Stephen King: 'No more boom and bust' - an epitaph for Chancellor Brown

This article is not an obituary, at least not in the accepted sense. But it amounts to the same thing. If all goes according to plan, Gordon Brown will not be Chancellor of the Exchequer for much longer. So this is an obituary of Gordon Brown, Chancellor, not Gordon Brown, politician and potential prime minister.

Gordon Brown has been the longest continuously serving chancellor since Nicholas Vansittart, who held the position from 1812 to 1823. On this measure, Mr Brown has been something of a success. Of course, Mr Brown might also be described as the longest serving prime-minister-in-waiting for many a year, and that could be seen as a bit of a failure. (Rab Butler had been chancellor in the 1950s but never became prime minister, despite having been the hot favourite to replace Anthony Eden. Robert Walpole, chancellor for 21 years in the 18th century, is, fortunately, a better role model for Mr Brown: he did eventually become prime minister.)

Nevertheless, Mr Brown cannot be faulted for his tenacity and determination, and if these are symbols of political strength, Mr Brown must surely count as one of the most successful political leaders since the Second World War.

But strength and durability don't, in themselves, indicate a job well done. For chancellors, the ultimate test of success is the performance of the economy. Some chancellors, though, are luckier than others. If managing the economy can be likened to playing a game of poker, some chancellors are dealt good hands, while others are a lot less fortunate.

Gordon Brown was dealt a good hand. The Tories certainly messed up the UK economy in the late 1980s and early 1990s with a peculiar cocktail of boom-bust economics and misguided attempts to stabilise sterling's value against other European currencies. But, by the time Labour came to power in 1997 and Mr Brown got the keys to No 11 Downing Street, economic conditions had markedly improved. Under Ken Clarke's stewardship, public borrowing had been reduced and, importantly, inflation had been brought under control. Mr Clarke had already adopted inflation targeting, even if he hadn't been brave enough to take the ultimate step of creating an independent central bank.

Other chancellors have not been so lucky. Denis Healey was, arguably, one of the most able chancellors of the post-war period, but he was dealt a particularly bad hand. Only the brave or the foolhardy would have been willing to be chancellor of the exchequer in the mid-1970s, and Mr Healey was, undoubtedly, very brave. Faced with oil price shocks, persistent sterling crises, uppity unions and a Labour Party that was determined to self-destruct, his challenge was uniquely difficult. Arguably, though, Mr Healey laid the foundations of all that followed - notably the gradual reduction in inflation - by embracing the principles of sound money that were ultimately encapsulated in the independence of the Bank of England.

That proved to be Gordon Brown's masterstroke. By granting the Bank of England operational independence, he was able to provide a guarantee to financial markets and to the electorate of lasting financial stability. Central banks may get things wrong from time to time, but at least the errors are those of judgement, rather than political expediency.

So far, the policy has been a resounding success: inflation has been remarkably stable in recent years, and the amplitude of the British economic cycle has been dampened. "No more boom and bust" might make a suitable epitaph for Gordon Brown's years at No 11. Mr Brown has avoided the hubris that has all too often been associated with chancellors who, like the fairy godmother, thought they'd be able to wave a magic wand and deliver bountiful economic growth. We were never likely to get a "Brown boom" to match the Lawson boom of the late 1980s or the Barber boom of the early 1970s (the Tories' enduring reputation as custodians of good economic management was never fully deserved). Prudence has been the watchword, and prudence has, for the most part, paid dividends.

Central bank independence is, though, hardly a British or Brownian invention. Germany's Bundesbank was doing it for decades. Others were doing it in the early 1990s. To suggest that central bank independence was Mr Brown's brainwave is, thus, going too far: other countries had already demonstrated the benefits of it.

Previous chancellors, in different times, simply couldn't have done it. In the 1970s and 1980s, it would have been politically unthinkable. Back then, inflation was a politicised beast, a lottery that created economic winners and losers. Handing over monetary policy decisions to unelected bureaucrats or economists would have been heresy.

The public finances have not been quite as sound as Mr Brown sometimes pretends. Revenue shortfalls have led to persistent overshoots in public borrowing which show no signs of being filled any time soon. It is not so much that Mr Brown has been too optimistic about economic performance - the Treasury's economic projections have been better than most - but, rather, that revenues have been disappointingly low given the performance of the economy. Meanwhile, a rising tax burden threatens to strangle the flexibility that has become a hallmark of British economic success in recent times.

Nevertheless, Mr Brown has exercised canny judgement. Borrowing may have been higher than expected, but it was a gamble worth taking. Fortuitously, extra borrowing kept the UK economy going when other economies succumbed to recession in 2001 and 2002. Since then, Mr Brown has correctly recognised that financial markets no longer penalise governments for running deficits: there has been no sudden increase in interest rates or run on the pound.

With the economy performing well, Mr Brown has had time to enhance his role on the international stage. His efforts to highlight the plight of the world's poor have been admirable, and his work with others - from Bill Gates to Bono - has been impressive.

Mr Brown's legacy will not, though, be gauged solely by economic stability at home or action on poverty abroad. Over the long-run, the big question for Gordon Brown's legacy is whether he has enhanced the underlying structural performance of the economy. Avoiding boom and bust is useful, but won't be welcomed if the growth rate of the economy across economic cycles is not sufficiently high.

To their credit, through deregulations, privatisations and labour market reforms, the Tories in the 1980s managed to achieve the previously unthinkable: the structural pace of economic growth accelerated, allowing the UK eventually to pull away from its own past and from an increasingly moribund continental European economy.

Has Mr Brown enhanced the structural performance of the economy? Big increases in public spending on health and education superficially seem to be good news. Improving the nation's health, education and skills are commendable aims. But the Government has yet to come up with a satisfactory way of measuring the efficiency with which these extra funds are being used. Any old fool can raise taxes and spend extra money on health and education. The evidence to suggest the gamble has paid off is not so much mixed but rather, in many areas, simply nonexistent: too much emphasis on numbers of inputs as opposed to quality of outputs. And, in the years ahead, we may look on Mr Brown's raids on pension funds as merely a way of imposing a bigger burden on our economic futures: a nice trick to support public spending today at the expense of our overall well-being tomorrow.

Fortunately for Mr Brown, tomorrow's economy will be someone else's problem.

As for his own legacy, despite his longevity, despite the avoidance of recession, I'm reminded of Zhou Enlai's response on being asked in 1972 about the success of the French Revolution. In reply, Chairman Mao's deputy said: "It's too soon to tell."

Stephen King is managing director of economics at HSBC

stephen.king@hsbcib.com