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Whitehall, where the view is clear and the doubts are secret

One of the key negotiators of the terms of UK entry to the European Economic Community in the early 1970s went down in history as a loyal servant of prime minister Edward Heath, but himself had doubts about the entire venture.

The man in question, who is, as they say, no longer with us, would no doubt have been of great interest to the present band of Eurosceptics whom David Cameron is trying, if not exactly to win over, at least to pacify. His view was simple, and could be broadly paraphrased as: “Why did we fight the second world war if we end up doing this?”

Well, the answer is that the dissident gentleman’s colleagues and political masters had come to see the truth of former US secretary of state Dean Acheson’s view that, as a result of the second world war, we had lost an empire and not yet found a role. Now we are in a European Union whose birth and expansion we encouraged, but did not apply to join until it became clear in the 1950s and 1960s that “the six”, as they were then known – West Germany, France, Italy, Belgium, the Netherlands and Luxembourg – were doing far better economically than we were.

When Sir Samuel Brittan and I – both of the Financial Times at the time – had lunch in the early 1970s with the negotiator referred to above, we asked about the thorny issue of the Common Agricultural Policy. “Oh,” said our interlocutor, “once we are in, we’ll change all that.”

It says something for the loyalty of the British civil service that it was only decades later that I learned about the “doubts” harboured by Heath’s distinguished negotiator at the time. As for “changing all that”, it has been a long haul, and Cameron is still at it, convincing sceptics up to a point. Let us hope he succeeds.

Cameron intrigues that great chronicler of British prime ministers, Dick Leonard. Dick, who is also an expert on Europe, having covered the EU for many years on behalf of the Economist and this newspaper, has just produced a magisterial work entitled A History of British Prime Ministers, Walpole to Cameron.

Obviously the judgment on Cameron must be tentative, but I note Leonard concludes: “Behind his bland exterior, David Cameron is a single-minded and ruthless operator.” He gives credit to Cameron “for holding his coalition together” but criticises him for having been “over-dependent on his chancellor (perhaps his Svengali?) for a sense of direction to his government”.

His chancellor is now about to lose another great civil servant, Sir Nicholas Macpherson, who, after a long stint as permanent secretary to the Treasury, is retiring from the service in his mid-50s, but not retiring altogether.

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It is a great tribute to the civil service that quintessential public servants such as Macpherson can work with, and enjoy the trust of, ministers of different parties, and indeed of journalists. Thus, although he did think Labour had rather overdone it with spending, he had no hesitation in dismissing the all too successful Osborne propaganda that public spending had caused the financial crisis, stating unequivocally that what brought the economy to its knees was “a banking crisis, pure and simple.”

Now, you would not expect Macpherson to be anything other than a defender of Treasury orthodoxy and, sure enough, in a paper presented to the British Academy last week – “The General Theory at 80: Keynes and Treasury Policymaking Today” – he defended what I regard as the seriously mistaken approach to fiscal policy in recent years. Indeed, he said: “I’d like to think that Maynard Keynes – who understood markets as well as anybody – would have approved of what the Treasury has done since 2008.”

Now, it is important to remember at this stage, as Macpherson reminded us, that Keynes was essentially addressing the problem of “chronically low demand” in the economy. But Keynes died in 1946. All that stuff about “Keynesians” advocating policies to encourage growth came later.

The idea that Keynesian policies do not work was belied by the way that the huge “stimulus” – fiscal as well as monetary – championed by Gordon Brown and other enlightened policymakers in 2009 worked brilliantly in preventing the Great Recession of 2008-09 turning into another Great Depression.

To my mind the huge, indeed catastrophic, mistake was in tightening fiscal policy too soon, something that began with Alistair Darling’s budget of 2010 and was continued, with a vengeance, by George Osborne.

Over centuries, we had until recently experienced economic growth in this country of some 2-2.5% a year; beneath these averages were spurts of growth of 4-5% during recoveries from recession.

Although the government goes on about the recent recovery, it is peanuts by comparison with earlier recoveries from recession. Indeed, given the depths plumbed during the Great Recession, it should have been one hell of a lot faster. As it is, output is some 15-20% below what historical trends would have indicated.

With due respect to Macpherson, I cannot agree with the Treasury view that Keynes would have approved of the decision to tighten fiscal policy as soon as 2010 and then embark on a programme of austerity.

And by the way: in a nice touch, Macpherson revealed that his grandfather had been Keynes’s stockbroker!

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