The New Labour Years

Tony Blair secures a huge majority with a moderate programme and a fresh party name- New Labour. The economy continues to strengthen enabling Gordon Brown to fund social changes whilst Blair concentrates on constitutional issues, especially the Belfast Agreement in Northern Ireland. He involves Britain in an unpopular war in Iraq and is replaced by Brown, who becomes involved in the worst economic crisis since the Great Depression.

Tony Blair became prime minster with a huge majority of 179. He had built on the Labour party reforms put in place by Neil Kinnock and came to power promising a fresh new dawn, heralded by the New Labour party he had created. 101 of New Labour’s 418 MPs were women. Throughout the election campaign, the Tories were dogged by ’sleaze’ allegations and they suffered their worst defeat since 1906, with no representation at all in Scotland and Wales. The Liberal Democrats also benefited from the Tory collapse and won 46 seats. Sinn Fein candidates Gerry Adams and Martin McGuinness won election in N. Ireland but, in accordance with Sinn Fein policy, did not take their seats in the Commons. John Major resigned the Conservative party leadership and was succeeded by the young Yorkshire man William Hague.

Blair was looking forward to a victorious party conference in October, when the nation was shocked by the death of the recently divorced Princess of Wales and her companion Dodi Fayed in a car accident in Paris in the early hours of 31st August.

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There followed a week’s outpouring of national grief, in which an element of anti-royalist hostility was clearly apparent. Blair expressed public sentiment almost like a head of state when he paid tribute to the ‘people’s princess’, whilst the Queen and her close family remained at Balmoral for some days and kept their distance from the outpouring of national emotion. They finally appeared in public when they surveyed the enormous display of floral tributes outside the Palace at the end of the week. Diana’s funeral was a mournful affair, with a grand procession passing before massed crowds in absolute silence, broken only by cries of grief and the chimes of church clocks.

As they returned to government business, it soon looked as if the Chancellor of the Exchequer Gordon Brown had freedom of decision on matters to do with the economy and the direction of social policy, whilst Blair oversaw constitutional and foreign relationship matters. One of Brown’s first decisions was to give back independence to the Bank of England on monetary matters and allow it to set interest rates. Oversight of banks and other financial institutions, however, was placed in the hands of a new Financial Services Authority. He kept his promise not to increase income tax rates, but increased revenue by holding down the tax thresholds and imposing 'windfall' taxes on recently privatised companies. He began to introduce a number of what became known as ‘stealth taxes’, such as taxing dividends on stocks held by pension funds which lowered pension returns and contributed to the demise of most final salary pension schemes. Brown used the increased tax revenue to pursue a carefully managed spending programme, devoted especially to the NHS and schools. Sure Start and tax credits were measures he introduced to assist lower income families and the National Minimum Wages Act came into force in July 1998, supervised by the Low Pay Commission. Uneasy memories of the economic tribulations of past Labour governments were soon forgotten as the British economic recovery continued, with falling unemployment and new welfare programmes began to take effect.

One of Brown’s most controversial decisions was to convert part of the nation’s gold reserves into foreign currencies, especially the US dollar and the new Euro. About 395 tons or 60% of the reserves were sold off between 1999 and 2002, shortly before the price of gold increased dramatically during a long bull market. However, there were signs that Brown was not as enthusiastic as Blair on the matter of joining the new Euro single currency. In October 1997, Brown set five economic tests to determine whether the UK should adopt the Euro and, in June 2003, the Treasury announced that the tests indicated the UK should retain the £ sterling.

Although he ultimately had to accept that the UK would not take part in the single currency Euro project, Blair pursued his vision of closer integration with Europe. He signed up to the Social Chapter, designed to harmonize European social policies, from which Major had opted out. The Human Rights Act, which incorporated the European Convention on Human Rights into domestic British law, was passed in 1998.

In 2004, he appointed his close political ally Peter Mandelson as the UK’s European commissioner in Brussels, where he could help promote the New Labour pro-Europe strategy. Mandelson had twice been forced to resign from cabinet after criticisms concerning matters of ethics (he was later exonerated on the second account), but he was a master of the new political weapon of information control and media manipulation which was known as ‘spin’. This was partially offset by the Freedom of Information Act 2000, which proved useful for media organisations and others battling to get information which public authorities, publicly-owned companies and others, for various reasons, were unwilling to release. The act also chimed with John Major’s Citizens’ Charter.

Blair pursued a collection of root and branch constitutional reforms, beginning with the devolution of executive powers for Wales and Scotland. A single-house Scottish Parliament was restored in 1999 and a Welsh Assembly was instituted at the same time. Both consisted of elected members (in Scotland chosen by the additional member system of proportional representation); power over a range of policies for each country was in the hands of a chief minister. Legislation relating to reserved issues such as defence, security, foreign policy and monetary and economic issues was left with Westminster to ensure consistency across the whole of the United Kingdom. There were objections on the grounds that MPs from the other parts of the UK sitting in the House of Commons were able to vote on and influence matters that affected only England, whilst MPs from England had no involvement with similar matters that had been devolved to the legislatures of the other three countries. Labour’s solution was regional English assemblies with some devolved powers, but an attempt to put this into effect was rejected in a referendum by voters in the North East region. However, in May 2000 local government was restored to London for the first time since the GLC was abolished in 1986, after a low turnout of Londoners in a referendum approved the creation of the Greater London Authority, headed by a directly-elected mayor.

In 1999, an act was passed which removed all hereditary peers from the House of Lords, except the Earl Marshal and the Lord Chamberlain. As part of an agreed recompense, the hereditary peers were allowed to elect 90 from their number to represent them in the House, thus forming the smallest body of parliamentary voters in the UK. Hereditary members of the Lords are elected for life and, on their death they are replaced at a bi-election. Life peers, the Law Lords and 26 senior Bishops of the Church of England formed the balance of the House of Lords membership. These were of course all appointed to their position in various ways and their period of membership was indefinite. Later proposals to abolish bi-elections and thus remove hereditary peers by gradual attrition came to nought. Ideas for a reformed second chamber composed of elected members were opposed on the grounds that it could constitute a democratic threat to the superiority of the Commons enshrined in the Parliament Acts.

A long and involved series of negotiations about the Troubles in Northern Ireland had been in progress during John Major’s regime. The momentum increased when Blair took over. Under the chairmanship of US special envoy George Mitchell, the British and Irish governments, together with eight parties or groups representing all facets of political life in the province, worked out a set of proposals which became the ‘Good Friday Agreement’ in April 1998. Ireland recognised the province as part of the United Kingdom, until a majority on both sides wished to form a united Ireland. The people of Northern Ireland were entitled to identify themselves and be accepted as Irish or British, or both. Power was to be impartially exercised on behalf of all its citizens. The agreement re-constituted the Northern Ireland Assembly and set up a power-sharing executive and various other measures to oversee and protect the agreement. However cross-community trust remained fragile and implementation of all the agreement’s clauses was a slow and tortuous process.

Blair aimed to improve education. He announced a target of sending 50% of school-leavers on to higher education, believing that was the best way to provide better employment prospects and a more skilled workforce. The old maintenance grants were abolished and, in order to help pay the costs of university education, tuition fees were introduced for students in England and Wales in September 1998, on the assumption that degree holders would be equipped to earn sufficient money in their working life to repay the loans. Academy schools were also introduced. They were freed from local government supervision and aimed to ‘improve pupil performance and break the cycle of low expectations’.

Part of Blair’s overseas policy was summed up by a speech he made in Chicago in 1999, in which he advocated active military intervention to overturn dictators and protect civilians. He was motivated by the joint UK/US 1998 intervention in Iraq aimed at military and security targets which contributed to Iraq's ability to produce, store, maintain, and deliver ‘weapons of mass destruction’. The following year the same policy of ‘liberal interventionism’ was pursued when he vigorously promoted NATO air strikes in the rump state of Yugoslavia and the dissident Kosovo, where a fratricidal strife between Serb and Albanian nationals was in progress. Blair committed Britain to intervention without securing agreement by the UN Security Council. This was followed by British military involvement to reinforce the democratically elected government in the Commonwealth country of Sierra Leone in 2000.

Blair decided to go to the country with a manifesto of new pledges in May 2001, but due to an outbreak of Foot and Mouth disease in farm animals, it was postponed until June 7th. Country areas were traumatised by the great number of animals killed and the immense pyres of carcases which cast a gloom of smoke across the surrounding countryside. The disease had a severe effect on farm businesses and the tourism industry. The Countryside Alliance brought various rural interests together, who mounted some impressive, well-organised demonstrations. Ultimately it made little impression on New Labour’s rural policies, including the Hunting Act 2004, which banned hunting with dogs or hounds; it was passed after a long struggle in Parliament and the rare invocation by the Speaker of the Parliament Acts.

The electorate was largely apathetic during the 2001 general election, with a turnout of less than 60%. The Tories had hardened their line on Europe, but their leader William Hague made little impression against the charismatic Blair and his government, which had presided over a continuing economic boom, even when Europe and the United States briefly went into recession following the collapse of the global ‘tech’ bubble. With a majority of 167 in the House of Commons, Blair secured the largest victory ever won by a second-term British government. The Liberal Democrats were also rewarded with six more seats. The biggest and most disappointing changes occurred in Northern Ireland where, far from unifying the divided communities, the Good Friday Agreement had failed to heal sectarian differences. Both sides increased the seats won by more extreme parties, with republican Sinn Fein winning four seats from the moderate nationalist SDLP and the hard-line Democratic Unionist party, led by the Rev. Ian Paisley, winning the same number of seats from the Ulster Unionist party.

On September 11th 2001, Islamist terrorists carried out attacks with hijacked civilian aircraft on the twin towers of the International Trade Centre in New York and the Pentagon US defence centre in Washington DC. The 9/11 outrage was claimed as a triumph by Osama bin Laden, the Arab leader of the al-Qaida terrorist organisation. Blair now became closely allied in an anti-terrorism pact with President George W. Bush - a partnership which eventually soured his remaining years in power. British troops were sent to help the US overthrow the Taliban regime in Afghanistan, which they believed was shielding bin Laden. Like imperial Britain and the Soviet Union in earlier days, the allies were easily sucked into Afghan affairs, but found it difficult to extricate themselves. Bin Laden remained free until tracked down and killed in 2011 by US Special Forces in Pakistan, but British troops remained for many years engaged in a difficult, if not hopeless, attempt to convert Afghanistan into a safe country with a viable political structure.

Less than five months after the 9/11 attacks, Bush referred to an Axis of Evil, consisting of Iraq, Iran and North Korea, which sponsored terrorism. He was contemplating a ‘War on Terror’ against them and other ‘terrorist states’ and his attention was fixed on Saddam Hussein’s Iraq. His father, President George H. Bush, had successfully led an alliance to chase Saddam’s forces out of Kuwait in 1991, but stopped short of removing him from power in his own country. Bush junior and Blair were now contemplating regime change as a weapon of foreign policy. Throughout 2002 they built their case for a war in Iraq, based on Saddam’s attempts to make chemical, biological and nuclear weapons of mass destruction (WMD).

In September, the British government published an Intelligence assessment of Iraq’s WMD capability which alleged Iraq possessed chemical and biological WMD and had sought to purchase significant quantities of uranium from Niger for the purpose of making nuclear weapons. The reference to uranium was later shown to be based on forged documents.

On 29th May 2003 the BBC broadcast a report by its defence correspondent Andrew Gilligan that the intelligence dossier had been `sexed up’ by senior government officials with the claim that WMD could be deployed within 45 minutes. Gilligan later asserted Blair’s director of communications Alistair Campbell had been responsible for the insertion of the 45-minute claim, against the wishes of some intelligence officers. Gilligan’s claims, based on a discussion with an unnamed expert, for which he retained only sketchy written or electronic records, were fiercely disputed. The source of his information was tracked down to Dr. David Kelly, one of the world’s top weapons inspection experts employed by the Ministry of Defence. He was blamed for the unwarranted claim that Blair and Campbell had promoted a falsehood, was publicly exposed and tragically took his own life. Years later the Chilcot enquiry exonerated David Kelly and decided it was intelligence officials who had included the WMD assertion, based on very weak information.

The whole affair caused general support for the Iraq war to unravel and totally undermined Blair’s popularity. Huge crowds gathered at anti-war protests. In the final days before the war started on 19th March 2003, several government ministers resigned, including the ex-Foreign Secretary and respected Leader of the House Robin Cook. About a third of the parliamentary Labour party supported a motion opposing the government’s policy. The Attorney General Lord Goldsmith equivocated about the legality of the forthcoming war, before finally stating that the use of force in Iraq was lawful. Blair remained adamant that Saddam was a menace who must be removed by force.

Saddam’s armed forces were quickly overwhelmed in the early days of the second Iraqi War. Baghdad fell on April 9th and Bush declared the end of major combat operations on May 1st. No WMD were ever discovered. Saddam’s Sunni and Baathist regime was dismantled, but the United States had no strategy about how to replace it. A situation of complete anarchy ensued and it became apparent the US and its allies were unable to control the situation. British forces were supposed to exercise authority in Basra and the south, where Shia Muslims had suffered badly under Saddam. However, the population was not won over by the usual British attempts to establish friendly relations. By 2007 the British occupying force was under siege from an insurgent force known as the Mahdi Army and finally left Basra in 2009, having failed to achieve its objective of restoring peace and lawful government to the area.

After the controversies surrounding the Iraq war, Blair was very much distrusted by his own party and the country at large. As Prime Minister, he increasingly paid little regard to parliament or his back benchers and his relationship with the Chancellor Gordon Brown was becoming increasingly fraught. In October 2004, he announced that the next election was going to be the last one in which he would lead the Labour party. Brown was widely regarded as prime minister in waiting. Despite the waning of Blair’s popular appeal, Labour had presided over a buoyant economy ever since it was elected in 1997, with a relaxed attitude to borrowing and a lot of money being spent by Brown on upgrading the NHS and other public services.

Although his support was ebbing away, Blair was faced by a Conservative party unable to present the appearance of a government in waiting. The Conservatives had quickly rejected Ian Duncan Smith, the euro-sceptic leader appointed after the 2001 election, and he was replaced by Michael Howard in November 2003, but they again entered a general election in May 2005 with few hopes of attaining power. Labour duly won its one and only third successive general election victory in early May 2005 with 355 MPs, but its share of the vote was reduced to 35.2%, the lowest percentage support for any majority government in UK history. Voter turnout was only 2% above the record low of 2001. However, Labour’s overall majority in the House was only reduced to a still comfortable 66. The Conservatives gained 32 seats but trailed behind Labour with 198 seats. The Liberal Democrats mustered 62 MPs. In N. Ireland the Ulster Unionist party was reduced to one MP - David Trimble, its leader and a participant in the Good Friday Agreement, lost his seat. The more hard-line Democratic Unionist Party (DUP) took nine seats. In Scotland, major boundary changes followed the creation of the Scottish Parliament, and Scotland’s Westminster representation was reduced to 58 out of which Labour won 41, Lib Dems 11, SNP 6 and Conservatives 1.

In July 2005 four coordinated Islamist terrorist explosions killed 52 in London and injured hundreds more. Fundamentalist Islamist terror was now recognised as the single biggest threat in the UK. A new Prevention of Terrorism Act was passed; the new law was required to legalise control orders on people who were suspected of involvement in terrorism. However, it was soon adjudged as incompatible with the right to a fair trial according to the European Convention on Human Rights and the act was later repealed. An act to introduce identity cards was passed in 2006, despite opposition from human rights campaigners, but it was never properly put into effect and that act was also soon repealed.

Immigration from non-European Union countries increased significantly during the Blair years. Following the accession of four Eastern European countries into the Union in 2004, the number of European migrants, particularly from Poland, also increased dramatically. This caused allegations of cheap labour and competition for public housing and other benefits. Added to the fears caused by recent acts of terrorism, the mass influx of newcomers contributed to an increase in xenophobia and Euroscepticism.

Tony Blair’s last constitutional reform was the Constitutional Reform Act 2005 which created a new Supreme Court. Senior judges had previously been appointed by the Lord Chancellor and sat in the House of Lords as the Law Lords. Events surrounding the introduction of the bill to Parliament in 2004 were messy. The previous Lord Chancellor was Lord ‘Derry’ Irvine, who had been legal mentor to Blair and his wife. He was replaced by another of Blair’s legal friends Lord Falconer in 2003, when it was announced the office would shortly be abolished as it was considered that the European Convention on Human Rights was contravened by a cabinet minister acting as a judge and head of the judiciary. Irvine disliked the rushed and secretive way in which such an important office, which had been part of the English constitution for centuries, was to be disposed of; it was also rumoured that the proposal was disagreeable to the palace. Blair and Falconer soon realised that the office of Lord Chancellor held numerous constitutional powers which could only be removed with further legislation. The bill was amended: the Lord Chancellor’s office was retained and he remains custodian of the Great Seal, but he no longer sits on the woolsack as Speaker of the House of Lords and might actually be a member of the Commons; an independent Supreme Court was set up with the Lord Chief Justice at the head of the English and Welsh judiciary. This was Blair’s final alteration to the constitutional institutions of the UK.

There was now constant pressure from Brown’s supporters for Blair to retire. Following the death of party leader John Smith back in 1994, the two men had reached an agreement that Brown would stand aside and not oppose Blair’s leadership campaign in return for Blair’s promise that he would eventually make way for Brown to take over. Blair duly became Labour leader and went on to secure his three terms as PM. Brown and his supporters felt his promised resignation was overdue. In May 2007 Blair eventually yielded and announced he was resigning as prime minister and Labour party leader. When he spoke for the last time to the TUC conference in 2006, some delegates walked out and parts of his speech were heckled. The party’s paymasters were pleased to see the back of the man who had won three elections, who significantly increased public spending on education and health, had increased the number of public service employees, but had removed few restrictions on unions and had entangled the country in unwinnable situations in Iraq and Afghanistan.

Brown let it be known that, after his long service as Chancellor, he intended to pursue a statesmanlike set of objectives which included improving education, reducing inequality, renewing the concept of Britishness and restoring trust in politics at home, whilst promoting international development abroad and winning hearts and minds in the war on terror. Troops remained on operations in Iraq and Afghanistan. However, almost from the start, problems from his old responsibility for finance and the economy became the predominant features of his period as prime minister. Brown was expected to call and win an election in the autumn of 2007, which would confirm his mandate to govern, but he decided to let the opportunity pass. He was also criticised for delaying his attendance at the ceremonial signing of the Treaty of Lisbon - he arrived in Lisbon and signed the document, hidden from public scrutiny, a few hours later. Tories and some Labour members called for a referendum on the treaty, but Brown replied it was too complex to be decided by referendum. The treaty is chiefly notable in the UK for making provisions for a member state to leave the EU, and it established a procedure by which that could happen.

Meanwhile, the financial world was beginning to wake up to the enormous dangers of sub-prime mortgage lending in the United States. The first major warning of incipient problems in the UK came when the Northern Rock bank put out distress signals and applied for help from the Bank of England in September 2007. It had funded an ambitious mortgage lending programme with borrowed money and then repackaged the mortgages and sold them as ‘securities’ in the world’s financial markets. Quite suddenly, investors stopped buying sub-prime securitised mortgages and Northern Rock was unable to repay its loans when they fell due. For the first time in 150 years there was a run on a British bank as people queued to try and recover their savings. Oversight by the Financial Services Agency was shown to be inadequate and Northern Rock eventually had to be nationalised. Other banks were also having problems associated with sub-prime credit risks, but the situation stabilised for a time when the new Chancellor of the Exchequer Alistair Darling announced the government would guarantee nearly all bank deposits.

Across the Atlantic, the banking problem finally exploded completely when the global financial services company Lehman Brothers posted huge losses due to its activities in the sub-prime mortgage markets. Lehmann’s searched for potential buyers, but when it started bankruptcy proceedings on 15th September 2008 the entire world was plunged into a deep financial crisis. The British bank Barclays quickly bought up the investment banking and capital markets part of Lehman’s business, minus the toxic sub-prime part of the business.

The Lehman’s disaster spread across the Atlantic; HBOS, the country’s largest mortgage provider, was now in desperate trouble. The government injected £20.5 billion of taxpayers’ money and waived normal competition rules in order to persuade the venerable Lloyds TSB bank to enter a merger arrangement with HBOS. After government bailout fees and other charges were accounted for, Lloyds’ shareholders were dismayed to discover they owned only a minority share of the merged company and their share price was marked down heavily as the markets comprehended the full extent of HBOS debt. The newly formed joint company was in need of further government support and was partly nationalised. A few days later the Royal Bank of Scotland (RBS), which had become the biggest bank in the world with assets of £2.2 trillion after a series of ambitious mergers and acquisitions, announced it had run out of money. The stock market plummeted and the government, in concert with the Bank of England, continued attempts to restore market confidence and help stabilise the British banking system by providing more ‘loans’ from the taxpayer and guarantees of interbank lending together with further semi-nationalisation measures.

All this had to be paid for. By October it was clear that what had started as a problem in the US sub-prime mortgage market had developed into a global crisis that required a global response. The G7 countries agreed to a five-point plan of action to stabilise financial markets and restore the flow of credit to support economic activity. Interest rates were cut, then slashed, but business in the UK, as in many other countries, slumped. All the major central banks, including the Bank of England, used quantitative easing in an attempt to restore economic growth. Over a pre-announced period of time, the Bank bought gilt edged government bonds and other financial instruments from the commercial banks and other institutions and at the same time it increased the money supply. This caused bond prices to rise and the yield to go down. The intention was to prevent deflation and give retail banks the liquidity needed to finance growth in the economy. Quantitative easing continued to be used as an instrument of government policy to address various problems including the Covid pandemic of 2020.

The social consequences of the financial turmoil included an inexorable rise in unemployment and the yield on savings dropping to nearly nothing. Moreover, the entire political tribe at Westminster, including members of Brown’s cabinet had been besmirched by a scandal involving the widespread abuse of expense accounts. The shame was epitomised by the resignation of the Speaker of the House of Commons,  Michael Martin in June 2009. That same month Labour lost heavily in council elections and the European elections, in which both UKIP and the SNP scoring notable successes. Following those results, there were calls within the Labour party for Brown to resign, but he withstood the storm. The Conservatives had appointed the young David Cameron, an Old Etonian, as their fourth leader in eight years in 2005 and the polls indicated they were favourites to win the forthcoming general election. Cameron encouraged eurosceptic support when he concluded an agreement with other European reformers to form the Movement for European Reform.

Brown held off calling the election until the last moment in early May 2010. The attempts to stimulate the economy were visible in the form of a large budget deficit and a considerably enlarged national debt. During the election, Labour’s woes were increased when Gordon Brown described a Labour-supporting woman, who voiced objections to imigrants, as a bigot, whilst his microphone was ‘live’. Labour lost the election with 258 seats, but the Conservatives with 306 seats were denied a clear majority in the 650 seat House of Commons. The balance of power was held by the Liberal Democrats (Lib Dems) led by Nick Clegg with 51 seats.

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