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Thursday 4 December 2008

A fundamental crisis of credibility

Simon Nixon says loss of authority at the Bank and the Treasury matter even more than the failings of the FSA

Perhaps that’s because Sir Humphrey was long ago given the boot — his experience irrelevant to a government that had abolished boom and bust. The average age of Treasury staff today is 34; 50 per cent of them have been there less than three years; 80 per cent have only ever worked for Brown or Alistair Darling. The current permanent secretary, Nick Macpherson, is 48, while his number two, John Kingman, is just 38 — fast-tracked through the ranks after catching Brown’s eye in the press office (where else?).

In just over a decade, the new Labour kulturkampf has undermined a century and a half of Civil Service tradition, replacing it with a kindergarten of politically correct, politically subservient financial ingénues well-honed in the art of devising eye-catching initiatives on trendy topics such as Third World debt, but manifestly unable to cope with a real crisis.

Of course, youth is not necessarily a bad thing. But talking to former top mandarins, it is clear that much that made the Treasury so formidable has been lost.

Institutional memory has been erased: few of today’s top Treasury officials were around during the early 1990s recession, let alone the recessions of 1981-83 or 1974-75. Also missing are the networks of contacts built up over long careers that can be such a valuable source of unofficial advice and market insight in a crisis. And the greatest loss of all is the independence of an organisation led by civil servants approaching the end of their careers with their pensions in the bag and nothing to lose but their knighthoods, as opposed to young Turks who owe their positions largely to political patronage. The recent spate of Treasury blunders suggests an institution that has lost the ability to say boo to a ministerial goose.

Even so, the Treasury has fared well under Labour compared to the Bank of England. Far from gaining in prestige since being granted control over interest rates in 1997, the Bank has been diminished by being stripped of responsibility for banking supervision — and by Gordon Brown’s cavalier attitude to senior Bank appointments. Look at the way members of the monetary policy committee have been parachuted in at the last minute, the selection criteria shrouded in mystery, other than the apparent requirement that candidates should at one time have either taught or employed Ed Balls. Worse, Brown has used the Bank as a parking place for civil servants out of favour in Whitehall — notably Sir John Gieve, who was rewarded for an unhappy stint as head of the Home Office (condemned by its own cabinet minister, John Reid, shortly after Gieve moved on, as ‘not fit for purpose’) with the post of deputy governor responsible for financial stability — traditionally a job for a City grandee or a Bank insider with years of markets experience.

More articles from: Simon Nixon | this section

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