Treasury grandee Nick Macpherson: “The idea that Brexit has liberalised trade is just nonsense”

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Any political project in the UK must ultimately clash and fight against the government officials of the Treasury: the employees who run the most powerful government department in Whitehall. For 11 years, from 2005 to 2016, Nick McPherson served as permanent secretary of the Treasury – tax and spending plans from three administrations (Blair, Brown and Cameron) were supposed to clear his desk. As the Treasury’s chief civil servant, MacPherson helped shape the budgets of the three Chancellors, becoming the Treasury’s longest-serving employee since World War II. He resigned shortly before the 2016 Brexit referendum.

Treasury civil servants play a key role in British politics, even though they are not elected and essentially unknown. Their judgments about what is and what is not, “possible” or appropriate, can inspire or scare away the politicians they serve. Treasury is not completely neutral, it has its own opinion: it was created by centuries of trial and error and at any time is influenced by the prejudices of its key civil servants. The chancellor may ignore the “Treasury view,” but few chancellors want to go to war directly with the staff who carry out their plans.

In short, Treasury is looking at cases, and MacPherson, who joined the department in 1985 when night staff were still housed in bunk beds and new staff only recently stopped being provided with a towel and bar of soap upon arrival, is well qualified to offer it. … He does not speak for his successors at the Treasury and is far from their discussions today, but he worked closely with many of them (and helped recruit). They share a worldview.

MacPherson compliments Rishi Sunak latest budgetand how he has achieved significant tax increases over the past year. “That was very clever,” he told me over lunch at Westminster, since last month’s budget had been in effect for “a third of a year.” In March, there was a big corporate tax hike and a classic hidden tax with a freezing of the income tax threshold – the rate at which people start paying income tax. Such a freeze, according to MacPherson, is “a great tricky tax at a time when inflation is on the rise.”

Second, by posting a proposal to increase government insurance by 1.25% to help fund social security over the summer, Sunak has managed to make his October budget “totally focused on how you spend it.” He “even managed to get the alcohol tax reform done,” McPherson said admiringly.

But he is also worried. The tax hike is ambitious – if implemented, it will see UK tax collection consistently reach its highest level since the late 1940s. McPherson doubts this will happen: Either tax revenue will be below forecasts, as he expects, or taxes will be cut ahead of the next election if tax revenue forecasts prove reliable.

McPherson is somewhat skeptical about the forecasts, as Britain will grow slowly in the 2020s, as it did in the 2010s after the 2008 financial crisis. “If the Office of Fiscal Responsibility [OBR] are right, ”McPherson said,“ living standards and productivity will continue to stagnate, and Sunak will have huge problems funding public services — the national income simply won’t be there to generate income. [both] to finance them and cut debts. ”

OBR has made it clear that Brexit is a key factor in our low-key future growth: a fact that Labor is reluctant to stress, allowing Boris Johnson and Sunak to ignore it. According to OBR forecasts, Brexit should cut UK GDP by 4 percent over the long term, while the economic scars from Covid are predicted to be only half that, at 2 percent.

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Many economists predicted this – and many Brexit advocates took it as a price to pay in exchange for tighter boundaries and greater sovereignty. But some ardent supporters of Brexit argued that leaving the protectionist EU bloc would in fact increase UK trade and wealth. McPherson is quietly caustic about such boosterism. “Maybe Brexit will release an animal spirit that none of us have yet discovered,” he suggested with wry skepticism, but “the idea that Brexit liberalized trade is just nonsense.

“The obvious fact is that almost all the trade deals we do are not much better than any deal the EU has with this country,” he said. In many cases, they are worse: “It is enough to look at the border restrictions,” he noted, referring to chaos in Dover and in other ports, when trucks line up to stamp their documents.

One of the unifying principles of the Treasury since the 19th century has been the importance of free trade. Brexit is the key to this long narrative. “The single market gave us exceptional access to a market in which trade in goods was completely free and trade in services became even freer.”

MacPherson likes to call Brexit the “Jacobin revolution” and believes that its revolutionary fervor has ways to evolve. But “at some point,” he told me, “the leader — Labor or Tory — will have an adult conversation with the British and say,” Look, come on, we need to make trade easier. ” “Within 15 years,” he predicted, “the UK will“ develop a relationship that will include aspects of a customs union and a single market, but will clearly be outside the EU. ” In his assessment, “we have never properly been to the EU” in any case – noting the UK’s unwillingness to subscribe to key EU policies such as the Schengen Agreement and the euro.

I finally asked about austerity policies – a long-term cost-cutting program that New statesman has long opposed and possibly fueled support for Brexit. McPherson was in charge of the Treasury at the time. His team of civil servants adopted George Osborne’s cutback program. Today McPherson believes these measures have disproportionately hit the poor as a result of “things like benefit cuts … while the wealthier may not have contributed as much.”

“Together we could have played more,” he admitted. “You can of course argue with that.”

[See also: Chris Bryant interview: “Labour should put the ministerial code into law”]

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