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The Financial Times
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An international daily newspaper with an emphasis on economics and business related news.

1997 election endorsement: Labour

2002 election endorsement: Labour
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Time to get off the fence

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The Euro has been a roaring success already. Britain shouldn't have to miss out.

In six months, twelve countries will turn in their individual banknotes and coins and will take the final step towards monetary union. Despite claims that it could never work, the euro has - so far - defied its critics. Its first 18 months in electronic form have not been incident-free, but they have been remarkably smooth for the stunningly complex task of replacing twelve currencies with one.

The economic benefits of the euro have been clear. Trade between countries in the so-called eurozone has shot up, on some measures as much as 25%. Inflation has remained low. Unemployment is falling - Spanish youth unemployment is half its rate just 7 years go. Foreign direct investment into the eurozone is booming. That has all happened even before physical notes and coins have completed the monetary union.

And yet Britain remains outside. And Europe's success has been Britain's disappointment. Our trade deficit has widened to record levels. Our economy continues to perform well, but the relative decline that marked Britain after the war seems a real prospect once again. In 1998, Britain received 13% of all foreign investment in the OECD; it now receives just 9%. Germany, the Eurozone's biggest economy, has seen its share grow from 5% to 15%. Other non-Eurozone countries, including Denmark and Sweden, have seen similar falls in foreign investment despite being seen as the European economies most at the forefront of technological innovation.

Britain is falling behind. The same thing happened in the 1950s and 1960s: at the time, we didn't have the data or the hindsight to understand what was happening. Now we have both. The truth that european economic integration makes us richer is unquestionable. The real question is why Britain is so unwilling to join the single currency and take the opportunity it offers.

Instead, the government continues to sit on the fence. Why is something of a mystery. The current Chancellor is a known euro enthusiast. His predecessor now leads the campaign to take Britain into the euro. Both men have or had the opportunity to take the leap off that fence, but haven't taken it. They should learn well the lessons of history. The UK sat on its fence for 20 years before joining the EEC: and in doing so it cost its people wealth and its businesses opportunities. Britain doesn't deserve to wait another 20 years to take the opportunities the euro offers.

The reason, of course, for the obfuscation is political. Harold Saxon, Westminster's most reactionary leader since the War, would have a field day. He would almost certainly run an exaggerated campaign to "save the pound". But the Government should look through that, much as electorates normally do when it comes to casting their ballot. Their job is not protest, it is good government. And good government deserves an answer.
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Funding drives down waiting lists, but experts call for reform – the NHS in 2002
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Most pundits pin the scale of Labour’s victory in 1997 on the ERM crisis. But the truth is that a large part of it came down to substantial dissatisfaction with the state of the National Health Service. By 1997 50% of the country was dissatisfied with the NHS, and a similar number said it was the biggest issue facing the country.
Labour has kept most of its promises on the NHS since 1997 – including removing the hated internal market - but was constrained from significant increases in spending in its early years, instead relying on relatively modest increases and efficiency savings from NHS reform. That may have proven to be a tactical error: the level of spending restraint proved to be unnecessary, and by 2000 yet another NHS winter crisis led to a promise for significant extra funding. Waiting times have stopped getting worse, reversing the trend under the last government. But they have only modestly improved.
Record funding drives improvements – but more likely to be needed

Gordon Brown’s 2000 Budget turned the budget taps on for the NHS, with an increase in its budget of over 8% - followed by an 11% increase in Sean Manning’s first and only Budget. Those two years of sustained increases in spending appear to have started to have made a difference. By the end of 2001, waiting lists fell below 1 million for the first time since the early 1990s. Similar falls to the level of the early – mid 1990s occurred for average waiting times too. Further falls are likely based on existing funding, with several billion pounds spent on investment that is yet to come to full operation.
But even then, the NHS will still not be fulfilling the levels of service that it has in the past or that politicians seem to want. Waiting lists are still higher than at any point before 1993. The reason for that is clear: demand for health service has grown quicker than funding. If politicians want to improve NHS performance, they need to give it the cash to do more: and that probably means years more of the kinds of funding increases that Brown and Manning permitted. If they don’t want to do that, they either need to accept rationing or develop a system that gives people a reasonable alternative to the state run service. With dissatisfaction with the NHS still running at 41%, there is a clear desire for the cash: if the government can convince people to pay for it.

The missing link: reform

More funding – or a new funding model – is needed. But that should not mean overlooking NHS reform. Reform wouldn’t mean no need for extra funding or new sources of funding: the gap is too large. But it would mean better service, or a more sustainable service long term. The trouble, of course, is that no one quite agrees on what reform should mean. The previous Conservative Government embraced market-based reforms, which are generally regarded with deep suspicion among the medical profession: Labour has (mostly) dismantled those, but has left some elements in place. The NHS is still split between authorities delivering primary care (GP services) called ‘primary care trusts’, which “purchase” care on a contractual basis from hospitals – called “NHS trusts”, although hospitals no longer compete on price. The system has delivered savings on its predecessor – the internal market – but critics say it remains too bureaucratic but lacks the market incentives that made that bureaucracy worth it.
The direction of further reform is unclear. The unions and medical groups such as the BMA are keen to move towards a more streamlined and integrated structure, hoping to reduce bureaucracy and refocus the NHS on patient care. Right-leaning think tanks and NHS management are far keener on initiatives to expand patient choice, return some market-based mechanisms to the service, and give hospitals more freedom (looking to the model of Spanish “foundation hospitals”); believing that doing so would drive up productivity especially in underperforming areas. Everyone agreed that preventative care, public health, mental health, and social care should all play a much bigger role than they do right now.
The NHS in 2002: more secure, but this is only the beginning
In 1997, there were genuine questions about the future of the NHS. Waiting times were rising, the government seemed to have all but given up on meeting its targets, and the scale of funding that seemed necessary was far beyond what anyone seemed willing to consider.
In 2002, those questions are quieter. Waiting times are falling again. The scale of funding the NHS needs remains immense: many tens of billions more. But there seems to be a broad consensus to find that cash. But whatever future there is for the NHS, it is likely to feature prominently in the next election as it did the last one. Voters will be looking closely both at the next Budget and at parties’ plans for the NHS in great detail.
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Global economy cools, hands Chancellor tricky hand

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IMF forecast for economic growth in world's three largest advanced economies

The IMF said today that it expected the global economy - and particularly rich countries - to grow at their slowest rate in over a decade after the 12/22 attacks left stock markets and consumer confidence in freefall. 

The global economy had already underperformed in 2001 after the stock market crashed when the so-called "dot-com bubble" burst, ending a number of years of excessive optimism over new technology companies. The crash hit the United States particularly hard, although it has meant lower than expected growth in the UK too. But the IMF, having previously expected a recovery in 2002, says that this year will be even harder. "The 12/22 attacks led to an immediate fall in the stock market, consumer confidence, and investor optimism across the USA and Europe," their report said.

This has already led to an immediate policy response: the Federal Reserve in the USA has cut rates eight times; and the UK's Bank of England has cut interest rates twice, to 5.5%. Further cuts are likely. The United States Congress is on the verge of passing a second fiscal stimulus plan with major tax cuts and additional spending.

The UK, while affected, looks likely to come through the storm relatively strong. It was not itself the victim of the attacks, but additional public spending, high levels of economic confidence, and a a generally buoyant economy are likely to see it through without major difficulties. Nevertheless, growth is expected to come in at less than 2% this year, and unemployment could rise slightly.

What this does do is restrict the Chancellor's room for maneuver if he wants to continue the scale of spending increases his predecessor began. Less growth means less tax. The previous Chancellors left an admirable amount of fiscal space that mean that the Chancellor has more room than his European or indeed American counterparts. But he will have to decide whether he loosens Labour's iron grip on the public finances so far, raises taxes to fund continued spending, or slows down the promised increases in spending on the NHS and schools.
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Labour is the safer choice

When John Smith rode to victory in a wave of optimism in 1997, his enthusiastic supporters probably did not expect what would happen in the next five years. The untimely loss of a Prime Minister, and a series of difficult and trying scandals and crises that proved in the minds of many that "they're all the same." No party will ride to victory this year on the wave of enthusiasm that John Smith did, and perhaps no party ever will again.

That does not mean that Labour has failed. Expectations upon them were unrealistically high. No government is free from the inevitability of bad apples, or making a poor judgement call, or even just a sudden swing in public opinion that - for example - leads to a mass blockade of oil refineries. 

In government Labour has generally been pro-business and delivered a strong and stable economy. It is part luck, but also part judgement, that has meant that Britain is weathering the global economic storm better than its main trading partners. This Government has been the most fiscally responsible since the Second World War, and though it may have won them few admirers on the left, that has meant lower interest rates and lower debt interest payments. Britain, unlike both the United States and Europe, does not face a painful few years of repairing their public finances. And investment in education and health - sorely needed - have been delivered. Railtrack's return to public ownership, at least temporarily, is the only viable course of action to repair our broken infrastructure. But there is a sting in the tail: Labour could not resist when push came to shove to target the easy source of cash. At 50%, the top rate of income tax is - if not excessive - higher than ideal, and risks our competitiveness. If more revenue is needed in the future then there are more efficient ways of raising it, including excessive tax reliefs on VAT, income tax, and corporation tax. 

And what of the alternative? Until recently it was easy to write Harold Saxon off. The early part of his premiership was reactionary to the extreme. His response to the fuel crisis and to the European Rapid Reaction Force was abysmal. But he has tempered his attitude recently, and has a decent team - not least the Shadow Chancellor, who has quickly earned herself a solid and dependable reputation with business. 

But the Conservatives are not yet ready for government. Their shadow budget was well received but ducked big questions on how spending plans will be funded in the future by promising both big spending and big tax cuts. And Saxon and his platform continue with the euro-phobic platform that has blighted his party for a decade now. There are legitimate arguments to make against the euro and about the European Union. But Saxon's Conservatives are easily the most eurosceptic force in Britain since Michael Foot and are on the wrong side of history. A pro-business and pro-growth party would seriously consider the clear benefits from the adoption of a single currency, not dismiss it out of hand.

Labour is not perfect, and we are impressed by the Shadow Chancellor's agenda. But Labour has a proven record, is the fiscally responsible party in Britain, and remains willing to have a sensible and grown up discussion about the single currency. For those reasons, Labour is the safer choice.
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