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

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George Austin

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

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 ...

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