Douglas Carswell's Blog

The Department of Failed Thinking?

All big Whitehall departments tend to be conservative – but not in a good way. Mandarins who have spent years working their way up the civil service hierarchy often reflect the assumptions and outlook of the hierarchy.  

In some departments, ministers have challenged old assumptions. In others, the old assumptions seem to prevail. Nowhere is this more so than inside the Treasury.

Here are half a dozen examples where I believe Treasury thinking has managed to end up on the wrong side of a big issue:

1. Wrong about the bust:  It has been five years since the credit crunch struck – an inevitable consequence of a credit bubble created by central bankers and their monetary incontinence. 

The Treasury does not seem to have properly understood how the credit glut caused the bust. Fixated by the idea that easy credit is some kind of elixir for growth, Treasury ministers tell us they are "monetary activists". What that really means is that they still believe that we can cure the patient by giving it more of the cheap candy floss credit that made it ill.

2. Wrong on growth:  What kind of stimulus would be even worse than a monetary stimulus? A fiscal stimulus – of the kind that Ed Balls is demanding. 

Spending money we do not have will no more yield prosperity than doling out candy floss credit. Both encourage unsustainable short term over consumption.

The problem is that the Treasury still thinks almost exclusively in terms of the need for some kind of demand-led stimulus. Once you concede that – and the monetary version fails, as it will – you inevitably strengthen the case made by those calling for the other sort. 

Unless the Treasury is capable of some fresh thinking on growth, we will end up with Ed Balls and co win the argument by default. Where are the bold ideas for supply side reform? Who in the Treasury is pushing for the sort of labour market reforms Germany has undertaken, creating a “mini jobs” boom and falling unemployment?

3. Print-and-pray economics:  A great deal of economic output in Britain is now sustained by candy floss credit.  Entire banks seem dependent on the stuff. 

Every time the edifice looks like it is crumbling, the Bank of England / Treasury establishment pump another large dollop of faux credit into the system through Quantitative Easing. This print-and-pray approach is likely to make things worse in the long run. 

4. Austerity without a reduction in spending: As Allister Heath points out, the Treasury has “exaggerated the extent of the belt-tightening .... Even a cursory analysis of the Treasury’s Budget projections reveals that state spending is still going up in cash terms.”

Public debt is rocketing as a result.  In five years, the administration will borrow more than Gordon Brown and co managed in thirteen.  

5. Wrong about the Euro:  When the Chancellor ticks off his European counterparts for questioning the future of the Euro, he is not merely engaging in diplomatic niceties. He is reflecting the view of Treasury officials who persist in believing that the single European currency is a good thing. 

The Treasury has failed to grasp that the Euro is a recessionary mechanism.  They have failed to even consider that it might be in Britain's national interest to encourage member states to decouple from it in an orderly way.

Instead we have committed billions of pounds to proping up a currency that makes our trade partners poor.

6. Wrong about tax simplification: When Treasury officials came up with the pasty tax, or VAT on church repairs or the caravan tax, they thought they were being terribly clever. In their eyes, they were removing anomalies and simplifying the tax system. It does not seem to have occurred to them that tax simplification could mean extending tax exemptions, rather higher taxes.

For Britain to return to prosperity, ministers need to do far more to challenge Treasury group-think.

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