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Media Stories: 03/06/2007 - Tom Bower in Sunday Times reveals how Penrose was orchestrated

Brown v Whitehall: the coming battle

From The Sunday Times June 3, 2007

Tom Bower

‘Yes, prime minister’ – is that all that Gordon Brown will want to hear from his civil servants? There exists some worrying evidence

"Five weeks of panic” was one description of the mood inside Gordon Brown’s inner sanctum in early March 2004. The chancellor had been briefed that Lord Penrose had delivered his report about the collapse of the Equitable Life insurance company resulting in losses of about £4 billion to 750,000 policyholders.

To Brown’s alarm Penrose had circumvented his restricted terms of reference and partly blamed the government’s “ineffective’ regulator for the losses and condemned the “manipulation and concealment” by some managers. If the policyholders successfully sued the government, Brown was advised, the nation’s finances would be torpedoed.

“Find a way to get us out of this,” ordered Brown in what has been portrayed as “ice-cold panic”.

The events following Brown’s order raise serious questions about the next prime minister’s pledge to restore traditional, spin-free government and his promise to improve his acerbic relationship with civil servants. Having promised at the launch of his leadership campaign in May to “change the way we govern” Brown’s own record on Equitable Life suggests that his self-improvement will be a challenge.

Gus O’Donnell, the Treasury’s permanent secretary in 2004, was the target of Brown’s rage and pleas. He was ordered to produce a “get out of jail card”, including a request to the Serious Fraud Office to consider prosecuting Equitable Life’s directors.

O’Donnell organised the dispatch of the appropriate letter to Robert Wardle, the Serious Fraud Office’s director, but Brown placed him under pressure to do more. Irate MPs representing suffering constituents wanted Brown to answer their complaints personally in the Commons. O’Don-nell was ordered to produce written answers that some believed would be distortive.

That’s pushing the envelope,” O’Donnell was heard to complain. He had worked hard to forge a good relationship with the suspicious chancellor but, imbued with a strong sense of right and wrong, he was unwilling to cross the line.

Instead, over the next five weeks, O’Donnell constructed a wall of obfuscation and interminable delays. His success in orchestrating the protection of “Project Gordon” impressed the chancellor. O’Donnell’s reward was promotion to become cabinet secretary where he now awaits his new master.

The chancellor’s delight was tempered when MPs referred the matter to Ann Abraham, the parliamentary ombudsman. But ever since 2004 the Treasury has inundated Abraham with submissions forcing repeated delays to her draft report, assumed to be critical of the Treasury. It recently delivered a 500-page schedule of objections. Brown’s spokesman called this an example of the Treasury “cooperating fully with the investigation” but insiders admit, “it’s a variation on ‘spin’. Gordon is spinning it out to buy time”.

Cynics believe that even if Abraham criticises the Treasury Brown’s response will mirror his tactics after her recent finding of the Treasury’s maladministration towards occupa-tional pensions. Through a junior minister Brown simply announced his disagreement with Abraham and refused to pay compensation.

That did little to assure critics about Brown’s recent promises of “humbleness” and “new government”. The guide and guardian to restore probity across Whitehall will be O’Donnell himself. His fellow mandarins are asking whether O’Donnell has the strength to persuade the new prime minister to shed his lifetime’s habits. The omens are mixed.

O’Donnell won promotion after witnessing the wreckage of his predecessor’s battles. Terry Burns, the Treasury’s permanent secretary in 1997, smilingly welcomed the chancellor only to discover that his promise of loyalty and professional advice was dismissed by the unrelenting suspicion of Brown’s cabal.

Brown, it became apparent, trusted only a small group of loyalists including Ed Balls, his intelligent economics adviser and now a junior minister; Geoffrey Robinson, the controversial millionaire and MP for Coventry; and Charlie Whelan, his bullying and unreliable spokesman.

“It’s a sad day,” muttered one official after witnessing their arrival. “We’ve never previously allowed spivs to set a foot inside this building.”

The combustible baggage brought into the Treasury by the trio placed Burns in the invidious position of being asked not to tell the truth to protect Brown’s cronies. Distrusting everyone, Brown ordered paperwork to be kept to a minimum. Without a paper trail, the new chancellor reasoned, he could also avoid the unpleasant consequences of an irrefutable record of his decisions. He would not be held to account by anyone, especially Burns.

The new chancellor, Burns discovered, rejected advice from any official who disagreed with his opinions.

Civil servants were condemned as enemies of change. Their reward for objective opinions was exclusion from the magic circle. Many of Brown’s disasters – including the annual £5 billion pension tax raid, tax credits and the fraudulent independent learning accounts – were launched because Brown shut out those warning of dangers.

Among the casualties for his outspo-kenness was John Gieve, who was sent to the Home Office and then to the Bank of England. Burns’s ultimate sin was to refuse to condone Geoffrey Robinson’s dependence on a secret tax haven. In June 1998 he retired.

By then Richard Wilson, the cabinet secretary, had also earned Brown’s enmity. Wilson agreed to act as Blair’s messenger and ask Brown in July 1998 to dismiss Robinson. The chancellor refused and ignored Wilson for the next three years, an unprecedented relationship with the nation’s top civil servant.

In the Treasury Andrew Turnbull, the new permanent secretary, battled with similar hostility. Turnbull’s attempts to participate in the debates were curtailed by Brown and Balls.

His experience did not change after promotion to cabinet secretary. Brown, he recently confided, was “cynical” about the public and operated in Whitehall with “Stalinist ruthlessness”.

Turnbull was echoing the identical discovery by Richard Packer, the permanent secretary at the old ministry of agriculture. Brown, he discovered, rode roughshod over officials and ministers. Brown’s gangster attitude, taking no hostages and brokering power in a purely self-interested manner, prompted Chris Smith, the former arts minister, to admit after successive defeats: “Anyone who disagreed with or challenged Gordon was fair game.”

Recent Treasury permanent secretaries have fared little better. Sir Nicholas Stern, the Treasury’s second permanent secretary, appointed in 2003 by Blair, discovered that revealing weaknesses in the Treasury’s methods was unpalatable to the chancellor. He was removed, leaving Nicholas Macpherson as permanent secretary. Macpherson admits to friends that he is not close to Brown or privy to his thoughts.

While the days of Brown’s sulks and volcanic tempers revealing the dark side of his charisma have passed, the invisible barrier erected by Brown remains. Most blame his suspicion of class.

In all his foreign trips Brown refuses to stay overnight in the British embassy and distrusts the local ambassador. Over the past decade his disdain for Foreign Office officials, ignoring their advice and the arranged programme, bodes ill for a prime minister who will inherit two wars.

His first trip to China in February 2005 revealed his prejudices and idiosyncrasies. Embassy officials had been given only three weeks to arrange a three-day trip. Despite their successful efforts the chancellor refused to abide by the schedule. Brown learnt little about China and confirmed his lack of interest in relations with other countries.

Brown’s refusal to establish a confident relationship with the foreign services extends to his scepticism about the military and his ignorance about the intelligence services. Early in his chancellorship Brown refused to attend meetings with Sir Charles Guthrie, chief of the defence staff.

“You don’t think I understand defence, do you?’ Brown asked Guthrie. “No, I bloody well don’t,” replied the general.

According to the current defence chiefs little has improved since. Day-trips to Iraq and Afghanistan have not improved Brown’s understanding of the disastrous misreading of intelligence by Downing Street leading to the invasion of Iraq, or his sense of foreign relations. Experts in military, intelligence and foreign affairs fear that his personal prejudices will prevent a cure to his ignorance. “It’s as bad as ever,” says one military chief.

Membership of the Brown clan is open exclusively to those pledging unlimited sacrifice in his cause, an unlikely attraction for public servants. While Brown has pledged to abandon his dependence on his cabal, those eager to restore tradition and probity in government are watching to see which members of his clan will accompany him to No 10. The litmus test for many will be the fate of Shriti “Shrieking” Vadera.

The former merchant banker, hired by Brown to advise about the Third World, extended her influence into transport. The results were disastrous. The cost of the privatisation of the London Tube has been horrendous. While the operators’ profits soared and their performance languished, fares ranked among the world’s highest. The “renationalisa-tion” of the rail network costing shareholders £6 billion exposed Vadera in High Court hearings as ruthless and deceptive.

“If he takes all his old cronies like Shriti across to No 10,” says one ex-Whitehall warrior, “then we’ll know not to expect any change from him.”

At the Hay festival last month Brown said change was necessary. Whether he lives up to his words depends ultimately on the stand taken by O’Donnell.

O’Donnell’s friends and admirers use one word to describe his attitude: “obsequiousness”. Smart, analytical and outgoing he has the talent of giving the impression of going along with the flow and making friends. Unlike most civil servants he is good company and a passionate football fan. Adroitly he co-authored with Balls in 2002 an economic textbook, Reforming Britain’s Financial Policy, with a foreword by Brown. In crossing the line between politicians and the allegedly unbiased civil service O’Donnell helped his career by displaying his Labour sympathies; but his credentials to restore impartiality in Whitehall were not enhanced.

Friends insist that, as in the Equitable Life saga, he will take a stand if required. But there are doubts about his technical abilities. O’Donnell mas-terminded the merger of the Inland Revenue with Customs and Excise, predicting efficiency savings under the chairmanship of an accomplished business executive, David Varney of O2. The reality was different. Lacking any cost analysis or plan the merger has not saved money. After being battered by a Commons committee for computer failures Varney resigned.

In the light of that expensive failure and his desire not to “rock the boat” most will find the idea of O’Donnell’s guiding the chancellor to change a lifetime’s habits unlikely.

Gordon Brown Prime Minister by Tom Bower will be published tomorrow by HarperPerennial at £9.99