T6 Economic

Question 1

Brown and Economic Policy during Blair’s First Labour government (1997 - 2001)

Answer 1

• The Blair government seemed to handle the economy successfully.
• Led by Gordon Brown as Chancellor of the Exchequer, it was a time of both low inflation and low unemployment.
• The New Labour government had inherited very favourable economic situation from John Major’s Conservative government in 1997.
• Brown’s first priorities were to keep inflation low, to keep government spending under control and to prove to ‘Middle England’ that New Labour was indeed now pro-business and could be trusted with running the economy.
• This would enable New Labour to escape the Labour Party’s previous image as an irresponsible ‘tax-and-spend’ party. This was vital if Labour was to win an historic second term in office.

Question 2

Brown demonstrating responsible management

Answer 2

• Making the Bank of England responsible for setting interest rates: This removed short-term political government interference in changes interest rates, to maximise electoral advantage as previous Conservatives had done, at the expense of the long-term economic interests of the country.
• Committing to Conservative spending plans: This was a commitment to keep to Conservative spending plans for the first two years to demonstrate that New Labour could establish a reputation for governing competence and responsibility.

Question 3

Brown controversial economic decisions

Answer 3

• Selling Britain’s Gold Reserves: When the value of gold fell on international markets between 1999 and 2002, Brown sold 13 million ounces of British gold reserves. This was a mistake as the price of gold later rose and Britain had lost US $3 billion by 2005.
• Government Borrowing: To meet the shortfall in government spending, Brown borrowed heavily from the banks, which meant problems in the later years of the decade when recession his, as the banks demanded repayment.

Question 4

Brown and Economic Policy during Blair’s Second & Third Labour government (2001 - 2007)

Answer 4

• Gordon Brown’s economic catch-phrase was ‘prudence’ meaning being extremely careful with money.
• When Brown spoke of ‘prudence with purpose’ during Blair’s first government he meant that only with a firmly established stable economy could there be money to improve public spending on popular public services like health and education.
• So, after 2001 there was finally a massive injection of money into public services.
• The big increases in investment were reflected in new schools and hospitals.
• There was also significant pay rises for doctors, nurses and teachers.
• Exam results went up and waiting lists went down. The New Labour government argued that this spending was necessary to make up for years of Conservative under-funding and neglect of public services between 1979 and 1997.

Question 5

Private Finance Initiative (PFI)

Answer 5

• In order to avoid raising taxes, New Labour, like the Conservatives, continued to use private sources of funding for improvements to public services.
• There was some criticism of the funding of new projects through the Private Finance Initiative (PFI).
• The new public service buildings, like schools and hospitals, usually got built quickly, but debts were stored up for the future.

Question 6

The 2008 Global Financial Crash

Answer 6

• The Blair years were noticeable for high levels of credit and consumer spending.
• This was acceptable to a certain extent, in times of prosperity, but in recession could, and did, lead to significant problems.
• The second term of New Labour, however, saw continued low unemployment and significant modernisation within business, although deindustrialisation continued, and the manufacturing base continued to decline.
• Overall, Blair and Brown inherited a booming economy from John Major’s government (despite black Wednesday) for which they largely took credit.
• Some economists, however, warned that the consumer boom was based on rising house prices and high levels of consumer credit-card spending and personal debts, rather than increased productivity. There was a danger that this ‘bubble’ might not last.
• Indeed, when world recession hit with the 2008 global financial crash many people found themselves saddled with debts they could not repay.
• Equally the government found itself with a deficit in government spending which it could not meet without the considerable austerity measures by slashing government spending on public services.
• By the time of the Conservatives return to office in 2010, under David Cameron, considerable austerity measures were needed he claimed.
• Famously, Liam Byrne, chief secretary to the Treasury under Prime Minister Gordon Brown, left a note to his Conservative successor that proved to be a gift for the Conservatives to justify years of austerity [government spending cuts]. It jokingly read: ‘I’m afraid there’s no money left.’