Barely a week goes by without more cracks appearing in our heavily privatised utilities and public services. From the near collapse of Thames Water and raw sewage discharges, to a deeper and more intense cost of living crisis due to the extreme marketisation of our electricity grid. Yet despite the increasing evidence of the failure of privatisation, the Treasury continues to dig in on the promise of the private sector.
The government department and Bank of England are in the process of designing a new digital pound, a publicly issued digital version of cash, which would circulate alongside the private electronic money currently issued by banks. It presents a vital opportunity to build a new public payments system, which could be a stable foundation for the economy, safe from the speculative booms and costly busts of the “too big to fail” banks. This is why it is so disappointing to see that the Treasury is prioritising this new infrastructure as a “foundation for the private sector to innovate”.
If we have to rely exclusively on profit-maximising financial tech firms (“fintech” for short) for accessing a digital pound, it risks becoming another source of data to monetise and feed up to AI and big tech – the very same industry this new form of money has the potential to protect the public from. The rapid growth of tech in financial services is increasing the democratic deficit in finance, with no transparency over what surveillance data is being collected by companies or for what purpose. A genuinely public payments system, designed with maximum privacy for customers, is exactly the kind of counterweight the finance industry needs.
The Treasury’s mantra of building a “foundation for the private sector to innovate” is well documented over the past 40 years, but in practice research shows it is the public sector that often takes a vital role in innovating. With the UK economy struggling, and the added impacts of inflation and Brexit, surely the department in charge of setting the country’s economic strategy should consider a new direction?
Many have pointed out the problem of the Treasury being in charge of both short-term fiscal and budgetary restraints and long-term economic strategy, and suggested that the resulting “Treasury brain” and orthodoxy is the barrier to investment. Our public-investment levels are the lowest of the G7. A strong economy requires investment, which means putting in money now and raising national debt for future economic gain. But the Treasury’s prioritisation of the immediate public finances often leads it to restricting spending on basic public services, vetoing any long-term investment and selling off public assets to bring in a quick buck.
This is in part because of the problematic and inaccurate national discourse of “there’s no money left”, whipped up in the aftermath of the 2008 financial crash that continues to be used by both parties today. Rather than recognising a deregulated financial sector as the cause and restructuring the industry, public finances were blamed and austerity was implemented, with public debt being portrayed as national enemy No 1.
The Treasury brain’s dedication and commitment to both the private sector and reducing public debt through arbitrary fiscal rules (which have changed six times in the past 10 years) have proved a lethal combination for the UK economy. Britain has one of the worst levels of income inequality in the developed world, one in four children live in poverty, and it is failing on its climate commitments.
Some propose drawing on Harold Wilson’s idea for a department of economic affairs to break up the Treasury so that economic strategy sits in a different department from the running of day-to-day budgets. While the proposal has its advantages, critics argue this could just result in a war between departments. And we see this playing out in other areas of economic policy.
Since the crash, monetary and fiscal coordination has been disastrous, with the two pulling in opposite directions, and neither the Bank of England nor the government being willing to shoulder the responsibility for our economic woes. Right now we have Conservative MPs being rightly critical of the Bank of England for hiking rates, but at the same time totally ignoring calls from civil society for the Treasury to support households and tackle inflation.
It would take more than a new department to shift the Treasury’s 40-year dedication to privatisation and its more recent obsession with fiscal rules. What is required is a more sophisticated understanding of government debt management, alongside an overarching purpose or mission for the economy – a mission-driven economy as Mariana Mazzucato puts it – that would help shape economic policy.
Most agree it is in times of crisis (putting aside its role in creating the crises) that the Treasury works at its best. The Covid-19 furlough scheme and the action to stop the global economy collapsing during the financial crisis were successful in part because we saw the day-to-day Treasury brain and orthodoxy going out the window. During the pandemic, the Treasury wasn’t trying to provide a platform for the private sector to innovate, it was trying to protect people’s livelihoods.
If the government sets the mission or purpose, such as creating a “just transition” domestically and supporting one internationally, then economic policy in all departments should support that purpose, and start having a common vision to coordinate around.
Of course, that may sound like a lofty and idealistic proposition, but at the moment everything else just looks like moving the deckchairs on the Titanic.
Fran Boait is executive director of campaign group Positive Money
