To what extent has Labour economic policy since 1997 been consistent with Tory ideas 1979 – 1997

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Last updated: April 19, 2019

When the Conservative party gained power in 1979, they were converted to the belief that control of the money supply, was key to controlling inflation. Margaret Thatcher accepted Milton Friedman’s argument, that rising inflation, which was proving very damaging to the economy and British competitiveness, was a direct result of government’s neglect of monetary targets. The result of this was ‘Monetarianism,’ which resulted in rising interest rates, cuts in public spending, and VAT was almost doubled to try and curb the money supply.

By the time Major was in power, the ‘Monetarist’ approach was all but scrapped, but it was accepted that control of interest rates was key to controlling the economy. This is what bought about the ‘Ken and Eddie’ show, where the Chancellor, Kenneth Clarke, and the Governor of the bank of England, Eddie George, met regularly to set interest rates, something which didn’t use to involve the BOE and was solely a political tool.Post Black Wednesday however, the Tories popularity plummeted, and when they lost power in 1997, the New Labour government, inherited an economy which had looked its best for generations. Within days of being in office, one of the most radical changes they were to bring about was implemented. Control of interest rates was handed over to the BOE, and the monetary policy committee was formed. The target was to keep inflation at 2.5% with a 1% margin either side, something that has been sustained to this day. It appeared that there was a new orthodoxy in economic policy, and the control of inflation, being a key Conservative idea, has remained top priority for Labour, and there has been no return to a commitment to full employment and high rates of growth.

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In the area of fiscal policy, Labour has moved closer even closer to their Tory predecessor, in order to shake off the ‘high tax and high borrowing’ reputation they earned in the 70’s, which can be inflationary, and wasn’t going to win them any votes in the city. If they were to win the 1997 election it was clear that they would have to take Tory votes from the city and middle England, and they did this by promising to stick to Conservative spending plans for their first two years in office. This helped to establish Gordon Browns reputation as a shadow chancellor, and also sent a clear message to the Trade Unions, that after years of Tory cutbacks and growing restrictions on the TU’s, Labour weren’t just going to start doing them favours again. This is very consistent with Tory ideas regarding Trade Unions, ands I believe it is a big step away from Labours roots and traditional principals.Traditionally Labour has nationalised, Tories have privatised, and as the two parties have been in and out of power they have done exactly this to key industries such as coal gas and steel. In 1997 at the Labour party conference, John Prescott announced that Labour would not re-nationalise the train networks. This further confirmed the new orthodoxy, but also seemed to be Labour following in Tories footsteps.

When Railtrack demised Labour replaced it with Network Rail, a government appointed board. Conservative may try and claim this is re-nationalisation, but it is more likely to be a sensible response to the problem.An area, which on the surface appears to be consistent with Tory ideas, is that of taxation. In opposition Labour promised not to raise the base rate, or the top rate of tax, as they didn’t want to alienate the (usually Tory voting) Top earners, and whilst they’ve been in power, the top rate has stayed the same, and the base rate has fallen. However, as many news papers will be quick to point out, the huge increases in public spending must be funded by something, and this is what is known as a “fiscal creep,” where the Chancellor doesn’t raise tax allowances and thresholds in line with earnings, but instead increases them by inflation or less. This results in more people moving into the wage bracket who have to pay the top rate of tax on some of their earnings.

This hits hard on middle England, and the Conservatives have been quick to criticise this approach. There have also been increases in National Insurance Contributions, stamp duty, petrol tax and tuition fees. The Conservative approach is one of low tax, and ultimately low spending so I believe that this is a huge step away from them by Labour.Under the Tories the underclass’s suffered, and whilst they were in office they completely rejected all ideas of redistribution, a socialist belief, that the transfer of money from the better off to the worse off gives them more chances. This can alienate the people who will be paying out, and hence, it wouldn’t please middle England and the Conservative voters. Labour rejected the ideological commitment to redistribution, as they didn’t want to take any risks with the management of the economy.

This made them appear to be similar to the Conservatives, but as time has passed, it has become clearer that Labour is redistributive, and has made changes, that the Tories simply wouldn’t have. In April 2002 they introduce Child Tax Credit, Paid for by the increased NIC. Also the introduction of working family tax credit ensures that people who work will be better off than if they stay unemployed and claim benefits.Other areas where Labour policy has appeared to be strongly departing from Tory ideas are the Minimum wage, which Tories would say is bad for business, and joining the social chapter, which was opposed by the Conservatives, who also oppose joining the ESC, but only for this government.

Labour has made many changes which appear to be following Tory ideas and principles closely. They have been helped by a good economy to implement the changes that they’ve wanted to. I believe that they are moving away from the Conservative, as time goes on this will be even more noticeable.

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