To the Treasury last night to hear John Kingman, recently the top civil servant there, speak to the Strand Group about his time at the heart of economic policy making.
Despite his deliberately dry title, “The Treasury and the Supply Side”, his lecture was a clear, candid and witty account of his time at the department. He praised Nigel Lawson as a Chancellor whose reforms – abolishing “pay controls, price controls, dividend controls, exchange controls, bank lending controls, hire purchase controls, industrial building controls” – did a great deal to raise the productivity of the British economy.
After Lawson, however, the Treasury was often torn between its narrow role of managing the public finances and this broader role of improving the nation’s economic performance – the “supply side”. Kingman said: “I don’t want to shock anyone, but there is a view held by some Treasury colleagues in private, that all this supply-side stuff is at best a waste of time – lots of gimmicks – or at worst actively damaging, corrupting of the Treasury’s fundamental responsibility to grip the public finances.”
Kingman was not of that view, and worked in a series of posts in the Treasury’s Enterprise and Growth Unit, set up by Gordon Brown. “The Brown era had its hubris,” Kingman said, and he quoted George Osborne’s promise that if the Conservatives were elected “the micromanagement and empire building would stop – the era of the expanding Treasury empire is over”. He paused before adding: “In practice, of course, it didn’t work out quite like that.”
However, he argued that the Treasury had over time become good at supply-side policy. As he put it, “the institution slowly but successfully learned how to walk and chew gum at the same time”. During this period, he rose to become second in command, as Second Permanent Secretary under Nick Macpherson, and he was acting Permanent Secretary until June this year.
Now, he argued, was a good time to look back at the Treasury’s successes and failures since the Thatcher-Lawson period. He listed seven successes, which included stopping bad things happening:
It is generally understood that the Treasury’s main contribution to public spending control is to stop things happening. It is less well understood that exactly the same is true of growth policy. This is because it is far, far easier for a government to harm growth than to promote it. At any one time there is never any shortage of policy ideas and proposals which, however well-intentioned, would do some damage to the economy.
As an aside, he said:
I have occasionally wondered quite what Margaret Thatcher, whose portrait Sajid Javid made a point of keeping on his wall as Business Secretary, would have made of the endless meetings he had to hold under instructions from David Cameron to do “whatever it takes” to save one of the world’s least productive steel plants in a massively oversupplied global market.
Then there was labour market reform: “The best testament to this achievement was the shape of post-crisis recession – the drop in output was both longer and deeper than the recession of the 1930s, but with unemployment on nothing like such a horrific scale.”
Third, competition policy, on which he expressed a controversial view, after all the hand-wringing about City regulation following the banking crisis: “Take a reform like Big Bang – blowing apart a sleepy oligopoly – a conscious and brilliantly successful act of government policy, probably the single most successful piece of British industrial policy ever.”
Finally, science, innovation and universities; finance for growing business; devolution to cities; and cutting corporation tax.
Then he turned to the failures. “I offer this personal failure list, if nothing else, as a ‘to do’ list for my outstanding Treasury successors,” he said: planning and housing; education and skills; infrastructure; and migration.
On planning he showed a picture of quarry: “a bit of our totemic Green Belt, which incidentally covers one and a half times as much land as all of England’s towns and cities put together – and which has also been remorselessly growing since the war”.
On education he said: “Our education system is uniquely specialised; the A-level is a weird international outlier, and we are the only country in the developed world which thinks it is a great idea to let students give up maths at 16.”
On infrastructure he quoted the 2006 Eddington review with approval: “Small is beautiful; many of the very high-return schemes are small projects ... returns drop off sharply beyond the £1bn point ... do not be seduced by grands projets with speculative returns.” It sounded as if he had his doubts about George Osborne’s fondness for hi-vis jackets and grand schemes such as HS2.
And on migration, he seemed to stick to the Treasury view – that is, being relaxed about it – although he emphasised that the Treasury was mostly interested in high-skilled immigration, and he did “not believe that high-skill migration flows have been the main drivers of public opinion on this issue”.
He seemed to regard Brexit as a technical problem, which the best minds of the Treasury would be able to solve:
We plainly need a new migration policy which is sustainable and commands public acceptance, and which nevertheless maximises that potential for the right people to come and work and study here. Devising such a policy will require subtlety, imagination and canniness. But it really ought not to be impossible, and if Treasury brains can help construct a sensible and balanced answer, so much the better.
He waspishly observed, though, that “it is not obvious” that Britain will change everything once it has left the EU. “It is not just the EU which wants to protect wetland birds or clean beaches. In fact in our new liberated mode we already seem to be paradoxically using our new-found sovereignty voluntarily to adopt some distinctly continental practices, like workers on boards.”
He ended with an observation about the pressure on chancellors to come up with eye-catching initiatives on the big occasions of Budgets and Autumn Statements: “As I always used to say to the Treasury teams: gimmicks are our failure. Gimmicks are what we get if we fail to come up with – and find ways to sell – better, more substantive ideas. I don’t believe politicians like gimmicks per se; they resort to them when the Treasury fails to produce something better and more substantive.”
A copy of his lecture is here.
The Strand Group, headed by Jon Davis, my colleague at King’s College, London, holds seminars with politicians and senior civil servants. Next week it is holding an afternoon conference to mark the 40th anniversary of the IMF crisis of 1976. And next month Kenneth Clarke will be talking about his memoir, Kind of Blue. If you would like to attend, email StrandGroup@kcl.ac.uk.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies