The Financial Crisis: Five Years Later

Gordon Brown's U.K. Economic Record: A Reassessment


Gordon Brown's U.K. Economic Record: A Reassessment

Photograph by Guang Niu/Getty Images

Long before he became prime minister of the U.K. in 2007, Gordon Brown saw himself as a great leader-in-waiting and didn’t care who knew it. His self-regard didn’t diminish as the crash flattened the economy and made a mockery of his plans. In 2010 he was voted out of office after clinging on too long.

You could say Brown, a charmless bully and notoriously incompetent manager, had it coming. As Chancellor of the Exchequer from 1997 to 2007—in effect, Deputy Prime Minister to Tony Blair and, in Brown’s own mind, co-leader—he was in command of economic policy as the conditions for the collapse formed. He can’t deny responsibility. Even in his own Labour Party, few are willing to defend him.

Yet there’s a case to be made. The significance of Brown’s most important achievement would be hard to overstate: He kept the U.K. out of the European Union’s single-currency system. Adopting the euro would have been unpopular. Memories of Britain’s humiliating exit from the EU’s exchange rate mechanism, the euro’s precursor, were still fresh when Labour came to power in 1997. Nonetheless, Blair was determined to talk the country around—he said the euro was Britain’s “destiny.” Brown stopped him. The Chancellor proposed five tests, knowing the economy wouldn’t meet them for the foreseeable future. That was that.

When the crash came, the U.K. had its own currency, central bank, and interest rate policy because of Brown. The Bank of England held rates down and later embarked on a Federal Reserve-style quantitative easing, even as inflation overshot its 2 percent target. The pound depreciated from 2007 to 2009, shielding U.K. exporters from what would have been a tighter squeeze.

It wasn’t Brown’s fault the recession dragged on. The Conservative-led coalition that replaced his Labour government in 2010 promoted “expansionary austerity”—fiscal tightening to restore public finances and boost confidence. It failed. Had Brown stayed in office, fiscal policy would have been more supportive of the recovery.

Brown didn’t see the crash coming, but who did? He made the case for “light-touch” regulation as banks grew reckless and the housing bubble inflated. He wasn’t alone in that. Maybe he increased public spending too much before 2008 instead of cutting debt while he could, but on the eve of the crash, U.K. government debt was 28 percent of gross domestic product, compared with 48 percent in the U.S. and an average of 43 percent in the euro area. He should have leaned against the economic dominance of the City of London instead of tapping it to pay for expanded public services. Until the crash, few complained.

The City’s dominance was the country’s undoing—and Brown’s, as it would have been for any British prime minister. A global financial collapse was bound to hit the U.K. especially hard. Yet if the country had adopted the euro, the crash would have hurt even more. And if Brown hadn’t lost the election of 2010, the recovery may have come sooner. You won’t find many Brits who’ll say it, but the country owes him something.

Crook is a member of the Bloomberg View editorial board.

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