Sunday, July 25, 2004
Best chancellor of them all
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

Here's my ranking of Britain's chancellors. Let me know if you agree or not.

As the curtain comes down on another parliamentary session, one thing is clear. Tony Blair may be starting to get that dangerous glint in his eye that signals the onset of prime ministerial madness — but he is not about to step down any time soon.

That leaves Gordon Brown, already the longest-serving chancellor in the modern era, at the Treasury for a while yet. Blair isn’t going to move him, and Brown won’t voluntarily give up the reins.

Last month we marked with an assessment the point where Brown surpassed David Lloyd George’s modern record for longevity as chancellor. The only office-holders who have served longer — William Gladstone and Nicholas Vansittart — were in a different age.

Missing from that assessment was a ranking of this chancellor against his predecessors. When the Institute of Economic Affairs (IEA) asked me to give a talk last week, that seemed the sensible thing to do.

The office of chancellor goes back to the 12th century. Before that the records tell of “Henry the Treasurer”, around in 1066. I have confined myself to the years since 1945, when the modern office of chancellor really came into its own.

The only way to assess anything these days is, of course, to have five tests. Mine are: the economic inheritance they had when taking over; their macroeconomic record — growth, inflation and unemployment; whether they made the economy more productive and enterpreneurial; whether they left the tax system in a better state than they found it; and whether they got out in time.

The last question is impossible to answer for Brown and I shall leave him until last, after running through his predecessors in reverse order. Before him came Kenneth Clarke, in charge for the four years before the Tories’ landslide defeat in 1997. If that suggests he was a poor chancellor, it would be grossly unfair.

Clarke presided over low inflation, healthy economic growth and falling unemployment, the first phase of the new “golden age” for Britain’s economy. He had to raise taxes but then cut the basic rate of income tax twice before the 1997 election, handing over the economy with falling government borrowing — lower than now. The Tories, however, were beyond saving.

Clarke’s successful tenure owed a lot to decisions taken by his predecessor, Norman Lamont. History has not yet been kind to him. He is associated with the long 1990-92 recession and the humiliation of Black/White Wednesday, when Britain tumbled out of the European exchange rate mechanism (ERM). When he was sacked in May 1993 few tears were shed.

But Lamont was responsible for the most brilliant piece of economic policymaking in the post-war period. Out of the ashes of the ERM disaster came an inflation target, an enhanced role for the Bank of England and the basis of the stability we have today.

John Major, in the job for a year, coined a catchphrase — “if it isn’t hurting, it isn’t working” — and took us into the European exchange-rate mechanism. The trouble was it hurt too much.

Some say the ERM killed inflation in Britain once and for all. That seems too charitable. As my former colleague Brian Reading put it, we joined “at the wrong rate, the wrong time and for the wrong reason”.

Until Brown, Nigel Lawson was the longest-serving post-war chancellor. Having “boom” attached to your name is never good, and his chancellorship ended in disaster. But he was a brilliant tax reformer and in the vanguard of a hugely successful privatisation policy.

Sir Geoffrey Howe, Margaret Thatcher’s first chancellor, was the butt of Denis Healey’s famous and brutal sideswipe — that being attacked by him was like “being savaged by a dead sheep”.

On the surface, there was indeed something slightly woolly about Howe. He was also savaged by 364 economists who protested about his policies. But as chancellor he changed the direction of the economy and began its renaissance.

Under him, the sick man of Europe started to get colour in his cheeks. Controls on foreign exchange, credit and banking were scrapped. The liberalisation of Britain’s labour market began. Inflation was brought under control and the recovery of the 1980s put in place.

Denis Healey, a legendary Commons bruiser, was a poor chancellor, his tenure marking the modern low point for the economy and the embarrassment of a rescue by the International Monetary Fund.

Mind you, the 1970s was no vintage period. Anthony Barber, another chancellor with “boom” attached to his name, spectacularly mismanaged the economy when the Tories were in power earlier in the decade.

That was in spite of inheriting his lot from Roy Jenkins, until Brown the most successful Labour chancellor, who guided the economy through the period after the 1967 devaluation. Jim Callaghan, in charge for that devaluation, endured a chancellorship dominated by sterling crises and eventual capitulation.

Before them were the “stop-go” chancellors of the 1951-64 Tory era: Reginald Maudling, Selwyn Lloyd, Derrick Heathcoat Amory, Peter Thorneycroft, Harold Macmillan and “Rab” Butler. He spent four years in the job but seems to have made little impact on it.

Thorneycroft managed only a year, resigning with his Treasury team when the prime minister, Harold Macmillan, would not back spending cuts. Neither those chancellors, nor the three in the Attlee Labour government of 1945-51 — Hugh Gaitskell, Sir Stafford Cripps and Hugh Dalton — stand out.

So where does Brown rank? On my tests he does outstandingly well on the macroeconomic record, not least for having had the courage to make the Bank independent. But his inheritance was also very good.

His record on productivity is at best patchy, and he has undoubtedly made a mess of the tax system, making it more complex every time he stands up. As I said, we do not know yet whether he will get out in time.

I put Lawson equal fifth in my top five post-1945 chancellors, alongside Jenkins. Equal third are Lamont and Clarke, an impressive double act. Brown gets second place, with the proviso that this is an interim verdict. He will think that too low. The consensus at the IEA was that it was generous. In first place is Howe, a quietly revolutionary chancellor who also got out in plenty of time.

PS: Spare a thought for the Bank of England’s monetary policy committee (MPC). While others head for beaches and mountains, its members have to toil into August. Judging by the minutes for its July meeting and subsequnt strong retail sales and growth figures, that will produce a rise in base rate from 4.5% to 4.75%.

Having raised rates in May and June, the MPC took a rest this month for fear of prompting “an unwarranted re-evaluation of the committee’s strategy”. People might think blind panic had set in. The vote was 9-0 for no change.

But the committee said it was likely that rates would need to be raised. The August inflation report would provide an opportunity for a fuller assessment, including the impact of still-rapid rises in public spending.

The MPC, having been caught out before, is wary of evidence suggesting that the housing market is cooling. The latest Royal Institution of Chartered Surveyors survey, out last week, did indeed point to that but was balanced by a sharp rebound in mortgage lending in June.

One question is whether an August rise, in the middle of the holiday season, has as much impact as at other times. People still get letters informing them of an increase in mortgage payments but miss the “announcement effect” of the rise.

Whether for this reason or not, records show that the independent Bank has only once before raised rates in August, way back in 1997.

From The Sunday Times, July 25 2004


Another reason for the poor performance is the slow growth of many companies’ profits due to the extra cost of all that extra red tape created since 1997.

Gordon Brown No. 2? No way! I thought he to be the most reckless chancellor in living memory, one only has to look at the massive (out-of-control I’d say) imbalances in the economy today. There’s also the Pensions and Savings crisis…

Everyone seen to think that Brown’s decision to make the BoE independent a brilliant move. I thought so too but from the point of view that the Treasury no longer get the (usually negative) flak that comes with its interest rate decisions. Is the MPC truly ‘independent’ ? I don’t think so as it has targets to meet, the main one being to ensure that the (unrealistic) CPI index is within a certain range – very much a political decision and as such the MPC’s decisions are mainly political rather than sensible economic ones. In other words the MPC does not really have a free rein in its interest rate decision-making process. Also the nine-member MPC is made up of four Brown appointees then there’s the Governor and probably a couple of others usually go pro-Treasury.

I’d say the UK interest rate neutral territory is now 7-7.5%, not 5%-5.5% now that the economy’s firing on all four cylinders. Had interest rates stayed at around the 5% level since 2001 I’m sure the imbalances would not be so massive today. My view is that the MPC decisions have been disastrous for the economy. There was no need to lower the interest rate after Sept 11th. Unlike the US and some Euro economies the UK was not in or going into recession. The massive expansion in the public sector would have ensured that the UK did not do so had the interest rate remained at neutral levels.

Look at New Zealand’s economy, the Central Bank’s is struggling to control its domestic economy which, like the UK is at full strength, even with the interest rate at 6% and is predicted to rise much further.

John Major’s catchphrase ‘if it isn’t hurting, it isn’t working’… very much what the MPC’s doing with its dithering interest rate decisions!

Interesting what you said about Howe that he was savaged by 364 economists who protested about his policies but he changed the direction of the economy and began its renaissance. I feel the opposite is going to happen with Brown and his policies – which are virtually embraced and praised by many economists. The massive imbalances will tip the economy into a long and painful recession.

I also predict massive hikes in the interest rates after the forthcoming US presidential election which will create a currency crisis forcing most OECD central banks to raise rates to protect its currencies. I also predict a snap October/November General Election in the UK.

I enjoy reading your articles – thanks for writing them.

Posted by: Charles W. Waddams at August 2, 2004 10:45 PM

Had no idea that my remarks were 'printed' ! Thanks

Posted by: Charles Waddamsq at March 2, 2005 10:05 PM

Denis Healey cannot be dismissed as a poor chancellor. The IMF crisis was inevitable, with the prospect of needing a bail-out every year since devaluation in 1949. The exact causes of the need for the loan was not Healey's doing either: his predecessor Barber ruined the economy with electoral bribery and 'too little too late' expenditure cuts and strike action for inflation-busting demands anchored any plans Healey had. In the aftermath of the IMF bailout, growth improved at a marginal rate despite calls from the left for Healey to go, in fact without the IMF loan, the economic miracle of the Thatcher years would have never occurred. Healey and Callaghan's limited success was so great that had it not been for the Winter of Discontent, or had Callaghan called an election in Summer 1978, Labour would have beaten Thatcher.

Posted by: Jimmy at November 2, 2012 09:18 AM