So there you are, don't mess with the market

Gordon Brown and Alastair Darling have had a torrid time since the autumn election that never was. ‘The most important hinge in the whole of government’ (as Lord Lawson of Blaby described the prime minister-chancellor relationship) continues to suffer under the weight of financial and economic crises emanating from both the UK and abroad, some unavoidable and others self-inflicted. It has led to calls for Darling to be replaced by Ed Balls amid Conservative accusations that he is ‘a dead man walking’.

This is undoubtedly precipitate, with a surprisingly good tax take in early 2008 and what appears to be an orderly shift to the public sector for Northern Rock, which has stabilised Darling’s position somewhat and therefore taking a little of the heat off Brown.

But there can be no doubt that they have scored several own goals in their fledgling partnership, the major ones being delivered during the pre-Budget report in October.

One of these self-inflicted wounds was the decision to ape George Osborne’s proposed tax imposition on so-called ‘non-doms’ (foreigners who declare their real home to be abroad but reside in Britain and so pay no UK tax on earnings or capital gains from outside the UK).

Much defensive lobbying has resulted, with the high-end, predominantly London-based service sector particularly vocal in the media, accusing the chancellor of mindless destruction of their lucrative businesses as super-rich individuals consider leaving Britain for more attractive overseas tax havens, all for an insignificant fixed tax of £30,000. The shadow chancellor has successfully kept his head firmly below the parapet as the battle he started has raged.

The other on-going row that has engulfed the chancellor since the PBR has been over his changes to Capital Gains Tax. The decision to scrap taper relief and to replace it with a flat rate tax of 18 per cent has met with fierce and widespread criticism, with even Lord Jones of Birmingham, the BERR minister and one of Brown’s celebrated ‘government of all the talents’, commenting that the dispute ‘has caused people to say Does this mean you don’t want us? ’

Despite some concessions in February the attacks have continued remorselessly —with one significant exception. Both the CGT and non-dom changes have been warmly welcomed by the Trade Union Congress. Brendan Barber, the TUC leader, has been zealous over his targeting of the ‘growing group of the soar-away super-rich ... many [of whom] take advantage of private equity and non-dom tax loopholes’, calling for a ‘campaign for fair tax’, urging Darling to ‘stick to his guns’ and that ‘any campaign to make the super-rich pay a slightly fairer share of tax will be massively popular’.

In this light, Darling’s changes start to make sense.

For when Gordon Brown achieved his life’s ambition in July, he was determined to be ‘anybody but Tony’. At first, this seemed to strike a chord with the British public, with his un-spinned, dour demeanour apparently very popular. Regarding policy, pundits had long speculated to what extent Brown, a son of the manse, was Old Labour, after a decade and more of successful triangulation between Blair and Labour’s left-wing. It is possible that a combination of deeply-held Old Labour sympathies and a rousing reception as prime minister led Brown to believe that Britain was ready, indeed crying out, for ever-so-slightly more left-wing economic policies. His chosen chancellor, a compatriot, was entirely in tune with this.

The backlash to the tax changes seem to have taken Brown and Darling by real surprise. One lesson is that the country is not ready to write off the progress of the past three decades and follow the policies and prejudices of the trade unions.

Another one is that you can’t buck the market. Britain, and London in particular, has regained such an entrepreneurial air about it, a definite aim of the Thatcher counter-revolution, that even modest changes such as Darling’s PBR ones are clearly going against the grain. This was a minor repeat of President Mitterrand’s early 1980s’ leftist experiment.

Brown and Darling must feel that their modest tilt to the left has caused so much grief to them that it was simply counter-productive. This thesis is reinforced by reports that Brown has started to use the term ‘New Labour’, previously abandoned by him, in cabinet when describing the government’s vision — one that sees the Blairite ‘choice’ agenda reappear with a vengeance. The cabinet reshuffle occasioned by the resignation of Peter Hain in January in which Brown decided to promote two identifiably Blairite starlets, James Purnell and Andy Burnham, is also highly notable.

Blair and Brown worked hard in their barnstorming 1994-97 opposition years to establish good relations with business, to the extent that Blair’s Labour governments were unquestionably the party of business.

This was not always the case. Even the eminently reasonable and respected John Smith suffered ridicule during his attempted wooing of the City in the early 1990s when Michael Heseltine commented on the so-called ‘prawn cocktail offensive’ that ‘never have so many crustaceans died in vain.’ It took Labour over a decade to make itself business-friendly yet one speech to undo it.

The forthcoming Budget is a crucial event for the chancellor, the prime minister and for Labour and the Conservatives: for Darling, his ‘safe-pair-of-hands’ reputation is very much on the line; for Brown, his attempted relaunch needs to repair old damage, avoid any new calamities and chart a course back to the centre ground; while for the political parties, this is another milestone towards what is increasingly looking like a very close forthcoming general election indeed.

Jon Davis teaches at Queen Mary, University of London, and is Executive Director of the Mile End Institute.