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Evaluate New Labours Management of the economy since 1997 Assignment

Britain has gone through an elongated period of economic growth since New Labour took office in 1997 has this been down to the party and Mr Gordon Brown in particular and their management of economy or is it down to circumstance, situation and a bit of luck. If you listen to the government then you get the obvious answer, likewise if you listen to the leader of the opposition.

I intend to investigate New Labours management of the economy, how much of the success has been down to the party, how successful has it actually been in comparison to other western nations, how much of this success was inherited and how has he party continued the growth of the economy. New Labour claim that their economic record is unprecedented with the highest rate of employment ever alongside the longest period of economic growth in modern history and backed up by the lowest sustained interest and inflation rates for over a generation.

These are claims that we hear from the labour party on a consistent basis but are they true and how much of it has been down to the New Labour party itself. The figures do not lie, it is certainly true that employment has risen to a record high of 28. 5 million. This igure has been helped to be attained through solid economic growth and the expanding of the European Union which has led to a large expansion of the workforce through migrant workers. Unemployment is at a 30 year low but comparisons need to be made here to the governments that preceded New Labour.

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Unemployment has been as high as 10% under new labour at the end of the 90s and we are a world away from that now, but this is something that has not just been down to the Labour party. The rate began to fall rapidly from 1993 when the economy began to recover from recession and actually halved by the time New Labour came to power in 1997. Comparisons need to be made here with other western powers and it is here that we can see that Britain is in a strong position; unemployment is half of the level of France and Germany and lower than the United States1.

The New deal employment programme, a programme which was set up by the Labour government, to help people to get trained and either back into work or into work for the first time has been successful. Helping well over 1 million people into work with over 50% of this figure being young people2. This somewhat rosy picture does hide some darker secrets in employment tatistics of the UK. The generally good labour market picture disguises the fact that there are 2. 7 million people in the United Kingdom that are on incapacity benefit, this is a figure that has not been reduced during New Labours time in office.

When looking at the general figures of employment break downs are not analysed either and what is failed to be shown in this figure that employment in the manufacturing industry has fallen by a million since 1997. Manufacturing an industry that the UK has always prided itself on is at an all time low. The manufacturing industry has historically been made up the car production ndustry. The UK’s decline in car production has been much documented and the closure of Rover plant across the country added to the woes of the manufacturing sector. All of the jobs growth has been in the public and services sector.

There is not an even distribution of jobs like the overall figure might lead you to think there is. New Labours claim that the UK is enjoying the longest period of uninterrupted growth since 1701, is arguably true. This claim though is over comparison of 50 quarters though 15 of these were under John Major’s government between 1992 and 19973. New Labour would like the innocent reader to believe that the world began in 1997, you only have to read Tony Blairs “road to manifesto” document to see that he mentions the word ‘new’ 104 times. A new beginning it was but there was success before new labour took office.

The truth is that economically Mr Brown and Mr Blair have to borrow some credit from the conservative party. The average annual growth rate under the conservative government of 1992-1997 was 2. 7% in comparison to 2. 8% under New Labour4. The similarities in these figures give legitimacy to the Conservative party claim that the Labour party were merely continuing a period of growth begun by the Tories rather than themselves. The counter-argument and a relevant one is that there has not been one single quarter since new labour took to power that there has not been economic growth.

Labour has continued to pledge that they will raise the sustainable growth rate of the economy through raising productivity. It is here that the pledges of the New Labour party come slightly unstuck, hence the reason for the productivity figure being a figure that is somewhat less documented in comparison to the ther figures. Productivity growth has been inconsistent, even though there are now 300,000 more businesses in the UK than there was in 1997 it has relied heavily on the public sector and the consumer themselves. This has left the party partly at fault for the debt situation many people in the UK find themselves in.

Productivity has at times been boosted by the consumer, but at times this has been done through credit cards and store cards, that have extortionately high interest rates. The growth in public sector accounts for a large proportion of he general productivity bringing the idea of uneven distribution throughout the economy to the fore. With as mentioned the manufacturing industry stagnating and little too no productivity coming from that sector output is lower now than in 2001 and only just above the level at the 1997 election5.

If the pledge that growth will be sustained through the raising of productivity something needs to be done about a number of industries for this claim to come to fruition. Throughout the world, industrialised economies are enjoying inflation and interest rates being at the lowest for a generation. This is a claim by the New Labour government that in comparison to other western nations is something that is somewhat standard. Though credit to the fact that on taking office New Labour and the new Chancellor of the Exchequer Mr Gordon Brown MP sprung an immediate surprise.

They gave the Bank of England operational independence from the government in the conduct of monetary policy6 something that certainly an old labour administration would not of considered doing. This has meant that credit does not go directly to the labour party but to the bank itself which has received great praise for its bility to keep inflation close to the government set target since 1997. This has been massively beneficial to society in that mortgage rates are lower with mortgage payers saving on average 315 per month, compared to the average rate under the last conservative administration.

Of course this shines a good light on Mr Brown and the New Labour party for making the decision to give the bank operational independence. In similarity to a conservative government New Labour has not made any increases to the standard or higher rates of income tax, this adheres to their pre-election manifesto of 1997. This is not quite what it seems though as taxes have been raised in other areas. In the budget of 2002, national insurance was raised to pay for the extra costs incurred in the National Health System8. Further crackdowns have been incurred on ‘tax-loopholes’ including company cars being taxed heavily.

This has raised the UK’s tax burden from 39. 3% of the GDP in 1997 to 42. 4% in 2006 which actually places the UK ahead of Germany in the tax burden table. This has bought accusations from the population and the opposition of ‘stealth taxes’ as it ould seem implausible to have reached this level with only one explicit tax hike. Though the tax burden has been raised a new system has been introduced for the reduction of tax for low income families under the new labour government. The tax credit system introduced by the government has proven to be successful, over six million families are now benefiting from this system.

This is a system that reduces tax for people such as working single parents and parents with young children. This is where the person in question receives a credit which results in them paying a smaller figure of tax. A figure released y the labour government was that a family on 25,000 with two children would only be paying 6p on every pound in income tax9. With the economy enjoying such a period of growth it makes sense to see the money going back into the country and its people. In October last year the minimum wage was set 5. 05 an hour for adult workers and 4. 25 for young workers.

Labours policy of helping families has continued since they came into power in 1997. Included in this, is the help given to pensioners. There has been continued rising prosperity within pensioners in the UK, with policies such as free TV licenses and the winter fuel payment utting money back into pensioner’s pockets. It must be said though that these are policies that would be continued with a right wing government. An area of the economy that is hotly argued about its success is that of public services. Labour has pledged to deliver a step change in investment in key public services such as health, education and law & order.

The figures on health such as cancer deaths having fallen by 12% can also be put down to people being more aware and catching the disease early. Likewise with the figure that deaths from heart disease have dropped y 27% since 1997 can also be put down to the fact that we now live in a healthier world where people exercise more and are more aware of what they eat. There are 78,700 more nurses but there is still a nurse shortage. In education claims have been made that due to government investment the best results ever seen are being seen at 11, 14, 16 and 18 though there is an argument that there is a ‘dumbing’ down of examinations.

The labour government has continued with its mantra ‘education, education, education’ as they believe that prosperity can continue through the investment in human capital. The better educated and trained the more the person in question can benefit the economy an idea of being mutually beneficial. It must be said that human productivity in the UK is below the figure in Germany. Within public services comes the argument over top-up fees. The labour government has supported and granted universities the right to charge more for students to study.

University is no longer a public service but can now be argued to be in competition in the private sector. As New Labour has settled into power and the years have gone by, things have changed. There has become ore of a mix of new labour and old labour in Mr Browns budgets. In the early budgets there was a feel of drastic cuts, what has been called by many as headline-grabbing measures. Examples of these measures was granting the independence of the Bank of England and leaving the higher levels of income tax as they are this has guaranteed central ground popularity.

As the years have rolled by though there have been changes in Mr Brown’s budgets and each one has had an aspect of Old Labour somewhere within it, often well hidden but always there. The Old Labour element is the idea of targeting particular social groups, articularly those on low incomes, families with children, older workers and pensioners. The complication of the tax system was a modern way of helping these people. Mr Browns budgets have always had credible fiscal plans and the ability to boost consumer spending but they have also targeted the traditional labour supporters.

An example of this are his stealth taxes, taxes on company packages, meaning that it has proven more lucrative to buy your own car than take one from the company within a remuneration package. These are small ‘stealth’ like taxes that have proved to appear more often in Mr Browns more recent budges that ould not be noticed by the lower income families in the UK. On the other hand of this the credit system has been beneficial towards lower income families. With the tax burden having been raised it is obvious that tax hikes however small across the board must outweigh the cuts in tax at the lower end of the income spectrum.

Labour would get high marks for managing the economy10, the UK economy has put in a strong performance , since 1997 when new labour came to power, although as already mentioned the economy’s recovery began under Ken Clark treasury and the conservatives. New Labour has had more luck than previous labour governments in that they have not had to withstand any major economic or currency crisis. As a result all of the previously mentioned pledges by labour are true to an extent and finances are in a healthy state.

Though up to this point the new labour government has shown admirable qualities when dealing with the economy there are periods a head where they must be careful. A global slowdown led by the United States could result in a cut in the rate of economic growth and cause unemployment one of labours key mantras too rise. The government must beware of the trade gap between the nation and the countries that have adopted the euro in Europe. The New Labour government and the treasury has been able to enjoy presiding over an economy that has been continually growing, low unemployment and consistent inflation and interest rates.

Some credit has to go to the former Tory government yet New Labour should take most of this credit. They have let the economy grow through consumer spending and productivity in the public services sector. Monetary policy has been given independence and this has proven to be an excellent early decision by the government. The figures do not lie and even though the western industrial nations have also enjoyed growth to an extent it is not to the precedent set by the UK though.

Management of 3 of the 4 main areas has been excellent, an area of worry must be even distribution of productivity. Success in the public services sector has hidden the problems that have been had in the manufacturing sector. For the economy to continue to grow stimulation of the struggling sectors is going to be required. In Britain we have enjoyed the benefits of a strong conomy, new labour has also made sure that the strength of the economy is reinvested into society through both the new deal and the tax credit system.

This is both beneficial to the individual and the economy itself as human capital is reinvested back into the economy in the long run. New Labour have managed the economy with great success during a period of ‘boom’ they inherited an economy that was on the up and they have continued the growth and led Britain into an era where they can boast to have one of the strongest economies in the world and at present have no reason to join the European single currency.

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