This is a disastrous week for Alistair Darling – but actually the real culprit is Gordon Brown.
Three things have gone gravely wrong for the Treasury – and, indeed, for the British people as taxpayers in the past few days. The most spectacular is the breakdown at the Revenue and Customs, for what has been happening is not just this breach of security. That is a symptom of a department under huge pressure imposed on it by the Treasury, a department that is profoundly demoralised and, accordingly, is bound to make mistakes.
But there is also the emerging appreciation that the situation at Northern Rock is far worse than was initially realised and that the taxpayer may well lose money as a result. And thirdly, less noticed but as important as either of these, is a sharp deterioration of public finances, making the Treasury's recent forecasts for public borrowing look over-optimistic. How on earth have we got ourselves into this mess?
The Revenue and Customs has been a disaster waiting to happen. Three things have contributed to this debacle. First, it was loaded with a tax system that repeatedly was made more complex, budget after budget, with Gordon Brown chopping and changing, adding new taxes and supposed incentives, then changing his own changes when they had perverse effects.
Second, it was under this pressure to try to meet targets for revenue. Four of the past five years have seen a higher budget deficit than originally planned, partly because of higher-than-expected spending, partly because of tax shortfalls. Pile pressure on people and they melt. Some will go for early retirement, others will fall into sullen acquiescence and others take short- cuts.
Third, Gordon Brown embarked on this madcap scheme to merge the Inland Revenue and the Customs and Excise, two departments with completely different histories and cultures. As we all know, whenever the high-ups try and reorganise a department they screw up and it takes months or years for the foot-soldiers to sort things out. To take two departments already under pressure and try and merge them was nuts – even people like me saw that and warned as such. This is not the fault of some junior officials. This is not even the fault of the poor chap notionally in charge of the Revenue who has now had to fall on his sword. It is the people, or rather, I am afraid, the person, who was too arrogant to try and learn how organisations really worked – what was realistic to expect and what was not realistic – and who would not listen to anyone who appeared to be his equal.
The Northern Rock debacle shows a similar lack of understanding of how organisations work. The new regulatory system, designed under Gordon Brown (and over which the previous Governor of the Bank of England nearly resigned) failed at its first stress test. Having failed, the question was how to patch up the mess.
In my own judgement, the decision to guarantee all deposits was absolutely right. I do think Alistair Darling deserves credit for that. But then the response was flawed by allowing the existing management to remain in place, something guaranteed to undermine further the confidence of depositors. The result was that the call on Bank of England support was far larger than initially envisaged. This little specialist bank has had to borrow, ultimately from the government, the equivalent of about £900 from every adult in the country. Now it is becoming clear that the taxpayer may lose a considerable amount on this support, though the extent of the liability is pure guesswork.
So we have had a flawed system of shared responsibility for regulation, coupled with a flawed response. The reasons are the same: a failure to understand how organisations actually work and a refusal to listen to people (including a Governor of the Bank) who could explain why the plan might not be such a good idea.
Now to the third thing that is going wrong, one rather lost in the morass of other information that emerged yesterday. It is that the public sector this year is heading for a deficit of more than £40bn, worse even that the numbers given to us by the Chancellor in his Pre-Budget Report last month. We have had seven months of the financial year during which the government had to borrow £24.2bn, against £17.5bn for the same period the year before. Tax revenues in October were disappointing and spending was higher, on the back of higher inflation. So borrowing is running way above the level of last year despite the fact that the economy has been growing strongly at an annual rate of more than 3 per cent. Heaven knows what will happen to public finances if, as expected, growth slows next year.
Senior civil servants know all this. I was talking to a friend at the top of Whitehall a few days ago about how worried I was about public finances and the extent to which present tax levels were likely to curb growth next year. His eyes rolled to the ceiling.
So what is going to happen? The issue is competence. We don't have a bad Whitehall machine. Our civil servants in the main are hard working and honest. We have had, over the past decade, a government that is hard-working and honest. Some might disagree but I do really believe that. So why do we have such huge screw-ups?
We are too close to be able to analyse properly, but I think part of the problem has been that the leadership not only knew very little about running organisations but failed to understand how little it knew. Blair was Tigger, bouncing around with lots of "initiatives", with very little follow-through; Brown was Stalin, setting lots of targets without the appreciation that those very targets would distort the way people behaved. It was a peculiarly toxic combination.
Why didn't these weaknesses become evident earlier? Well, they did. We saw that in the Home Office, in the benefits system, in hospital wards and so on. But while the economy has a whole was growing, and living standards were rising, people were reasonably content. True, individuals had to borrow to maintain their improving lifestyles; and true, the Government had to borrow to maintain its growth of public spending. But while global interest rates were low, that was a rational response.
Now the pressure on the public sector, and, of course, the Government, will mount. The question is whether this government can learn from its mistakes in the time it has left to do so and improve the quality of its administration.
The absolutely central point here is that if things go wrong it is not the fault of junior officials. It is not the fault even of their bosses. It is the fault of the Government itself. Whitehall can, given a clear objective and the resources to deliver that objective, perform very well. Whether this government can really grasp what it is doing wrong is another matter. I hope this is not the "ERM moment" for this government but I fear it might be.Reuse content