History Suggests Treasury Control is Sometimes for the Best

SUMMARY

• Many see the Treasury as responsible for Britain’s poor economic performance in recent years.
• It's true that The Treasury has often been a voice of economic liberalism and limited government. Calls to break up the Treasury are often tied to arguments about British greatness, with a desire to unleash the nation’s industrial strength.
• But the failures of Concorde and British-designed nuclear reactors, both opposed by the Treasury, serve as a reminder of what can happen when the ‘Treasury view’ is sidelined.
• The solution, then, is to avoid coming down on either side of the Treasury debate, and to think about the particularities of different cases.

The possibility that Treasury constraint could be beneficial is largely absent from today’s debate about the department. Many see the Treasury as responsible for Britain’s poor economic performance in recent years, casting it as embedding short-termism, as well as undermining Britain’s manufacturing industry and leading the financialisation of the economy. Critiques of the Treasury are not just academic. Many politicians are also joining in. Louise Haigh, now First Secretary of State, suggested that it might be best to move responsibility for growth to a separate ministry.

History offers a corrective to this Treasury bashing. The very fact that post-war Britain was, in the estimation of one economist, responsible for two of the three worst decisions in public investment ever taken – the Anglo-French supersonic airliner, Concorde, and the Advanced Gas-cooled Reactor (AGR) – should give any would-be techno-nationalist pause for thought. While the industrial intervention of the immediate post-war period was meant to usher in an age of technological strength, it saddled Britain with programmes that did not sell. The Treasury was not in control for much of the post-war period, and this was not necessarily for the better.

Treasury officials opposed Concorde from the beginning, and criticised British-designed nuclear reactors too, but to little avail. Concorde attracted no export orders, and Britain’s efforts in civil nuclear power did scarcely any better. These ill-fated programmes poured industrial resources into technological futures that never delivered the commercial returns promised for them. By the late 1960s and 1970s, there were many in Whitehall who came to believe that the aviation and nuclear industries were being damaged by these programmes. Real export opportunities rested elsewhere, a point the Treasury was making practically from the beginning.

Calling for more long-termism is popular at the moment, but again the failure of techno-nationalism in the post-war period offers a cautionary tale. The investments in supersonic aviation and civil nuclear power were based on assumptions about several decades into the future, and were remarkably long-lived. The decision to build Concorde was taken in 1962, and it only stopped flying in 2003. Britain started building commercial AGRs in the mid-1960s, and some remain in operation today. These outdated futures were deeply embedded within the state, and difficult to dislodge once the programmes were underway. Part of the reason Concorde was continued, as I have argued, was because the British public was led to believe it was a great national success story. Governments feared the backlash, especially in the run-up to general elections.

It could have been worse. As I first suggested in the English Historical Review, Concorde and the British civil nuclear programme were secretly scrapped in the mid-1970s. For instance, in 1973, Michael Heseltine, the Minister for Aerospace and Shipping, rejected plans to develop a new Concorde and a production run of 100. He argued that it should be scrapped outright, and that to put only sixteen into production would be a “masked cancellation.” This was the programme that went ahead under a Labour government. The Treasury argued against even this much-reduced programme and lost, but more broadly, its criticism of techno-nationalism was finally cutting through in the 1970s.

A complete vindication of the ‘Treasury view’, however, is too simplistic. The Treasury has often been a voice of economic liberalism and limited government, sceptical of economic nationalism and industrial intervention. This is a useful challenge but not always the right path for policy. For example, when Thatcher was in power, the Treasury argued against giving launch aids to Airbus, and called for the procurement of more American-designed weapons. Yet, Thatcher ignored these arguments, choosing the costly path of maintaining European and national industries. When it came to the arms industry, Thatcher was a ‘British Gaullist’, rather than a ‘neo-liberal’. At least in some cases, this was probably the correct approach. The UK has few areas today where it has genuine world leads; sacrificing the aerospace industry in favour of a free-market approach would have given Britain even less control over its own future, with important implications both for industry and national security.

The solution, then, is to avoid coming down on either side of the Treasury debate, and to think about the particularities of different cases. To put this in more concrete terms, while supporting the Eurofighter project may have been wise, the decision in favour of the Challenger Mk II tank seems more dubious. It was not particularly successful as an export, and it undermined the interoperability of weapons systems among NATO allies. The British state needs the analytical capability to distinguish between projects worth backing and those better avoided. As I argued in a paper with Rosa Hodgkin, a ‘Joint Analysis and Assessment Centre’ should be formed to do such work.

The stories of Concorde and British-designed nuclear reactors also give credence to those calling for new, more modest forms of industrial strategy. As David Edgerton argued, we would be better off putting imitation, rather than innovation, at the centre of the UK’s policies aimed at improving people’s lives. When reflecting on Britain’s history with nuclear power in the mid-1970s, one Cabinet minister concluded that being first in a technological race does not guarantee commercial success. The economic successes of the post-war state were more common in mundane areas of policy, such as roads and agriculture, than in ‘high technology’.

Calls to break up the Treasury are often tied to arguments about British greatness, with a desire to unleash the nation’s industrial strength. Concorde and British-designed nuclear reactors serve as a reminder of what can happen when the ‘Treasury view’ is sidelined. Moving forward, the question is not whether the Treasury should win, but whether the state has the capacity to know when it should.