When financial prudence left the building

Lord Andrew Turnbull, former permanent secretary at the Treasury and former head of the civil service, wrote a very Sir Humphrey-esque piece for the Financial Times this week about how to 'salvage' (his word) the Treasury. The first point is that Lord Turnbull fails to explain why the Treasury need salvaging in the first place. As our principal economics ministry, the Treasury completely failed to spot the risks involved in the huge asset bubble price and credit over leverage that put our financial system in peril of complete collapse. Just a small oversight? As our finance ministry, the Treasury allowed the structural deficit in the public finances to gradually accumulate during the boom years, which has made the subsequent fiscal crisis much more acute than it needs to have been. Prudence had definitely left the building, an error for which we will all be paying for some years to come. The Treasury's reputation for economic and public financial management is, frankly, in tatters which is why it needs 'salvaging', although Lord Turnbull is of course too polite to say so. But his lack of diagnosis is not just a considerate oversight, it fundamentally weakness his prescription – which is essentially more of the same, but bigger and better. Of course, the civil servants who run the Treasury can't take credit for all of the shambles – their political masters did their bit too. Gordon Brown and Ed Balls, in particular, were the architects of the system and approach that helped create the conditions for today's crisis. But it doesn't appear there were very many mandarins in the Treasury 'speaking truth unto power' when this was happening either. Lord Turnbull's prescriptions are all about strengthening the Treasury, with one exception – his acceptance of the Tory idea of some sort of office of budget responsibility (rather than Labour's proposed fiscal responsibility bill) to monitor fiscal policy and keep the Treasury and the government on the right path in good times as well as bad. Ironically this idea, and the fiscal responsibility bill, address the right problem but neither really supplies the correct answer. The problem is the one-sided, unchecked, some would say unhinged, system that allows HMT to drive public finances almost totally free of any checks and balances. Notionally, of course, parliament provides the check through authorising of tax and spend decisions, but in practice parliament rarely, if ever, exercises this power. Unlike most other legislatures – in both presidential and Westminster-style systems – our Parliament does not really scrutinise tax and spend decisions except retrospectively (by which time the damage has usually been done). The first move should be to radically overhaul parliament's role in public finance decisions. The fiscal responsibility bill, now before parliament, gives it a role, for the first time, in authorising medium term tax and spending plans, which is welcome. But it does not address the central issues that have been raised by the Hansard Society, the parliamentary liaison committee (the chairs of all the select committees), and others for years: the whole supply system needs modernising and democratising. It is time to make the Treasury properly accountable to Parliament. I know from numerous exchanges with Treasury officials over the years they will resist such changes tooth and claw. I have suggested a number of times that the multi-year spending review system, introduced by Labour in 1998, provided an ideal vehicle for a whole new process. Draft spending plans could be published and parliament as a whole, and especially the select committees, invited to scrutinise, invite evidence and opinion, and debate the proposals. The Scottish parliament manages such a process on an annual basis; it would not be too difficult to do on a two - or three-yearly cycle. But every time I have floated such ideas within earshot of Treasury mandarins they have gone into a hissing fit. They much prefer the behind closed doors, all will be revealed when the red box is opened on Budget day, approach – or what two American academics memorably called "the private government of public money". There is no certainty that more open scrutiny by parliament of spend and tax decisions would have prevented the structural deficit-problem that accumulated over the past decade and has now exploded in our faces, but it has more chance and much greater legitimacy than some unelected quango being asked to do the job. Colin Talbot is professor of public policy and management at Manchester Business School and a former specialist adviser to both the Treasury and Public Administration select committees