Revealed: The Treasury’s key role in the UK’s EU policy – and why it matters now

Matthew Smith
David Cameron’s predicament has the greatest similarity to the challenges facing John Major in the early 1990s

Living up to its billing as the perennial “awkward partner” of Europe, Britain is once again articulating its unease with European economic integration. And previous decades contain plenty of examples of where defiant rhetoric has been swiftly followed by defiant action. The common explanation for this frequent uncommunautaire behaviour has been that UK governments have simply succumbed to their basic Eurosceptic instincts (or those held by their back-bench MPs, or the media that swept them to power). But has policy on such an important issue really been based on such flimsy foundations?

New evidence suggests the answer is no. Government documents recently made available indicate that Britain’s repeated hesitations on European economic integration over the last 35 years have not been driven by Euroscepticism. Rather, ministers (of both main political parties) have based their decisions on economic cost-benefit analysis provided by Treasury officials. While other member states have excitedly pursued the European project as a desirable “vision”, Britain has been awfully pragmatic.
Civil servants providing ministers with advice, and then those ministers making a decision based on that advice, is of course how Britain’s machinery of government should work. But what is possibly surprising to some is the significant preferencing of economic factors over other considerations attached to European integration. The paper trail also suggests that, while Prime Ministers and chancellors have deployed crowd-pleasingly sceptical language when discussing the issues in public, this noise is largely a tactical decoy, and behind closed doors ministers have been cramming up on the economic facts before making final decisions.
This picture of a well-functioning minister-officials partnership is backed up by the recollections of the former ministers who received this advice, as set out in my book. Former Labour chancellor Denis Healey states that, even in 1978, when Labour was facing electoral loss and disquiet on its back benches over Europe, he and then Prime Minister James Callaghan turned to Treasury officials to understand the economic consequences of membership of the Exchange Rate Mechanism (ERM) before ruling it out.
Nigel Lawson, Conservative chancellor in the 1980s, emphasises the value he put upon advice he received from Treasury officials. He highlights how discussions through 1984 and 1985 helped him to conclude that the time was now economically right for Britain to join the ERM. And Ed Balls, recalling his time as special adviser to Gordon Brown, confirms that this economic focus was still in place when the Labour chancellor commissioned the Treasury to carry out in-depth analysis to inform the decision he had to make on the single currency.
There is always, of course, an exception to every rule. In this case, it seems to be the Conservative government’s policy on the ERM in the late 1980s. Government papers suggest that Mrs Thatcher set the parameters for monetary policy from within Number 10, and a frustrated Treasury had to work within those constraints. An argument could be made that this was a rare example of a British government letting its heart rule its head.
So what does this tell us about where this latest skirmish with Europe will end up? Well, there is nothing to suggest that the Treasury has lost its dominance in Whitehall. But ministers need to ensure that HMT has the space to carry out credible economic analysis without it being diluted by political influence – space that messrs Healey, Lawson, Major, Balls and others insist was afforded to the Treasury in previous decades.
For me, David Cameron’s predicament has the greatest similarity to the challenges facing John Major in the early 1990s: no real parliamentary majority, a testing economic situation and a rowdy Eurosceptic contingent on the back benches. What did Major do? Government papers itemise the years of planning that were undertaken by Major and Treasury officials to prepare for the Maastricht Summit in 1991 to ensure the best outcome for the British economy. And once that plan was successfully executed, the new Prime Minister did what was necessary to ensure that this policy was not blown off course by domestic political conditions. Gus (now Lord) O’Donnell, who was Major’s press man at the Summit, recalls that the “game, set and match for Britain” slogan that was used at the subsequent press conference was a part of this plan to manage the sceptics.
So, that has seemingly been the very British way of dealing with Europe: pragmatism before vision. And sticking with that pragmatism now is probably more important than ever, given current economic fragility. But the uniqueness of this latest confrontation contains an added complication. Unlike previous stand-offs, the British government is not seeking a UK-only carve out, but asking all member states to sign up to its new idea. This is a riskier and trickier game. Will this force the Prime Minister to go beyond his predecessors and put vision before pragmatism?
Dr Matthew Smith is the author of Policy-Making In The Treasury: Explaining Britain’s Chosen Path On European Economic And Monetary Union.

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