All around Whitehall, little tremors indicate the culture shock that comes with the dawn of a new era - incoming, campaign-hardened Labour fixers horrified at how few civil servants carry what they regard as the obligatory pagers and mobile telephones, newly-appointed ministers unsure of where even their departments are, let alone their new offices, the hilarious day-long quest by officials that nearly ended in appointing the obscure left-wing Scottish backbencher Brian Donohoe instead of Lord (Bernard) Donoghue as Agriculture Minister of State.
At the Treasury, therefore, it was striking how smooth - relatively - the transition was. No, here the shock was quite different. What no one had expected before polling day was that Brown would make such a difference so early.
A few days and an era ago, the most fashionable, world- weary complaint was that you wouldn't notice a Labour government, that it would be the same old policies without the same old faces. Brown, visibly relaxed after the dreadful tensions of a six-week election campaign, yesterday exploded that myth. We may not yet know much about the Blair government, but we can never say again say that it isn't going to do anything new.
Normally, when a politician says of an institution, as the new Chancellor said yesterday of the Bank of England, that he is going to subject it "to the most radical internal reform since it was founded in 1694", it has the unconvincing ring of politician's hyperbole. Yesterday, it didn't. It would have been scarcely excessive if he had also claimed to have transformed, within five days of becoming Chancellor, more than 300 years of political economy. By taking a giant leap towards full independence of the Bank of England, Brown has abandoned, probably forever, the historic right of politicians to indulge in short-term manipulation of monetary policy.
It became almost boring in the long run-up to the general election to hear Brown satirising the "Ken and Eddie" show, and holding out the distant- seeming prospect of a restructured, quasi-independent Bank. Watching him announce that yesterday's quarter-point interest rate rise was the last to be decided by the Chancellor of the Exchequer, and that from next month rates would be fixed by the Bank alone, was, by contrast, electrifying.
The steps leading to the announcement were appropriately dramatic; the meeting with the Governor was brought forward by a day because the legislation on the Bank had to be agreed at yesterday's Cabinet Committee deciding the contents of the Queen's Speech setting out the Labour programme. Such a market-sensitive decision could not be left dangerously unannounced for a day in case it leaked - though the signs are that the new Government may be rather good at keeping secrets. The move, perhaps the most far- reaching change to the economic policy-making process for half a century, was put to Treasury officials on Friday, finally agreed between Chancellor and Prime Minister at Blair's Islington home on Sunday, agreed with the Governor on Monday, and was never leaked.
The Chancellor's announcement that he needed a quarter per cent rise to correct inflationary drift was forgivably a mite more dramatic than it needed to be. It's a safe bet that his Tory predecessor, Ken Clarke, would have done the same if not this month, then certainly the next. Nor did Brown choose yesterday explicitly to criticise Clarke for resisting, over many months, the advice of the Governor to raise interest rates.
It is probable, of course, that a Conservative Chancellor would always have been given more freedom by the markets to second-guess the Bank than a Labour one. But even with Clarke, there is an irony. On the one hand, Clarke built his reputation as Chancellor in part on his ability to second- guess the Governor's caution and get away with it; on the other, he more than any of his ex-Cabinet colleagues had been prepared, in the long term, to sacrifice his rights to do that by surrendering them to the European Central Bank that will be responsible for fixing rates under a single currency.
But it has been Brown who has now handed on that right, in the interests, as he emphasised yesterday, of the long-term battle against inflation. In the short term, it's probable that, given the Bank's instinctive tendency towards monetary prudence, there is at the very least another rates increase in the pipeline. That will not unduly worry Gordon Brown because he has never once flinched from his view that Labour has to reverse its fatal habit of courting short-term popularity and then paying for it later, as it did when the IMF were called in in 1976. This may yet have implications for fiscal policy, and for the Chancellor's first budget, as for monetary policy.
There was a fascinating exchange on April 29 between Brown and Blair, reported in the writer Robert Harris's inside account of the election campaign. It describes how press questions would be fielded on the planned July budget. Blair tells Brown: "You should say that the only reason you're holding the budget is to introduce welfare to work." Brown, reports Harris, is anxious not to commit himself. "Blair is politely insistent. Brown concedes." This is only pre-election talk, of course, but it could just be that Brown, who yesterday recommitted himself unequivocally next month to reducing VAT on fuel to five per cent - also wants a balanced package including, say, the abolition of mortgage interest tax relief or some other form of revenue raising, and that Blair has yet to be persuaded that it would be wise.
In yesterday's Independent, the economist Gavyn Davies, who could well fill a new deputy governor post at the Bank, sounded caution against the long-term electoral damage that such tax rises could yet inflict. But there are those who believe that Brown is not as sure as Davies that such rises should be avoided.
But that's for the future. Yesterday's stroke could not have been bolder. Blair and Brown have several ways of reassuring those who believe that every economic objective will now be sacrificed to the attack on inflation. First, the remit to the Bank includes the 1944 Beveridge objective of stable growth and full employment. Second, four of the members of its monetary policy committee will be Government appointees. Third, the Bank will have to answer to the House of Commons for its decisions. At a stroke, Labour has laid a historic claim to the high ground of economic virtue. That, in its own way, is as stunning a turn round as the election result itself.Reuse content