Daily catch-up: Danny Alexander on the role of Chief Secretary to the Treasury

'A journalist once did find a pound coin in the Treasury sofa. If only he had known there were another 27 billion of them down there.'

Peter Hennessy, Ed Balls, Danny Alexander, Nick Macpherson and Jon Davis

Danny Alexander, Chief Secretary to the Treasury in the coalition government, came to the final seminar of the "Treasury and Economic History since 1945" course at King’s College, London, on Friday. The class was led by Jon Davis of King's and Nick Macpherson, the permanent secretary to the Treasury, with Ed Balls, visiting professor and former shadow chancellor, and Peter Hennessy, the presiding genius of contemporary history, providing commentary.

Alexander recalled the coalition negotiations in 2010, "which included brief discussions with Ed" ("brief?" interrupted Balls – "six or seven hours, on and on"). "Ed was texting through those discussions too," said Alexander. "I'm making notes," said Balls, showing Alexander his phone.

Alexander was Secretary of State for Scotland for 17 days, before David Laws resigned. "I was the youngest, shortest-serving and most successful Secretary of State for Scotland," he said. Then he moved to the Treasury, becoming part of the Quad, the group of four that acted as an inner cabinet: with David Cameron, George Osborne and Nick Clegg. He suggested that there was sometimes such a thing as the Treasury view: "George Osborne and I would find ourselves more in agreement with each other than with the other two."

He said that the Office for Budget Responsibility, created by Osborne to provide independent forecasts, was "generally" a good thing.

The OBR was sometimes a problem, such as when a forecast changed at short notice. We didn’t have at any time between 2010 and 2015 the benefit of an improving forecast. There was one occasion [the 2012 Budget] when the forecast changed with two weeks to go, I think due to an error on a spreadsheet, and we were £10bn adrift. But generally it made our job easier.

The recent Autumn Statement "increased public spending by more than either Ed Balls or I, in my yellow budget, intended". He suggested that Macpherson had been "down the back of that sofa" and found an extra £27bn, the first time a forecast had been better than a previous one.

Balls interjected: "We had sofa government but we obviously had the wrong sofa."

Alexander added:

I once had a journalist come to interview me and he did genuinely find a pound coin in the sofa. I think it fell out of my pocket earlier. If only he had known there were another 27 billion of them down there.

Macpherson said: "One of the themes of this course is that all politicians come and say we were let down by the stattos [statisticians]."

Alexander briefly surveyed his record. He said he regretted not breaking RBS up right at the beginning. But he was pround of his reform of public sector pensions, which "saved something like £460bn over the lifetime of those pensions". In a blunt comment on Osborne's plan to cut tax credits, now postponed but not abandoned, he said:

I paid a lot of attention to questions of distribution, to who was being affected. I asked officials for areas of public spending disproportionately benefiting the top 20 per cent and there were four: universities, roads, railways and arts and culture. We improved the distributional analysis over the five years. I used that information quite carefully.

He said the Treasury's assessment of the effect of Scottish independence was "probably as detailed an analysis as Ed undertook on the five tests for the euro". He added: "It was essential to winning the argument in Scotland. I hope the Treasury will do something similar in the European referendum."

He wound up saying: "I’ve taken up more than my 20 minutes but only because of Ed’s heckling."

Balls said: "Heckling? I wasn’t heckling. It’s a university. It was serious Socratic dialogue."

Macpherson: "If I could intercede in the politics."

Balls: "No politics here."

Alexander: "Not any more, there isn’t."

Macpherson reviewed the history of the office of the Chief Secretary, which was created only in 1961. It has seen a high turnover, with more than 20 holders since then. Only John Diamond, Joel Barnett, and Alexander "did it for any length of time".

"And I didn’t get a formula named after me," said Alexander, referring to the Barnett formula for allocating public spending between the nations of the UK.

"Joel Barnett didn’t want the formula to be named after him," observed Davis.

Both Alexander and Macpherson commented that it took the Treasury time to adapt to coalition. It is "oriented towards the Chancellor", said Alexander. "It took a long time, particularly with the middle level of officials, to realise that both ministers had to agree. I had a good working relationship with George Osborne, although it is the nature of politics that we did try to get one over on each other from time to time." Macpherson said that historically the Treasury is a "very monolithic department". But coalition is "good news if you’re an official because you have to write things down".

Balls said he approved of the OBR. "At no point between 1997 and 2004 [when he left the Treasury to try to become an MP] did we change the fiscal forecast. The OBR was consistent with everything we had done." There was a lot of continuity as well as change, he said. "Tax avoidance; financial regulation; university fees – on that you overleaped anything we’d done."

Professor the Lord Hennessy offered his view that in the coalition the Lib Dems were "herbivores dealing with carnivores – there is the faint whiff of nut cutlet about you". He also said that "politics is a mixture of poetry and plumbing" and that the problem with the Better Together campaign in the Scottish referendum was that they were plumbers, their arguments were technical and boring. Alexander disagreed, politely but indignantly.

A student asked: "How important is economics training for the job of Chief Secretary?"

Alexander: "I think it’s not very important. Being numerate is important. The Treasury is stuffed full of economists. Judgement is important."

Another student, who said he was a great fan of the 1905-14 Liberal government, asked: "What is Liberalism now?"

"Other people are responsible for answering that question these days," said Alexander, but before he posed for the class photo he offered one ambiguous thought: "Slipping back into a soggier position is a mistake."

Congratulations to Dr Davis for an outstanding course. He and I are teaching the "Blair Government" course next term. Previous reports of the "Treasury and Economic History since 1945" course here, here, here and here.