Why Brown’s Rule-breaking is Great News for Trade Unions
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How not to solve the financial crisis. The past really is sweeping back to haunt Gordon Brown. If you wrote the film script of his career, no one would believe it – it’s far too loaded with poetic justice to be true.
He clearly didn’t realise while he was Chancellor that he was setting all these little tripwires for his future incarnation as Prime Minister. Now everywhere he turns, there’s a brand new mine waiting to go off under his feet.The latest is the Golden Rule fiasco. When he came up with the Golden Rule and the 40% rule and the whole “prudent fiscal framework”, it must have seemed like a good idea. And it may well have been a good idea – if he’d stuck to it.
But the rules have been battered and bent out of shape until the whole idea has become yet another stick to beat the government with, just when it needs it least.
It’s enough to make you feel sorry for the man. But then again, it’s extremely unusual to see a politician genuinely get what’s coming to them. So enjoy it while it lasts – after all, it may be the only entertainment going during the recession…
The idea behind Gordon Brown’s ‘rules’
Gordon Brown’s rules were always pretty arbitrary. And they were always going to be easy to fiddle.
I’m sure you have a rough idea of what the rules are, but just for posterity’s sake, here they are. The basic idea is that the government borrows only to ‘invest’ over an economic cycle. It has to balance its books over the business cycle as a whole. Meanwhile, the ’sustainable investment rule’ means it has to keep debt to a ‘prudent level’. At the moment, public borrowing isn’t meant to rise above 40% in each year of the current cycle.
To put it more simply, the rules were meant to ensure that the government – unlike Labour governments in the past – wouldn’t simply tax the blazes out of the electorate and then pump the cash indiscriminately into the public sector. Past Labour governments have run the economy like a drunk with a stolen credit card, merrily buying round after round for his fair weather friends until he realises he’s spent so much that he can’t pay the bill. At which point he and his friends are all thrown out of the bar.
This carelessness has, in the past, tended to end up in a sterling crisis. And that memory was one of the things that kept Labour out of power for so long up until 1997.
Mr Brown wanted to get rid of that impression. Hence the rules. These made it sound as if he at least had some understanding that balancing a budget was important, and that getting some sort of return for the money spent on the public sector was needed. The rules gave the idea that there was some sort of restriction on government spending, exactly what the public and the City needed to hear.
And why it’s all meaningless in practice…
Source: Why Brown’s Rule-breaking is Great News for Trade Unions
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Tags: , British politics, John StepeckAbout the Author
John Stepek is Deputy Editor of the UK-based financial weekly MoneyWeek. He is also the editor of daily investment email Money Morning UK. John graduated from Strathclyde University in 1996. He has worked for a number of financial magazines and newsletters including Families in Business, Shares Magazine and The Sunday Times.