09.03.15
MPs accuse Treasury of not learning lessons from financial crash
The Treasury has been accused of failing to learn key lessons from the financial crash in 2007-08, by a senior group of MPs.
A new Commons Public Administration Select Committee (PASC) report notes an “urgent gap” in the Treasury’s preparedness if a future financial crisis occurred as a “consequence of the interconnectedness of financial uncertainty”.
The MPs added that financial and economic risks are not included in the government’s National Risk Register, and concluded that the government does not consider these systemic risks alongside other, non-financial risks, such as pandemic flu and antimicrobial resistance.
In a scathing report, the MPs added that there is no “comprehensive understanding” across government as a whole of the future risks and challenges facing the UK.
Bernard Jenkin MP, chair of the committee, said: “The Treasury has done a lot, but there is more to be done to be ready for another financial crisis. We still have institutions which are ‘too big to fail’ but with so much national borrowing capacity used up, they may prove ‘too big to save’ if it happens again.
“We did not find evidence that government and the City are actively practising and exercising for this worst case scenario.”
The committee has recommended that the Treasury should undertake planning for a range of crisis scenarios, based on a broad range of forecasts, data sources and assumptions, and which may be triggered by non-financial as well as financial events.
On top of this, the Cabinet Office should include systemic financial and economic risks in its National Risk Register; and ensure that lessons learned from this are synthesised into policy making and spending decisions.
The MPs also want to see, early in the next Parliament, the government set out how it will improve the machinery of government and better educate civil servants at all levels to think ahead about systemic risk, risk management, uncertainty and future challenges.
But the Treasury has claimed that the committee’s report has “entirely missed the point”.
A spokesperson said: “By focusing on Whitehall procedures they have entirely missed the point: the lessons of the financial crisis have been learned and acted upon by putting in place a reformed regulatory system, ringfencing the banks, ending the ‘too big to fail’ problem, and dealing with the risks posed to the economy by an unsustainable deficit.”
UPDATE
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy (CIPFA), added: “This report rightly maintains that spending decisions and commitments by government must be based on long-term affordability and value for money, rather than short term electioneering.
“Worryingly, what emerges from the report is that there is neither the right methodology nor information available to decision makers to facilitate an improved approach to financial management within government.”
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