Isle of Man, Grand Cayman, the British Virgin Islands, Bermuda or Gibraltar.
Who can you fiddle? Why – the British Treasury and British taxpayer, all courtesy the British Chancellor of the Exchequer and later British Prime Minister. This is madness. The Tax Justice Network reckons that $11.5trn is held in offshore boltholes worldwide. $250bn in tax has gone missing as a result. This is five times the sum, calculated in 2002, needed to halve world poverty. So tax dodging is not a victimless crime. It is a crime against the poor. TJN estimates a cross-border flow of $1-1.6trn in outright criminal proceeds from corruption mafia activity and the like. Son of the manse Brown smiles kindly on all this.
Brown was known as the ‘tax dodgers’ Chancellor.’ He seemed to echo the billionaire, ‘Queen of Mean’, Leona Helmsley’s observation that, “Only little people pay taxes.” (Though to be fair she was jailed for tax evasion.) Certainly he cut corporation tax and capital gains tax for business, instead dumping the tax burden on working people. Some of the concessions and loopholes he permitted were outrageous.
Brown has always been seen as a soft touch by the rich. Private equity is a new breed of asset stripper who take over victim firms with borrowed money. Debenhams was taken over by private equity firms and, while it was under their ownership, was actually subsidised by UK taxpayers. This is because of unique tax rules set up by Gordon Brown and seized on by private equity raiders. For Brown, company borrowing counts as investment. So Gordon Brown subsidises the borrowing of these obscenely rich people with tax relief on this "business investment" with our money. We have to ask what investment takes place when a chain of stores is taken over by one set of capitalists from another? All that happens is a change of ownership. Is that so hard to understand? The corporate raiders made £1.3bn over 18 months by picking the stores’ bones clean. When they had finished sucking them dry, the private equity sharks dumped Debenhams back in the public domain in 2006, laden with debt. Mr. Brown – how on earth did this help the economy?
Brown has dithered for years about the status of rich people who are ‘not domiciled’ in Britain. Roman Abramovitch tells the Russian tax authorities he pays tax in London and the Inland Revenue he pays tax in Russia. So one of the richest men in the world pays tax in neither country. It was only the Tories who forced Brown’s hand to bring in a pathetic £30,000 flat rate levy on non-doms. Roman’s wealth is surrounded in secrecy, but is reckoned to be worth more than £10bn. Some Chelsea players get paid more in a week than his non-dom fee for a year.
Brendan Barber, general secretary of the TUC, pleaded in vain for Brown to see sense. He said the government was caving in to "special interest pleading by people who do not want to pay a fair share of tax". "The government is facing a concerted campaign from some of the richest and most powerful people in Britain, he went on, “But ministers should not swallow the line that this move will hit business or the nation's prosperity." It is a matter of simple arithmetic that if the rich don’t pay tax, the rest of us pay more.
Yvette Cooper apologised that the government didn’t intend to ‘snoop’ on the global earnings of the rich and powerful. What has she got to apologise about? The government has no problem ‘snooping’ on your earnings or mine when they demand we fill in tax returns for PAYE.
The first sign that light touch regulation meant conniving at the incompetence and worse of the bankers was the collapse of Northern Rock. Light touch regulation (really soft touch regulation) meant that people’s deposits in the bank were not insured by the government. The unwieldy, but undoubtedly light touch, regulatory system set up by Brown in 1997 couldn’t cope. People queued up all night outside the bank to get their money out, like something out of a novel by Charles Dickens. The boss of the CBI rightly noted that the system of banking regulation “had failed its first big test.” He exploded at the government that this is “what you would expect in a banana republic…for it to happen in a “mature and prosperous country like the UK was almost unimaginable.”
Here was a lesson for the government. Crawling to individual capitalists and letting them get away with whatever they fancy is not necessarily in the interests of the system as a whole.
The Tories sneer at Brown’s grovelling, but really it puts them in a quandary. He is out-Torying the Tories. George Osborne had some fun at New Labour’s expense when they belatedly realised in 2008 that the policies they had been pursuing for the past eleven years were taken us to hell on a handcart. “The Labour Party seems to have developed a collective amnesia about its responsibility for the current financial crisis. Listen to delegates on the Conference floor and Ministers in fringe meetings, and the loudest cheers go to those who play to the crowd by attacking the way the City is regulated. They seem to forget that it was their Prime Minister who created that system 10 years ago.
“But the real prize for memory loss must go to Ed Balls. On Monday he said that those who had advocated ‘light touch regulation’ had been, in his words, ‘routed’. This is the same Ed Balls who as Chief Economic Adviser to the Treasury for eight years boasted about the ‘light touch’ regime of City regulation he had designed. This is also the same Ed Balls who then as City Minister called for ‘a light touch approach at the global and EU level’. The star player of Labour's football team has scored a spectacular own-goal.” (Independent 23.09.08) The whole point is that the Tories would have done exactly the same.
Capitalism is inherently unstable. The stark lesson that lax regulation or no regulation will never deliver a stable functioning economy was finally rammed home with the development of the present crisis.
Brown is now doing the rounds congratulating himself on his pro-active intervention to bail out the banks. Through his acolytes he is letting it be known that, ‘Well yes, he is the savior of the world,’ though he’s too modest to mention it himself.
One small but obvious point. The world hasn’t been saved yet, not by a long chalk.
The rescue package that led to the virtual nationalisation of the British banking system is presented as a cunning plan by a master intelligence. The Guardian’s report at the time (08.10.08) tells a different story. “Downing Street said the 90 minute meeting with the banks and FSA was not an emergency response, but had been in the diary for some time as one of a series of regular discussions. ‘We continue to act in a calm, orderly and responsible manner’, the prime minister’s spokesman said.”
This appears to be the opposite of the truth. “However,” the report goes on. “No 10 had not mentioned the meeting earlier and officials were clearly irritated that a private gathering with the bosses of leading banks and the chancellor on recapitalisation on Monday night has leaked and in part contributed to yesterday’s collapse in bank shares.” In short the meeting and the bail-out were the product of blind panic.
The truth is rather different from the official account. Brown had to intervene, “because 11 years of grotesque government toadying to the City has left Britain in a parlous position and there was no alternative but to resort to concepts expunged from the New Labour lexicon,” as Larry Elliott correctly commented in the Guardian (13.10.08). Moreover New Labour’s hand was forced. As Robert Peston reported, “A gang of three of Barclays, RBS and Lloyds TSB told Darling to pull his finger out and finalise whatever it is he’s eventually prepared to offer on taxpayers’ behalf.” When the Chancellor is grabbed by bankers and told to pull his finger out, then that really is the end for light touch regulation.
But the damage has been done. Thanks in part to government policy, the British economy is terribly vulnerable to the continuing economic crisis. As the Economist commented (11.10.08), “The underlying problem is that Britain’s economy was vulnerable even before the credit crisis struck. Much of its recent growth had been driven by the City, and based on a financial model whose defects have now been brutally exposed. Consumer spending had held up despite sluggish disposable income because homeowners could borrow against increasing housing wealth. That drove the household saving ratio down to almost a 60-year low (in fact, it turned negative) in the first quarter of 2008. Exports, despite the falling pound, will struggle to take up consumers’ slack, for Britain’s main trading partners are also running into trouble.”
The crisis has not been overcome. On the contrary, it is moving to a new, deeper phase. In the coming years Brown’s mantra of ‘no return to boom and bust’ will come back to haunt him. The deepening recession will demonstrate that his stewardship of the British economy has been an utter failure.