June 23, 2013 6:28 pm
The best spending cut of all? Shut down the Treasury
It is not easy to find any other body that has made so many mistakes
Britain’s government wants to save money to narrow the fiscal deficit. It could make a modest start by shutting down the Treasury.
George Osborne is set this week to unveil a fresh tranche of public spending cuts to extend austerity beyond the 2015 general election. The pain will be felt by everyone from university students to soldiers made redundant on their return from Afghanistan and from public servants and welfare recipients to businesses reliant on a decent national infrastructure.
The irony is that the cuts are needed because the Treasury bungled the attempt to repair the public finances. Perhaps that should not be a surprise. It is a struggle to think of any organisation – public or private – that has got so many things wrong during the past decade or three, nor one so adept at shifting the costs of misjudgment on to others.
In 2010, Mr Osborne’s top officials assured him that by now the UK economy would be settling on the sunlit uplands of healthy growth. The hard work of deficit reduction would be behind him. The Conservatives, as leaders of the coalition government, would be set fair for victory in the 2015 election. The alternative was to see Britain end up like Greece. In the event the economy has stalled and, with it, progress in reducing the deficit.
The buck of course stops with the politicians. But could the chancellor have known that the Treasury’s zeal for front-loaded austerity was an act of atonement?
In the British system the politicians change, but the civil servants do not. The officials shouting loudest for spending cuts and tax increases in 2010 were making amends for their complacency during the boom years of the Labour government. The problem has been that the cuts were too fast and deep. Britain’s deficit will soon be twice that of Greece.
Everyone makes mistakes. The Treasury’s failures have been systemic. Its devotion to unfettered markets led it to ignore the risks of under-regulated financial markets; its disdain for state intervention has blinded it to the needs of industry. The sensible thing to do in 2010 would have been to cut current and to protect capital expenditure. Instead the axe was taken to roads and railways, housing and digital communications, and school and hospital-building.
The Treasury’s attempts to reach beyond finance and turn itself into an economics ministry have not helped. Taxpayers are now picking up the bills for the ruinous private finance deals signed off by the last Labour government – deals under which profits were transferred to the private sector while the government held on to all the risks.
Though it still sits at the apex of Britain’s system of public administration, Treasury officials have been leaving in droves. Staff turnover in the department rivals that of fast-food chains. Yet the senior mandarins have lost none of their self-regard. German officials marvel at the alacrity with which they lecture their European counterparts on the art of economic management.
Just about everyone outside the Treasury agrees that rebalancing the British economy requires a more active role from government – an industrial strategy that supports rather than directs Enterprise. The only way to get one is to break the grip of the Treasury’s devotion to fiscal fundamentalism and untrammelled markets by stripping it down to the core functions of a classic finance ministry. The wider responsibility to provide an ecosystem in which businesses can flourish should be transferred to the Department for Business.
Those with long memories will say this has been tried before, when the then Labour government set up a ministry of economic affairs during the 1960s. That attempt was scuttled by the Treasury. But that was several boom-and-busts ago – long before the Treasury had squandered the proceeds of North Sea oil and bet the future of the economy on the banks.
In those days no one would have thought the Treasury could fall so low as to lose interest rate policy to the Bank of England and economic forecasting to an independent Office for Budget Responsibility.
Some years ago I observed that the Treasury Rolls-Royce of old had come to more closely resemble an East German Trabant. Since then, the wheels have fallen off. The time has come to tow it to the scrapyard.
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Copyright The Financial Times Limited 2013.
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