Sajid Javid will find his background in hedging emerging market government debt rather useful in his new job as Chancellor of the Exchequer. And also his working in his Asian family retail business. Few Chancellors have had such hands on experience of the sectors they will be influencing in their work.

 

The outgoing Chancellor didn’t do a bad job but never quite gave the impression that he knew when to accept his civil servants’ advice and when to ignore it. The key task for being a Chancellor is understanding how to make best use of the Treasury.

 

I’ve worked with and occasionally against the Treasury for more than 40 years and feel that I have some sense of what they can and can’t do.

 

The top Treasury civil servants are extremely bright, if not quite as bright as they think they are. But they have a sense of being a sort of High Priesthood and are suspicious of outsiders. They have never quite appreciated that civil servants are there to serve the subjects of the Queen. Instead they think that they serve some rather Blairite version of the national interest. Being self selected as not entrepreneurial, they have little understanding of those who are and are surprisingly easily taken advantage of by charlatans.

 

Treasury civil servants have a range of views but tend to be more left wing than most other groups of equivalently bright people (except academics). But they do have a strong institutional belief in balanced budgets. However they tend to have little intuitive sense of the relationship between taxes and revenues. Hence the amazing rises in Stamp Duty which have done so much to damage the housing market. They also have little sense of value for money – and let through some extremely wasteful public sector projects.

 

The belief in the need to balance the books is the area where the outgoing Chancellor benefitted most from his partnership with the Treasury. Although his predecessor did the heavy lifting, he helped reduce the deficit to the point where the national debt percentage of GDP is now no longer rising.

 

My five tips for the new Chancellor are:

1. Ignore most Treasury advice on regulating the City. They have never really understood it and veer wildly from under regulation to over regulation without ever finding the happy medium.
2. Be suspicious of Treasury advice to raise taxes. Sometimes it is good advice, but quite often not. Quite often it would make more sense to cut a marginal and wasteful piece of public spending.
3. Be very careful about any list of potential appointees emanating from the Treasury. These tend to be politically correct and often ignore the best people who are too entrepreneurial and who have minds of their own, in favour of those who will be receptive to civil service advice.
4. Ignore any advice that is simply based on public accounting fiddles. That will save you from fiascos like PFI and Student Loans.
5. Be aware of the Flat White Economy, the merge between creative and tech which is now the UK’s biggest business sector. And yet, few in the Treasury know that it exists! How this sector develops will be critical for the health of the economy.

 

Good luck and enjoy yourself.

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652