After the mourning, the problems are back

As new PM Liz Truss leads Britain in mourning the Queen, her problems are not diminishing.

But one decision which her new government managed to implement just before the Queen’s death was the sacking of Treasury Secretary Tom Scholar.

Critics of the move dubbed him the foremost civil servant of his generation.  Naturally enough.  

But they are probably right.

What makes it even more curious is that in addition to a steely grip and overflowing ability, Sir Tom is also preternaturally likeable.  He must be the first Treasury Secretary to get on with everyone – and give every appearance of liking it.

After an all-nighter at the height of the financial crisis, he took the time to pen a graceful, lengthy, name-checked and analytically impeccable thank you note to all staff.  Before dashing off to his next briefing.  That class gets noticed.

But perhaps he didn’t get on with everyone.  The Times reminds us that Truss spent two years as a senior Treasury minister.  

The official line is the need for a break with Treasury orthodoxy.  And there’s more support for this than you might think (or perhaps not).  

For example, Eurointelligence’s Wolfgang Munchau:

“There is a modern version of the Treasury view, as exemplified by Scholar and other civil servants in his department, the view that got Rishi Sunak to raise national insurance and corporation tax. We see those tax rises as right up in the annals of bad economic policy decisions on par with the early Thatcher government’s excessive monetary and fiscal tightening as the country went into recession”

Oh. And then:

“We keep an open mind on the Truss experiment, the biggest fiscal policy expansion in modern UK history.”

But you might also think that a top-line official like Scholar, after you had rejected all his orthodox arguments, would be the indispensable man for implementing your bold and courageous (i.e., high risk) policy.

The underlying issue (which Munchau also probes) is getting to grips with the relationship between government and its advisers – poor before Brexit and now dysfunctional.

“The reason why Brexit requires civil service reform is that Brexit requires a re-write of the most important regulations the UK inherited from the EU … two years is long enough to provide the underpinnings of a workable Brexit: a re-organisation of the civil service, or at least a change in the top tiers, followed by regulatory reforms.”

Most astute.  And it will require a great deal more than sacking one of the few top civil servants who probably understands the argument.

Because much of the unhealthiness of the relationship is in the failure of civil servants to give sound advice on policy cause and effect in markets, and for ministers to demand and use it.

The UK energy crisis is a reliable example.  Governments of all stripes wanted everything: high prices to drive innovation and saving; low prices to keep energy hogs happy; wasteful and undemanding energy efficiency programmes; while skimping on energy security.

They were abetted by their advisers and rent-seeking lobbies.  Policies were generated in sequential isolation and bent to wishful thinking, without an overarching understanding that transitional energy markets would be unpredictable, and a long-term market-driven transition needed a predictable government posture on supply security and the carbon price.

If you accept this, the Truss administration’s response is not exactly covering itself with glory.

They plan to fix the current power price below market level to encourage overconsumption this winter. Then presumably try to recover the enormous subsidies with energy taxes in later years.

I suppose you could argue that this is the logical culmination of the expensive energy policy for Western countries enshrined in the Paris Accords.  

And that it sends an unambiguous signal to average Brits that power will cost at least twice as much as before, and you need to go back to heating one room and turning off the lights (that’s assuming you can’t knock down your Victorian terrace house and build an eco-apartment).

But the problem with the government’s taking full responsibility for tinkering with market adjustment is precisely its ambiguity.  Because how do you know policy stability will survive the next crisis?

Truss and her ebullient new finance minister Kwasi Kwarteng (and presumably also her next Treasury Secretary) will be hoping that avoidance of fiscal orthodoxy and deregulation of productive sectors will pay for the continued regulation of the politically sensitive.  

As Munchau says: keep an open mind.

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