Financial grandee Nick Macpherson: “The idea that Brexit liberalized trade is just nonsense”
Illustration by Ellie Foreman-Peck
Any political project in the UK must end up confronting and conquering the Treasury Department officials: the staff who run the most powerful government agency in Whitehall. For the eleven years from 2005 to 2016, Nick Macpherson was permanent secretary of the Treasury – tax and spending plans from three administrations (Blair, Brown and Cameron) had to clear his desk. As a senior Treasury officer, Macpherson helped set up the budgets of three Chancellors, making it the Treasury’s longest-serving “perm sec” since World War II. He resigned shortly before the 2016 Brexit referendum.
The officials at the top of the Treasury Department play a central role in British politics, although they are unelected and largely unknown. Their judgments about what is “possible” and what is not “possible” or advisable can encourage or deter the politicians they serve. The Treasury Department is not ruthlessly neutral, it has a view: one created through centuries of trial and error, influenced at all times by the prejudices of its key officials. A chancellor may disregard the “treasury view”, but few chancellors want to wage war directly against the staff who carry out their plans.
In short, the Treasury Department’s point of view is important, and Macpherson – who joined the department in 1985, when overnight staff were still in bunk beds and new hires only recently stopped getting a towel or bar of soap on arrival – is well qualified, she is to offer. He does not speak on behalf of his successors at the Treasury Department and is now far from their discussions, but he worked closely with (and helped recruit) many of them. They share a mindset.
Macpherson praises Rishi Sunak’s recent budget and the way he has made significant tax hikes over the past year. “It was pretty clever,” he told me over lunch in Westminster, since last month’s budget was “the third of the year.” The one in March had a big increase in corporate tax and a classic stealth tax with the “freezing of the income tax ceiling” – the rate at which people start paying income tax. Such a freeze, Macpherson said, was “a brilliant stealth tax at a time when inflation is rising”.
Second, by proposing a 1.25 percent increase in social security to fund welfare over the summer, Sunak managed to “focus its October budget on how it is spent”. He “even managed to get alcohol tax reform in place,” remarked Macpherson admiringly.
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But he’s also concerned. The tax increases are ambitious – if carried out, they would bring UK tax revenues to consistently highest levels since the late 1940s. Macpherson doubts this will happen: either tax revenues will be weaker than projected as expected, or taxes will be cut ahead of the next election if tax revenues projections prove robust.
Macpherson is somewhat skeptical of forecasts, as the UK will grow slowly in the 2020s, as it did in the 2010s after the 2008 financial crisis [OBR] Be right, “said Macpherson,” the standard of living and productivity will continue to stagnate, and Sunak will have a massive problem with funding public services – the national income is just not going to be there to provide it. ” [both] to finance them and reduce debts. ”
The OBR has made it clear that Brexit is a major driver of our subdued future growth: a fact that Labor is reluctant to highlight and allows Boris Johnson and Sunak to ignore it. In the forecasts of the OBR, Brexit will reduce British GDP by 4 percent in the long term, while the economic scarring from Covid will be only half as large at 2 percent.
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Many economists have predicted this – and many Brexit supporters have accepted it as a worthwhile price for tighter borders and more sovereignty. However, some ardent supporters of Brexit claimed that leaving the EU, a protectionist bloc, would actually increase Britain’s trade and prosperity. Macpherson is quietly caustic about such boosterism. “Perhaps Brexit will unleash animal spirits that none of us have discovered yet,” he suggested with dry skepticism, but “the idea that Brexit liberalized trade is simply nonsense.
“The fact is that almost all of the trade deals we make are not much better than all the deals the EU has with this country,” he said. In many cases they are even worse: “Just look at the restrictions at the border,” he said, referring to the chaos in Dover and other ports as trucks queued to have their papers stamped.
One of the unifying principles of the Treasury since the 19th century has been the importance of free trade. Brexit is a flaw in this long narrative. “The single market gave us exceptional access to a market where trade in goods was completely free and which became even freer with services.”
Macpherson likes to refer to Brexit as the “Jacobin Revolution,” and believes that his revolutionary fervor has opportunities to prevail. But ‘at some point,’ he told me, ‘a leader – Labor or Tory – is going to have a mature conversation with the British people and say,’ Look, come on, we have to facilitate trade. ‘ “Within 15 years, he predicted, the UK will” settle into a relationship that has customs union and internal market aspects while clearly outside the EU “. “We were never really in the EU anyway,” he estimates – in view of Great Britain’s reluctance to sign important EU policies such as the Schengen Agreement and the euro.
Finally, I asked about austerity – the extended program of spending cuts that the New Statesman long rejected and that arguably fueled support for Brexit. Macpherson was head of the Treasury at the time. His team of officials ran George Osborne’s cutback program. Macpherson sees today that these measures have fallen disproportionately on the poor, with “things like benefit cuts … while the better-off may not have made the same contribution.
“We could have been more together,” he admitted. “One could certainly argue that.”
[See also: Chris Bryant interview: “Labour should put the ministerial code into law”]