‘Sir Douglas in Euroland’. Treasury officials and the European Union, 1977–2001

PUBLIC MANAGEMENT

‘SIR DOUGLAS IN EUROLAND’. TREASURYOFFICIALS AND THE EUROPEAN UNION, 1977–2001

CRAIG PICKERING

‘. . . every man is a piece of the continent, a part of the main; if a clodbe washed away by the sea, Europe is the less . . .’

John Donne

The European Union (EU) is now, in the author’s view, a pervasive partof the UK Treasury’s culture, much more than is generally recognized.Drawing on personal experience as a Treasury official, the author describesthe impact of the EU on the Department’s culture, organization and work.Relations with other departments, finance ministries in other member statesand the EU institutions are examined in order to demonstrate the depthand complexity of Treasury involvement in the EU. Key policies are dis-cussed, to illustrate how Treasury culture has changed in recent decades.

INTRODUCTION

The UK Treasury has a negative reputation where Europe is concerned. Itis not usually described as Eurosceptic, for that is too political a description,but it is variously described as ignorant of or hostile to the European Union,outside, that is, a small coterie of officials who genuinely understand howit works.

What I wish to argue here is that this portrait is increasingly out of date.The European Union (EU) is now a pervasive part of the UK Treasury’sculture. The Atlanticist Treasury is not in its death throes but it is muchweaker than it was 20 years ago. The sad events of 11 September 2001 will

Craig Pickering is chairman of an on-line financial education business and a consultant on finance.

Public Administration Vol. 80 No. 3, 2002 (583–599) Blackwell Publishers Ltd. 2002, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street,Malden, MA 02148, USA.

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not have changed that markedly. It has been replaced to a significant degreeby a Department that is much more aware of the opportunities and chal-lenges thrown up by the UK’s membership of the EU. It is not positiveabout the EU, but it is much more knowledgeable and sophisticated aboutEurope, although the knowledge can be patchy and the sophistication isnot universal. It has a cadre of officials who know Europe well. Some mixoften with colleagues from other member states and the European insti-tutions, either in Brussels, other capitals or the cheerless rooms of the Treas-ury itself (which is now having a long-overdue makeover). European issues,and other issues with a European dimension, take up a large part of theTreasury’s time, in ways that would have been unimaginable when JimCallaghan was in office during the 1974–79 Labour government. This workgoes well beyond the issues that gain headlines and column inches; it coversthe everyday, the arcane, occasionally the bizarre.

The integration of the EU into the Treasury’s culture does not mean thatofficials are pursuing some policy independent of Ministers. ‘Yes, Minister’,the British television sitcom of the 1980s, was marvellous comedy. It wasnot always an accurate text on the Whitehall constitution. Strong Ministerscan always get their way on matters of judgement and opinion, and some-times in the face of the facts. This is as true of Europe as on any othersubject on which Treasury officials advise.

But the character of that advice is strongly influenced by the knowledgeand experience that officials bring to bear. Thus the extent to which the EUis embedded in the culture of the institution has a real impact on the servicethat Ministers get, on the policies that are developed, on the decisions thatare made and ultimately on what is usually, though misleadingly, knownas the real world.

The press often speculates, in a more or less informed way, on the pos-ition of Treasury officials on policy issues of the day. They (the officials)want to slow the economy. They want to grow the economy. They are try-ing to stop a defence project. They would like to cut public expenditure(always).

Treasury officials’ attitudes to European issues frequently attract presscomment. Economic and Monetary Union, that well-known bird EMU, isunderstandably a current obsession, but there have been others, from con-trolling the European Community’s Budget in the 1980s to throttling theCommon Agricultural Policy (again, always). As far as EMU is concerned,press impressions of Treasury views are much more likely to change, andin pretty close correlation to the views of the Chancellor of the day.

Those who have written about the Treasury at greater length than thepress are able to do have often given scant attention to Europe. Hugh Hecloand Aaron Wildavsky’s The Private Government of Public Money is perhapsthe finest book ever written on the Treasury. Their second edition was pub-lished eight years after the UK joined the EC (Heclo and Wildavsky 1981).Europe and the EC do not figure in the index. The book’s focus is on expen-

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diture control and at that time the EC was not recognized as a pressure onUK public spending, except among the cognoscenti.

More surprisingly, perhaps, Henry Roseveare’s book on the Treasury(Roseveare 1969), the nearest we have to a history of the institution, doesnot mention Europe at all. Published in 1969, it mentions the Treasury’skey role in financial reconstruction after the Second World War, but makesno mention of the Iron and Steel Community, Messina or the negotiationswith General De Gaulle. Richard Chapman’s textbook on the Treasury saysrightly that ‘There is a very considerable and steadily increasing volumeof work associated with the European Union’. He devotes a few pages todescribing it, while a chapter on Next Steps Agencies is 49 pages long(Chapman 1997). The most recent example is David Lipsey’s book on theTreasury (Lipsey 2000). He devotes just seven pages to the topic, out of 263pages of text. Though I suspect some of my former colleagues would saythat this is the right balance, there are, I believe, strong grounds for dissent.

Looking at books with wider and more European horizons, HugoYoung’s magisterial book on Britain’s relations with Europe mentions Trea-sury hostility to joining the Common Market in the 1950s. But the Treasuryis hardly even a bit player in the long and fascinating story that he tellsthereafter (Young 1999). Much the same goes for Alan Milward’s study ofthe making of the EC, The European Rescue of the Nation State (Milward 1992).In Sir Con O’Neill’s official history of the UK’s entry negotiations into theEC, the Treasury’s work is described, but very much as a Department loy-ally carrying out Ministers’ policies. There is no hint of official attitudes toEurope inside the Treasury at the time. Indeed, the author even disclaimsany detailed knowledge of how the Treasury organized itself for thesenegotiations (O’Neill 2000). Philip Stephens’ book about how we fell outof the ERM is superb but on a very specific subject (Stephens 1996). Hedeals with great events, dominated by Ministers by his account, which hasthe ring of truth about it. Officials figure in the drama, but they do notoccupy centre stage. He subscribes to the conventional wisdom on the sub-ject of this paper: the Treasury’s culture is ‘stubbornly British’ (Stephens1996, p. 233). Though Andrew Moravcsik puts up a detailed case for theprimacy of economics in the history of the EU, he pretty well equates theTreasury with the doings of Treasury Ministers. He refers a couple of timesto Nigel Lawson as a Treasury official, to make the point most plain (thoughof course, in fairness, the word ‘official’, in American terms means some-thing different, and elsewhere he gets it right in UK terms) (Moravcsik1999).

For the negative view of the Treasury on Europe, far and away the bestaccount, in its detail and coherence, that I have come across is The Road toMaastricht, by Kenneth Dyson and Kevin Featherstone. The Treasury ischarged with ‘a want of imagination and a surfeit of prejudice’ (Dyson andFeatherstone 1999, p. 295). It is said to have detached ‘itself from the evolv-ing European debate’ in 1985–87 (p. 544). It is of interest that this latter point


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is followed by a detailed account of the machinations between Ministers inthe period before the UK joined the ERM. Returning to the Department,the authors claim: ‘The Treasury has been the quintessential exponent ofcalculations being made on the basis of short to medium-term gains andlosses’ (p. 577). They do concede that it is ‘difficult and dangerous to gen-eralize about the European adaptability of the Treasury’ but go on to sayimmediately that ‘For the period covered here, at least, European policywas ghetto-ized within the Treasury’ (p. 589).

Books like these prompted this paper, half-way between a memoir andan essay, through what they say and omit. What inspired this paper wasthe time I spent in the public sector on European work. This experiencetook three forms. I did three stints in the Treasury, plus one as a diplomatin Brussels and one as a banker. I was a junior official from 1977 to 1983,straddling Labour and Conservative Governments, including spells in theprivate offices of two Permanent Secretaries. Europe was not a theme untilmy last posting, where it cropped up in the unlikely setting of the TreasuryDivision which dealt with public service pensions. When I discovered theAcquired Rights Directive, it came home to me that the UK was only anisland in geographic terms, not in European law and not in Europeanpolitics.

I returned to the Treasury in 1985 and did two more years, on economicpropaganda. Europe again figured little. The Single European Act was aone-week wonder, hardly credible in the light of what happened later.

I then did a two-year secondment on loan to the Diplomatic Service inUKRep Brussels, as it is known in the trade, or to give it its full title theUK Representation to the European Communities as they were then known(there were three, not just the one that was the victim of Mrs Thatcher’shandbag). Here my education on Europe began in earnest. I was the deskofficer for what were then the Budgets of the European Communities: aroad map for the future, as it seemed, for Jacques Delors was President ofthe European Commission in those days.

I served in two more posts in the Treasury, from 1989 to 1998. The firstwas on the overseas side, including a part-time job on the board of theEuropean Bank for Reconstruction and Development, unfairly and amus-ingly infamous in the UK as Attali’s marble palace. The EU owned 51 percent of the shares and played a role as a member in its affairs, over andabove the role played by individual member states who were also individ-ual shareholders. Finally, I was head of the Treasury’s Industry team, withresponsibilities for European work on the Structural Funds (the secondbiggest item in Brussels spending), research (the third biggest), venturecapital (tiny in EU budget terms, but in a landscape of vast significance forthe European economy) and, for a while, practical preparations for EMU.These autobiographical details feed into what follows. It also means that Iwrite here primarily of the Treasury up to 1998, though I believe that the



change in the Treasury’s culture in relation to the EU continues to growin significance.

CENTRAL FOCUS WITH FARMING OUT: HOW THE TREASURYDEALS WITH EU BUSINESS

European work in the Treasury is handled by a combination of gatheringwhat is regarded as core EU work together as a specialism, in a central‘European’ unit, and by farming out European issues which require aknowledge of other policies to other parts of the Treasury. Views on thesplit between core and periphery vary over time, as ideas about organiza-tion, policies and personalities change. But the principle of this split hasendured for at least the last 28 years.

The Treasury’s role is four-fold. First, it has always led on EU financesand spending, with the focus since the late 1980s being the future financingrounds which determine EU spending. Second, it has always led on tax.For a long time that focus was on the relation between EU revenues anddomestic taxes, but in recent years the harmonization of domestic taxes –or, much more usually, resisting that policy – has become the dominanttheme. Thirdly, the Treasury nowadays leads on opening up a single mar-ket in financial services, since it has gradually acquired responsibility forthe parallel domestic policies on financial services. Finally, the Treasuryintervenes from time to time in policy areas where other Departments lead.In the 1990s for example the Treasury took a keen interest (from a freetrade perspective) in trade policy.

The Treasury has had an overseas side for at least 70 or 80 years. InRoseveare’s history for instance ‘Overseas finance’ first appears in the titleof a section in a chapter on the interwar years and in 1936 there was aforeign finance department (Roseveare 1969, pp. 260–3 and 270). It is thenatural home of European work, because it advises upon the government’sfinancial and economic relations with other governments. It is headed by aManaging Director, currently Gus O’Donnell, who also straddles economicanalysis and what is left of the Treasury’s role in monetary policy. O’Don-nell’s name is relatively well-known, especially since he reportedlyreminded us, via his PowerPoint slides on EMU, that in the Treasury jokesare always to be taken seriously (The Times 2002). Several of his prede-cessors, including Sir Nigel Wicks, specialized in overseas financial issues,at the stratospheric level. Sir Nigel was the nearest a Treasury official hasever come to being their ‘Mr Europe’.

There has been a European unit, in one guise or another, on the Treasury’soverseas side since before the UK joined the EEC in 1973. It is currentlyheaded by a Director, who is one rung below the Treasury’s top officials,the Managing Directors. It is typically composed of two or three teams(they have been called teams since the Treasury got into management speakduring its Fundamental Expenditure Review, in the mid-1990s), carryingout two principal functions.


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The first function is to handle the day-to-day work that arises on the EUBudget: the annual procedure for agreeing it; the UK Parliamentary workthat arises on it. It co-ordinates the briefing of UKRep on the Budget. Itdoes the same for the junior Treasury Minister who has the ill-luck to attendBudget Councils. The Chancellor never, in my experience, gets involved inthis side of European affairs.

The second function is the dull-sounding job of co-ordinating briefing forECOFIN, the European Council of Economics and Finance Ministers, whichthe Chancellor usually attends. Its real nature is to further the ambition,shared by Margaret Thatcher, John Major and Tony Blair, by Ken Clarkeand Gordon Brown, of propagating UK ideas in the EU on how to developand grow a market economy. It has not traditionally played the role ofharvesting good ideas from elsewhere in the Union (Pickering 2002). Thisfunction also covers the future financing of the EU, which is re-negotiatedevery five to seven years. There were future financing rounds in 1987–88,1992 and 1999, and the next one is due in 2006. Although ECOFIN does notlead on future financing, in the UK this is definitely a Treasury-led activity.

The teams undertaking these functions and the group as a whole numberno more than 30 people, including the Director, the team leaders, policyadvisors at various levels, economic analysts and support staff. Such a smallgroup cannot hold all the expertise that is needed in advising on issues asdiverse as EMU, financing high technology start-ups, aid to the Middle Eastand regional policy’s budgetary costs. The Treasury has two main waysof dealing with this. Some teams specialize in EU issues alongside otherresponsibilities. Others are rushed to the trenches when a crisis breaks out.

First, there are teams which have permanent European responsibilitiesbrigaded alongside their other, usually domestic, responsibilities. Theseteams fall into four categories: spending, economics, EMU and financial ser-vices.

The spending teams include the expenditure team dealing with what wasuntil 2001 MAFF, now the Department of Environment, Food and RuralAffairs (DEFRA), which also worked, logically enough, on the CommonAgricultural Policy (CAP). The CAP’s cost to the British taxpayer now sig-nificantly outweighs domestic subsidies to British farmers. Total subsidiesto farmers in 2000 amounted to £2,489 million, according to the DEFRAwebsite (accessed in December 2000), whereas only £804 million was pro-vided in the 2000 Comprehensive Spending Review for domestic subsidiesin 2000/01 (HM Treasury, The 2000 Comprehensive Spending Review, Chapteron MAFF, Table 16.1).

The Industry team used to deal with European regional policy and co-ordinate work on the Structural Funds – those mega budgets devoted toregional training and poverty alleviation, mainly aimed at the poorestmember states (though funds last longer than gains in prosperity wouldindicate, witness the Irish experience of Structural Fund receipts holding



up well after prosperity had equalled or surpassed UK levels). The sameteam dealt with European R&D – the Framework Programmes.

Economists in the Treasury usually work with policy advisors. The excep-tions include the team which tracks the world economy. It does a gooddeal of work on the major EU economies. In recent years separate teamshave worked on the economics of EMU, its Brussels dimension (when legalinstruments were in negotiation in the run-up to launching the newcurrency); and the practical implications of EMU for the public and priv-ate sectors.

The Treasury has waged a battle over the last 15 years to become thelead department for financial services. Among the major services, only pen-sions have so far stayed out of the Treasury’s policy embrace. Europeanlegislation is pervasive in this sector. Thus the whole of the financial ser-vices sector of the Treasury comes across European work which is relatedto its domestic responsibilities. This can include issues as diverse as pass-ports for banks to operate throughout the Union; the regulation of stockexchanges and their new competitors in cyberspace; Gibraltar’s financialrelations; and a host of other issues.

Secondly, issues blow up from time to time that do not fall naturally tothe central EU team or any of the permanent outriders. These ad hoc issuesusually concern some fresh initiative for spending money from the EUBudget. The Treasury long ago – in 1985, I believe – devised a system calledEUROPES for encouraging departments to take a close interest in theseinitiatives. The system is meant to enforce budgetary rigour and to be con-sistent, where necessary, with ‘additionality’. The latter is an EU concept(which the Treasury used to claim to have fathered) which purports, in away that Socrates and Plato would have loved to debate, to ensure that theEU spending in question is over and above any spending on the same pol-icy that takes place at national level. EUROPES did not bear close scrutiny.Its rules were complex and its baselines difficult to justify from first prin-ciples. It did mean that any spending team in the Treasury might find itselfinvolved in EU Budget work if its Department was in the front line. Health,education, law and order, the environment could all figure, and much elsebesides. The EU Budget does not by any means encompass all the activitiesof a national administration in financial volumes, but it touches on a hugerange of areas, as well as the well-known big spenders. Delors’ road mapshowed where he intended to take, in his able way, the European 16-wheeler, and that tradition is not dead, though it may be on a respirator.

One effect of this method of organization is that a significant number ofTreasury officials regularly work on EU issues. In addition, a significantnumber encounter the EU from time to time. I estimate that about 400officials participate directly in Treasury policy advice. A significant min-ority have considerable EU experience. About 60 (measured as full-timeequivalents) are working in EU-related work at any one time, mainly inthe middle grades of the Department, by dint of their work in London


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and/or Brussels. Given that postings last between one and four years, overa five-year period a considerable proportion of policy advisers acquire someEU experience. Over half probably now have direct experience of EU work.Typically, a few people at senior level are veterans. Though in recent yearstheir turnover rate has been high, a new generation is coming on. Of the59 Treasury teams operating in January 2001, I estimate that 29 wouldencounter EU issues at least occasionally. Of the eight cross-cutting teams(which bring together different teams where issues overlap them), two hada purely EU remit.

BATTLES AND ALLIES: THE TREASURY, WHITEHALL, THEBRITISH NATIONS AND EUROPE

There is a strand in Treasury psychology that thinks of itself as puritanical,full of financial rectitude, at odds with the forces of darkness in spendingdepartments and other parts of government – who like to suggest ways tospend the taxpayers’ money, financed from others’ budgets. The FCO areespecially included in the latter, in a common perception. Much mediacoverage reflects this part of the Treasury’s self-image.

If that were all there was to the Treasury, the public finances would bein permanent disarray. To assert itself in Whitehall and beyond, the Treas-ury needs political skills in its own right, just as its Ministers do, in a differ-ent way. This applies to European work as much as any other. The Treasuryhas these skills. It wins and loses like any Department, but is suffused bythe recognition that wits, intellect and preparation are vital, but so are alliesand sympathetic ears. Traditionally, it liked to boast that it only knew howto say ‘No’, but that was always a caricature, and has become even moreof one in recent years. It is now, in government accounts, part of a morejoined-up style of government. It is much more positive about public spend-ing and interventionist in approach in general, than it has been, certainlysince the early 1980s, though instances of this in the European field are asyet hard to find.

Who else lives in this playground? It is best to start with the FCO, sittingnext to the Treasury in Whitehall, in surroundings that are sometimes moresalubrious, sometimes more scruffy and occasionally quite stunning. Itadvises the Foreign Secretary on EU issues, despite calls from time to timefor this function to be hived off into a French-style separate organization,or even a separate Ministry. UKRep Brussels is one of its embassies, thoughof a fairly unusual kind, given its executive role. This article is not a workof diplomatic history, so there will be no attempt to analyse the twists andturns in British foreign policy on Europe in the last 24 years. Others havedone it better than I ever could. Here, though, are a few observations aboutthe Treasury’s relations with the Foreign Office.

First, there are tensions which arise from the nature of the two insti-tutions. These transcend the policy differences that arise from time to timebetween the two Departments and their Ministers. Treasury officials pride



themselves on their economic and financial literacy and perceive the FCOas lacking in these skills. Economists seem to have a much higher status inthe Treasury than they do in the FCO, for instance. (If a former diplomatwere writing here and could put away for a moment the natural tact ofthat craft, they might well identify an underdeveloped political literacy, inforeign affairs at least, as a Treasury shortcoming.) The FCO thinks goodrelations with foreign governments are desirable as a means to getting UKobjectives. The Treasury has mellowed but it has been a hard lesson tolearn and it has mainly come as a by-product of the exposure to EU workthat we have already examined.

There are also ways in which the two Departments are drawn together.They both think of themselves as big beasts in Whitehall, so a certain mut-ual respect, that can irritate others, arises. They both have access to a biggerpicture, in the economic and political spheres especially. Their respectivesenior Ministers were almost always players in the Cabinet’s most crucialpolitical battles about Europe in the period under discussion.

Officials pursue the initial skirmishes in many of these battles in fieldspoliced by the Cabinet Office European Secretariat. Its last head came fromthe Treasury on loan, as does its current deputy head. More junior Treasuryofficials often do a posting there. So the Treasury is entrenched in an officetasked with co-ordinating advice to Ministers on European policy. Sincethe last UK General Election in 2001, the European Secretariat has becomemuch more integrated with No. 10, pointing up still more the need, atofficial level, for good co-ordination with the Treasury and vice versa.

But life is more complicated than that. A Treasury official in such a jobwill bring ideas and experiences from the Treasury to bear on the work,but the first loyalty of the Secretariat has to be to the Cabinet and aboveall to the Prime Minister. That is the theory and the practice. Charles Pow-ell’s career at No. 10 illustrates the problems that can arise when a Depart-ment feels one of its officials has ‘gone native’ in No. 10. He came to beregarded as the Prime Minister’s alternative FCO (Kavanagh and Seldon1999). It doesn’t seem to happen the other way round. The Secretariat isstaffed by FCO, MAFF and DTI personnel mostly, together with the Treas-ury, since these departments have the bulk of Whitehall interest in andexperience of European work. Edinburgh, Cardiff and Belfast also have akeen interest, and devolution has had an impact in the European Sec-retariat, as in many other ways.

It would be an exaggeration to say that the Cabinet Office co-ordinatesall European work of interest to the Treasury. EMU in particular has beena Treasury preserve for long periods, with other Departments taking aninterest but not perhaps as involved as they and their political masterswould have liked. But on any issue of wider Whitehall significance concern-ing the EU Budget, co-ordination works systematically and well and manyother issues get the same treatment. Future financing negotiations, forinstance, which engage a multitude of Whitehall interests, are carefully


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overseen by the Cabinet Office, though different departments lead on theparts that concern them most: in particular, the Treasury on the numbers,DEFRA/MAFF on CAP, the DTI and other interested departments andinstitutions on the Structural Funds. Although it is outside my period, it isinteresting that the Treasury played this co-ordinating role until shortlybefore the UK’s accession (Bulmer and Birch 1998, pp. 608–9). Perhaps theroots of the Treasury’s knowledge of Europe are deeper than we know,though well hidden for so long.

The Common Agricultural Policy is a relatively straightforward matter.The Treasury has done battle with DEFRA (previously MAFF) and itscounterparts in the devolved administrations, or ‘the territories’ as theywere known in a bygone era. It was striking in UKRep that the MAFFofficials who worked there saw part of their job as working on, if not exactlyrepresenting, UK farming’s interests, but another part of the same job wasfighting off the wilder excesses of other member states’ agriculture minis-tries. So MAFF/DEFRA is probably not as ‘native’ on farmers and Europeas the Treasury thinks it is. The Treasury’s own view on the CAP is assimple as it can be. Abolition is the long-term goal and every little war isa step towards or away from that goal. BSE came as a calamitous inter-vention in that campaign but history will take a long view. The CAP illus-trates a broader theme that, if the Treasury really is mainly focused oncutting public expenditure, it has made a pretty awful job of it. Of coursethe CAP is in no sense under the Treasury’s control but its continuing costgives rise to uncomfortable thoughts for those who would like to see theCAP end.

The Structural Funds – which finance policies to address regional dispari-ties and labour market issues – are a different matter. In large part theyparallel government activities that are also financed domestically in the UK.They are a delivery mechanism, financed by the member states via the EUBudget. They cover regional policy, employment and training, infrastruc-ture investment and a good deal more. They are big bucks: 32.9 billioneuros in 2001, 34.2 per cent of the Union Budget (European Commission2001, p. 7).

A bewildering web of government institutions takes an interest in theStructural Funds. In England, the DTI and DEFRA are most active and theGovernments of Scotland, Wales and Northern Ireland are deeply inter-ested. But a huge range of other agencies can get dragged in, sometimesunwillingly. The Structural Funds may take an interest in health, law andorder, sport and a lot more, often to the discomfort of the Ministry con-cerned, and the Treasury team shadowing them. The Treasury is interestedin the cost and value for money of the Structural Funds. Like the CAP,they have outstripped over the years their domestic counterparts. Thespending teams that shadow the various governments and departments ofthe UK take an interest, with one team, during the mid-1990s, taking a co-ordinating role.



Abolition of the Structural Funds was not on the Treasury’s agenda inthe period under discussion, but reining them in certainly was. The Treas-ury has had good links over the years with the Commission on the Funds,in an effort to produce a better understanding of how they are managedand to improve financial management in the UK and elsewhere, from avalue for money perspective. Here too the Treasury has had to watchspending grow. I spent a significant chunk of seven and a half years of mycareer in this field, so I take my share of responsibility for this trend.

The CAP and the Structural Funds have both figured, at different times,in the development of the EU, as part of a more general acquis. The Treas-ury is not well organized to take this point on board, tending to see themas akin to the domestic spending battles that took up so much of the Treasu-ry’s energies in the period under review.

The third great chunk of European spending is on scientific research, theFramework Programmes as they are inelegantly named. They are perhapsthe least known of the three big items, except among those who arefinanced by them in government, the universities and business. The Officeof Science and Technology, now a part of the DTI, co-ordinates policy. Heretoo the Treasury wants to bear down on the cost, with value for money anambition, though this is even more difficult to achieve than usual. How doyou quantify scientific discoveries? Citation counting is about as far as itwent in my time. Framework Programmes are not a huge political priorityand few in the Treasury take a close interest. But 3.9 billion euros is non-trivial, in all sorts of ways of interest to the Treasury and the wider world(European Commission 2001, p. 7).

The EU Budget also has a multitude of little programmes and budgetlines, from campaigns against smoking, to encouraging tourism in Greece,to cultural initiatives. Here, too, departments are involved with the Treas-ury from time to time, though the relationship is more symbiotic thanadversarial. This is because of the curious system mentioned earlier, calledEUROPES. The corollary of a Treasury spending team coming across thismechanism from time to time was that departments and interests in societyalso sometimes became entangled. It was alarming to discover that therewere university scientists who had mastered the fundamentals of this sys-tem, because of its impact on the spring from which they drank. It had inmy day a number of detailed rules but the basic idea was that every poundspent in the EU Budget had to be financed from the responsible depart-ment’s budget. So a pound absorbed by EU programmes covered by EUR-OPES squeezed out domestic expenditure, pound for pound. Thus depart-ments had an interest in fighting to keep EU spending down, the reverseof the great battles about spending inside the UK. The Treasury for examplehad a very fruitful alliance with the Office of Science and Technology inthe mid-1990s, in which we built alliances, mainly through other financeand science ministries, aimed at keeping Fourth Framework Programmespending to a manageable level.


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The system applies only to a minority of the EU Budget. EU legislationprovides, for example, that Structural Fund spending must be additional,using the same jargon, to domestic spending on the same policies. Therewere separate arrangements for the aid budget. But EUROPES was apowerful influence on Departments if used creatively where it did apply.They did not like it, but they worked professionally to achieve the disci-plines it imposed (Bulmer and Burch 1998).

There are two final big pieces of the jigsaw of relationships between theTreasury and the rest of government: No. 10 and UKRep Brussels.

No. 10 has expanded considerably since 1977, as Dennis Kavanagh andAnthony Seldon have documented so well (Kavanagh and Seldon 1999).The Private Office usually has two Treasury people on loan (or only oneif the Principal Private Secretary comes from another Department). So thelinks are strong, although those officials’ first loyalties will always be tothe Prime Minister. The Policy Unit has long had an interest in Europe,though Roger Liddle is the first member I can recall who has had so welldefined an EU remit. The Treasury spends a good deal of time and efforton keeping alongside No. 10, and EU issues are no exception. It is arguablethat the relationship has changed radically since 1997, as No. 10 has becomegenerally much more assertive in EU work. EMU is definitely an exceptionand so is tax. And I suspect that the FCO has been more of a loser thanthe Treasury.

UKRep Brussels, though an FCO embassy, is more like a representativeof all the Departments involved in EU work, and staffed accordingly. Some-one in the Treasury who had done a posting in the Washington embassytold me that it was a good job if you were ‘entrepreneurial’. He meant thatyou had to find yourself interesting work, above and beyond the reportingthat is many diplomats’ lot. It would be unimaginable to hear that from aTreasury official who had done time in UKRep Brussels. They might havehad days praying that the interesting work would reduce, but to have tospend a whole posting looking for useful work is not a risk.

Correspondingly, it is the best place for a Treasury official to pick upEuropean tradecraft, as Le Carre might call it. It is a demanding, intensive,adrenalin-and-frustration-inducing experience that tends to produce EUjunkies. At least one former Treasury official did three postings there. Sev-eral have done two, in addition to Treasury and other Whitehall postingswith a European bent. Edward Heath wanted UKRep partly staffed withhome civil servants as ‘a very effective way of propagating a Europeanoutlook within departmental culture . . .’ (Heath 1998, p. 394, quoted inDyson and Featherstone 1999, p. 584). He seems to have been wrong for along time, as far as the Treasury was concerned, but he may be cominginto his own now, if my thesis has substance.



GETTING OUT AND ABOUT: THE TREASURY, OTHER FINANCEMINISTRIES AND THE EU INSTITUTIONS

I once said, at the end of a meeting in Washington with a senior US Treas-ury official, that I looked forward to seeing her in London. ‘Unlikely’, shesmiled (if I remember the words correctly), ‘our travel budget doesn’t allowit’. The Treasury’s European activities are in sharp contrast. Officials atevery grade that has a policy function – Managing Director to band E inTreasury speak; Second Permanent Secretary to grade 7 in more traditionalWhitehall jargon – spends some time on ‘planes and trains going to Brusselsand other European capitals. Travel increases in frequency with seniority,but nobody in these jobs stays at home all the time. My impression – thoughI cannot quote statistics – is that the British, curiously, given our euroscepticreputations – are more likely to travel to other EU capitals than vice versaand that applies to the Treasury as much as anywhere.

Where do these journeys lead? Brussels, of course, and other Europeancapitals. In my day, Paris and Bonn were the favourites and no doubt Berlinis up there with Paris now. But the Treasury has close links with all theNorthern Finance Ministries. There was a brief period when it looked likeRome would join the North. Since the Italians are probably now a net con-tributor to the EU Budget, they should perhaps have persevered with theseefforts, but the pull of the Mediterranean was too strong. Perhaps the newItalian administration will change that.

In Brussels, the Commission is the chief port of call, especially the Britishcabinets, which often employ ex-Treasury people (and those who may anddo return to the mother ship). The latter work in DG (Budget), which isthe nearest the Commission gets to expenditure control in the Treasury’straditional sense of the term; in DG (Markets), which looks after the SingleMarket, especially in financial services; and in other DGs as and when theTreasury wants to take an interest and the Commission wants to take asecondee, a national expert as they are called. The Commission has a moreopen culture than most Whitehall Departments, so access is easy and canbe useful.

The European Parliament itself is usually left to Ministers, except whenTreasury officials are on loan to UKRep, which enjoys close relations withUK MEPs, except during UK Presidencies. In my days in UKRep, I usedto visit Strasbourg every time the EU Budget was on their agenda, whichit usually was. The Parliament has powers, not least on the Budget, thatthe House of Commons might envy if it understood them better.

There is usually a senior Treasury official, near to the end of their career,on the Court of Audit, the EU’s financial watchdog, Joe Carey, in the late1980s, for example, did excellent work to open up the financial scrutiny ofthe CAP while at the Court. David Bostock is due to start there about now.

The traffic is not one way. Officials from other EU finance ministries, inparticular, come to the Treasury fairly often. On at least two occasions there


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have been secondments from the EU, a Tresor official in 1995 (in exchangefor a Treasury official spending 13 months in Paris) and a Commissionofficial in 1996–97.

THE TREASURY AND EUROPE

I could stop there. There is little enough known publicly about the Treasu-ry’s day-to-day work on the EU, I hope, to make this examination worth-while. But of course that would be to evade the question that interests mostTreasury watchers in this context. What does the Treasury really thinkabout Europe? I doubt that I can answer the question comprehensively butlet me mention a few vignettes, from the period under discussion, to illus-trate what the answer might be.

My earliest Treasury memory of Europe was of the publication of theCPRS report on the Diplomatic Service (Central Policy Review Staff 1977).The FCO mounted a doughty campaign against its radicalism. The FCOfought in Parliament, the correspondence columns of The Times and any-where else useful. Yet in the Treasury I remember the report as being gre-atly admired. Its most striking recommendation in this context was thatUKRep Brussels might be scaled back in size, now that accession negoti-ations and the first UK Presidency were completed (p. 51). It would beunhistorical to criticize the recommendation but it perhaps illustrates howfar the Treasury has travelled in deepening its understanding of andinvolvement in the EU that the idea would be well nigh inconceivabletoday. It was ominous, in the light of my main theme, that on the CPRSteam’s visits to posts ‘The Treasury was almost universally held up as amodel of economy in the number and size of visits made’ (p. 53). Thissounds like a polite way of saying that the Treasury took little interest inthe outside world. UKRep Brussels is nowadays one of the few embassiessafe from any well-hidden Treasury axes. And the Treasury is a more out-ward-looking Department than it was in 1977, not least in Europe.

In the 1980s, the Treasury’s commitment to and pride in the renegotiationof the UK’s contribution to the European budget was total. This was atleast as much a technical as a policy commitment. Protecting the UK abate-ment came first in Treasury objectives in every re-negotiation of futurefinancing from 1987 onwards and it will need a radical imagination tochange that. It was a huge achievement which did much to alleviate theinequities of the budget contribution fixed for the UK on entry. Sir ConO’Neill and Sir David Hannah gave an account of the extent to which thatissue was foreseen at the time of entry (O’Neill 2000). Its impact on theUK’s relations with the EU are a more controversial topic. My own viewis that although it was a great deal at the time, there must come a point atwhich we press for a more rational basis for the Union’s finances, with awillingness to change the terms of the abatement as a quid pro quo. If wesimply say ‘what we have we hold’, the UK will cement its own well-



established image as an outrider with too purely financial and economic aview of the Union.

The year 1992, to borrow the Queen’s description, was the Treasury’sannus horribilis. I believe that falling out of the ERM had a deep impact onthe Treasury’s psyche. There was a feeling that this was far more than anormal policy error, inevitable in a business as complex as government. Itdrove to the heart of where the Treasury had been going. I think it wasone of the roots of the fairly deep reorganization the Treasury undertookin 1995, in the Fundamental Expenditure Review.

I am very sceptical that there is a Treasury view on EMU. It has longbeen the subject of intense debate and work. Chancellors rule, on this issueas on any other, and its political salience has long meant that there was noroom for official manoeuvre. Maastricht is as good an example as any. Agood case can be made for the Treasury and other parts of the civil serviceperforming well from a technical perspective, with astute advice on tacticsand helping to secure the opt-out that Ministers in the end wanted, despitethe best efforts of Norman Lamont. Yet that work has been smothered inthe impact of the Treaty on the Conservative Party and John Major’spremiership (Moravcsik 1999; Dyson and Featherstone 1999).

More generally, it is too crude to try to reduce Treasury positions onEurope to a series of policy prescriptions. There are the policies mentionedabove on which knowledge is more or less deep and politics more or lessprevalent. There are the relations with other Whitehall players and theirpolitical masters, where it is important to see the Treasury as one powerfulplayer, not a ruler over others.

The Treasury, like every UK department and government institution, hasto acknowledge that its influence is limited by the supra-national qualityof the EU. Unanimity can be a friend, in tax or elsewhere, but it can alsoobstruct. Let us look again at the principal four EU activities mentionedabove. The Treasury’s power over spending control is clearly much weakerthan in domestic spending, yet over the years the Treasury has learned tobuild coalitions with some degree of success. The CAP endures, but it isworth remembering that it used to be 90 per cent of the EU Budget, whileit had fallen to 45.5 per cent of the Budget in 2001 (Commission 2000, p.7). The single market in financial services is developing and the Treasurycan claim part of the credit, though it is arguable that – with the exceptionof some individuals – it took a considerable time to take the objective ofopening up EU financial services seriously. Tax harmonization is so raddledwith politics in Britain that it is hard to say much in this context, exceptthat other EU finance ministries were not noticeably enthusiastic in the1990s and the Commission has taken pains to deny that it has sinisterambitions in this field. The Council Group chaired by Dawn Primarololooking at tax state aids is an interesting pointer to a future in which theCommission might be more active on tax. The Treasury’s interventions in


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such fields as trade policy have probably been patchy in their effect, butthey do at least show a Department engaging with Europe.

Does this limited influence on EU outcomes cause resentment in TreasuryChambers? I doubt it. Anyone who has dealt with the IMF, the World Bankor the EBRD understands that to achieve anything you have to engage withpotential allies and answer critics. The Commission has employed someformidable economists over the years. I never noticed that they were lessrespected in the Treasury than were their counterparts in the internationalfinancial institutions.

Summing up, Treasury understanding of Europe has increased consider-ably since 1977. It is not complete but if we look, as I have tried to do inthis paper, at the range of policies with a European dimension in whichthe Treasury has an interest; at the number of Treasury teams with suchresponsibilities; at the number of Treasury officials with significant Euro-pean experience or current responsibility, or both, it is difficult to thinkotherwise. No doubt the Treasury, like many UK institutions, took too longto adjust to the demands of being part of the EU. But that adjustment isnow being made, at least in terms of the knowledge and understandingthat are needed.

Is the Treasury less European-minded than its EU counterparts, parti-cularly those in Paris and Berlin? It probably still is but the gap is lessening,except where politics is an obstruction, as it is in major areas of EU policy.UK entry into EMU, in particular, could produce a very European Treasuryin a short time, given the bedrock of knowledge and experience that alreadyexists. The US will remain a powerful influence, at least while GordonBrown and Ed Balls remain in the Treasury, but that should not obscurethe influence of Europe even now.

More training is no doubt needed. The best training is the opportunityto work alongside other EU member states in a common enterprise. Moreshort secondments and longer postings, in other European Governmentsas well as Brussels, would do much to foster a common understanding thatis far more useful than particular discussions on any policy. If Europe is akey part of the UK’s future, the Treasury will have to continue to adapt.In EU budget issues and international monetary policy, the adjustment ispretty well complete. If there is a notable gap, it is in learning from otherEuropean economies. The Treasury is too apt to see the US as a model andEurope as a place that should learn from the UK. The Lisbon process givesthe Treasury a real opportunity here.

In organization, I am not sure the Treasury yet pulls together its variousEuropean interests in the way that it should. They may be missing tricksand tradeoffs. Budgetary issues, tax and financial services should be seenin the round, and all taken with the bigger picture of the UK’s EU relations.Part of this process should be a re-assessment of how much the Treasuryunderstands about Europe. Ghettos can be dangerous places. If knowledgeabout Europe is as widespread and deeply rooted as I have argued, the



Treasury may be on its way out of the ghetto. Atlanticism may not bereplaced by Europeanism but it will take its proper place in the Treasury’sculture and work. A period of reinvention seems in order. I hope that thislittle paper helps.

ACKNOWLEDGEMENT

A version of this paper was given at Professor Peter Hennessy’s seminarat the Institute of Historical Research, University of London on 9 January2002. It has been revised in the light of comments made there. The titleowes due homage to William Keegan, for his character Sir Douglas Corridorin his ‘Observer’ column in the 1970s. I have no particular Sir Douglas inmind. With thanks for comments on previous drafts from David Bostock,Martin Donnelly and Susan Pickering and for discussions with other formercolleagues. The responsibility for the text is mine alone.

REFERENCES

Bulmer, S. and M. Burch. 1998. ‘Organising for Europe’, Public Administration, 76, 4, 601–28.Central Policy Review Staff. 1977. Review of overseas representation. London: HMSO.Chapman, R.S. 1997. The Treasury in public policy-making. London: Routledge.Dyson, K. and K. Featherstone. 1999. The road to Maastricht: negotiating economic and monetary union. New

York: Oxford University Press.European Commission. 2001. The 2001 Budget in figures. Brussels, at http://europa.eu.int/

comm/budget/furtherinfo/index en.htmHeath, E. 1998. The course of my life. London: Hodder and Stoughton.Heclo, H. and A. Wildavsky. 1981. The private government of public money, 2nd edn. London: Palgrave Mac-

millan.HM Treasury. 2000. The 2000 comprehensive spending review. London: HM Treasury.Kavanagh, D. and A. Seldon. 1999. The powers behind the Prime Minister: the hidden influence of Number 10.

London: HarperCollins.Lipsey, D. 2000. The secret Treasury. London: Viking.Milward, A. 1992. The European rescue of the nation state. London: Routledge.Moravcsik, A. 1999. The choice for Europe: social purpose and state power from Messina to Maastricht. London:

University College London Press.O’Neill, Sir C. 2000. Britain’s entry into the European Community. London and Portland: Whitehall History

Publishing in association with Frank Cass.Pickering, C. 2002. Harvesting technology London: Centre for the Study of Financial Innovation.Roseveare, H. 1969. The Treasury: the evolution of a British institution. London: Allen Lane Penguin.Stephens, P. 1996. Politics and the pound. London: Picador.The Times, 4 January 2002. Brown’s man admits euro tests can never be met (Tim Baldwin and Phillip Webster).Young, H. 1999. This blessed plot: Britain and Europe from Churchill to Blair. London: Palgrave Macmillan.

Date received 6 March 2002. Date accepted 21 March 2002.


Documents

‘Sir Douglas in Euroland’. Treasury officials and the European Union, 1977–2001