Friday, May 14, 2010

Not so simple

The economic legacy of Mr Brown

Posting this as an antidote to all the immoderate attacks on our previous PM. Sound discussion of the causes of our economic problems from Martin Wolf. I particularly like the following quote, in view of some recent discussions here: "Would a Tory government have been much more distrustful? If you believe that, I have a bridge to sell you." (Search title in Google to read)

Posted by letthemfall @ 10:16 AM (4841 views)
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47 thoughts on “Not so simple

  • The economic legacy of Mr Brown = a bloody big mess.

    [I’m getting really hacked off with having to enter these daft security words each time I wanna post something……..]

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  • The question M Wolf asked was how much of the mess was Brown’s fault.

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  • The crisis might have been global but nevertheless, these are the simple facts that all socialists must accept:

    The Tories would have been less profligate with our money.
    The Tories would not have taken regulatory control of the Banks away from the BOE.
    The majority of the UK population does not want big inefficient government and correspondingly big taxes.

    On the other hand, the majority of the population does want:

    A government that cares for its sick, elderly and the less fortunate.

    Why can’t socialists accept the three truisms in the first list and act accordingly? If they did, they could get on with their proper ‘caring’ function without bankrupting us every time they get a sniff of power. If Miliband, or whoever, acknowledged the flaw in their behaviour, the Tories wouldn’t get a look in.

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  • From the article. “Between 1999-2000 and 2007-08, the ratio of total managed spending to GDP did rise from 36.3 per cent to 41.1 per cent. But the latter was still modest by the standards of the previous four decades”.

    Then the deficit grew in large part because tax revenues collapsed. It’s worth remembering that budget deficits result not just from spending but from the difference between revenue and expenditure.

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  • The article suggests that Labour was not especially profligate: the big jump in debt was down to the recession (Icarus’s quote). In any case, the country is not bankrupt. The Tories are not so much less profligate as preferring to underspend on public services and maintain lower (regressive) taxation.

    If the country has big inefficient govt, I think this is down to an inefficient country all round, not to say an inefficient world of human activity.

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  • icarus:”It’s worth remembering that budget deficits result not just from spending but from the difference between revenue and expenditure”

    True enough but from the article: “He then doubled up on this bet by building his plans for public spending on the assumption that the good times would roll on forever”.

    Who does that? Maybe a junior estate agent might believe that there would be no more busts … but a Prime Minister?

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  • lethemfall: “If the country has big inefficient govt, I think this is down to an inefficient country all round, not to say an inefficient world of human activity”.

    Hard to really argue with that but don’t you think you’re being a bit fatalist. We have to at least try and the before effort comes acknowledgement.

    “Tories are not so much less profligate as preferring to underspend on public services and maintain lower (regressive) taxation”

    I think that it is only partially true. The general perception of the public is that services did not improve at the same rate as expenditure

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  • Flashman, MW’s “doubled up on his bet” is a bit vague and his “modest by the standards of the previous four decades” stands regardless of that.

    Why do we put the responsibility for economic policy from 1997 to 2007 on Brown (not Blair) on the grounds that Brown was the C of the Exchequer and then from 2007 to 2010 on Brown (not Darling) the grounds that Brown was PM?

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  • flashman
    Not so much fatalist as apportioning blame more widely. The term inefficient is very elastic, vague, dependent on context. It is common to say the public sector is less efficient than the private (axiomatic in the eyes of some), but I see the private sector as profoundly inefficient – in the sense that so much production is of poor quality, goes to waste and causes environmental degradation; and the wealth, such as it is, disperses most unevenly.

    Reduced consumption and more even distribution of wealth are the touchstones of an efficient system for me. We ought to try for that, but the general public probably perceives things differently.

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  • icarus: Yes, I wouldn’t have chosen the words “doubled up on that” but I also wouldn’t have described an increase of 4% as modest in view of the certainty that a bust would happen soon. I am a lowly analyst and I was certain of it. In fact everyone I know including my mother and the bloke who delivers my fish knew it. Any increase in expenditure in the run up to a bust or even a cyclical dip is not advisable (unless you are a Keynesian with a King Canute complex).

    I personally tend to blame the ethos (for want of a better word) of the Labour party rather than one man. However, I can see why people would pin the blame on Brown. He was an unusually powerful chancellor because of the deal he did with Blair. Apparently Blair didn’t even get a look at some budgets before they were published. I also think that it is fairly well accepted that his character prevented him from affording Darling the same latitude that he himself enjoyed as Chancellor

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  • letthemfall: “We ought to try for that, but the general public probably perceives things differently”.

    The public does indeed perceive things differently and right or wrong, they are the ones who vote. I think that socialists/the Labour party have to work on achieving a fairer society within the parameters of what the public want and believe. If socialists don’t acknowledge that their performance during their last two stints in government was derisory (in the perception of the electorate) then there will be no progress. We will be doomed to the following cycle:

    Labour makes a complete hash of the economy
    The Cons are only voted in because people are exasperated by Labour
    The Cons clean up the mess but then become emboldened and act brutishly
    Comedians create Alan B’stard and spitting image
    Labour come to power and makes a complete hash of the economy
    Rinse repeat

    btw, I don’t disagree that the private sector is inefficient (God knows I have witnessed in to the power of 10) but that does not excuse an inefficient public sector.

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  • orcusmaximus says:

    @flashman

    Well said. I completely agree (for what it’s worth).

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  • Flashman 10 – It’s too easy to exaggerate the power of the kind of ‘dark force’ that Brown has become. Could he bully along Blair, the Treasury and Darling for 13 years? And it’s difficult to believe that Blair as PM had so little to do with economic policy, which is so central to everything the government does.

    Brown made spending decisions in the early 2000s that weren’t prudent and were too dependent on continuing economic growth. In this regard the Treasury also vastly underestimated the growth of private debt and its potential for depressing demand once the debt party finished. This should have been foreseen, and one economist I know warned it for years about this.

    On the other hand there are many commentators who don’t blame the government for its decision after the crisis hit (let’s leave aside for this purpose the bank bailouts) to support demand by sticking to pre-crisis spending plans and allowing tax revenues to fall. Brown in effect argued that we weren’t fighting the recessions of the ’80s, where the problem was to boost the supply side, but the depression of the ’30s, when the problem was to boost the demand side. The UK’s fiscal stimulus after 2007-8 was a modest one relative to other developed economies.

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  • letthemfall says:

    flashman
    I would modify your cycle a little:

    Party (Lab or Con) elected
    Claims previous govt made mess of economy
    Things improve – Govt claims economic miracle/no more boom & bust
    Economy crumbles
    Other party elected

    At least we can console ourselves (sort of) that this cycle has been broken (sort of). I’m not entirely sure that what the public want should be the main criteria, especially as that really equates to who shouts loudest, ie those with most power.

    No excuses for inefficient public sector, true; but no reason to expect it to be any better either. (Maybe it really is! Isn’t it though, hpw?)

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  • LTF:

    “Clowns to the left of me jokers to the right?”

    I subscribe …. with the odd historical exception.

    By the way Flash …. on the comment i made a couple of days ago re “jealousy”, i was only joshing. I agree with your view but really i honestly hope everyone here was relatively unscathed. I hope in particular that Bellwether and EStrader are ok. Funny even though i may have disagreed with some of the comments made by Estrader in particular, i have seen people (locals) wiped out and the look on their faces is actually haunting, regardless of comments made by others in the pits.

    As for “[I’m getting really hacked off with having to enter these daft security words each time I wanna post something……..]”.. i have at least found something i can agree with HPW on. :-).

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  • mark wadsworth says:

    We’ve discussed this whole “Why is the deficit so big” topic to death, and anybody who bothers to look at the figures knows:

    1. The annual deficit was running at £50 billion even before the recession.

    2. Tax receipts are down by about 5%, i.e. by about £25 billion (the effect in the first year of a recession is exaggerated because losses can be carried back for corporation tax).

    3. Welfare spending is up by £10 billion, absolute tops (say one million extra unemployed @ £10,000 per year each, dole plus mortgage and rent subsidies).

    4. Tot those up, we get a projected deficit of £85 billion, which would be bad enough.

    5. The main reason, i.e. half the reason for the rapid deterioration to £170 billion is because they went completely mad with bailing out banks and filling their boots before the party ended on 6 May 2010.

    6. Don’t believe this drivel about ‘bringing forward capital expenditure to boost the economy’, that is A Big Fat Lie. The total amount of annual capital spend is not huge, and you can’t just bring these projects forward – it takes years to plan a new motorway or hospital building or something.

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  • As for “[I’m getting really hacked off with having to enter these daft security words each time I wanna post something……..]”.. i have at least found something i can agree with HPW on. :-).

    I take it all back.

    By the way techieman, any comments on the poor performance of gold? Any more of that and I’m gonna get crushed!

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  • icarus: I agree that Brown wasn’t a dark force. He was just a bit of a tosser who found himself in the wrong place at the wrong time (Blair’s exit really was timed beautifully)

    techie: Thanks for that. The reports coming through of the 3 big banks making consecutive trading profits for 3 months (with no losses at all) says it all. Almost 75% of equity trades are made by their computers, so what does that leave for the individual punter?

    ltf: I’ll accept your cycle modifications. Yes, the cycle might well be broken for now. We’ll have to wait and see

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  • One of the key issues is Gordon Brown’s swelling of the public sector and the big amounts now needed to pay for the pensions.

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  • letthemfall says:

    The core of the article is that the public sector did not get so much bigger – until the crisis hit. The pension problem is mainly down to people living longer.

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  • The core of the article is that the public sector did not get so much bigger – until the crisis hit.

    So do you think that was a way of keeping unemployment down then?

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  • HPW – if you read back comments in the past you will see that i hold a fair bit of gold meself… Have done for a number of years and got out of a fair bit in March 08……

    Have credited s2r1 for me holding any gold – after that so yes i agree a bit lucky. Now having said that am looking at the inverse H&S target to take some more out… obviously you know where that is but if not : http://4.bp.blogspot.com/_TwUS3GyHKsQ/S-nyBQjPEbI/AAAAAAAAFMk/AIojwSxpfZM/s1600/gold.png

    and

    http://3.bp.blogspot.com/_TwUS3GyHKsQ/S-sZx0wu6MI/AAAAAAAAFNk/jIxs5zCQAqo/s1600/gold.png.

    Flash – as you know i have been taking hits on the S&Ps on the way up against shorts – but honestly nothing terrible. Latest was these [wont say size, as dont want HPW to choke on his cup of tea] basis June.

    [email protected] 1152
    [email protected] 1169
    [email protected] 1187
    [email protected] 1201

    Stops @ 1250 [so was getting a bit worried at one stage!]

    [email protected] 1097 (Friday), Re-shorted at 1153 [jobbing profit if you like]
    [email protected] 1140, [moved stops to 1203]
    [email protected] 1138 [few mins ago]

    Still [email protected] 1201, 1187. and 1153. [stop to 1187].

    Last 1139. Am looking for …….., well am actually not very confident but am looking at dow 10550 as a good level. But who knows!

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  • wont say size, as dont want HPW to choke on his cup of tea

    20 quid?

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  • “But who knows”

    Not me, that’s for sure

    Seeing as gold has been mentioned…It’s ironic that the government, with their new CGT rates, will end up clawing back a large chunk of the money they lost by selling gold cheaply. BTW, it’s a bit of a myth that several categories of gold are exempt from CGT because Sovereigns, for example, are sometimes classed as collectibles and they currently attract a very high rate of CGT

    Gold investors will have to subtract possibly 50% CGT plus some of the highest trading costs in existence from their profits. High levels of CGT really do show up the advantages of assets that produce income because you always have to sell non-income producing assets to realise any profit. Apologies for the ramble. Just thinking out loud

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  • For your benefit HPW… I did say that i thought the moves in the dollar (strengthening) were mature… and was expecting a reversal soon. I had been short of Eur and £ to greenback before then.

    Therefore i will admit i have got that wrong …. am standing aside at the moment [unusually for me since i normally have small amounts at interest , in case im wrong and the market goes more in the prior direction]. I normally favour one side of the market (bull or bear) over the other. What that means is that when the $ falls (if it does) i doubt i will be going dollar long, but will be waiting for a level to re-short.

    When i was younger i would be going in and out all day long.. but i dont do that anymore… past it!!!

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  • HPW £20 – if that gives you comfort then yes. Top of the class!

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  • “What that means is that when the $ falls (if it does) i doubt i will be going dollar long, but will be waiting for a level to re-short. ”

    I must be p1ssed, obviously drinking that £20 profit HPW!

    I of course meant:

    ” What that means is that when the $ falls (if it does) i doubt i will be going dollar SHORT, but will be waiting for a level to re-buy.” See age IS a terrible thing.

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  • BTW, it’s a bit of a myth that several categories of gold are exempt from CGT because Sovereigns, for example, are sometimes classed as collectibles and they currently attract a very high rate of CGT

    Not a myth at all, check this:-

    http://www.taxfreegold.co.uk/capitalgainstax.html

    Gold Britannias are also legal tender sterling, so they would also qualify for the same status. Until recently, we were not sure that this exemption was still current, but have now ascertained that it is, and it does strengthen the case for investing in gold sovereigns in preference to Krugerrands or gold bars.

    I also spoke to the people at ATS Bullion and they confirmed it.

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  • I think that sovereigns have to be pre 1837 to not be classified as currency but you might still get away with it if they accept post 1837 coins as chattels. Also, all foreign gold coins are not exempt. In other words, most gold will be liable to CGT. The treasury will have noticed the recent interest/speculation in gold and will almost certainly start closing any loop holes. It’s like the clunking fist of Gordon has risen from the grave to take back his gold

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  • It’s a loophole that may be closed in the future – but going by this weeks performance in gold – most people will have sold their gold long before the CGT rules are changed. I don’t intend to hang on much longer.

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  • ontheotherhand says:

    He bought votes with money we didn’t have. He took £8 billion a year out of pension funds because that will be some other politician’s problem in the future, but he could spend the money now. He and Blair made all sorts of expensive commitments on emissions and green targets – again, taking instant voter kudos, but shackling some future schmuck to pay for it all when they are retired. Martin Wolf makes a stupid point saying spending as a share of GDP ‘only’ increased from 36.3 per cent to 41.1 and it was more than that in the past. The point is that the tipping point is somewhere around 40% in today’s world economy, and that those countries with a rate lower than 40% tend to have high higher growth and faster increase in living standards that those where the rate is over 40%.

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  • Martin Wolf blames the current economic orthodoxy for regarding the economy as being much stronger than it turned out to be.HPC know betters,who are n’t able to comprehend his simple explanation, go on this robotic way about Gordon Brown,socialists and gold (about which they are more obsessive than suburban mortgage payers and house prices).Not an edifying spectacle.

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  • DBC – isnt he saying that GB got it wrong, in part because he listened to the economists, when he shouldn’t have had? Either you say that’s is error of judgement for listening or you say that they all would have made the same error of judgement… of [slightly – thats my take] different degrees.

    Being this one man GB supporter must be tough, sincerely i think it commendable that you are still trying to do it.

    “Reed” isnt an alias for Reid is it? You are not John Reid are you?

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  • @33 dbc reed – I don’t think HPC-ers always get everything right. I wish I had known in 1997 that Brown and Blair were going to go run the economy on the basis of an unsustainable spending binge. I would have bought a bigger house!

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  • Techie thanks for the thought, hope you are doing well. Good to see some interesting discussions still happening on site, although the gap seems to get wider than before.

    The trading has steadily improved since I began and now operate making mostly a modest profit. I tend to do this by keeping positons small and holding until I am right, which can often take weeks or months. The only discernable technique is I look for extremes in valuation. Only really do it for entertainment tho and to test my ideas.

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  • Martin Wolf blames the current economic orthodoxy for regarding the economy as being much stronger than it turned out to be.HPC know betters,who are n’t able to comprehend his simple explanation, go on this robotic way about Gordon Brown,socialists and gold (about which they are more obsessive than suburban mortgage payers and house prices).Not an edifying spectacle.

    It happened on Gordon Brown’s watch – he basically failed the situation and the economy. All he had to do was to stop the housing market from overheating – see what the chinese are doing? – but he failed……and if fact was partly responsible for very loose monetary policy which caused all the problems.

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  • b/wether – glad you are unscathed. I think these markets need some nimble feet and to be happy to take what is on offer, with most of the positions. The swings are wild enough that you can make money if yr not too greedy.

    As i think i said i was holding an open position above – where i was losing about 6% of my net worth. If it had gone to 1250 then that would have cost…. a fair few bob [i dont normally have such big stops but i was convinced something was going to “blow up” just didnt know when. But obviously as i type things are pretty good.

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  • @LTF

    As you seem to be of a left of centre persuasion (that’s not a criticism, by the way) would you mind answering the following please?

    1. What, in your opinion, did Gordon Brown achieve as Chancellor or as Prime Minister?

    2. What did 13 years of Labour government achieve?

    The only positive thing I can see is the smoking ban, I cannot include the hunting ban as this was no more than a piece of class war. To have done the job properly, fishing should have been banned at the same time as hunting but of course this didn’t happen as fishing is a pursuit of the working classes as well as the toffs and a ban would have cost votes.

    Just another example of socialist hypocrisy.

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  • @Mr G
    Some things did n’t happen on Gordon Brown’s watch: nobody lost all their money as their banks collapsed;fewer people than expected lost their houses to foreclosure (though HPC-ers would see this as a significant failure.) This is not the point. The point is HPC-ers are arguing the toss with the most distinguished financial journalist of the era (and a land-taxer) and putting up puny saloon-bar arguments in rebuttal on the lines of “Everybody knows that Gordon caused the recession” No wonder the pubs are empty these days.
    BTW what seems to have stopped the economy falling off a cliff is quantitative easing which is more unorthodox than Wolf gives credit for,
    too unorthodox for the HPC ‘Sobvious crowd who clamour like Tory boneheads for cutting the supply of credit.

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  • @DBC Reed

    I’m not saying that GB caused the recession by himself but he contributed significantly through his dire performance as both Chancellor and PM.

    The sale of gold at the bottom of the market, the massive amounts of taxpayer’s money pumped into the NHS, education and other areas of the public sector without any significant improvement in service or performance and savers subsidising the profligate through low interest rates (a government policy executed by the BoE) are 3 examples of his incompetence.

    As regards QE, I fail to see any benefit from this other than postponing further economic woes.

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  • dbcr : i think you’ll find the pubs are empty because some oink banned smoking. as for your efforts to defend brown, you basically laud him for spending yet more money thereby endebting taxpayers for even longer.

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  • nobody lost all their money as their banks collapsed;

    Inflation isn’t losing money then? Moreover, there is massive inflation on the way, so much so your savings will become worthless pieces of paper.

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  • I’m no great fan of Gordon Brown,who always had the LVT shot in his locker but never used it.(Brown spoke in favour of LVT on public platforms as a young MP). I will defend him against the HPC orthodoxy that credit should be restricted to the whole economy just so that it won’t go into the property market.The trick is to splash spending power about the economy but to block it going into property with LVT,just as the UK did for two decades after the war.There was steady credit expansion but house prices stayed flat because Schedule A taxation was levied on house price rises. A house price rise came straight out of your Income Tax. The HPC school of thought (using the term charitably) that all credit expansion is bad (because sans LVT or Schedule A it can put up house prices) is dyed in the wool Homeownerist cant and is worse than the Tories who want credit expansion specifically because it puts up the price of their luxury,bijou (very small) dulce domum.
    How exactly does the general public get roped into paying QE back: the money is n’t borrowed?

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  • techieman: “DBC – isnt he saying that GB got it wrong, in part because he listened to the economists, when he shouldn’t have had?”

    Yes, but this criticism could be levelled at all PMs to some extent. As I think we agree on, politicians are constrained by the electorate in what they do. A Govt will not last long if they start going against all the “expert” advice, even when the experts don’t deserve to be called such, which is why the whole credit boom would have been no different under the Cons. (expecially as they are the keenest on deregulation.

    mr g
    I agree with you about the smoking ban (a relief to breathe clear air in a pub) and the hunting ban (a lot of nonsense, possibly driven by class prejudices) – so a rare agreement.

    What else has Labour achieved? I think the min wage was very important, especially in the wage-suppressing climate we now have; the tax credits also helped alleviate poverty, against the background of rising inequality. And of course GB is credited worldwide with preventing an economic collapse.

    The good thing about the article is that it takes a more objective look at GB’s record, and frankly I don’t see it being any worse than other PMs, taking all into account. Strong supporters of one political party will always see their party as good, the other as bad. But the evidence is that neither have had much success with the economy. On GB’s personal qualities, I feel his political motivations were genuine; he really did want to help the impoverished and make a better society. I don’t feel this about Blair or any other recent PMs. How Cameron will turn out I’m not sure. He has the air of a shallow individual, but on the other hand he has suffered the personal tragedy that inevitably adds depth and sensitivity to anyone with a measure of humanity.

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  • @LTF

    Actually, I had unintentionally overlooked the minimum wage and agree that this was an important achievement.

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  • The fact of the matter is that if Gordon Brown has been such a great success, why then is the deficit so bad and taxes have to rise so much? At the very least, Gordon Brown failed to protect the UK from what else was going on in the world – aside from being indirectly responsible for so much of it.

    But let’s just wait to see what happens next – because this thing is just getting going……

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