Sir Alan Budd
Pragmatic economist under Thatcher and Major who was a founding member of the Bank of England’s Monetary Policy Committee
SIR ALAN BUDD, who has died aged 85, was plucked from business and academe to be chief economic adviser to the Treasury and head of the Government Economic Service in 1991; seen as a safe pair of hands in a crisis, he was later called in to investigate claims that the Labour Home Secretary David Blunkett had abused his position to speed up a visa application for his lover’s nanny.
In the 1970s, working at the London Business School, Budd and Terry (later Lord) Burns, professor of economics at the LBS, became evangelists for monetarism, analysing the British economy in terms of the relationship between inflation and money. This was a controversial position at a time when interest rates were officially thought to have relatively little influence, but their analysis convinced the Tory leader Margaret Thatcher.
Budd and Burns went on to develop the “medium-term financial strategy”, which became the central plank of economic policy for the incoming Conservative government in 1979. In 1981 Budd took over as Professor of Economics at the LBS after Burns had left to become chief economic adviser at the Treasury.
In September 1991, after a spell in the City as chief adviser to Barclays Bank, Budd again stepped into Burns’s shoes as chief economic adviser when Burns became the first outsider to be made Permanent Secretary to the Treasury.
Budd’s arrival could not have been more fraught. He inherited a looming recession and a government (under John Major) whose central policy – membership of the European exchange rate mechanism or ERM – was a year away from being blown apart by the markets.
A year before his appointment, Budd had written in the Barclays autumn review: “It is easy to imagine a case in which the economy spirals into a deep recession,” adding that “we certainly have some of the conditions for a credit crunch at the moment.” It took a while for him to correct the Treasury’s optimistic bias.
After sterling crashed out of the ERM on Black Wednesday the following year, Budd likened the government’s vain attempts to prevent it from doing so to the summer of 1976 when after a long dry spell, the rains came and his house in Highgate was flooded. He and his wife, Susan, he recalled, had struggled for hours to keep the floodwaters out when they should have concentrated on moving furniture and possessions out of harm’s way to the upper floors.
Yet he continued to maintain that Britain’s entry into the ERM (and its ignominious exit) had been sensible moves that had been good for the economy. In this he was out of line with monetarist purists who believed that monetary policy can be conducted with reference to domestic indicators alone and that the exchange rate could be left to look after itself. Described as a “pragmatic monetarist”, Budd argued that any government with a concern for inflation must also have a concern for the exchange rate.
Budd took to Whitehall life as though to the manner born, and quickly became one of the most trusted figures in government. He led efforts to encourage the Treasury to collaborate more with the world beyond Whitehall, setting up a committee of business people to relay views from industry to the department’s economic forecasters. He was also behind the idea of the “Seven Wise Men”, a panel of outside economists brought in in 1993 to provide the chancellor with independent policy advice and forecasts.
When Gordon Brown moved into the Treasury and made the Bank of England independent, Budd was reaching the retirement age of 60 – but he was made one of the first members of the Bank’s newly independent Monetary Policy Committee, or MPC. He left the MPC in May 1999, and a few months later was appointed Provost of the Queen’s College, Oxford.
After leaving Whitehall Budd was much in demand as a pragmatic and drily amusing member of committees of the great and good. He was a member of the committee established to review BBC financing, and later prepared a report into the Corporation’s coverage of business issues which uncovered a number of breaches of its own standards of impartiality.
More controversially, he chaired the Gambling Review Body, set up by the Labour Government, which produced the Gambling Review Report (2001), recommending measures to sweep away restrictions on gambling, some of which Budd later admitted had been excessive.
In 2004, when he was called in to investigate the circumstances surrounding the issue of a visa to the nanny of Kimberly Quinn, the lover of David Blunkett, the Conservatives and many commentators predicted a whitewash.
Budd’s remit, in what became known as the “nannygate” affair, was to “inquire into the handling by the Home Office of the application for indefinite leave to remain, made by Leoncia Casalme in April 2003”. At the time, Blunkett strenuously denied interfering in the claim; the Prime Minister Tony Blair, meanwhile, insisted that his friend and ally would be exonerated.
Up until 10 days before he produced his report, it seemed that Budd’s inquiries had failed to uncover any damning facts. Then, suddenly, he decided to re-interview about five key civil servants. His persistence paid off with the discovery of a “killer email” that proved that Leoncia Casalme’s visa had indeed been fast-tracked and showed that, despite Blunkett’s denials, his officials had discussed the case of Kimberly Quinn’s nanny with immigration officers.
Budd’s report concluded that there was no evidence that Blunkett had personally interfered in the visa application, but that he was “able to establish a chain of events linking Mr Blunkett to the change in the decision on [the] application”. Blunkett resigned as Home Secretary after being told in advance of the report’s findings.
In May 2010 Budd came out of retirement to be the interim chairman of the Office for Budget Responsibility (OBR), set up by the incoming Tory Chancellor of the Exchequer, George Osborne, to assess the state of public finances and issue independent economic forecasts to guide his budget plans. Budd described the appointment as “the most exciting challenge of my professional life”, but soon found himself in hot water when the OBR released a highly optimistic analysis of Osborne’s June emergency budget on public sector jobs at a time that seemed favourable to the government. Three months after his appointment he resigned, remarking that he felt the OBR secretariat should be independent of the Treasury and allowed to hire external employees.
The son of Ernest and Elsie Budd, Alan Peter Budd was born on November 16 1937 and educated at Oundle. After leaving school he became an articled clerk to a solicitor, later studying at night for a degree in Economics at the London School of Economics. He went on to take a PHD at Churchill College, Cambridge, and subsequently became a lecturer at Southampton University.
After various academic roles, he became senior economic adviser to the Treasury between 1970 and 1974. He was said to have been converted to monetarism after watching the disastrous monetary boom and bust of the Anthony Barber years.
Budd joined the LBS in 1974 as a senior research fellow and although he came to be associated with the theories adopted by the incoming Conservative government in 1979, he was no ideological purist. In 1981 he accused the government of bringing about the most severe recession since the 1930s by refusing to budge from its tight monetary targets despite evidence of plunging output and mounting unemployment.
Two years later, when unemployment rose to more than three million, he described the government’s strategy as “like accelerating a lorry and pointing it at a brick wall”. (It was at about this time that he began to argue that the government should have an exchangerate policy.)
Some anti-monetarists hoped that Budd had undergone a Damascene conversion, but in fact he continued to maintain that there was a choice to be made between less inflation and more unemployment. His point was that the government should also be prepared to adjust its policies if the price seemed too high to bear. In 1981 he resigned as an adviser to the Treasury Select Committee, complaining that he felt completely outnumbered by Keynesians after the committee published a report critical of the monetarist strategy being pursued by the government.
The extent of his disenchantment with the economic policies of the early Thatcher years was, however, laid bare in an interview in 1992 in which he suggested that there “may have been people making the actual policy decisions … who never believed for a moment that [a tight monetary squeeze] was the correct way to bring down inflation.
“They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes – if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make high profits ever since.”
He did not necessarily believe this had been the case, he said, but “I worry whether that indeed was really what was going on.”
Budd’s time as group economic adviser at Barclays, from 1989 to 1991, was not without its frustrations. His efforts to become involved in policy making at the bank were rebuffed and while he was there, despite his reputation as a man who always liked to see the big picture, he failed to spot the mistakes of the “Lawson boom” of the late 1980s. Subsequently, at the depth of the recession in 1992, Budd was quoted as saying: “I am worried about how we can prevent the next boom from running out of control.”
Budd carried on as Provost of Queen’s until 2008, and also served as an economic adviser to the investment bank Credit Suisse and to the fund manager Brevan Howard, and as a non-executive director at IG Group, the spread-betting firm. Among his activities as an economist, he was a governor of the National Institute for Economic and Social Research; a founder member of the Uk-japan 21st Century Group; an executive editor of World Economics, and a member of the editorial advisory board of the Oxford Review of Economic Policy.
Budd, who listed his recreations as music and gardening, played the clarinet and enjoyed going to the opera. He was knighted in 1997 and advanced to GBE in 2013.
He married, in 1964, Susan Millott, with whom he had three sons.
Early Thatcher money policies were ‘like accelerating a lorry and pointing it at a brick wall’
Sir Alan Budd, born November 16 1937, died January 13 2023