Gordon is not up to his job

Britain is now heading towards a recession entirely of Gordon's making ... Quite clearly, he is not on top of macro-economic policy
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ANYBODY READING the Sunday papers would have been in no doubt about the imminence of Gordon Brown's first Cabinet reshuffle. We were told that he is actively blocking the promotion of Peter Mandelson to the Cabinet, and assured that he has saved Nick Brown from demotion from the post of chief whip and may even have secured the retention of Harriet Harman's services. References to Tony Blair were little more than walk- on roles in this unfolding drama of how Gordon is reconstructing the Government.

Nor is Gordon merely concerned with reshuffling his Government. Well- placed sources assured us that he is intervening firmly to ensure that the minimum wage does not apply to the young and has slapped down Margaret Beckett's determination to endorse the low pay commission's recommendation of pounds 3.60 an hour. Apparently Gordon feels this is too generous, and he is determined that nothing should damage the implementation of his fair deal welfare to work proposals. Clearly Tony Blair must have been holidaying in Ireland recently, as he didn't feature in this great drama of the minimum wage, according to sources close to the Chancellor.

Over the last 12 months, political commentators and senior civil servants have frequently referred to the quite unique power base of this Chancellor. There is certainly no precedent in recent times for a chancellor wielding such disproportionate power. There was certainly no such situation during the Second World War, when Winston Churchill excluded the chancellor from his war cabinet on the grounds that the chancellor's job was simply to find the money to give expression to the decisions it made. How some Cabinet members must wish such a situation prevailed today, as they struggle to defend their budgets in the public spending review.

The source of this unique balance of power within the Government arises from the days immediately following the death of John Smith. Contrary to his expectations Gordon awoke on the day following John Smith's death to see that every opinion poll showed Tony Blair comfortably ahead of all other contenders as the public's choice for leader. The senior partner of Labour's "golden boys" was still recovering from Britain's eviction from the ERM. Gordon, as Shadow Chancellor, had refused to call for devaluation throughout the summer of 1992 and had even published an article rejecting devaluation on the very morning of the ERM debacle.

Coupled with a series of brutal internal party rows about Labour's previous public spending commitments, in which Gordon had bludgeoned the reluctant Shadow Cabinet into accepting the slaughter of many of Labour's most deeply felt commitments, the leadership contest could not have come at a worse possible time. Gordon's popularity was at its lowest ebb.

The rest of this story has been well-rehearsed, with Gordon reluctantly agreeing to drop out of the contest in Tony's favour, but still convinced that he could have won if he had gone ahead. What causes the Labour Party its current problems at the top is the circumstances in which Gordon withdrew, at the famous meeting in Islington's Granita restaurant.

The terms of Gordon's withdrawal were formally committed to writing in a memorandum subsequently agreed between their staffs. Under the terms of this agreement Gordon was to be left in control of economic policy.

It was a major error of judgement on Tony Blair's part to strike such an agreement. There were no circumstances in which Gordon could have won, and Tony did not need to agree the delegation of economic policy. I suspect that Tony's motivation was unduly influenced by consideration for Gordon's feelings. That's all very nice, of course, but the Government can have only one Prime Minister and the conduct of economic policy is so central to the success of any government that the Prime Minister has to have prime direction of economic policy.

Of course, this would largely be a matter of idle gossip if economic policy were going well. Unfortunately, Gordon's economic misjudgements are the major factor threatening our chance of gaining a second term in office. Any Labour government depends on creating a strong manufacturing sector, capable of providing work for its supporters and exports to sustain our balance of trade. Yet Gordon has pursued a policy of subservience to the interests of the financial sector of which Norman Lamont or Nigel Lawson would have been proud.

The Bank of England having been granted independence to set interest rates, there was only one way to influence the Bank to reduce interest rates and create favourable conditions for investment. This was through a package of tax increases aimed at damping down the overheated consumer demand we inherited from Ken Clarke's pre-election boom.

Instead Gordon chose a package of tax increases that leave consumer spending unscathed and will, if anything, further depress our already miserable rate of investment. The City is, of course, delighted. Interest rates have increased, thus guaranteeing big bonuses in the City. The pound has soared, which means that we'll all have wonderfully cheap foreign holidays. But, sadly, many workers will return home to find that they have been laid off because their firm can no longer export goods in these circumstances.

An insight into Gordon's subservience to the City comes from an examination of the credentials of those he has appointed to the Monetary Policy Committee of the Bank of England. How on earth a Labour chancellor could feel that a former CIA employee would be of value in pursuing Labour's wider agenda on the MPC is a matter that "passeth all understanding'". In all his other appointments he has chosen inflation hawks from the academic world, none of whom has ever run a company or sold anything in his life. It beggars belief that a Labour Chancellor has been able to find people even more reactionary than the professional central bankers such as Eddie George and his subordinates, who have so far tried to moderate the interest-rate knee-jerk responses of Gordon's appointees.

The end result of this charade is that Britain is now heading towards an unnecessary recession entirely of Gordon's making. If he had followed the advice of others and damped down consumer spending in his first mini- budget, we could have seen a slow-down in growth and opened the way for major reductions in interest rates which would have been the spur to a long period of investment-led growth in the run-up to the next election.

The Labour Party and those who depend on us would be prepared to display an amused tolerance of Gordon's long-term campaign to succeed Tony Blair, if he were getting the economy right. If Gordon wants to waste his own money entertaining trade union and Labour Party members at receptions in No 11 in an attempt to build support for a leadership election which may be 20 years away, then that is purely a matter for him. But, quite clearly, Gordon is not on top of macro-economic policy.

No one denies that Gordon is a man of immense talent and ability, but his particular skill is an attention to detail. The scale of involvement he has shown in the welfare to work programme is wholly admirable, and typical of his workaholic nature. But these are the skills which would equip him to be a brilliant secretary of state for education or social security. A Chancellor needs to be able to grasp the grand picture, to have an almost instinctive feel for the huge sweep of movements in the global economy. In the coming Cabinet reshuffle the one move that most urgently needs to be made is the one that Tony Blair's bizarre prenuptial agreement at Granita prevents him from doing: moving his Chancellor to another job.