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Bankruptcy, bubbles and bailouts: The inside history of the Treasury since 1976
The Treasury is one of Britain’s oldest, most powerful and secretive institutions, one that has played a central role in shaping the country's economic system. But all too often it has escaped public scrutiny when it comes to investigating the ups and downs of the UK economy.
When portrayed, it is usually as a bedrock of government stability in times of crisis, repeatedly rescuing the nation’s finances from the hands of posturing politicians and the combustions of world financial markets. However, there is another side to the story. In between the highs there have been many lows, from botched privatizations to dubious private finance initiatives, from failing to spot the great financial crisis to facilitating ever-growing inequalities.
Davis’s book goes behind the scenes to offer an inside history of the Treasury, in the words of the chancellors, advisors and civil servants themselves. It shows the shortcomings as well as the successes, the personalities and the thinking which have shaped Britain’s economy since the mid-1970s. Based on interviews with over fifty key figures, it offers a fascinating, alternative insight on how and why the UK economy came to function as it does today, and why reform is long overdue.
When portrayed, it is usually as a bedrock of government stability in times of crisis, repeatedly rescuing the nation’s finances from the hands of posturing politicians and the combustions of world financial markets. However, there is another side to the story. In between the highs there have been many lows, from botched privatizations to dubious private finance initiatives, from failing to spot the great financial crisis to facilitating ever-growing inequalities.
Davis’s book goes behind the scenes to offer an inside history of the Treasury, in the words of the chancellors, advisors and civil servants themselves. It shows the shortcomings as well as the successes, the personalities and the thinking which have shaped Britain’s economy since the mid-1970s. Based on interviews with over fifty key figures, it offers a fascinating, alternative insight on how and why the UK economy came to function as it does today, and why reform is long overdue.
328 pages, Hardcover
Published October 1, 2022
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Displaying 1 - 4 of 4 reviews
August 7, 2024
A great look into the premier department of the British state and its functioning since the 1970s, this book is in essence an institutional perspective on the UK’s economic, fiscal and monetary policy decisions in the past 50 years. It shows how the UK’s economic policymaking moved from an emphasis on manufacturing and the ‘real economy’ towards the financial and services sectors, and how the Treasury expanded its reach and managed to capture more and more power, especially in times of crisis.
Its narrative follows developments chronologically, to some extent, but largely focuses on a number of key concepts - shifts from official Keynesianism after the IMF bailout in 1976 towards stated monetarism; growth of what came to be called ‘neoliberalism’ even though it was in reality a rise of the dominance of the City and financial sector, which the author calls ‘financialisation’ and later various waves of ‘hidden Keynesianism’. I must say I have never read a book that would present a more plausible and rational explanation for the path dependence of a country’s economic and financial policy, as this one - it does not spend too much time on public figures like the ministers (although some like Nigel Lawson, Gordon Brown or George Osborne play a significant role in the story), but rather focuses on the development of the institution that actually created and implemented the individual policies.
The book shows the robustness of the Treasury over time - and how it managed to evolve across the varying political climates, by bringing new people in (from the financial sector and the City, but also technical economists) or by sending its people to other departments (not just the Jeremy Heywoods, but the more ordinary senior civil servants).
But what this book does really well as well, is to show how the large policy shifts that are studied in academia and policymaking circles as wholly conceived ideological projects were in fact largely ad hoc-created series of decisions, often arising from necessity, rather than ideological dedication. It is a good explanation of The Treasury view’, but also the limits to which it is actually ‘ideological’. (One interesting part was a note by the author that the most political Chancellor of the last half-century was Osborne, who said his approach to austerity was inspired by ‘this one American economist from Harvard whose name he could not remember right now’, meaning the paper ‘Growth in a Time of Debt’ by Carmen Reinhart and Keneth Rogoff.)
For instance what the author calls ‘hidden Keynesianism’ - various measures that were aimed at boosting the economy through forms of hidden deficit spending - in the 1980s arose from the natural need to boost economic growth amidst a downturn caused by restrictive monetary policy. Measures like the sell-off of council housing were aimed at balancing the fiscal situation, which was damaged by the tax cuts for the upper brackets. Similarly, the style of Thatcher-era privatisations through floats at the London Stock Exchanges - which was not the usual case until the 1980s but later inspired the so-called ‘coupon privatisations’ in the newly liberalised economies of the former Eastern Block countries like Czechoslovakia - was to a large extent an outgrowth of the fusion between the City elites and the Treasury officials.
This put a different, more realistic and pragmatic perspective on so much of what happens in a complex and diverse economy like the UK. Decisions are often made by politicians who are and must be reliant on advisors, both political, but also civil servants - and their perspectives are inadvertently shaped by the institutions they - or their peers - intellectually inhabit. It is thus often not ideology, but necessity, that drives policy choices and then outcomes.
What I found slightly annoying were the author’s repeated calls for an alternative vision and complete restructuring of the UK’s financial and economic system, without any reasonable argument about how that might be done or what could that look like. It is not that I would not necessarily agree with that, it is just that I would say most people (including Keynes or me) are always slightly Burkean when it comes to economic reform. And insisting on radical restructurings without a solid understanding of what could that look like can sound a bit loony.
And that would be a shame because this is a truly amazing book that I would recommend to every present or aspiring economic policymaker.
Its narrative follows developments chronologically, to some extent, but largely focuses on a number of key concepts - shifts from official Keynesianism after the IMF bailout in 1976 towards stated monetarism; growth of what came to be called ‘neoliberalism’ even though it was in reality a rise of the dominance of the City and financial sector, which the author calls ‘financialisation’ and later various waves of ‘hidden Keynesianism’. I must say I have never read a book that would present a more plausible and rational explanation for the path dependence of a country’s economic and financial policy, as this one - it does not spend too much time on public figures like the ministers (although some like Nigel Lawson, Gordon Brown or George Osborne play a significant role in the story), but rather focuses on the development of the institution that actually created and implemented the individual policies.
The book shows the robustness of the Treasury over time - and how it managed to evolve across the varying political climates, by bringing new people in (from the financial sector and the City, but also technical economists) or by sending its people to other departments (not just the Jeremy Heywoods, but the more ordinary senior civil servants).
But what this book does really well as well, is to show how the large policy shifts that are studied in academia and policymaking circles as wholly conceived ideological projects were in fact largely ad hoc-created series of decisions, often arising from necessity, rather than ideological dedication. It is a good explanation of The Treasury view’, but also the limits to which it is actually ‘ideological’. (One interesting part was a note by the author that the most political Chancellor of the last half-century was Osborne, who said his approach to austerity was inspired by ‘this one American economist from Harvard whose name he could not remember right now’, meaning the paper ‘Growth in a Time of Debt’ by Carmen Reinhart and Keneth Rogoff.)
For instance what the author calls ‘hidden Keynesianism’ - various measures that were aimed at boosting the economy through forms of hidden deficit spending - in the 1980s arose from the natural need to boost economic growth amidst a downturn caused by restrictive monetary policy. Measures like the sell-off of council housing were aimed at balancing the fiscal situation, which was damaged by the tax cuts for the upper brackets. Similarly, the style of Thatcher-era privatisations through floats at the London Stock Exchanges - which was not the usual case until the 1980s but later inspired the so-called ‘coupon privatisations’ in the newly liberalised economies of the former Eastern Block countries like Czechoslovakia - was to a large extent an outgrowth of the fusion between the City elites and the Treasury officials.
This put a different, more realistic and pragmatic perspective on so much of what happens in a complex and diverse economy like the UK. Decisions are often made by politicians who are and must be reliant on advisors, both political, but also civil servants - and their perspectives are inadvertently shaped by the institutions they - or their peers - intellectually inhabit. It is thus often not ideology, but necessity, that drives policy choices and then outcomes.
What I found slightly annoying were the author’s repeated calls for an alternative vision and complete restructuring of the UK’s financial and economic system, without any reasonable argument about how that might be done or what could that look like. It is not that I would not necessarily agree with that, it is just that I would say most people (including Keynes or me) are always slightly Burkean when it comes to economic reform. And insisting on radical restructurings without a solid understanding of what could that look like can sound a bit loony.
And that would be a shame because this is a truly amazing book that I would recommend to every present or aspiring economic policymaker.
January 29, 2025
Awesome man. Sometimes the most valuable, insightful research one can do is through speaking to people, this book certainly shows that. The statistics about the UK economy make for pretty grim (yet clear) reading, by speaking to people and understanding the relationships and power struggles which go on in this building, I'd say Davis gives a pretty clear explanation of why this is.
Sure, the Treasury is not responsible for everything and he says that himself, nevertheless, he notes just how innately conservative it is (since the monetarist takeover, anyway) and, therefore, this stands in the way of the radical change which the economy needs because, as he argues, HMT is not far from unfit for purpose these days! The book fits closely with a lot of themes I found in my dissertation where neoliberalism, a faith in markets, small statism and a fixation on balanced budgets at all costs pervade policymaking. I hope this book does instigates some change, no matter how big or small, because it is what the UK economy needs.
Sure, the Treasury is not responsible for everything and he says that himself, nevertheless, he notes just how innately conservative it is (since the monetarist takeover, anyway) and, therefore, this stands in the way of the radical change which the economy needs because, as he argues, HMT is not far from unfit for purpose these days! The book fits closely with a lot of themes I found in my dissertation where neoliberalism, a faith in markets, small statism and a fixation on balanced budgets at all costs pervade policymaking. I hope this book does instigates some change, no matter how big or small, because it is what the UK economy needs.
March 31, 2024
I sometimes tell people my heart is in the Treasury and I know many of the people interviewed for this book. The author makes some interesting points (over and over again) about City vs Industry; London vs the regions; off-balance sheet financing; narrow gene pool in senior leaders. There’s a book to be written about how the Treasury undervalues children and civil society. Maybe I should write that one
August 1, 2023
Some fascinating interviews with key officials, advisers and ministers since 1976. It is a very good general critique of the treasury from 1976 to Covid. However, it’s attempt at a grand narrative is unconvincing
Displaying 1 - 4 of 4 reviews