Against the Treasury mindset

The Treasury exhibits a narrow focus on tax receipts and interest rates. It concentrates on balancing books and short-term fiscal indicators. It gives insufficient recognition of the broader economic ecosystem, such as credit conditions, investment flows, and productivity drivers.

The money supply, a key influence on inflation, credit creation, and business confidence, is treated as peripheral.

It places too much reliance on static projections: it assumes tax rises or cuts have linear effects on revenue. But tax cuts can boost investment, consumer spending, and long-term growth.

Excessive tax burdens can reduce incentives, depress enterprise, and shrink the tax base. This leads to underestimation of the potential positive impact of pro-growth policies. It fails to embrace growth-stimulating measures, and has a preference for fiscal caution that often thwarts bold, growth-friendly initiatives.

It has a limited appetite for supply-side reforms such as deregulation, infrastructure investment, or innovation incentives, and it creates a ‘do-nothing’ bias, prioritizing stability over dynamism.

The Treasury shows an over-reliance on Corporation Tax and Capital Gains Tax, which disincentivize entrepreneurship, investment, and risk-taking.

Its policies drive capital abroad or into low-risk, low-growth assets, and misses opportunities to create a tax environment that attracts global investment and supports startups.

Its institutional culture and personnel lack experience and awareness of the problems businesses face. Treasury staff are drawn from a narrow civil service background which is strong on control and caution, but weak on entrepreneurial or commercial experience.

Within its ranks is a deep-seated culture of skepticism toward innovation and market dynamism. It thus acts as a brake on reforms promoted by elected governments, reinforcing a status quo bias.

The current Treasury mindset is outdated for the needs of a 21st-century economy. The modern economy requires policy that embraces growth and productivity gains, entrepreneurial risk-taking, and long-term investment in innovation and infrastructure.

In short, reform of the Treasury’s culture, personnel, and modelling approach is essential to unlock the economy’s potential.

Madsen Pirie