The rock of stability? The political economy of the Brown government

Abstract

This article seeks to demonstrate how each of the three core components of the British model of political economy developed during Gordon Brown's tenure as Chancellor of the Exchequer, and the assumptions underlying them, have been undermined during Brown's first 16 months as prime minister. Each of the trends that have contributed towards the UK's economic transition from growth to recession is shown to have begun during Brown's tenure as chancellor. First, the British model of monetary policy, and Brown's claim to have replaced ‘stop-go’ short-termism with macro-economic stability, is shown to have been undermined by a year of financial market volatility, rising inflation and broader deteriorating economic performance. The second, the British model of fiscal policy, and Brown's claim to have locked in fiscal prudence, is shown to have dissipated further since June 2007. In particular, the twin fiscal benchmarks of Brown's model, the Golden Rule and the Sustainable Investment Rule, are respectively shown to face imminent transgression. Third, the British model of competitiveness policy is shown to have failed to redress any of the long-term supply-side weaknesses that have contributed to the UK's relative economic decline during the twentieth century. Above all else, the Brown government's faith in a risk-based approach to financial regulation is shown to have been punctured by the domestic financial instability arising from the collapse of Northern Rock and Bradford and Bingley, and the need to recapitalise the major UK-based banks.