John Kingman responds to Justine Greening’s critique of HM Treasury
Editor’s introduction:
HM Treasury is arguably the UK’s most high-profile and most important government department. Its culture, its processes, its range of expertise and its ways of working are therefore all vital for our future prosperity.
The two articles published by the Heywood Quarterly in the Ninth Edition by former Government Minister and social mobility campaigner Justine Greening, and by John Kingman, former Second Permanent Secretary to the Treasury, shine valuable light on these matters and will, we hope, open up a constructive debate about possible future reform.
Justine’s article draws on her time as a Government Minister in three spending departments up to 2018 and specifically on points she made in a memo to the late Cabinet Secretary Jeremy Heywood. John’s article provides a riposte to some of Justine’s arguments, as well as his own critique of what could be improved.
We welcome other contributions from writers inside and outside the Treasury and have plans soon to publish an article authored by a senior HMT official. We also welcome constructive articles about other parts of government in the spirit of creating a positive debate.
The Treasury is used to criticism. It almost relishes it. There is a certain odd, inverse vanity: a sense of embattlement; that to be disliked and resented is evidence that the organisation is doing its job right. The Treasury, deep down, believes that it alone stands between the country and all the many vested interests ranged against it which, if given in to, will take the country to financial disaster.
This belief (not altogether fanciful) can make for a powerful esprit de corps. But it can also, for sure, make for arrogance, ignorance and inflexibility.
Justine Greening’s critique rightly picks up on some of this. She makes some interesting and fair points. But at the same time I wonder whether she is really looking in the right place – whether she doesn’t somehow manage to miss the much bigger picture.
You would not know from her piece, for instance, that the public finances are actually in some difficulty. Just to keep the lights on, the British Government is going to have to sell a cool £250bn in gilts this year to increasingly sceptical investors. Confidence is strained and Britain’s borrowing costs have for some time now been the highest in the G7. This doesn’t help anyone. It massively hems in the Government’s freedom of manoeuvre; it means the cost of capital throughout the economy is much higher than it needs to be; and so are mortgage rates.
So whilst the received wisdom is that the Treasury in Britain has too much of an iron fist and far too much power, a casual look at gilt yields would suggest that if anything we need to find ways to create more discipline around the public finances, not less.
Then there is the awkward fact that Britain has been getting steadily poorer for nearly 20 years now. GDP per head has barely grown since the financial crisis. This effect cumulates horribly: had the pre-crisis growth trend (going back to the 1970s) persisted, we would all by now be roughly a third better off. This has obvious grim ramifications – for living standards, for the public finances and indeed for British politics.
The Treasury considers itself, as it should, to be the country’s economics ministry with responsibility for growth. Yet the results have not been there for a long time and there is an unfortunate sense that the institution seems to have lost its mojo even to try. Quite a few governments have now been and gone since the Treasury seriously tried to articulate a strategy for raising the country’s growth rate – as the problem has become steadily more pressing, the Treasury’s ambitions in this area appear, if anything, to have diminished. Who knows, perhaps some spirited competition from the new No. 10 North may help.
Greening has nothing to say about any of this. But they are really big challenges with which any serious critique of the Treasury needs to tussle.
Moreover, to be fair to Treasury officials, as one should, the role of Treasury ministers must not be written out of this script. I very much doubt that it was Treasury officials, for instance, who thought it was a good idea massively to exacerbate the borrowing problem by cutting national insurance by four percentage points in an obviously doomed attempt to win the 2024 General Election.
She is on much firmer ground in her observations on aspects of the institutional culture. She is right, for instance, to say that too few Treasury officials have “relatable expertise”. She points particularly to poshness of social background, which may well have something to it; I recall Sajid Javid making the same point once at a Treasury board meeting (this resulted in an entertaining debate with George Osborne who said he thought poshness was just fine so long as posh officials delivered the goods). I don’t know what the Treasury is like now (nor, I suspect, does Greening), but certainly towards the end of my time it was striking how many senior officials had been to private school – incidentally a massive change from the pre-2000s Treasury which had always been very much a grammar school enclave.
The really big point here, though, is not so much poshness as a lack of experience – or expertise – or domain knowledge, full stop. Greening’s piece picks up on the lack of finance professionals, which is a good point. But this is merely one specific example of a much bigger and more important phenomenon: the Treasury’s ingrained culture of generalism. The organisational model does not attract or offer good career paths to any form of specialists other than economists. That does have a clear cost. Knowledge and experience and relationships are all in short supply.
There is, though, a very important and slightly taboo thread running through all these cultural issues. This is pay. The Treasury pays extremely badly, particularly by comparison (and it is a very relevant comparison) with any form of professional services in London.
This has consequences. It is not, for instance, surprising that the Treasury has lots of people from privileged backgrounds, because they are much more likely to be people who can afford both to work in the Treasury and still (mostly) live in London. Similarly, Greening rightly complains about a lack of accountants, but accountants are highly employable in the private sector and moreover the Treasury is going to want extremely good accountants – accountants who also have the skills to persuade the Chancellor or the Prime Minister to think again about an important issue; or to win a spending argument against a Cabinet minister with the resources of an entire department ranged behind them. People with this mix of skills will not be especially cheap. The median pay of a FTSE 100 finance director is £2.4m a year.
The irony, of course, is that the pay problem is largely self-inflicted. And it has nothing whatsoever to do with cost. We know this because, at the same time as very successfully suppressing pay, the Treasury has not suppressed its staff numbers. In 2016 the Treasury had 1,300 staff. Despite recent efforts at shrinkage, it now has 1,850. At the same time, perhaps because of the expansion, the internal pace of career progression has seriously slowed, making the organisation a much less attractive place for the most talented people to work.Thought experiment: it seems hard to believe that a Treasury which returned to its 2016 size, but which used the savings to increase pay by 40%, would not do a better job for the country.
Could Greening’s external review help address some of these issues? Perhaps. But only if it was focused on the right issues with the right remit. The objective should be for the Treasury to be more effective, not to find ingenious ways to make the state of the public finances even worse. It should also remember that: the Treasury has a vastly tough job; that many of its people choose to work there, forgoing much more comfortable potential lives elsewhere; that they have been terribly served in past years by some poor decision-making by the political class; and that (unlike me) they can’t answer back.
In short, we should all want them to succeed.
Sir John Kingman is the Chair of Barclays UK and former Second Permanent Secretary to HM Treasury.
