The Treasury 1997-2007
Ed was Economic Adviser to the Chancellor (1997-1999), Chief Economic Adviser to the UK Treasury (1999-2004) and the UK Minister for Financial Services (2006-2007). He led the design of policies including independence of the Bank of England, the UK Fiscal Code and the introduction of performance budgeting, New Deal jobs programme, the Five Tests Euro assessment, Sure Start, tax credits and the national minimum wage. As a Treasury Minister, he was commissioned by the G7 Finance Ministers to prepare a report with Sir Jon Cunliffe (now deputy Governor of the Bank of England) on Economic Aspects of the Israel-Palestine conflict.
Read an extract from Chapter 9, 'Change', in Ed's book, 'Speaking Out: Lessons in Life and Politics'
"On your first day in any job, you can almost always tell what it’s going to be like. You get an instinctive feeling about the atmosphere and culture of your new workplace, and it tells you a lot about whether you’re going to fit in, get ahead and be happy. And you’re very rarely wrong.
My first day in the Treasury was in the summer of 1989. I had just graduated, and gained a place on the Civil Service fast-stream scheme. But rather than start immediately, I’d asked to defer for two years so I could take up a Kennedy scholarship to do a post-graduate degree in America.
The Treasury took me up on my request for a summer internship in the middle of my graduate course and I turned up on a sunny Monday morning, and was taken down to meet my boss in the Monetary Economics Unit. He didn’t say hello to me, but gestured for me to sit down in the chair opposite him. In silence, he produced from his drawer an envelope and handed it over to me. I opened it, and read a letter saying: ‘Dear Mr Balls, Welcome to the Treasury.’
The letter explained that I was to work on a research project assessing the real impact of the Chancellor’s attempt to support sterling in the foreign exchange markets in 1986. It said that I would be expected to support the wider work of the team, and it was to be hoped I would enjoy my time at the Treasury. It was signed by my new boss, who was still sitting across from me. ‘Any questions?’ he said. ‘No, that’s fine.’ He nodded. ‘Great, that’s your desk. Off you go.’ And that was my induction.
An hour later, there was a knock on the door and in came a woman in a big apron pushing a trolley loaded with cups and saucers. ‘Would you like some hot water?’ she asked. I said ‘Yes,’ because I assumed that was the done thing. Five minutes later she returned with two cups filled with hot water and put one on my desk, and one on my superior’s. He looked at me rather perplexed. ‘But you’ve nothing to put in it?’ ‘No,’ I admitted. ‘I suppose I can lend you a tea bag,’ he said – I noted the world ‘lend’. The next day I brought in a box of PG Tips and made my loan good. His generosity only went so far, however. That lunchtime he said: ‘I generally go to the park for sandwiches – would you like to come?’ We walked out to St James’s Park, sat on a bench, I watched him eat his sandwiches, and we walked back.
It was a strange time. The department had to shut down every Wednesday because of weekly Tube strikes. But rather than miss work, a number of civil servants had old Second World War camp beds brought up from the cellar in order to be able to stay overnight. I chose not to take up the offer. Of course, throughout that summer, I never met the Chancellor, Nigel Lawson, or went anywhere near his private office. All policy advice was routed through the Permanent Secretary, each division was its own fiefdom and communication was distinctly Stone Age. To send a memo or respond to a letter, you had to write in longhand what you wanted to say, post it off to a member of the ‘typing pool’ – located in some distant office – wait for the typed- up copy to return, send it back with your corrections, and wait for a final proof. Only then could you submit your missive to your boss for approval – at which point the process would invariably begin again. Getting a simple letter sent out could take at least two weeks.
But for all the arcane practices, this was the Treasury, the beating heart of economic policy, the most powerful department in government, the place where economic and political history was made. And what struck me most about the Treasury back in 1989 was the sheer excellence of the people who worked there, the volume of data they had access to, and the quality of their research and analysis. My boss was a first-rate economist and a wonderful teacher. It was without question a Rolls-Royce operation, even if it was a rather vintage model.
I could have joined the Treasury permanently in 1990, but when the FT offered me a job as a leader writer, I decided to take that instead, simply on the grounds that the FT was somewhere I could make an immediate impact, and – based on what I’d seen – I wasn’t sure the same would be true at the Treasury, at least for quite some time.
If you had told me then that ten years later the Treasury’s Permanent Secretary would be asking me to take on the position of chief economic adviser and join the Treasury Management Board, I would frankly never have believed you. Over the course of seven years there after the 1997 election, I was at the heart of planning eight Budgets, seven Pre-Budget Reports and four Spending Reviews. We made the Bank of England independent, introduced tax credits, raised taxes to save the NHS and kept Britain out of the euro.
At such a young age, I found myself at the centre of power, and everything that’s happened to me since – becoming an MP, a junior Treasury minister, a Cabinet minister, my four years as Shadow Chancellor and almost becoming Chancellor before losing in 2015 – was shaped by those experiences. It was the time of my life, and I set out to use that time to change the Treasury – and Britain – for the better."
Read Ed's book, Speaking Out, here.
'Open Macroeconomics in an Open Economy’, Ed's November 1997 at the London School of Economic’s Centre for Economic Performance
Abstract
There are three pillars of the new Labour Government’s approach to economic policy: delivering macroeconomic stability, tackling the supplyside barriers to growth and delivering employment and economic opportunities to all. This lecture focuses on the reforms the new government has introduced in order to deliver macroeconomic stability and why open and transparent institutions and procedures are central to those reforms.
The lecture sets out four principles for macroeconomic policymaking which flow from changes in the world economy and the world of economic ideas over the past twenty or thirty years. These are:
the principle of stability through constrained discretion
the principle of credibility through sound, long-term policies
the principle of credibility through maximum transparency
the principle of credibility through pre-commitment
The lecture explains each principle in turn and shows how they are being translated into practice in the macroeconomic policy reforms that the new government is introducing at the Treasury and the Bank of England - reforms which add up to what is now probably one of the most open and accountable system of economic policymaking in the world.
Read the full lecture here.
'Why the five economic tests?', Extract from Ed's 2002 Cairncross Lecture, 4th December 2002
"In 1997 we concluded that, on the basis of a detailed assessment of the five tests, it was not in this country's interest to join the first wave of EMU. It is an understatement to say that the five tests are controversial. Some, who would rule out membership of the euro on constitutional grounds, say that this assessment of the national economic interest is, therefore, irrelevant. Others argue that the political case for membership is so compelling that the historical moment should be seized regardless of economics. And all too often, commentators, doubting whether economics can rise to the challenge of the five tests, fall back to the easy view that the decision will inevitably be made on political, not economic grounds.
I believe that Sir Alec Cairncross would have rejected the idea that economics and economic policymakers cannot rise to this challenge. He would have argued, I am sure, that a decision of such magnitude has to be got right. But he would also point out that we do not have a good track record of making these decisions over the past century. Central to these past failures has been that politicians and policymakers paid insufficient attention to the economics, and then paid a heavy economic and political price when it all went wrong."
Read the full speech here.
Reforming Britain's Economic and Financial Policy: Towards Greater Economic Stability, HM Treasury, Foreword by Gordon Brown, Edited by Ed Balls and Gus O’Donnell, 2002
In recent years the UK's macroeconomic policy framework has undergone a period of radical reform so as to deliver the economic stability necessary to achieve high levels of growth and employment. This book provides a comprehensive account of these reforms, which constitute a new and innovative approach to policy making. Radical changes to the monetary policy framework, the fiscal policy framework, the regime for public spending and financial regulation are presented. Together they represent a coherent strategy to deliver economic stability and benefits to the wider economy. As well as providing an unprecedented insight into UK Government economic policy, the book takes the reader through the intellectual foundations of policy reform and the translation of these to applied policy making. Reforming Britain's Economic and Financial Policy contains a foreword by the Chancellor, Gordon Brown.
Microeconomic Reform in Britain: Delivering Opportunities For All, HM Treasury, Foreword by Gordon Brown, Edited by Ed Balls, Joe Grice and Gus O’Donnell, 2004
Microeconomic Reform in Britain: Delivering Opportunities for All provides a comprehensive guide to the extensive microeconomic reforms implemented over the last 6 years to realise the UK Government's goals: a stronger more enterprising economy and a fairer society. This companion volume to Reforming Britain's Economic and Financial Policy: Towards Greater Economic Stability offers a detailed account of a programme of reforms which together constitute a comprehensive strategy to lock in the stability needed to support steady growth by pursuing both enterprise and fairness for all.
Building on the foundations of monetary and fiscal reform, the reforms in microeconomic policy described in this volume provide the framework for improving Britain's overall productivity, expanding national wealth and protecting the environment. The government's approach to raising productivity across all sectors and income groups, supporting families, and tackling poverty is presented, together with a detailed account of the reform of the delivery of public services.