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Michael Fallon MP: Gordon Brown is the architect of the Northern Rock and HMRC crises

Fallon_michaelMichael Fallon is MP for Sevenoaks.

Architects can not escape their buildings.  The two crises engulfing the government at the moment have their origins in the decisions that Ministers themselves took.

HM Revenue and Customs (HMRC) and the Financial Services Authority (FSA) are the monsters that Brown created.  They’re two of the largest public departments, employing 100,000 and 3,000 staff respectively.

Both of them are super-agencies created by sticking other smaller departments together.  HMRC was the result of a merger between Inland Revenue and Customs and Excise.

The Treasury Committee investigated the proposed merger back in 2004.  We found that no cost benefit analysis of any kind had been done to justify the merger.  No efficiency savings were calculated.  No commercial organisation would proceed on this basis.

We warned of the risks involved.  We also pointed out the very different cultures involved – tax inspectors thrown together with cutter-riding “duty men”. 

Gordon Brown pressed ahead.  In fact, he did worse than that.  He chose that moment to make the Revenue take over a large chunk of the benefit system.  Tax inspectors used to reviewing your annual tax return – perhaps a year or so after it was submitted – were suddenly dealing with single mothers with large families wanting tax credit that weekend.

He then ordered the new HMRC to shed one fifth of its workforce- over 20,000 people - to meet the Treasury’s efficiency targets.  There have been deep cuts in frontline staff.  When we visited one of the London offices in July, we found poor morale, over-stretched employees and constant management upheaval.  Is it any wonder that procedures weren’t strictly followed ?

The FSA was the first super-regulator, combining all the previous regulators in a single massive bureaucracy.  Against the advice of the then Bank of England Eddie George, the FSA was also given supervision of the banks.

Three thousand people sit in Canary Wharf filling in forms.  Only three of them were detailed to supervise Northern Rock whose business model the FSA chairman himself described as extreme.  Nobody at the FSA thought to ask whether Northern Rock could remain liquid as well as solvent.

And the machinery for co-ordinating all this completely failed.  The FSA, the Treasury and the Bank of England held their “tripartite” meetings.  Despite a month’s warning, they couldn’t stop the bank run. Because the bureaucracies failed, £25 billion of taxpayers’ money is now at risk.

25 million families’ private details exposed to serious risk of fraud. £25 billion of our money propping up a bank they failed to supervise. 

There’s one man who should be apologising to us all – the Prime Minister.


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