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Last Updated: Thursday, 10 May 2007, 14:52 GMT 15:52 UK
Blair's surprising economic legacy
By Evan Davis
BBC Economics Editor

Bank of England
The new Labour government made the Bank of England independent

In the 1997 election campaign, the Conservatives ran under a slogan "Britain is Booming. Don't let Labour Blow it".

They ran a party political broadcast that looked ahead at economic life under Labour, with various people talking about a future under Labour, telling us how their mortgages had gone up, they had lost their job and inflation had soared.

It has not happened that way.

The economy has grown at an annual per capita rate of 2.4% a year. This is rather better than the average for the last half century, which is 2.1%.

Record employment

Our overall growth has been 2.8% a year, slightly exceeding the average of the developed world, and ahead of the large European nations by an average annual percentage point.

Meanwhile, inflation has been almost bang on its target. Employment has hit record levels.

If that's all something of a surprise, perhaps more significant is that instead of the government being disrupted by a sterling crisis, Mr Blair is the first Labour prime minister to have endured a currency that is embarrassingly strong, not weak.

Under Messrs Blair and Brown together, Britain has allowed itself to become the most global large economy in the world.

Now, it's tempting to dismiss Tony Blair's role in running the macro-economy over the last decade on the obvious grounds that he sub-contracted it all to his chancellor, Gordon Brown (who in turn out-sourced quite a lot of it to the Bank of England).

And it is true that it is probably not Tony Blair who should be held responsible for big economic decisions, such as making the Bank of England independent, or introducing tax credits.

But aside from the macro-economic management that has not been under the direct control of the prime minister, there have been several important economic developments in the last few years, for which Tony Blair can take a share of responsibility.

He has set an important overall direction for the economy. And it is this direction which is perhaps the biggest surprise of all for a Labour government.

Off-shore moves

For under Messrs Blair and Brown together, Britain has allowed itself to become the most global of the world's large economies.

We have allowed our companies to be bought up by foreigners, our manufacturing has been allowed to move off-shore, we have been a more vociferous champion of free trade than our large trading partners.

And above all, perhaps the biggest single economic decision of the Blair government's period in office, we have allowed foreign labour to migrate here more freely than most of our counterparts.

Tony Blair and Chinese president Hu Jintao on a trip to Beijing in 2005
Mr Blair has promoted a global role for the British economy

The effects may have been deliberate, they may have been accidental; you may view them as positive, you may view them as negative. But the net result is an economy that is rather different to the one Labour inherited.

Business and financial services have become our dominant industries, and manufacturing has shrunk in relative terms far more than anyone could have predicted (from 21% of our economy in 1997, to less than 14% today).

The population has grown by about 4% - you have to go back a generation to find population growth at that on that scale.

No Euro

And the foreign cash the country earns on its investments overseas - at about 2% of our national income - is higher than it has been at any time since Britain had an empire.

So it turns out that Mr Blair's natural inclination to project a global role for Britain - obvious in his foreign policy and his promotion of advances in Africa and on climate change - was most forcefully applied to the economy at home.

He didn't get to take Britain into the euro, an international venture to which he was instinctively rather sympathetic, but he did succeed in allowing Britain to cope with a world changing around it.

Perhaps his most important economic legacy is that in a recent international poll, Britain turned out to be the nation most inclined to believe that the emergence of China was beneficial not harmful to its economy.

The UK under Tony Blair has adjusted to the events in the rest of the world with less trauma than most other large countries.

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