Brown takes a gamble

Click to follow
There have been more dramatic changes in the running of the economy since 1 May than in any other 100-day period since the Second World War.

Gordon Brown has dropped one bombshell after another with his swift decisions to give the Bank of England the independence to set interest rates, collect financial regulation under one roof with the creation of an all-in-one City watchdog, and use the Budget to tackle long-term economic problems rather than short-term business cycle management.

The theme is setting in place a framework that will direct policies towards improving the long-term health of the economy. But not surprisingly, the Chancellor has left the City shellshocked, and views of Labour's strategy are mixed.

For one thing, the Bank has used its new freedom to raise the cost of borrowing every month, and might well do so again this week. People have less sympathy with the aim of ending the cycle of boom and bust during the boom stage.

The Bank's aim is to stop the economy overheating and hit the Chancellor's 2.5 per cent inflation target. But rising interest rates have driven the strong pound still higher.

Industry is critical of the Bank, and of Mr Brown for not using the Budget to crack down directly on consumer spending.

However, the Budget signalled that the Government is concentrating on deeper issues. Labour will make a lasting mark on the economy with radical change in the tax and benefits system, a re-ordering of priorities in spending and reform of corporate taxation.

This is a big gamble. If it were easy to reduce poverty and boost long- term prosperity, others would have done so. But if the gamble pays off, these reforms will prove even more dramatic than the early changes.

Diane Coyle