But they were all ill-advised - by the Treasury, where poor economic forecasts failed to catch the scale of the late Eighties boom, and by the Bank of England which should have been aware of the dangers of the boom, but failed to react to growth in the money supply (M3) running at nearly 20 per cent, or to a clearly unsustainable surge in house prices. If we are to make a real change in the management of Britain's economy we must reform these two institutions.
This cannot be done overnight, but a start needs to made now to complement the short-term expansionist policy measures demanded by the current crisis. Without it, whether a Chancellor succeeds or fails will remain a matter of luck. And so will the fortunes of the British economy. The key to what needs to be done is simple: institutions should have single functions for which they are accountable.
The trouble with the Treasury as an institution is that it is trying to do too much: it is trying to run fiscal policy, trying to run monetary policy, trying to control public spending, trying to forecast what the economy will do. Equally importantly, the present arrangements make it impossible to tell when to blame the Chancellor personally and when to blame the Treasury advisers.
Our plan takes monetary policy away from the Treasury and gives it to a reformed Bank of England; takes away forecasting and gives it to an independent agency which would report to Parliament. And it gives the Treasury a specific duty for which it would be answerable: to try to balance the budget over the economic cycle.
The Bank of England also tries to do too much - it has to carry out the government's monetary policy, it has to raise money for the government, manage the currency, regulate the banking system, promote the City as an industry; it even has to print the banknotes. In our reforms it would be left to concentrate on the one thing which really matters, and which it doesn't do at the moment: take responsibility for fighting inflation.
The Bank should be independent of government - as it is in Germany, the US, and to a large extent Japan. It would then form its own monetary policy instead of just carrying out that of the government of the day. It would be answerable directly to Parliament for its performance. Our reforms would give banking regulation to a new body (and privatise the printing of banknotes).
Finally, we need a new ministry to do the things which are not being done at all, and should be done: to consider the economic impact of all government policies.
The rundown of the coal industry is an outstanding example of the way in which a series of government policies have combined to make an economic nonsense. There is no co-ordination between the privatisation of the electricity industry, the commercial aims of the gas industry, the costs of unemployment. The embarrassing incapacity of ministers to give any respectable account of the decision-making process is a statement of the failure of the system.
And it is a system which governs all policy. The Ministry of Defence does not have to think about the balance-of-payments cost of keeping troops abroad; the Department for Education does not have to think about the effect on growth of not training enough engineers. We need a Department of the Economy whose business it is to sit alongside the spending ministries and think through the consequences of their actions.
These reforms seem radical to anyone familiar with the British system. But in world terms they are commonplace. Most industrial countries give a fair measure of independence to their central banks - and indeed Britain will have to do so under the Maastricht treaty. Most countries have separate agencies for banking supervision; many countries have a ministry each for the treasury and the economy; and no major country gives its finance minister the power we give the Chancellor over taxation.
In one area our proposals go further than is common among industrial countries: the requirement for the Treasury to balance the budget over the cycle. We felt it right to go beyond normal practice because even the US and Germany have failed to establish an acceptable degree of fiscal discipline.
For the rest, all we would be imposing on British institutions would be what is considered good practice in the rest of the industrial world. It is astounding that it has not been done already.Reuse content