6th May 1997. ‘Prudence’ Brown.
One effect of the Exchange Rate Mechanism (ERM) debacle was the Tories resolve in 1992 to grant the Bank of England independence over base-rates.(1)
The notion was that the Bank would be free of short-term demands of politicians and more importantly as a step towards European Monetary Union (EMU).
It was Gordon Brown Today just five days after Labour’s victory in 1997 who gave the Bank power to set interest rates as a matter of ‘operational responsibility’, subject only to government’s ability to override at a time of national crisis.
Brown wanted to break cycles of boom and bust and as a last hurrah set a loan rate at 6.25% as a last controlling act. Now the new Bank’s Monetary Policy Committee (BMPC) would decide, having been set a target of 2.5%, with inflation being controlled by the Chancellor.
This was an important move as Interest Rates since 1979 had become the chief instrument for managing the British Domestic Economy.
The BMPC was to raise the base, interest rates four times during Tony Blair’s first 100 days.
Brown known in the media as Prudence worked into the night, banging his clunking computer keys, inventing new wheezes to quietly raise money, at a time when public expenditure rose fastest since the early 1990.s.
He increased tax on Pension Funds, thus discouraging saving, and when he increased Fuel Duty, farmers and lorry drivers barricaded oil refineries resulting in a national panic in 2000, and as the Author remembers, causing mile-long queues at petrol stations which soon ran out of stocks.
When Blair stopped a rise in the top rate of Income Tax to 50%, Prudence circumnavigated this by widening the tax-bands, so more were thrust into the 40% band.
Working Family Tax Credit was muddled and only reached 27,000 out of the intended 1½ million.
A New Deal to get single mothers into work cost £24,000 for each claimant, and the fact that Tolley’s Standard Tax Manual pages rose from 2529 to 3293 says a lot!
Public money was spent on Regional Development which didn’t ‘develop’, but cost a fortune in bureaucracy; boom and boost saw road construction cancelled, then reinstated with contractors’ now able to price at a premium.
The Private Sector was crowded out of wealth creation to avoid inflation, for which in any case, the Bank of England would be the scapegoat!
Brown as a result of his Party’s free-wheeling approach to oversight of the financial markets had to endure the 2008 collapse, now as Prime-Minister.
By 2010 a record deficit caused his successor Alistair Darling to raise the cost of a bottle of Bell’s Whisky from £14.79 to £23.73, one in the eye for the rich!
(1) To align the pound with the Deutchmark.
bbc.co,uk./On This Day. 1997. Set the Bank Free.