LONDON: Britain’s leader-in-waiting Gordon Brown may assume power too late to enjoy the fruits of his labours as one of the country’s most successful finance ministers.
Interest rates at their highest in six years, rising inflation and modest pay growth have converged to squeeze household purses and dent the public mood this year, just when the fortunes of Brown’s ruling Labour Party are low.
Brown is a near certainty to become the next Labour leader and prime minister, succeeding Tony Blair who announced on Thursday he would step down next month.
But he must repair damage inflicted by heavy Labour losses in local government elections, discontent over British military action in Iraq, party funding scandals and union unrest over low pay increases.
As Chancellor of the Exchequer since 1997 Brown has presided over a steadily growing economy, and is unlikely to face any serious opposition as he heads for 10 Downing Street.
But now more Britons than ever are falling victim to the country’s one trillion pound personal debt mountain. Over 300 people a day are declaring themselves insolvent, home mortgage repayments are rising and first-time buyers are finding it hard to get a foot on the housing ladder.
Official interest rates have risen to 5.5 per cent from 4.5 per cent last summer, adding as much as $158 a month to payments on a typical 100,000 pound mortgage, and compounding the impact of higher household energy bills and goods prices.
“Gordon Brown is entering Number 10 just as conditions in the UK economy are becoming more difficult,” said Philip Shaw, chief economist at Investec.
“Those difficulties arise from arguably a little more global inflation pressure and the public finances are also in deficit, in contrast with much of the first 10 years.”
Long forgotten are the feelgood factor that greeted Blair’s Labour as it swept to power in 1997, Brown’s halcyon days of largesse for public spending and his much praised decision to make the Bank of England independent.
However, changes Brown made as finance minister should help to protect the UK economy from any global slowdown, analysts say – the hard part is getting the public to understand this as living costs and indebtedness rise.
Giving the Bank of England the power to set interest rates without interference from politicians, for example, has improved the credibility of monetary policymaking and arguably reduced the need for interest rates to rise that much higher this year.“Because of the foundations Brown has laid they are not going to be as difficult as perhaps they would have been,” Shaw said. “But it’s very hard to sell that message politically.”
While Brown may now miss out on the prosperity that marked Blair’s decade-long premiership, he is unlikely to escape the consequences of the largesse that helped keep Labour in power for an unprecedented three electoral terms.
After the restraint that Brown enforced following the 1997 election victory, he unleashed big spending plans for health, education and welfare as Labour sought to bolster the economy as global conditions worsened.
But with an election expected in 2009 and Labour well behind a resurgent, youthful Conservative opposition in the polls, 56-year old Brown has little room left to use public money to win back voters.
“He’s spent his war chest essentially over the last five years which I think was very useful at the time because it helped cushion the UK economy against the global slowdown in 2001/2,” said John Hawksworth, head of macroeconomics at PricewaterhouseCoopers. “That trick can’t be repeated.”
