On 2 July 1997, Chancellor Gordon Brown unveiled the first budget package produced by a Labour government for 18 years. The intervening period had significantly altered the parameters within which Chancellors could work: successive actions of the Thatcher and Major governments had not only reduced the political acceptability of governments pulling the economic levers, but had handed over whole parts of the economic machinery to the private sector and arms-length agencies; mean while, growing economic interpenetration within the European Union and under the auspices of the emergent liberal international regime had reduced the effectiveness of direct government intervention anyway (Peck and Tickell 1994; although see Hirst and Thompson 1996). The Labour Party, too, had been transformed during the long years of Conserva tive rule, jettisoning much of its social democratic heritage in favour of an accommodation with market principles. During the general election campaign, both Brown and the new Prime Minister, Tony Blair, had committed themselves to maintaining the pre ceding Conservative administration's spending limits and priorities for the next two years and not raising income tax rates during their five-year term of office, while one of the government's first actions on taking office was to hand over responsibility for setting interest rates to the Bank of England. The result was that, although the Labour Party had swept into office with its largest ever majority, it had a smaller capacity to effect economic change than ever before.' And yet, despite these constraints, the Chancellor made it clear that his economic policy retained substantial differences from the Conservatives' approach. This was to be particularly evident in the labour market, where, despite not wishing to repeal any of the Conservative Party's labour market changes, the new government made it clear that it believed that the state retained a residual role. In particular, faced with 350 000 adults who had been unemployed for two years or more, 180 000 young people without work for more than six months and 500 000 lone parents who could work if childcare was available, the Chancellor announced a radical programme to move the unemployed from welfare to work through a set of schemes, focused primarily on the young jobless, for whom participation would be compulsory; these schemes were designed to take the United Kingdom closer to American-style workfare than ever before (see Peck 1997). The problem for a government committed to keeping public spending and taxes low was that tackling these problems would not be cheap. Indeed, the estimates of the costs of the scheme to get young unemployed people from welfare to work came in at around ?3.15 billion, while subsidiz ing employers who recruited adults from the ranks of the long-term unemployed would require ?350 million. This restructuring of the welfare state would, the Chancellor announced, be funded by a one-off windfall tax on the profits of the utilities privatized by the Conservatives since 1984. Al though the windfall tax was not a novel innovation, as Conservative Chancellor Geoffrey Howe had, in 1981, imposed a windfall tax on the 'excess profits'