Dramatic assault on Leviathan, not many dead

Forgive me for the lack of warning: alongside my excellent co-writer Stian Westlake, I have a pamphlet-length publication out, brazenly titled “The End of the Treasury”, and calling for the mother of all “machinery of government” changes.  Stian has blogged on it here, The Economist has a short piece in their print edition which can be found here (and you should read “J.C.” of that magazine on Labour’s interest in this topic on this brilliant blog).  Being described as “knowing my stuff” by The Economist neatly ticks one off my life goals.

For those of you stuck for time, an image might help.  Picture two unarmoured warriors trying to storm a Dreadnought battleship, armed only with spears, and you have some vague idea of what it means for two think-tankers to argue for breaking up and scattering the responsibilities of the mighty Treasury.  I’m not sure what I was thinking, but here are three rationales that may explain this act of suicidal courage:

1. I have had four years near the top of the Government, during which the Treasury bargains were easily the most significant moments.  You will have seen on this blog my serious concerns about how the higher-level decisions are taken.  The shape or very survival of a vital lower spending line may rest entirely on whether a hasty, Conference-pleasing tax bung is signed off.  Everything else has to shuffle to make room.

Meanwhile, pushing in the opposite direction, a small factory of caffeinated Fast Stream twenty-somethings may be concocting spending or tax ideas with only the slightest reference to the stakeholders or more expert officials elsewhere.

Scrutiny so fierce and sceptical that it actually destabilizes government certainty (and therefore the behaviour of stakeholders) sits alongside a cavalier ability to sign off tax measures that permanently erode the fiscal base. My favourite example: the painfully born industrial strategy, wrestling a couple of hundred million pounds for future commitments like the Aerospace Technology Institute, cost less than the beer duty cut announced at the same time.  Except the ATI will be under permanent scrutiny, potentially destabilizing the industrial interests that rely upon it, while that beer duty cut will last forever, unexamined.

I didn’t think this system worked. I had no problems with fierce Treasury scrutiny – officials handling hundreds of millions of pounds should have the wit and skill to pass those tests.  It was the lack of a symmetric scrutiny the other way that alarmed me, the consequence of the secrecy and disjointed power embedded in the current set up. Over years, for budgets with the slenderest margins, it could sway funding away from the good towards the un-evidenced or frivolous. We can’t afford that.

2.  I love post war British history, and have read a fair amount of it through the medium of Chancellors’ memoirs, economic and political history (sit next to me at dinner at your peril).  I found producing that historic section fascinating. All history teaches the reader just how historically contingent is our current state of affairs.  This always leads to the simple insight: thing don’t have to be this way. They are so because of the blunders and learning of the past; the political dispositions (Why did the DEA fail? Because of the recurrent sterling crises, because George Brown was a drunk and Callaghan ruthless …?)

In our case, the Treasury is a product of some lessons very well learned (well summarised by John Rentoul’s account of a PermSec speech here). For decades, Britain lurched from crisis to crisis, always overestimating its ability to defy economic gravity. It needed institutions that controlled overspending, eliminated day to day politics from the management of money, realised its own limited ability to bend markets.  They were just the lessons you need if you are confronting the problems of 1981.  Which leads me to my last point (for now):

3. We are not facing the problems of 1981.

We have had the first fall in NGDP since stove top hats were in fashion. We have a chronically centralised state, and consequently local authorities sapped of the ability or inclination to push pro growth policies.  Our ability to make lasting commitments to industry – beyond a few years out – is badly shaken, at the very time when we need significant investment in energy and infrastructure.  The risks of an inflationary spiral are non-existent, at a time when some exuberant wage growth might actually be nice. We have a chronically difficult fiscal position that can only be solved by departments working together – not through a set of narrow, bilateral negotiations in which they are set against one another.

For the first time since EVER, we have a serious need to increase interest rates in the economy – in a good way (through higher monetary growth, greater confidence, less panicky need for something risk-free).  Tell me how pension funds can stay solvent with long rates at 2.5%! An institution focussed on the very opposite (“any minute now, we’re gonna become Greece”) is pointing the wrong way. At the least, these topics need to be debated, rather than narrowly held within such mighty thick walls.

I don’t think Stian or I think this is obvious or easy.  The next government will above all want the certainty that things can be kept under control; the Treasury is their best weapon to that end. It has amazingly capable people, used to providing solutions and acting decisively. But as JC’s blog illustrates, there are tentative signs that some people are looking this way.


Published by freethinkingeconomist

I'm a mid 40s, former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

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Freethinking Economist

Economic advice. No longer special.

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