Scholar’s exit from Treasury should be the first of many

Truss’s government needs bold economic change which can only come from people with fresh ideas

It is a threat to the checks and balances that are vital to a functioning democracy, we are told. It will undermine the civil service. And it will deprive the government of impartial, expert guidance just at the moment when it needs it most. The firing of the top Treasury mandarin Sir Tom Scholar has already provoked a furious backlash with the likes of Lord Butler and Lord O’donnell taking to the airwaves to condemn it over the weekend.

Yes, it was a harsh decision and Sir Tom may well have been a safe pair of hands whose experience will be missed in the difficult months ahead. But the reality is we need a far more political Treasury. It has a bias against growth; it does not believe in the power of free enterprise; and it has become far too fiscally conservative.

The UK needs to reform, or sometimes even remove, the institutions blocking an economic revival. Liz Truss could do worse than start by abolishing quangos, such as the Office for Budget Responsibility, and taking on the Bank of England. For the Prime Minister’s new government to stand any chance it needs bold reforms, and it needs them fast. That won’t happen with the same old people in charge. Getting rid of Sir Tom is certainly a bold statement of intent. The new Chancellor, Kwasi Kwarteng, had only been in the role for a few hours when he promptly dismissed the permanent secretary to the Treasury. The mandarinate was, predictably, outraged and rushed to the defence of one of their own.

“I think they are behaving improperly towards the civil service,” said Lord Butler, the cabinet secretary to Margaret Thatcher, Sir John Major and Sir Tony Blair. “Sacking someone with no notice for no apparent reason – someone held in high regard by chancellors of all political parties – is no way to earn the respect of the Treasury and the Civil Service,” said Lord O’donnell, himself cabinet secretary to Sir Tony, Gordon Brown and David Cameron.

The establishment didn’t like the look of the Truss administration to start with – it rallied behind the far more consensual Rishi Sunak – but now it will be open warfare. You can’t go around sacking permanent secretaries without expecting them to hit back, and probably below the belt. We should expect to read lots over the next few weeks about how chaotic, naive and inexperienced Kwarteng and Truss are proving, coupled with dark warnings about how the markets are about to lose faith in their judgment.

Of course, there is a sense in which the critics are right. Sir Tom is a professional civil servant, and perhaps he would have done his best to change the course of government. Against that, we cannot ignore that he hardly has a great track record. He was Cameron’s chief negotiator with the EU, coming back with precisely nothing, and oversaw the Treasury’s absurd and hysterical Project Fear, which damaged Britain’s reputation as a place to invest. Over the years since 2016, the Treasury has blocked attempts to take the opportunities presented by our departure from the EU, while the flaws in its management of the pandemic are becoming glaringly obvious. Fraud is running into billions on support schemes that were, in retrospect, far too generous, and poorly designed. But the real issue is not personalities. Sir Tom is probably no worse or no better than any other top mandarin. It is about creating a far more political Treasury.

There are three key problems. First, the Treasury has a bias against growth and is too committed to the view that the UK’S ageing demographics, its declining share of world trade, and its weakened commercial base mean it is hopeless to ever expect it to grow faster than one or 2pc a year, and the best it can hope for is to cling on to a declining EU for comfort.

Next, it does not believe in enterprise or the power of free, open and deregulated markets. To the Treasury, tax cuts never stimulate faster growth, they simply cost money. Enterprise zones never become hubs of innovation and entrepreneurship, merely centres of money laundering and tax dodging. Deregulation never accelerates growth, only ever allowing flakes and fraudsters to take unacceptable risks, while the selfemployed and small businesses barely exist, and new technologies are to be treated with suspicion. And, perhaps worst of all, the Treasury is far too fiscally cautious. Over the decade of record low interest rates, it failed to borrow to invest, and potentially lift the country’s long-term growth rate. It is too late to start now.

The institution has also constantly campaigned for higher taxes as the only way of balancing the books, dismissing as ideologically crazy the view that faster growth might achieve the same end, except with far less pain. In short, the “Treasury view”, as Keynes first identified it, is intrinsically anti-change.

The Treasury machine pretends to be neutral, and in fairness its senior officials probably think it is. But, along with the OBR and the Bank of England, it forms a part of a powerful economic establishment that has dominated UK policy making for four decades.

If the results were spectacular no one would complain. But they are not. Growth has been dismal, productivity has stagnated, while only mass immigration has managed to keep overall output growing at all. Over the last 15 years we have staggered from one bailout to another – the financial crash, followed by the pandemic, followed by the energy crisis – with each one costing tens of billions more than the last.

With only two years to go until a general election, the Truss government needs bold economic change to have any chance of success. In reality, that can only come from new people, with fresh ideas, and without records to defend. Sacking the senior Treasury mandarin is a start, whatever the howls of outrage. The Prime Minister will have to go a lot further than that in the difficult months ahead.