Stephanie Flanders, BBC economics reporter
On running the rule over Gordon Brown's economic record
These must be frustrating times for Gordon Brown. It is bad enough that he should be facing yet another party conference as heir apparent, rather than king. Now his foes have decided it is open season on the economy - which even a year ago had seemed beyond reproach.
The headline figures can still impress. When Labour came in we were at the bottom of the league of large European countries in living standards terms.
Brown's Miracle Economy
Sunday 25 September 2005
22:15 BST, BBC One
Now we are at the top, after the longest economic expansion in modern British history. But lately, Brown's economic garden has been looking less rosy.
Britain is growing slower than it has in more than a decade. The high street has ground to a halt, and inflation is the highest it has been under Labour.
It is not 1992 all over again - the 15% interest rates, the soaring unemployment, the negative equity. But it has raised some awkward questions for the Chancellor about how we have managed to grow as long as we have, and whether that growth can continue.
To put it another way, when we look back, in a few years' time, at Brown's economy, will we still see an economic miracle? Or another old-fashioned spending binge that, sooner or later, had to run dry?
That was the question Panorama asked me to investigate this summer. So, I got on my bike and took a tour of Brown's Britain, trying to resist the temptation to talk about the "economic cycle".
Former chancellor Ken Clarke was disarmingly petulant. "What I'm saying is that I did all the spadework, and that my four years were better than the eight years since. I'm conceding he didn't wreck it. He's not a disastrous chancellor. He's perfectly alright as chancellor, but it's disappointing.
"And if he doesn't do something about the public finances soon he's going to leave a terrible mess for his successor."
It has been a central thrust of his campaign for the Tory leadership: Gordon Brown took my nice shiny economy and he frittered it away.
New challenges, old weaknesses
Of course, the Treasury sees things differently. But what does Gordon Brown's economy look like at ground level? Cycling around Britain, I found that much has changed for the good since Brown took the economic reins. But many of the old weaknesses that have dogged the economy in the past are alive and well - and poised to test the chancellor's reputation in the months ahead.
We know what he would like to have changed on his watch. We know, because he told us so often, back in the early days. Economic stability was only a means to an end, he would say. The end goal is faster growth in living standards, built on higher productivity, higher exports, and higher investment.
He got the stability, something many would attribute to the decision to make the Bank of England independent. Even Ken Clarke admits that was a good move - he told me he supported it, before he voted against it.
But Britain has not made much headway in the other areas Brown considered so important in 1997. Our trade gap has widened almost every year since Labour took office.
And though our workers have caught up with German levels of productivity, the gap with America and France has scarcely budged. That means that even though we have 3 million more people in work than the French, and work a lot more hours, we have very little to show for it in terms of greater economic wealth.
Ed Balls was with Gordon Brown every step of the way until he became MP for Normanton in May 2005. Now Ken Clarke calls him the chancellor's representative on Planet Earth. I asked him whether he was disappointed by Britain's continued low productivity and widening trade gap.
He assured me that we were making progress. "There's an ability for people to plan ahead, invest in the future, which we've not seen in the last 20 to 30 years."
Quite a few people around the country echoed this view - especially the property developers. There is just one problem. Businesses are not investing more. They are investing less.
Total investment as a share of Gross Domestic Product (GDP) is the lowest it has been since those records began in 1965. Ed Balls did not dispute the figures. He said that higher investment was simply a matter of time.
As the economy has slowed down, the question of time has become quite pressing for Number 11. And I am not just talking here about the time before there is a vacancy at Number Ten.
I am talking about the time it takes for the productive side of the economy to finally step up and take up the burden of carrying the economy. He, and we, need that to happen quite quickly, because the non-productive side is running out of steam.
Saved by spending
If we had been operating under the old rules of the UK economy, we would have had a recession some time in 2000 or 2001. Several countries had one at that time, including the US.
The miracle, if there is one, is that we carried on growing. But looking around the country, you see it is a miracle built not on investing, or exporting, but on a miraculous capacity to spend.
Even the Treasury accepts that the consumer spending spree cannot keep the economy going forever, all the more so after the slowdown of the past year.
But the more you look around, the more you start wondering how the recovery has continued as long as it has. The answer lies in a fortunate mix of low interest rates and low inflation - not only in miracle Britain but around the world.
The Bank of England would claim its part in the low inflation story. But it might also draw your attention to the declining price of a bike. I cycled to Raleigh, in Nottingham, where they used to have a workforce of 10,000, and a factory the size of an aircraft hangar in the middle of town. Now they are on the outskirts, in a warehouse, with a workforce of around 200.
But thanks to cheap Asian producers the firm now imports from, it is making a profit selling bikes for £200 that even five years ago would have cost £500. Cheap imports have kept inflation and interest rates lower than they would have been these past few years, with happy consequences for the length of Gordon Brown's recovery.
China is not going anywhere. But most economists would argue that the magical downward effect on inflation will start to evaporate sooner or later.
Any given business can only outsource to China once. You get the big price drop the first year when you switch to Chinese imports. But the next year the price is the same. There's a limit to how low the price of a bike - or a pair of jeans - can go. And of course, there's the soaring price of oil to add into the mix.
Even Ken Clarke concedes that is not Gordon Brown's fault, but it does add to the grey clouds hanging over the economy for the year ahead.
The public spending prop
What is left of the miracle economy, if you strip out the cheap imports and the consumer spending? What is left is a lot of public spending. The only part of the economy that has grown faster than spending by all of us the past few years has been spending by the government.
In the north-east, one recent estimate puts the public sector of the economy at close to 60%. That's roughly what it was in Hungary before the Berlin Wall came down.
Gordon Brown has certainly left his mark on the area, and put a lot of people in work who might otherwise have been unemployed. The number of private sector jobs in the region has shrunk since 2001. The public sector workforce has grown by around a fifth.
Has all the public money been well spent? I met business types who griped about the waste, and the competition for local talent (no private employer can match the pension.) But I also met people at the brand new Sure Start children's centre in Redcar, for example, who thought Gordon's millions had done a lot. The visitor from the Citizens Advice Bureau had helped families at that one Sure Start claim an extra £25,000 in tax credits from the Inland Revenue in the past three months alone.
Here is where everyone can agree. Growth in public spending has done a great deal to prop up the economy since 2001, not only in the North-East but around the country.
But all of that public spending, sooner or later has to be paid for. Ed Balls denies that Gordon Brown's decision to move the goal posts on his golden rule this summer has done his reputation real harm. Clarke produces more petulance:
"He's gone back to 1997, he's taken two years of fiscal surplus which are my surplus, achieved by sticking to my figures, in order to say he's still abiding by the blessed golden rule which was a useless rule in any event."
To meet the rule, both can agree that the Treasury is planning to put less into the economy over the next few years and take more out.
Is there anything left of the miracle economy to fill the gap? Ed Balls and the Treasury say there is - that exports and investment will finally ride to the rescue. On this, the Bank of England seems to agree.
But looking at the economy of the past year, most economists would say there is little sign of that happening so far. What Gordon Brown would like to be his final years as chancellor could be the most testing yet.
Panorama: Brown's Miracle Economy is broadcast on Sunday 25 September at 22:15 BST on BBC One and online via the Panorama website. It will also be available on demand following the initial transmission.