Brown's Culture of Debt

Shortly after taking office in 1997, Gordon Brown handed the task of determining interest rates to the Bank of England, charging it with keeping inflation down. Back then, the government's official inflation figures were based on the reliable Retail Prices Index. One might have expected this to mark the end of political interference in interest rates, but that was not the case. In 2003, Gordon scrapped RPI as the MPC's inflation target index, and replaced it with the Consumer Prices Index, or CPI. In effect, he was telling the Bank of England not to concern itself with ever-rising house prices and consumer debt, and to concentrate on little more than the price of goods in the supermarkets.

This was a highly significant act calculated to force rates down. In 2005, Labour's election campaign ran several posters boasting about the how cheap it was to obtain credit. The message was clear: spend, spend, spend and don't worry about the consequences. People did just this, and personal debt burst through the £1 trillion mark, and kept on rising. Personal insolvencies soon hit 100,000 per year, by far the highest numbers ever recorded. What did Gordon care? So long as the debt bubble kept growing, his faux growth figures made it look like the economy was still doing well. Accordingly, the government kept on spending money as if it were water, with no regard to what might happen in future. Eventually, the whole house of cards had to collapse, and so it did in 2007 with the first run on a British bank in more than a century. The credit crunch was upon us.

The mess that Brown has made of the UK economy will take years to clean up. Far from being in a good position to weather the storm, the UK is in an uniquely bad position to deal with the economic situation. The recession will hit Britain far harder than most comparable countries. Of course, infamous as he is for being unable to own up to his past mistakes, Brown won't admit to any of the damage he has caused, and still insists on trotting out the same tired old lines. This is why he is unlikely to restore RPI as the Bank's inflation target. To do so would be tantamount to admitting he messed up badly.