The Treasury did not see the financial crisis coming and was unprepared to deal with it as a result, an official report has revealed.
An internal review into the response of the department’s management to the crisis admits that before 2007 financial services and stability were not “high profile” issues for the department.
It says although resources were ramped up to deal with the crisis, this should have been done more quickly. Only three staff were working directly on financial stability before the run on Northern Rock in August 2007. This figure rose to over 100 in July 2009. The full size of the team including lawyers and advisers peaked at around 200 in the summer of that year.
It says: “The Treasury, like many other institutions, did not see the crisis coming and was consequently under-resourced when it began.
“Overall, the Treasury was stretched and could have been better prepared.”
It quotes a senior Treasury official as saying: “In retrospect, we did not gear up nearly enough. We should have had five teams and 100 people, not two teams with 30.”
The review says the team put together after the collapse of Northern Rock had few members with banking experience and the majority had to “learn on the job”. It adds that although the Treasuy’s financial stability team will be protected as the department’s budget declines, retaining the now experienced team will be a “challenge”. The Treasury has been struggling to retain staff and the review recommends the department “develops a strategy to manage its turnover rate and sets an annual turnover target of 15 to 20 per cent”.
The report praises reorganisation within the Treasury since 2010 saying there has been “serious efforts” to improve the department’s civil service leadership and that the working practice is now “more flexible and less-siloed”.
It says: “The Treasury has much greater capability in the financial sector and on crisis management than it had before and in the early stages of the crisis.”