Gordon Brown has been Chancelor since 1997, despite impressive growth figures some argue he was lucky to inherit a strong economic foundation and actually the last 10 years represented a wasted opportunity to secure the long term future of the UK economy
1. He inherited the benefits of Supply side reforms.
It is argued by the Conservatives that when he took power the economic fundamentals were already in place for a strong economy. Unemployment was already sharply falling from 3 million to 1.6 million. Over the past 20 years policies such as Privatisation and labour market reforms had helped increase the UK’s competitiveness and placed the framework for low inflationary growth. Gordon Brown was merely lucky to inherit these.
2. A Tax Meddler.
Gordon Brown has introduced over 66 new types of tax. Although he has kept his promise of not raising income tax he has compensated by introducing new types of taxes like Airport tax, such taxes have been labelled “stealth taxes”. Depsite tax rises the government is close to breaking its own public sector borrowing rules. Despite 12 years of economic growth government borrowing stands at £38bn or 3% of GDP.
3. Public Sector spending has been inefficient.
Gordon Brown has increased spending on public services like health and education however these have failed to deliver good results in terms of improved services. It has been argued that much of this spending has been on “non jobs” e.g. extra layers of management in health care. A report by Centre for Policy Studies argues that productivity in the public sector has fallen by 1.3% in 2003 + 2004. However Private sector productivity has increased. (Source 1) Thus the tax raises have been inefficiently spent and will result in lost growth in the future.
4. Complicated tax and Benefit system.
Making tax credits means tested has meant that most recipients are unaware of their eligibility. For example a significant proportion of child tax credit goes uncollected.
5. Unbalanced Growth.
The strong economic growth masks the unbalanced nature of the growth. The main contributor towards economic growth has been consumers spending. The increase in consumer spending has been financed by rising house prices and record levels of borrowing. The unbalanced nature of the UK’s growth is reflected in the record current account deficit of 2.9% of GDP (3)
6. Housing Bubble could bust.
With much of the economies strength being based on rising house prices, if a housing boom was to turn into a bust it could have a disastrous effect on the economy. It is worth noting the US housing market is experiencing problems of high levels of mortgage defaults and falling prices. This could also happen in the UK.
7. Unreformed Pensions.
The UK faces a demographic time bomb with the % of retired workers due to rise in the next 20 years. Industry experts have criticised his pension reforms as being too timid.
(1) Brown Blows it - Money Week
(2) Brown's Record
(3) Balance of Payments statistics
(4) Economic Problems of EU