аЯрЁБс>ўџ ;=ўџџџ:џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџьЅСq` №П[%bjbjqPqP .0::5%џџџџџџЄ       ‚ ‚ ‚ 8К Ю Ю2ю ю "      qsssssshh ˜s ›  ››s    ˆббб›d   qб›qбб:,   т  Ё{cбШ‚ џXЙ qž0ЮУR!W !! \ |Œ ЦбRlОн   sscn   Ю››››d‚ ‚       џџџџ Time for Independence – for HM Treasury Jim Cuthbert Margaret Cuthbert June 2008. The changing political structures within the UK, and also of the UK in relation to Europe, have not been adequately mirrored by changes within key UK institutions – in particular, in HM Treasury. The Treasury is the most important government department: its powers of control are the very essence of the UK system of government. We argue here that, because of its failure to adapt, and because of undue political interference from Westminster, the performance of the UK Treasury has slipped far below its expected standard of excellence. This has affected all of us: it has affected economic performance, and has also impacted adversely on the success of devolution. We suggest here that certain key Treasury functions, particularly those relating to the Treasury’s role in arbitrating on financial relations between devolved governments, Westminster, and Europe, should be handed over to an independent Board. The first serious question mark over the Treasury’s judgement was probably the humiliation of the UK’s exit from the Exchange Rate Mechanism on Black Wednesday in 1992. While this happened under the Conservatives, major errors then continued under Labour. Well known examples of costly mistakes have been Gordon Brown’s raid on private sector and personal pensions in his first Budget: his decision to sell off a good portion of the UK’s gold reserves, exactly at the time when gold prices were at their lowest: and the redefinition of the business cycle in an attempt to demonstrate that Brown’s prudential rules were being met. Other major Treasury errors were highlighted in our article in the Scots Independent in May, when we examined Whitehall and Westminster’s poor record. Of the errors identified in that paper, those which were primarily the responsibility of the Treasury included the PFI debacle: the problems of excess charges in water and other utilities: and the failure to give Scotland its due share of European structural fund allocations. We will not repeat ourselves by going into detail again on these specific errors. But it is worth commenting that behind both the problems of PFI and utility pricing is a more fundamental problem, which is also the responsibility of the Treasury, relating to the misapplication of the principles of current cost accounting. Nearer home, problems in dealing with the Treasury are made even worse by the fact that the Treasury can just refuse to discuss issues at all with Scotland, if it so chooses: witness the repeated refusal by the Chief Secretary to the Treasury, Yvette Cooper, to appear before the Finance Committee of the Scottish Parliament. A specific decision which has impacted adversely on Scotland has been the Treasury’s refusal to allocate to Scotland the Barnett consequences of the recent extra allocation of funds to England for prisons. The Treasury grounds for refusing to allow Barnett consequentials for Scotland were that this was an exceptional call on the contingency reserve by an English department, for which there was no parallel Scottish need. But these grounds are spurious cover for what is clearly basically a political decision: the crisis in English prisons could be seen coming: and the position in Scottish prisons is also extremely grave. In fact, in handling this case, the Treasury completely ignored the normal conventions for accessing the contingency fund. There are echoes of this mistaken Treasury decision on prisons in the earlier refusal to allocate to Scotland the Attendance Allowance we lost when Free Personal Care was introduced – even though there was a clear precedent, the Boyd loophole, to the contrary. There is a further echo in the recent statement that Scotland would not be allocated any savings on Council tax benefit which would result if Council tax was scrapped in Scotland: an attempt to torpedo the SNP’s intention to replace Council tax by a local income tax. Are all these mistakes and questionable decisions just bad luck? We argue that there is in fact something deeper going on: and that what has happened is that the Treasury has failed to adapt to two fundamental changes, namely: The fact that important areas of sovereignty have been ceded by the UK to Europe: this means that, in areas like the interpretation of EU accounting rules, or in the handling of structural funds, the Treasury should no longer be regarded as the final arbiter, but merely as an interpreter, whose decisions should be subject to appeal. And fundamentally, the implications of devolution. In particular, in areas where there is a legitimate dispute between Holyrood and Westminster, it is just not acceptable for the final arbiter to be a department which is controlled by one of the parties to the dispute. It cannot be right that, in such disputes, the Treasury acts as judge and jury in its own case. The effects of these changes have been compounded by the increased politicisation of the Civil Service, a process which started under the Conservatives. In order to recognise these fundamental shifts, what we advocate is that key Treasury functions should be handed over to an independent Financial Board. Of course, the UK Chancellor will have a continuing need for a strong Treasury department under his direct oversight: we do not dispute this. But the functions which could with advantage be handed over to an independent Board include: Arbitrating on financial disputes between devolved governments and Westminster, e.g., in the application of Barnett. Monitoring public expenditure: in particular, taking responsibility for the annual exercise to publish public expenditure statistics in the Public Expenditure Statistical Analyses, and for producing the Treasury Funding Statement, which is the definitive account of exactly which public expenditure programmes are devolved. Producing the official statement on whether the government’s prudential expenditure targets have been met. Setting the standards for government accounting. Producing an independent and authoritative macro economic forecast for the UK and its constituent countries. In relation to Europe, ruling on the Treasury’s interpretation of EU accounting and financial directives. For Scotland, the advantages of such an approach are obvious: we would no longer be arguing, on key issues like the interpretation of Barnett, with a politically motivated department which was acting as judge and jury in its own case: and we would have a channel of appeal to Europe on matters governed by the EU. But for the UK as a whole, the advantages would also be large: in particular, there would be a much reduced scope for politically motivated decisions, and politically slanted presentations of data. One of the few areas in which Gordon Brown can still claim credit, from his time as Chancellor, is in relation to his decision to grant independence to the Bank of England. In fact, the Bank of England decision can be regarded as a poor decision – with the remit being given to the newly independent Bank of England failing to give adequate weight to the need to secure better economic balance between the component countries and regions of the UK. But it was a poor decision in another respect as well. The nettle that really needed to be grasped was that of independence for the kind of Treasury functions discussed here: but that is an issue which has not been addressed yet at all.     PAGE  PAGE 3 (45T„ … ? 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