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Public Money & Management
Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rpmm20 How the UK government responded to the fiscal crisis: an outsider's view
Walter Kickert
Published online: 23 Mar 2012.

To cite this article: Walter Kickert (2012) How the UK government responded to the fiscal crisis: an outsider's view, Public
Money & Management, 32:3, 169-176, DOI: 10.1080/09540962.2012.676273
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How the UK government responded to the fiscal crisis: an outsider’s view

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Walter Kickert
This article presents an outsider’s view of the UK government’s response to recent financial, economic and fiscal crises. The article covers the financial crisis in
2008 when the then New Labour government rescued UK banks; the economic crisis in 2009 which resulted in economic stimulus measures; and the fiscal crisis of increasing national debts and budget deficits which led the newly-elected coalition government in 2010 to take fiscal consolidation measures. The author is an administrative scientist, and unpicks government responses, focusing on the political and administrative aspects of the governmental decision-making processes. The article ends with some lessons and foreign perspectives.
Keywords: Economic crisis; financial and banking crisis; fiscal crisis; government decision-making; politics and administration.
Banking crisis: the recapitalization of banks
The banking and financial crisis was severe in the UK. The economic strength of the UK in the period 1997–2007 was partly due to the success of its large banking and financial sector.
And the symbolic importance of London as the financial capital of the world should not be underestimated. The British property sector was also relatively large and, as in the USA, vulnerable. Moreover, the Blair–Brown New
Labour governments in the economically prosperous years had strongly increased public expenditure, especially in healthcare and education. The financial crisis hit the UK hard.
The nine largest banks in the UK in 2007 together had a market capitalization of £316 billion, which by 2009 was worth only £138 billion. Thousands of jobs in financial services had been lost. Property prices had fallen sharply
(Treasury Committee, 2009a).
Contents of measures
Although for some time Europeans thought that the subprime mortgage and banking crisis was constrained to the USA and would not affect Western Europe, the underlying reasons for the global financial crisis existed in Europe as well, especially in the UK. The period before
2007 was characterized by low interest rates, easy credit and short-term borrowings. Banks such as Northern Rock aggressively sold insecure mortgages with short-term loans from the money market to finance new lending. This
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easy credit, combined with poor housing supply, caused a house price bubble in the UK. By
2007, it was clear that the cheap credit bubble was going to burst and the Bank of England raised interest rates and warned the banks.
The banks which depended heavily on shortterm borrowing from the money market were in trouble. Northern Rock was in the worst position and required assistance. The news leaked, leading to the first run on a British bank in more than a century. The government announced a £10 billion money market help plan. In September 2007, Northern Rock was taken into public ownership, and so was
Bradford & Bingley. The virtually bankrupt
HBOS had to be rescued with an injection of capital and merged with Lloyds TSB in 2008.
The Royal Bank of Scotland (RBS) had formed a consortium with Santander (Spanish) and
Fortis (Belgian) to take over ABN Amro in
2007 at top of the market prices, and nearly went bankrupt. In October 2008, RBS had to be saved with capital injections leading to nationalization. For some time things seemed to return to normal until the global financial crisis erupted in October 2008. A crisis struck
Ireland and Iceland, and the USA announced a $700 billion bail-out package for stricken banks. The British government decided to assist the banks by offering government capital in return for shares. Only Barclays managed to raise money from the market without recourse to government funds. In January 2009, the

Walter Kickert is
Professor of Public
Management at
Erasmus University
Rotterdam, The
Netherlands.

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government announced an asset protection scheme allowing financial institutions to buy insurance against losses on toxic assets, to be regulated by the Financial Services Authority
(FSA), (Treasury Committee, 2009a).
Decision-making process
Northern Rock warned the FSA, the Bank of
England and the Treasury of imminent serious problems in August 2007—the FSA, Treasury and the Bank of England constitute the UK’s tripartite regulatory framework for the financial system. On 13 September Northern Rock asked the Bank of England for emergency assistance.
When this was disclosed on the evening news, the next day long queues formed of bank clients withdrawing their deposits. The queues and panic only died down after the chancellor of the exchequer, Alistair Darling, said that deposits would be 100% guaranteed by the government. Nevertheless, confidence in Northern Rock had been undermined and depositors continued withdrawing their money. Moreover, underlying problems rose to the surface: house prices started to fall and mortgage lending collapsed. It gradually became clear that
Northern Rock could not survive. In autumn
2007, Treasury officials tried to find buyers for the bank, but the private bidders demanded unrealistic guarantees from the government.
The alternative—to let Northern Rock go bankrupt—was economically and politically unacceptable partly because of the amount of taxpayers’ money already in the bank and also because it was important to the economy of the north east of England—a poor region and a
Labour stronghold. The third option— nationalization—which the Treasury had concluded was the only feasible one, was opposed by the prime minister, Gordon Brown, who did not want to be accused of returning to
‘Old Labour’ habits. In February 2008, Brown was finally persuaded to let the Treasury take
Northern Rock into ‘temporary public ownership’ (a form of words which avoided the
Old Labour stigma of ‘nationalization’).
Although the British government in 2008 started to realize that the subprime mortgage problem, and the complex financial products based on these mortgages, were a worldwide systemic problem not restrained to the USA, nobody envisaged a major worldwide financial crisis. The collapse of Lehman Brothers on 15
September 2008 triggered such a crisis. On 8
September the US government had been forced to rescue Fannie Mae and Freddie Mac, which together owned about half of all US mortgages.
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Lehman Brothers was also severely affected by the subprime mortgage crisis, and threatened to become insolvent. Over the weekend of 13 and 14 September, the US government frantically attempted to find a buyer for Lehman
Brothers before the markets opened on Monday morning, and pressed hard for the UK bank
Barclays to take it over. Due to the large financial risks in such a takeover, Barclays wanted US government guarantees and the regulatory requirements of FSA made it impossible to close the deal so quickly. The deal failed and
Lehman Brothers went bankrupt.
On Monday 15 September 2008, panic broke out in the markets. The shares of HBOS, the UK’s biggest mortgage lender, plummeted.
Although British bankers had been reassuring the Treasury that the financial problem was manageable, RBS and other banks were on the brink of collapse. On 16 September, the US government had to bail out the world’s biggest insurance company, AIG, for $85 billion.
Notwithstanding legal competition problems, the British government decided to support the takeover of HBOS by Lloyds TSB. The £12.2 billion takeover was announced on 18
September. At the end of September, Bradford
& Bingley collapsed and was nationalized by the government. It was clear that Bradford &
Bingley was not the only problem. The Treasury and Number 10 were making plans for a broader rescue package, involving not only the
FSA and the Bank of England, but also secret meetings with trusted bankers. Business minister Baroness Vadera was the government’s liaison with bankers. The government was convinced that the real problem was not liquidity, but that the banks needed recapitalization. The banks, however, resisted government ownership and refused to admit that they were on the verge of bankruptcy.
Banks were adamant that they could manage to survive if provided with extra liquidity. Even after another ‘meltdown Monday’ (6 October
2008), when shares in London and the rest of
Europe crashed, and the Treasury, Bank of
England and FSA knew that RBS and HBOS lacked the cash to continue doing business, the banks continued to resist government takeovers. Government pushed through and on 8 October announced a £50 billion capital injection in banks, and a £200 billion liquidity scheme for buying toxic assets, plus a guarantee on inter-bank loans. This came down to a nationalization of RBS, HBOS and Lloyds TSB.
The Treasury, Bank of England and FSA worked out the details of which bank required how much, discussed that with the CEOs of the
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large banks, and on Monday 13 October published the conditions for the bailouts. The
London stock market recovered somewhat.
The British government, in particular
Prime Minister Brown, was convinced that the financial crisis was global and that national governments needed to co-ordinate their responses. Contrary to the opinion of the French president, Nicolas Sarkozy, that it was purely a crisis of ‘Anglo-Saxon [British and American] capitalism’, Brown sought international consensus. Brown had visited the American president, George W. Bush, in September 2008 to convince him of the need for an international conference of world leaders (a G20 meeting).
The UK government was even more convinced of the need for international concerted action after the collapse of Iceland’s banks when various countries unilaterally took measures to guarantee deposits. First, Ireland announced a
100% deposit guarantee, leading to a capital flow towards that save haven. Then Germany also announced a deposit guarantee. At a eurozone meeting in Paris on Sunday 12
October, Brown was invited by Sarkozy to attend and explain his vision for co-ordinated action. Although the UK was not in the eurozone, Brown’s decade-long experience in economics as UK chancellor meant that
European leaders were prepared to listen to him. His address to eurozone leaders on the need for recapitalization of banks made an impression. President Sarkozy announced a recapitalization plan for French banks on
Monday 13 October 2008. The more cautious
German chancellor, Angela Merkel, announced a bailout plan for German banks later that week. Economic crisis: pre-budget report and budget Contents of measures
The banking and global financial crisis was followed by a ‘real’ economic crisis. Economies stagnated, companies downsized or closed, and workers were dismissed. In its April 2009 annual budget, the British government presented a recovery plan for ‘economic growth, well-being and prosperity for all’, following the G20 summit meeting in London where world leaders agreed on a global plan for economic recovery and reform. The British recovery plan consisted of:
•Measures to stabilize the financial system and to protect customers of financial institutions, people and businesses. In October 2008, action had been taken to prevent systemwide risks, such as assuring liquidity in
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financial markets, giving credit guarantees, managing government investments in banks, and tackling solvency of banks. The April
2009 budget announced that the UK banks’ existing assets would be protected—an asset securities scheme and asset purchase facility was created.
•Macroeconomic measures to support the economy. The Bank of England cut interest rates to ensure that negative inflation was avoided and that monetary policy supported the economy. The government provided a fiscal stimulus package, including a temporary reduction of value added tax
(VAT) from 17.5% to 15% and bringing forward £3 billion of capital spending (the last two measures had already been announced in the November 2008 prebudget report). The government also decided to stick with the nominal (cash) spending plans set for three years in 2007, even as inflation and fall in GDP meant they would be higher than first planned both in real terms and as share of national income.
The fiscal support actions were worth 4% of
GDP. Measures were announced to counter the significant increase in unemployment, especially for the young. An additional £1.7 billion was made available to provide the young unemployed with work placements or skills training, plus traineeships in the care sector.
•Actions to support individuals and promote fairness, especially addressing child poverty, including a new pregnancy grant and increased child tax credit and child benefit.
Measures were introduced to support the property market, focusing on first-time and middle income home-buyers, for example a
‘stamp duty holiday’ on properties selling for under £175,000. Borrowing from the
German example, a £300 million vehicle scrappage scheme was announced to replace vehicles 10 years old or older (eight years in the case of vans) with a brand new vehicle.
However, because the majority of new cars sold in the UK are imported, the scheme may not have been particularly helpful in terms of UK industry. The top rate of income tax was raised to 40% for those earning over
£150,000, and tax relief on pension contributions for those earning over
£150,000 were restricted. In addition, actions were announced to prepare for recovery— including reforms to enhance productivity growth and ensure high-quality (value for money) of public services. A green stimulus package was presented to invest in the lowPUBLIC MONEY & MANAGEMENT MAY 2012

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carbon economy (Treasury Committee,
2009b).
Decision-making process
The UK government soon realized that the financial crisis was turning into a crisis in the
‘real’ economy. The October 2008 IMF World
Economic Outlook was very cautious about the
UK’s economic future, as its economy was highly dependent on the financial and housing sectors which had collapsed. The British economy started to deteriorate seriously: -2.0% in the last quarter of the year. The government responded to the economic decline in the
November 2008 pre-budget report. Brown chose a Keynesian package to stimulate demand. He broke his own ‘golden rule’ that borrowing should never rise above 40% of
GDP. Treasury officials were reluctant to admit that the crisis demanded that rules be broken, and urged for plans to quickly bring it down afterwards. The main measure announced in the pre-budget report was a temporary reduction in VAT, which Treasury officials considered an administratively simple and economically effective measure. Additionally, a £20 billion fiscal stimulus package and a £3 billion capital spending programme were announced. Tax reliefs and allowances for the better off were reduced, in addition to the increase in income tax on earnings over
£150,000 (breaking the New Labour 2005 election promise not to increase income tax).
The Conservative media accused the government of returning to the ‘Old Labour’ habit of high taxes, high debts, and nationalizations. The Conservative leader,
David Cameron, accused the government of deepening the recession by overspending. The
Treasury was worried about the budget deficit, which had risen to 8% of GDP.
In order to ensure a coherent and swift government response to the economic crisis, a
National Economic Council (NEC) was created in October 2008 by the prime minister. The
NEC was chaired by Mr Brown, and co-chaired by the chancellor. Various ministries were members. Its secretariat was led by the Cabinet
Office and the Treasury and included staff from other government departments. The NEC was able to accelerate decision-making in
Whitehall by bringing in a sense of urgency and seriousness of the crisis. To reflect the urgency, its meetings were held in the secure
‘Cobra’ briefing room in the Cabinet Office basement. The Treasury disliked the idea of giving up its monopoly on economic policymaking and so considerable tensions existed.
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In its initial most effective phase the NEC became more important than the cabinet— hence its nickname the ‘economic war cabinet’.
It was an effective way of bringing coherence into the departmentalized structure of
Whitehall and of speeding up decision-making in departments in the high-days of the crisis
(Corry, 2011).
After the bank bailout and pre-budget report, the British economy continued to deteriorate sharply and unemployment dramatically increased. One of the problems was that banks’ lending to businesses and individuals had nearly dried up. Banks were pulled in opposite directions. On the one hand, government wanted them to lend money; on the other, they had to stabilize their balance sheets. Brown wanted more to be done and the
Treasury worked out a second bailout package.
On 19 January 2009, the new plan was announced, consisting of a new asset protection scheme to deal with banks’ toxic assets, more lending to assist banks, and a reshape of the government’s share in RBS. The objective was to increase the amount of credit available in the economy. Unfortunately, on the same day, news came of huge losses by RBS. RBS’s shares plummeted, as did those of Lloyds TSB. So the market’s reaction to the second bailout package was mixed up with reactions to RBS’s results.
Following his pursuit of international coordinated action in the financial crisis, Brown also pushed for international co-operation in the economic crisis. Brown had convinced
President Bush, in September 2008 of the need for a G20 meeting of state leaders, and managed to persuade the new president, Barack Obama, to let the G20 meeting take place in London, and also to attend himself. The G20 London summit, when he played a prominent statesman role on the international stage, was one of
Brown’s finest hours. The G20 meeting in
London, attended by the 20 member heads of state, plus the prime ministers of Spain and
The Netherlands, the presidents of the EU and the European Commission, the IMF, World
Bank, UN and World Trade Organization, received abundant and positive domestic press coverage. Shortly after the London G20 meeting the government published its annual budget on 22
April. Fierce tensions between Number 10 and the Treasury had preceded it. The economy had fallen, unemployment had risen and massive house repossessions were feared. The
Treasury was particularly afraid of the large and increasing budget deficit and soaring state
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debt. And the longer the economic recession lasted, the less there would be in tax revenues to cover even greater expenditures. The
Treasury feared that the economic stimulus expenditures would put too large a burden on deficit and debt, so they were keen to plan for spending cuts and tax rises to bring the deficit and debt down sharply once the economy started to grow. The same Treasury officials who had assisted and supported Brown when he was a thrifty chancellor, had lost confidence in his economic judgement. There were therefore robust debates and the Treasury felt pressured by Number 10 to soften the dramatic economic forecasts and be more optimistic than they thought sensible. The budget announced a further rise in income tax for earnings over £150,000 to 50%, a reduction of pension tax relief and allowances for the better off, increased taxes on fuel, alcohol and tobacco, and a car scrappage scheme. A job creation scheme for youngsters was set up. The goal was to halve the deficit within four years.
The next general election was looming.
The Conservative leader accused the Labour government of the ‘worst peacetime public finances ever known’. Mr Brown’s reply in parliament was that the choice was investment under Labour or massive cuts under a
Conservative government. Of course the
Labour government would also have to cut spending at some point, but in view of the imminent general election the Labour Party preferred to play that down, leading to accusations by the shadow chancellor, George
Osborne, that Labour was misleading and dishonest about its spending plans. Brown’s reluctance to be frank about public spending cuts was becoming a major issue in the election campaign. The Treasury repeatedly warned that spending cuts were inevitable, and the published budget figures showed cuts, but there were further tensions between the prime minister and the chancellor on how much detail to give. The Bank of England governor,
Sir Mervyn King also warned of the extraordinarily high budget deficit. Several cabinet ministers tried to persuade Brown to be more open about the deficit—Labour would most probably lose the general election anyway, so why not be candid, honest and therefore trustworthy on deficit reduction? Brown refused, believing that the difference between the Labour and Conservative parties would be lost in a general election if both said they were going to cut. In June, the government announced it would not be publishing a threeyear spending review, which would have
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revealed the details of departmental spending, and therefore the cuts. The reason was uncertainty about the UK’s economic future.
Finally, in the December 2009 pre-budget report, measures were announced:
•An initiative to increase government efficiency by means of information and communications technology (ICT).
•Revenue increases: VAT would return to
17.5% from January 2010 and national insurance contributions would go up in 2011.
The public outcry on bankers’ excessive bonuses made it easy to announce a 50% tax on bonuses above £25,000.
•The most sensitive measure, spending cuts, was rather vague. The plan to halve budget deficit in four years had already been announced in the April budget. Clarity was mainly provided on what public services were excluded from cuts, such as health, schools, police and development.
The March 2010 budget did not have much information on budget reduction. A few measures that Labour was using in its election campaigning were included—for example scrapping stamp duty for first-time home buyers, raising duty on houses selling for over
£1 million, child tax credits, allowance for pensioners and unemployment measures. The chancellor warned that immediate cuts would wreck the economic recovery; after 2011 tough spending cuts would be necessary, in other words, after the general election. No details were given except £11 billion in efficiency savings, £4 billion in cuts in public sector pay and a £5 billion reduction in departmental budgets. Fiscal crisis: spending review
Contents of measures
After the general election on 7 May 2010, the
Cameron–Clegg coalition cabinet was exceptionally quickly formed. Within a few days, severe measures were announced to reduce the budget deficit—cutting it to more or less zero in four years. The fine details of the plan had still to be worked out. In June 2010, an emergency budget was delivered by
Chancellor Osborne, which set the framework for the coming spending review. The high 12%
British budget deficit was to be solved in five years by cutting expenditure and increasing taxes and duties. The total cuts amounted to
£81 billion (about 100 billion euro). More details were given in the spending review of 20 October
2010 (Treasury Committee, 2010).
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The spending review stated that tackling the UK’s budget deficit (12%, with an annual
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•Long-term growth and private sector recovery.
•Fairness while protecting the most vulnerable.
•Public sector reform giving more power and responsibility to citizens.
To encourage long-term growth, the spending review announced investments in road and transport, investment in broadband internet, green banks, and supporting skills and research.
As to ‘fairness’, the spending review announced protecting school spending with support for the poorest, cutting welfare allowances, and withdrawing child benefit from the better off.
The National Health Service (NHS) and international development aid were not going to be cut.
As to public sector reforms, the main themes were: •Reducing the role of the state and increasing citizens’ own responsibility (‘small state’ and
‘big society’) for public services.
•Deregulation—cutting red-tape, bureaucracy and over-regulation, especially for frontline public services.
•‘Localizing’ public services—central government would give more power and funding to local government (although many local authorities were hard hit by the spending cuts).
•A campaign to slim down public sector pension schemes was launched, as well as a campaign against so-called ‘fat cats’—top government officials with large salaries.
•A 34% cut in the costs of the Whitehall administration and its agencies.
The government forecast that public expenditure would be cut by 25% in 2014, and that this would result in the loss of 490,000 public sector jobs (this figure was later downsized to 330,000).
Leaks from the government had revealed that the public spending cuts might lead to an additional loss of 700,000 associated private sector jobs. However, the Office for Budget
Responsibility (OBR) forecasted that total employment would increase by 1.3 million jobs by 2015, implying that the private sector would create about 2.3 million new jobs by 2015.
These forecasts seemed hard to believe (a more recent OBR report was much more pessimistic).
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Estimates were that the British spending cuts would be deeper than in any other European state, except Ireland and Greece. Total public spending was expected to fall to 40% of GDP by
2014—less than in France, Germany and the
USA.
Decision-making process
After creating a large state debt in saving commercial banks, and after having developed an economic recovery package that resulted in considerable budget deficits, inevitably the next step was to manage the resulting fiscal crisis.
The general election of May 2010 produced a hung parliament in the UK for the first time in 26 years, with no party having an absolute majority. Labour tried to form a government with the Liberal Democrats and Brown even offered to resign as prime minister, but the day after the election the Conservative leader, Mr
Cameron, made a ‘big, open and comprehensive’ offer of a coalition with the
Liberal Democrats and the negotiations soon resulted in a coalition government with
Cameron (Conservative) as prime minister,
Nicholas Clegg (Liberal Democrat) as deputy prime minister, Osborne (Conservative) as chancellor and a Liberal Democrat (first David
Laws then Danny Alexander) as chief secretary to the Treasury.
In the run-up to the general election, budget cutbacks were important, but the fear of a double-dip recession in the UK dominated the campaign. During the election campaign the
Conservatives said that they would cut faster and deeper than Labour. The Liberal
Democrats before the election took a more cautious approach, somewhat similar to Labour.
Right after the election, the Cameron–Clegg cabinet decided on a hard cutback package, going much further than the Liberal Democrats had promised they would do in the election campaign. The Liberal Democrats had changed their position on the economy almost 180o from a broadly Keynesian one to a much more fiscally conservative one. It was the price they needed to pay for concessions by the
Conservatives on constitutional reform of the general election system which the Liberals craved for.
The announcement the new cabinet made days after the election to drastically cut the budget deficit and state debt was detailed in the
June 2010 emergency budget and in the spending review four months later. This was remarkably fast, because there was no 2009 spending review so that there were no fixed budgets for government departments. The
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alarming financial economic situation was used by the new government to justify the need to urgently make a clear fiscal plan in order to restore confidence in the markets and with the public. The Treasury and other government departments had begun preparations from the time the election was called—the Treasury knew well in advance that sooner or later a detailed plan for spending budgets of departments would be required (Treasury
Committee, 2010).
After the Treasury published its spending review, a new form of cabinet decision-making was announced by the chancellor in June 2010.
The Public Expenditure Committee (PEX) was revitalized and called a ‘star chamber’ after a
Canadian example in the 1990s. All of
Whitehall’s spending would be scrutinized by the star chamber. The initial PEX included the chancellor of the exchequer as chair, the chief secretary to the Treasury as deputy chair, the minister for the Cabinet Office and the paymaster general. Other cabinet ministers could only became members of the star chamber once they had settled their departmental budgets with the Treasury. The idea was to build collective cabinet commitment and stimulate fundamental reconsiderations of government departments’ spending. Cabinet ministers thus had an incentive to deliver their spending cuts early and then pressure their colleagues from the star chamber. The commitment for fiscal consolidation in the coalition cabinet was high.
In preparing the budget and spending review, regular meetings also took place between the prime minister (Cameron), the deputy prime minister (Clegg), the chancellor
(Osborne) and the chief secretary to the
Treasury (Alexander) in order to fully involve and commit the coalition partners. Normally the prime minister and the chancellor would decide on fiscal and taxation measures, but both Cameron and Osborne were
Conservatives. The Liberal Democrats needed to be constantly involved in the decision-making on the budget and spending review. The quadrilateral meetings served that purpose.
In preparation of the spending review in
June, public sector workers and the general public were invited to suggest ways that money could be saved through the ‘Spending
Challenge’ website, again following a Canadian example. Although the Treasury was positive about the useful contributions made by public sector workers and the public, it was also criticised as being half-hearted and not genuinely involving the public.
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Lessons to learn and a view from outside
Coherent, swift and drastic decisions
British general elections usually result in a single party winning an absolute majority in parliament, which then forms a single-party government that has strong decision-making power. Oneparty (majority) governments are generally thought to be more capable of coherent, swift and drastic decision-making than multi-party coalition cabinets in consensual political systems.
Because one party is in control both in government and in parliament, there is no need for the eternal meetings, deliberations and compromises between ideologically opposed parties that characterize consensual systems.
The British government has shown itself capable of coherent, swift and drastic decisionmaking regardless of whether it was a oneparty administration or a coalition government.
For example during the banking and economic crisis, Brown quickly established the National
Economic Council (NEC) to ensure that coherent and swift actions were taken. Days after the general election the new Cameron–
Clegg government announced a drastic cutback package, delivered an emergency budget within a month, and published a spending review four months later. In sum, the process took only five months—which, by the way. is about as long as the Dutch after their June 2010 elections but much faster than the 459 days it took in Belgium to finally come to the budget cutback package agreed in November 2011.
Budget procedure
The British budget process appears quite rigid.
The annual budget is preceded by a pre-budget report in order to enable debate about proposed measures. And the budget is worked out in greater detail in the spending review which provides the details on departmental spending in the coming years. Within the budget limits set by the spending review, government departments are free to allocate budgets to the various issues and policy areas. The British have a tight top-down budget procedure, which in many European countries is only now being introduced due to the urgent need for budget discipline in the current euro-crisis.
In reality, the budget procedure leaves some leeway. The dates of publication of the budget and pre-budget report can be shifted, and political reasons have led to non-publication of a spending review or to detailed figures being deliberately withheld in the budget.
Therefore transparency of budgetary facts and figures is apparently not wholly guaranteed.
What is more worrying is that the reliability
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of economic forecasts and figures is not guaranteed either—politicians have been able to interfere in these economic figures and push the Treasury’s experts to make alterations
(which is the constitutional democratic right of politicians vis-à-vis officials). Alleged political massaging of economic forecasts by Labour led the new Conservative chancellor, Osborne, to establish the OBR. The OBR is chaired by an independent committee, its staff, which in the first months of its existence were seconded from the Treasury, became employed by OBR itself and the reliability and credibility of its independent forecasts are good. The institutional guarantees for independent and thus reliable economic facts and figures make it look like the Dutch Central Planning Bureau
(CPB)—a legally and financially independent office with a highly-qualified staff which independently carries out the economic forecasting itself. The CPB’s forecasts are regarded as highly authoritative by all political parties (except the left-socialist and the rightpopulist ones). The CPB also economically checks the party programmes before elections, and checks the financial outcomes of the coalition agreement of a new coalition cabinet.
Foreign perspective
From an overseas perspective, the centralized decision-making in the UK is remarkable.
During the banking and financial crisis, major decisions were made by the prime minister, the chancellor of the exchequer, the governor of the Bank of England and a small group of insiders. In consensual countries this swift, drastic and centralized decision-making also happened but was unique and exceptional. In
British government, it is quite normal that financial–economic decisions are centrally taken by this small group.
Another observation which is remarkable for foreigners is the high-profile international statesman’s role played by the prime minister,
Gordon Brown, during the banking and economic crisis. He convened the G20 summit in London and he played a prominent role at an eurozone meeting on the banking crisis.
Domestically these were widely considered his
‘finest hours’ (Seldon and Lodge, 2011). Not surprisingly, few Europeans attribute an important European role to the British prime minister. President Sarkozy’s view was that the banking problem was mainly a crisis of AngloSaxon capitalism. And, in Germany, the banking and financial services sector is economically much less important than in the UK. Whatever laudatory words some EU leaders might have
PUBLIC MONEY & MANAGEMENT MAY 2012

spoken, few people in Europe think that the
UK’s prime minister guided Europe in resolving the banking and economic crisis. In the current
European financial and economic crisis the UK seems prominent in its euro-sceptical abstinence. Sources
Besides analysis of official documents published by government departments and agencies, parliament, the Bank of England, the National
Audit Office, and financial expert institutes, interviews were carried out with political and non-political top officials from various ministries, including Number 10 and the
Treasury, with an Embassy official, with journalists and economic experts and with university professors, to all of whom complete anonymity was promised.
Thanks to the British good practice of publishing biographies and memoirs, much information on the political decision-making was publicly available (Seldon et al., 2007;
Darling, 2011; Seldon and Lodge, 2011). The detailed chronology in the biography on Brown was especially helpful (Seldon and Lodge, 2011).
Finally, reports of the House of Commons
Treasury Committee on the crisis (Treasury
Committee, 2009a, 2009b, 2010) provided much information.
Acknowledgement
Walter Kickert is currently involved in an EUfunded international research project on how states responded to the fiscal crisis, together with Professor Randma-Liiv of Tallinn
University.
References
Corry, D. (2011), Power at the centre: is the National
Economic Council a model for a new way of organising things? The Political Quarterly, 82, 3, pp. 459-468.
Darling, A. (2011), Back from the Brink: 1,000 Days at
Number 11 (Atlantic Books, London).
Seldon, A. and Lodge, G. (2011), Brown at 10
(Biteback Publishing & the Robson Press,
London).
Seldon, A. with Snowdon, P. and Collings, D.
(2007), Blair Unbound (Simon & Schuster,
London).
Treasury Committee (2009a), Banking Crisis: Dealing
With the Failure of the UK Banks, HC 416 (The
Stationery Office, London).
Treasury Committee (2009b), Budget 2009, HC
438–I (The Stationery Office, London).
Treasury Committee (2010), Spending Review 2010,
HC 544–I (The Stationery Office, London).
© 2012 THE AUTHOR
JOURNAL COMPILATION © 2012 CIPFA