The inside view
A doppelganger pops up on the Treasury bench

Just as the City thought socialism finished it comes rampaging back. And this time there is no opposition

Edmond Warner
Guardian

Saturday April 20, 2002


A curious thing happened on Wednesday. A gentleman looking uncannily like Gordon Brown delivered a Budget statement on behalf of the government. He even sounded like the chancellor. But what he said was so out of character that one can only conclude he was a doppelganger. A cunning ruse by the forces of evil to destabilise the economy by stealth tax, perhaps.

The City and business had rather grown to like the chancellor. He was prone to tinkering with the tax regime like a fussy mother seeing her offspring off to school. But that was forgivable - the price to pay for a cautious steward of the economy apparently immune to destabilising rushes of blood to the head. This was a man who understood that volatility is the enemy of industrial success.

First, as a whey-faced newcomer, Labour's first chancellor for a generation ceded control of monetary policy to the Bank of England. A bold decision, and a shocking one at the time. What kind of politician thirsts for power for 18 years and then relinquishes an enormous chunk of it at a stroke? The decision was the correct one, whatever revisionist academics might say when they analyse interest rates with 20:20 hindsight.

Then, Mr Brown set about the expectations of socialists hungry for reform and crushed them with his fiscal conservatism.

Certain things, it transpired, really could only get better. Inflation, for one. The length of the economic cycle, for another. Public services? But that would be putting the health of the economy at risk. And that would not do.

It is hard to grumble when the British economy, in a year of trauma such as 2001, knocks spots off the competition. The political opposition couldn't lay a glove on him. This said much about the opposition, but more about the chancellor.

Business interests had ceased to care about the weakness of the Conservatives, because the chancellor was a reassuring rock. Only his apparently fanatical opposition to the euro gave cause for concern.

Pocket picking
All the tinkering added up to irritating pocket picking, rather than front-on income and corporate tax increases, just as his puny critics claimed. Hauliers mobilised the nation's drivers against fuel duties. But this flaring of national character was over in a trice. This was an economy creating prosperity by creating jobs that would never be taxed more highly.

Until, that is, this week. Whoever it was delivering that speech in the house has spun the government's policy through 180 degrees. Gone was the insistence that public services mend and make do. Blown is the promise that income tax rates would not be increased. Back is the socialist utopia that sustained Labour's foul weather supporters through the 18-year deluge. Fractured is the compact between industry and government.

Now, of course, is the time to be radical, if radicalism be your goal. Early in the parliament, with ample time for u-turns and spin should plans go awry. But what a risk! What a rush of blood to the head! This is not what we have been lulled into expecting by repeated doses of caution and common sense.

All, of course, may be well. The economy may indeed grow more quickly than previously planned, bringing with it "painless" increases in tax revenues. The public may swallow the line that national insurance (at a stroke, the new income tax) is a premium worth paying for the best insurance policy in the world. Businesses may accept higher NI charges without cutting jobs. Oil companies may swallow their new windfall tax and not pass it on to consumers. And pigs might fly over Paisley.

Even then, all may still be well. The billions oraised for the national health service may yet be spent wisely, cut waiting lists, improve care, reward nurses and hospital cleaners. Only you would not bet on it within the timescale over which Labour will be judged.

Years of neglect
Five years of neglect has compounded the problems inherited by this government. The NHS is a business of a scale dwarfing any in the private sector. To turn it around requires more than cash. It requires superlative management with a superlative strategy, who in turn require luck and time. This is a big request.

Business is bruised by its new payroll tax. It can come to forgive the chancellor, however, provided that his gamble on the health service does not disrupt the benign economic environment. Meddling governments are just a cost of being in business, after all. The City will care about naught but the implications for interest rates and what any political upheaval might mean for sterling's prospects of disappearing into the euro.

Both interest groups would be reassured if they felt that the injection of assets into the health service would really transform it. Perhaps the old chancellor, wherever he might be incarcerated, could be freed to head up the project. This could be the career move that finally secures him the premiership. It would be a shame to have to find a new chancellor, but then we haven't got the old one anymore, anyway.

Edmond Warner is chief executive of Old Mutual Financial Services