Brown’s flawed policies

by Dr. Ros Altmann

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Sir

Martin Wolf’s excellent analysis of Gordon Brown’s economic strategy (14 May) was over-generous. The promise to end boom and bust was predicated not on economic orthodoxy, but on the unrealistic notion that borrowing and spending generate permanent, self-sustaining growth. Such short-sighted thinking cannot work with an ageing population, as debt repayments dent longer-term growth potential. Ignoring the demographics, just ahead of a sudden surge in baby boomer retirement, was dangerously irresponsible. Government policy systematically undermined pension saving, thus damaging future retirement incomes, while maximising current spending and growth. The FSA made it far too easy to borrow, with no questions asked and far too hard to save, with reams of forms and regulations. Mr Brown discouraged saving and undermined pensions just when they were most needed. Simultaneously, Government was irresponsibly increasing its own spending too, as public consumption (not ‘investment’) soared after 2000.

Remedial action is urgent. Government consumption (i.e. wages and pensions) must fall, but part of the solution will also entail workers staying economically active in later life. That is good news, not bad news, as long as they can look forward to some ‘bonus years’ of part-time, rather than full-time work, with more money when they retire. Encouraging long-term saving, while radically reforming both pensions and retirement, could return us to a sustainable growth path. Moving away from flawed economic logic and recognising demographic reality are essential to future prosperity.

Yours faithfully

Dr. Ros Altmann
London School of Economics
c/o 9 Fairholme Close
London N3 3EE