Stability and prudence. These have been the two watchwords of Chancellor Gordon Brown’s record-breaking tenure at the Treasury. Well aware of Labour’s past ‘boom and bust’ macro policies and ‘tax and spend’ fiscal reputation, Brown wanted to break the mould.

On stability, the record looks impressive. The UK has enjoyed the longest period of sustained growth (57 quarters) since records began in 1870, we have had the best inflation/interest rate environment since 1945, the highest employment ever and unemployment levels that were last seen in the mid-1970s.

But Brown can’t claim all the credit for this robust economic performance. The first 18 quarters of growth took place under John Major’s government, with Norman Lamont and Ken Clarke at the Treasury, while responsibility for monetary policy was handed over to the safe hands of the Bank of England in his first month of office.

And, while the economy has grown, as British Rail of fond memory might have said, it’s been the wrong sort of growth. Not all sectors or regions of the country have shared equally in the growth: manufacturing output has lagged GDP and hundreds of thousands of jobs have been lost, export performance has been indifferent and business investment disappointing. We have kept going largely on the back of domestic consumption.

As a result, consumer borrowing has passed the £1 trillion threshold, equivalent to 140% of annual earnings, while the rise in interest rates is starting to have an effect. Unemployment is edging up, the number of housing repossessions and mortgage arrears are both on the rise, while personal insolvencies are at record levels.

Missed it by £101bn

There are even bigger question marks against the Chancellor’s record on prudence. First, his ‘Golden Rule’ means that the government will only borrow to invest, and current spending will be met from current revenue. Secondly, the ‘Sustainable Investment Rule’ commits the government to maintaining the ratio of Public Sector Net Debt (PSND) to GDP at a prudent and sustainable level, generally taken to be less than 40%.

In his first term Brown delivered a set of public sector finances that even his Conservative predecessors would have struggled to match. But since 2001, when he embarked on a massive programme of investment in public services, his record looks very tarnished. Two simple statistics illustrate the price that is being paid for these ambitious spending plans.

The tax burden on individuals and businesses has been steadily rising, from 37.3% of GDP in 1997, to 39.7% today and on to a predicted (by the Treasury) 41% by 2009. But even this hasn’t been enough to fund the spending. When he announced his investment intentions, the Chancellor said that he would borrow a total of £28bn between 2001 and 2006: the actual figure was £129bn.

Promising not to raise income tax helped persuade ‘middle England’ to vote Labour in 1997. But while honouring this commitment, the Chancellor has increased a host of other taxes, pushing the tax take close to 40% of GDP.

Income tax may not have gone up but taxes on income certainly have. Foremost was the £8bn rise in National Insurance contributions. On top of this, ‘hard working families’, a favourite group of the Chancellor’s, have also had to cope with the abolition of the married couple’s allowance, the final abolition of MIRAS (mortgage interest relief at source) (started by Nigel Lawson) and a steep rise in fuel duty in Labour’s first term, which have all added to households’ tax burden.

Other taxes have not been raised but still the tax take has nevertheless increased during Brown’s tenure – fiscal drag has lifted the numbers paying income tax at a marginal rate of 40% from 2.1 million in 1997 to four million currently. Corporation tax rates were reduced from 33% to 31% in 1997 and then to 30% in 1999, where they have since remained.

Corporate squeeze

At the time, this gave the UK a significant low-tax comparative advantage but other countries have followed suit, hence the UK’s ranking has slipped from first to seventh in the EU 15. Here, the pressures in the UK will be to reduce rather than raise corporate taxes. The squeeze on the corporate sector has been on oil and gas producers, which can be justified environmentally, but any further increases could weaken North Sea investment intentions. The Chancellor has also ended the 10% starting rate for corporation tax on taxable profits of up to £10,000 but this step had more to do with closing a loophole than raising revenue.

For the Chancellor, the real problem is that despite growing his tax rate at a faster rate than the economy, it is still not enough. The gap between his receipts and spending has been widening, and much more borrowing is the consequence.

It has taken some fancy statistical footwork to maintain the appearance that the Golden Rule has been observed. The method of calculation has been changed and the length of the cycle adjusted, backwards and forwards, to accommodate the surge in borrowing. Less controversial has been the Sustainable Investment Rule but even here, all is not what it seems. In some respects, interpreting this rule is even more contentious than the Golden Rule.

Brown’s own Budget figures show a steady rise (from 33.2% in 2003-04 to 38.4% by 2010) but staying within the 40%. One grey area is the use of Private Finance Initiative or Public- Private Partnership schemes by successive governments to finance projects such as new schools, hospitals or roads. The government’s obligations arising from these activities were previously ‘off balance sheet’ but have now been re-defined and included in public sector debt.

Still not included, however, is the government-guaranteed £18bn debt of Network Rail, equivalent to 2% of PSND. The argument for omitting it is that Network Rail is technically still a private company.

Even more contentious is the treatment of public sector pensions. Unofficial estimates of the ‘black hole’ (as it would be called in the private sector) range from £500bn to £1 trillion. The Office for National Statistics is currently considering how this huge liability should be included in the national accounts.

Add in charges of complexity and maladministration surrounding Mr Brown’s pet projects of family credits and pensioner credits, and some of the gloss comes off his record. How he will be viewed after he leaves office will depend more on whether the public believes they are getting value for money from the Chancellor’s huge increases in spending on services, rather than how much tax they are paying. At present the jury is still out.