Peter Hoskin

Brown’s wayward sense of priorities

Brown's wayward sense of priorities
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What is it with Gordon Brown and alarm calls?  He spent years ignoring the IMF's warnings about the state of the UK public finances.  And now, thanks to a National Audit Office report, we learn that he ignored warnings about the preparedness of the Treasury to deal with a banking collapse.  Here's the relevant passage from that report, with the key part underlined:  

31. The Treasury had been aware of potential shortcomings in the arrangements for dealing with a financial institution in difficulty prior to the crisis at Northern Rock. From 2004 the Tripartite Authorities had undertaken exercises to test their response to a range of scenarios. These exercises had identified the need for further work on how the resolution of an insolvent firm with systemic repercussions would be handled and by whom. As a result, scoping work was done to identify the key issues the UK would face in winding up a financial institution, the practical processes available and therefore the gaps and options to fill them. Prior to 2007, work on improving the existing arrangements was not, however, judged by the Treasury to be a priority in a benign economic environment, compared with other financial crisis response planning. The Treasury started a project in early 2007 to produce a consultation document by Autumn 2007 on how the Tripartite Authorities would deal with a bank in difficulty. Following consultation, new legislation was put before Parliament in December 2008 and received royal assent in February 2009.

The result?  An unprepared Treasury, that was "severely stretched" when Northern Rock collapsed, and decided to continue 125 percent mortgages (backed up by taxpayers' cash) in all the confusion.  One of the major lessons coming out of this crisis is less that there needs to be a new series of early warning systems -  as Brown calls for - but more that greater attention be paid to existing alarm calls; however brightly the sun may be shining.