The Treasury has not learned lessons from the 2007-08 financial crash, a parliamentary report has said.
As a result, the UK could be exposed to more economic shocks, whether from another eurozone crisis or a global downturn, the public administration select committee has concluded, BBC reported.
Financial risk is not given the same importance as non-financial risks, such as pandemic flu, the committee found. But the Treasury said the committee had “entirely missed the point”.
The fact that economic risks are not included in the government’s National Risk Register, and regulatory functions are divided between the Bank of England, the financial conduct authority and the treasury, means assessing the risk of “systemic financial collapse” is not “comprehensive”, it said.
A treasury spokesman responded: “It is unfortunate that the public administration select committee’s report takes no account of the relevant facts.
“By focusing on Whitehall procedures they have entirely missed the point: the lessons of the financial crisis have been learned and acted uponý by putting in place a reformed regulatory system, ring-fencing the banks, ending the ‘too big to fail’ problem, and dealing with the risks posed to the economy by an unsustainable deficit.
“Taking the action needed to protect hardworking people from the effects of future financial shocks is at the heart of our long-term economic plan.”
Stinging Criticism
In further stinging criticism, the committee, chaired by the Conservative MP Bernard Jenkin, said the treasury “does not yet seem to appreciate the role of government in promoting new technology and innovation across the public sector and in the private sector”.
The treasury should conduct “war games” with the other financial regulators, the committee recommended, planning for a range of potential crises, not all of which may be triggered by financial events.
And the cabinet office should include financial and economic risks in its national risk register.
Comprehensive Understanding
The committee did not reserve its criticism for the treasury alone – the whole of Whitehall comes under fire.
There is no “comprehensive understanding across government as a whole of the future risks and challenges facing the UK”, the report found.
This was largely due to “policy short-sightedness” and lack of cooperation between government departments.
Citing the recent Ebola epidemic in West Africa as an example, “the chief medical officer and the joint intelligence committee combined their understanding too late for timely action”, the committee said.
It calls for greater integration between the Civil Service, the Treasury and cabinet office.
Unprepared
The treasury was grotesquely unprepared in the summer of 2007 for the closure of financial markets and the financial and economic crisis that followed, commented a BBC economics editor.
It was intellectually and emotionally unready for the mayhem that was about to break out. And it was chronically short of officials with relevant expertise, especially in senior positions.
Its big mistake was that of banks and regulators across the world – it had been lulled by the passage of so many years of prosperity into believing that financial stability was the natural and permanent condition, that a full-blown banking crisis was the most unlikely of risks facing the country and world.
So the worrying and damaging implication of today’s report from the Commons Public Administration Committee is that the treasury remains prone to risk myopia.
