The economy

May 1, 1998

Tony Blair's government is one year old today. What challenges lie ahead, what has it achieved so far and, if Labour celebrates ten years in power, how will Britain look in 2007? The experts give their verdicts.

New Labour has come in with a programme, much of which is hard to distinguish from that of Margaret Thatcher's Tories. But it is muddled so the parts that are different seem to come from a mixture of old Labour and Scottish presbyterianism. We supposedly have free markets, monetarism and the hand of friendship to business; but we also have the fleecing of fat cats, excess profits taxes, the taxing of savings of the better-off, and the threat of higher inheritance taxation.

Private pensions and savings? Are they for or against? Frank Field says for, Gordon Brown says against. So far Brown has been winning, with his abolition of Advanced Corporation Tax and his limit on the new Individual Savings Accounts. On welfare and dependency, new Labour's big issue, one would have thought they spoke with one voice; but one would be wrong. The Brown team has been hell-bent on bringing in strong incentives to take work, especially for women; but this cuts right across Labour's policy of strengthening the family.

Or take taxation and incentives: is new Labour for cutting marginal tax rates on the middle classes or not? If I listen to Blair, I think yes, but if to Brown, I think no. And, finally, business and profits: new Labour has been wedded to policies of squeezing out excess profits, be it in utilities by direct regulation or in industry generally through competition regulation. But now we seem to be hearing that profit-sharing in utilities would double tax returns and that business profits are to be welcomed. My guess is that the free market aspect of new Labour will prevail, since it seems to be that stressed by Blair.

The economy in 2007

Britain is beginning to appreciate the benefits of Mrs Thatcher's supply-side revolution: it is now a good place to do business, it has those famous flexible labour markets, and it is enjoying a steady expansion of the service sector. Manufacturing too, albeit of a specialised high value-added sort, is also doing well, even if it is suffering from the high pound. Inflation is being controlled by essentially monetarist methods; interest rates will come down in time as policy becomes more confident and can relax. That will also bring the pound down. Britain is returning to its roots, as a free-market country with open trading and investment links worldwide.

Patrick Minford is professor of economics at Cardiff Business School. He was Mrs Thatcher's adviser on economic affairs.

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