Gordon Brown's 'triumphalism' blamed for UK's record deficit

However, 'relatively good GDP performance' has survived worst downturn since WW2, says review

A definitive verdict on Labour's economic record since it came to power in 1997 has concluded that the Government's "policy structure has failed", that the nation's growth during the recession has been "poor" – but that, taking into account the boom years, a "relatively good GDP performance has survived" the worst downturn since the Second World War.

Sir Alan Budd, one of the authors of the review published by the National Institute of Economic and Social Research, and a former chief economic adviser to the Treasury, said that the management of the public finances under prime ministers Tony Blair and Gordon Brown left the country "less well equipped than it might have been to meet the challenges of the crisis".

In the past, ministers have said that the UK was the best placed of the major economies to meet the slump.

Sir Alan blames "a tendency, from 2001 onwards, for over-optimism in fiscal projections" for the largest peacetime deficit in British history, what the NIESR calls "Labour's legacy".

Sir Alan, a government adviser from 1991 to 1997, added: "The triumphalism of the early days of the Labour administration now seems to have been sadly misplaced. The charts that are now being used to condemn the Government's fiscal performance look remarkably like those that it used a decade ago to ridicule the performance of its predecessor."

The Conservatives have said that a new Office for Budget Responsibility would be headed by Sir Alan.

In a sometimes damning summary, the NIESR says that "Labour has not run the economy in a sustainable way", drawing attention to the poor record on savings, a failure that threatens to exacerbate an already serious pensions crisis in future. Overall, says the NIESR, growth was slower under Labour than the previous period of Conservative government, by 2 per cent to 2.2 per cent a year on average.

However, allowing for the changing population, Britain has risen in the international league table for national income per head, to second place after the US.

Inflation and long-term interest rates have also fallen since 1997 and the Bank of England's operational independence. But, excluding the effects of the recession, economic growth per person in the UK is much better than under the Conservatives and superior to any comparable large economy; the rate has risen from 2 per cent a year under Margaret Thatcher and John Major to 2.4 per cent under Mr Blair and Mr Brown.

The institute also praised the Government's efforts to boost numbers at universities. It has been, says the NIESR, one of the main reason why Britain's relative productivity has increased in the Blair-Brown years, in relation to our main competitors.

When he became Chancellor in 1997, Mr Brown declared that one of his priorities was to close the productivity gap between the UK and her international rivals. The UK ranks first in the G7 on productivity growth, and the gap has narrowed, but British output per hour worked is still below France, Germany, and the US. In 1997 it was lower than all the G7 except Japan.

In separate research, the Institute for Fiscal Studies found yesterday that US workers were 33 per cent more productive than those in the UK.

The director of the NIESR, Martin Weale, said: "Britain's economic performance during and after the recession has been disappointing, with weak performances for output, unemployment and the fiscal position."

He added: "Politicians' announcements about ring-fencing make it harder to resolve the fiscal legacy of the current government."

Longer term, the record is better: "Labour has delivered an improvement in Britain's productivity performance relative to other large economies and this relative improvement has survived the recession. But the labour market has not done as well as one might have hoped and performance during the recession has been disappointing. A higher level of saving is needed if income growth is to be sustainable."

In the same review, a former external member of the Bank of England's Monetary Policy Committee, Tim Besley, said: "Until the Treasury gets on top of the fiscal deficit the interplay between fiscal and monetary policy will be crucial."