A bloody fool: But is Osborne foolish because his advisers are concentrating on controlling spending, rather than the wider economy?

A bloody fool: But is Osborne foolish because his advisers are concentrating on controlling spending, rather than the wider economy?


How much influence do Treasury civil servants have on government policy?

That’s the question raised by Simon Wren-Lewis in his latest Mainly Macro blog – and well worthwhile. This Writer has seen it stated, many times – and repeated it here – that Tony Blair’s Labour Government only employed the Private Finance Initiative for investment in the NHS and education on the urging of Treasury staff.

Who got the blame for the huge interest payments? Labour.

But this was at a time when public net investment had been what Professor Wren-Lewis calls “unsustainably low” at 0.5 per cent of public spending, thanks to 18 years of Tory Government.

The Tories would have dodged the bullet because they didn’t care what happened to the NHS or publicly-funded schools. As those systems decayed away, they would have shrugged off criticism with an excuse and relied on the public to be happy at not paying quite so much tax – just as they are doing now.

Of course, that was nearly 20 years ago and the so-called experts at the Treasury will be completely different people by now.

This Writer’s experience of the current Treasury tends to correspond with what the Professor is suggesting about a concentration on controlling spending. When I wrote to the Treasury, pointing out that George Osborne’s entire fiscal policy was based on a spreadsheet error in a paper by so-called experts Reinhart and Rogoff, the response I received appeared to be utterly sincere – public servants doing their best to explain the thinking that still supported the policy.

I wasn’t convinced and, it seems, neither was George Osborne because his policy changed very shortly afterwards. But it does indicate that civil servants in the Treasury simply didn’t know any better.

In contrast, I can refer to the attitude shown by the Department for Work and Pensions, which is completely different – defensive, secretive and – to be honest – arrogant.

One of the interesting and as far as I know untold tales about UK austerity is the extent to which it is encouraged or discouraged by senior management in the Treasury.

I raise this in ignorance of which it is: I have on a few occasions seen senior civil servants defend austerity, but that is their job, and I’m not a good enough mind reader to know whether their heart was in it.

Delegating macroeconomic stabilisation means that finance ministries no longer need to have so much in house expertise on how the macroeconomy works.

Furthermore in the UK the establishment of the OBR, which took over responsibility from the Treasury for macro and aggregate fiscal forecasting, reduced the need for that expertise still further.

This means that in any contest between controlling spending (which finance ministries always have to do) and looking after the broader economy, it has become more likely that the economy will lose out.

[This] inclines me to the view that Treasury management had a more encouraging than discouraging role, but it would be interesting to know if this is right.

Source: Mainly Macro – Austerity, the Treasury, and Spending under Labour

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