Gordon Brown is a historian by education, so he might just appreciate the fickleness of posterity. Over a decade at the Treasury from 1997 to 2007, he did many things that he might believe should be widely remembered. Yet few, if any, of his decisions live as clearly in memory as ‘Gordon Brown sold the gold’.
Brown sold the gold. He raided pensions. He put 75p on pensions
Exactly 25 years ago, Brown’s Treasury stunned the gold markets by starting to sell of much of the UK’s gold reserves. In total, 395 tonnes of gold were sold over three years, yielding $3.5 billion (£2.8 billion) in revenues. That’s a big number, but far smaller than the current value of 395 tonnes of gold, which would be somewhere north of $25 billion (£19.9 billion).
Those numbers mean it’s hard to view the gold sale as a great move, even if it was in keeping with conventional economic wisdom at the time. Hindsight is a great teacher, but when you review the Treasury papers and economic commentary of those times, you don’t find many people saying ‘Don’t be daft Gordon, gold is about to enter a multi-decade bull market’.
I’m probably not qualified to debate the economics of the gold sale, so I’ll confine myself to politics. Here, I think the ‘Gordon Brown sold the gold’ offers two harsh lessons to other politicians.
First, simplicity rules. Human beings are small and limited creatures. We all understand and navigate and remember the world in simple terms, not least when it comes to politics. This is especially true of economic policy and performance. Because economics is complicated, it’s generally easier for us to grasp a few simple ideas or claims and overlook the nuance.
Brown can reasonably claim to have been a fairly good chancellor, at least measured by outcomes. Possibly more by luck than skill, he oversaw a decade of solid growth. His independent monetary policy framework persists to this day, as does the minimum wage. He flunked the opportunity of greater supply side reform, but as prime minister he arguably saved the world from a worse financial crisis is 2007/8 by galvanising international responses.
Sadly for him, a lot of that will be forgotten in favour of simpler, starker stories. He sold the gold. He raided pensions. He put 75p on pensions. He called Mrs Duffy a bigot. When he left office, a note left in the Treasury confirmed ‘there is no money’.
The point is that politics is harsh and simple. Something that sticks in the public imagination matters for your position and legacy, while more subtle and complex things don’t. Just ask John Major. No one remembers the economic recovery that was well underway in 1997 when Brown arrived at the Treasury. They remember Black Wednesday.
More recent politics follows the same rule. David Cameron: austerity, then running away after losing a referendum he didn’t need to call. Theresa May: dementia tax, coughing and dithering. Boris Johnson: parties that broke his own lockdown laws. Liz Truss: market meltdown, and a lettuce.
If he’s not already worried, the lesson of Brown and the gold should scare Rishi Sunak. He can claim to have done some sensible, worthy things. He stabilised government and markets after the Truss debacle. His tax cuts (National Insurance instead of income tax; and especially full expensing of investment) aren’t mad. His lifetime tobacco ban will likely be his only significant legacy. But it seems utterly unlikely that he can do anything in his remaining time to offset those simple and negative stories voters remember about his party, or the one simple thing they know about his time in office: everything got more expensive. In political communication, simplicity is powerful.
The other golden lesson for politicians is simple too: don’t try to call the markets. Brown’s decision to sell made perfect sense under the circumstances of the time. But circumstances change: Brown – like almost everyone else – failed to anticipate twenty years of low interest rates, so the bonds he bought with the money from gold underperformed, while gold itself soared.
This shouldn’t surprise. We don’t hire politicians to be asset managers, after all. Generally, decisions on the allocation of public assets and forecasts about markets are best left to professionals – officials, economists and investment managers aren’t, of course, perfect. But really, who would you rather have deciding where your money goes: a bunch of technocrats, or politicians thinking about the next general election?
Yet our current political leaders, both Conservative and Labour, show alarming interest in taking such decisions. Both Jeremy Hunt and his Labour shadow Rachel Reeves have come close to telling pension funds where they should invest the money they manage on behalf of pension savers. Sometimes it’s a simple bit of economic nationalism – ‘buy more British equities’ – and sometimes it’s insisting on asset classes. See Hunt’s exhortations to pensions to invest more in private equity and illiquid assets, for example.
It’s probably inevitable that politicians, especially smart, powerful and ambitious ones, feel the confidence to call the markets and dictate investment choices. But Hunt and Reeves alike should take a minute today to reflect on Gordon Brown’s golden legacy.
What Rishi Sunak can learn from Gordon Brown’s golden mistake
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07.05.2024
Gordon Brown is a historian by education, so he might just appreciate the fickleness of posterity. Over a decade at the Treasury from 1997 to 2007, he did many things that he might believe should be widely remembered. Yet few, if any, of his decisions live as clearly in memory as ‘Gordon Brown sold the gold’.
Brown sold the gold. He raided pensions. He put 75p on pensions
Exactly 25 years ago, Brown’s Treasury stunned the gold markets by starting to sell of much of the UK’s gold reserves. In total, 395 tonnes of gold were sold over three years, yielding $3.5 billion (£2.8 billion) in revenues. That’s a big number, but far smaller than the current value of 395 tonnes of gold, which would be somewhere north of $25 billion (£19.9 billion).
Those numbers mean it’s hard to view the gold sale as a great move, even if it was in keeping with conventional economic wisdom at the time. Hindsight is a great teacher, but when you review the Treasury papers and economic commentary of those times, you don’t find many people saying ‘Don’t be daft Gordon, gold is about to enter a multi-decade bull market’.
I’m probably not qualified to debate the economics of the gold sale, so I’ll confine myself to politics. Here, I think the ‘Gordon Brown sold the gold’ offers two harsh lessons to other........
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