Executive Summary
National Audit Office Report
- Over the ten years to 2007, Northern Rock (the company) had
become a stock market listed bank and grown rapidly to become the
fifth largest provider of mortgages in the UK, with assets in
excess of £100 billion. The company’s growth was based on making
competitively priced mortgages easily available. To maintain its
competitiveness, Northern Rock required access to relatively low
cost sources of funds, beyond what could be raised through retail
deposits alone.
- To raise the funds it needed, Northern Rock became reliant on
wholesale lenders such as other banks and on selling, rather than
retaining, the mortgages it had already issued. In August 2007,
credit concerns stemming from bad debts in the US mortgage market
caused banks to curb their lending to each other. As a result,
Northern Rock began to experience problems in raising short term
funds and rolling over existing loans from wholesale lenders. As
the market worsened, the company became increasingly concerned that
it would not be able to repay its wholesale borrowings as they
became due, and asked the Bank of England (the Bank) for financial
support in its role of lender of last resort.
- The failure of a major bank would leave individuals and
businesses unable to access savings or meet ongoing payment
obligations. A single bank failure has the potential to destabilise
other parts of the financial system and the economy generally,
through its wider impact on consumer confidence. As banks are
pivotal to the financial stability of the UK economy, successive
governments have sought to regulate their activities.
- The Financial Services and Markets Act 2000 created a single
regulator for UK financial services, the Financial Services
Authority (FSA). Alongside this, the Government also introduced a
framework for the protection of financial stability, which set out
the roles of the Treasury, the FSA, and the Bank of England (the
Tripartite Authorities). In exceptional circumstances such as a
major bank in severe financial difficulty, responsibility for the
authorisation of a support operation and the use of public funds
rests with the Treasury.
- On 14 September 2007, Northern Rock announced that the Treasury
had authorised the Bank to provide emergency support to Northern
Rock, in the form of a loan secured against the company’s highest
quality assets. When Northern Rock’s customers became aware of the
existence of the support, queues formed outside the company’s
branches and, over a few days, just over
£4.6 billion was withdrawn from depositors’ accounts.
The Treasury considered that the run on deposits could have an
adverse effect on other banks. In response, the Treasury announced
on 17 September 2007 that it would put in place arrangements to
guarantee retail deposits. These arrangements were subsequently
extended to certain wholesale funding and to further emergency
support provided by the Bank. The guarantee arrangements covered up
to £51 billion of the company’s liabilities and allowed Northern
Rock time to seek a longer term solution to its difficulties. The
search culminated in the company being taken into public ownership
in February 2008 (Figure 1). A more detailed chronology of events
is at Appendix 1.
- The actions taken by the Treasury, working with the other
members of the Tripartite, were aimed at:
- reducing the risk of a serious loss of confidence in
the UK banking system, which would have caused wider economic
disruption. The Treasury needed to ensure that Northern
Rock’s depositors remained confident that their savings would be
safe, and that customers of other banks were not prompted to
withdraw their savings;
- minimising the financial risk to the taxpayer
that substantial, taxpayer-backed support to a bank in difficulty
would be called or not be repaid.
Scope of this report
- This report examines:
- actions taken by the Treasury to stabilise Northern Rock and
avoid any wider impacts on the financial system (Part 1);
- the search for a longer term solution to Northern Rock’s
difficulties that protected the interests of the taxpayer (Part
2);
- the oversight of Northern Rock in public ownership (Part
3);
- the capacity of the Treasury to handle a company restructuring
which was unusual and highly complex (Part 4).
- Our methodology is summarised at Appendix 2. This report does
not consider:
- the causes of Northern Rock’s problems and the implications for
the regulatory regime operated by the Financial Services Authority,
both of which are outside our statutory audit responsibilities and
have been examined in detail by the House of Commons Treasury
Committee (see Appendix 3); or
- the consequences for the Bank of England’s oversight of
stability in the financial system, which is also outside our
statutory audit and, along with changes to the framework for
handling banks in difficulty, are the subject of the Banking Act
2009.
Key findings
On the actions taken to stabilise the company
- The Treasury had no choice but to put in place
guarantee arrangements for retail depositors, once the run on
deposits was underway. This support avoided the immediate risk of
instability spreading to other banks. Following media
reporting and the company’s announcement of the emergency loan from
the Bank, retail depositors withdrew around one fifth of their
deposits over three days, the share price fell by more than half,
and the cost of insuring against default by the company increased.
The run on deposits was widely reported, including images of queues
of retail customers outside branches. The Treasury decided that
there was an increased risk of contagion in the financial markets
and that further measures were necessary to maintain stability. The
guarantee arrangements put in place removed the queues outside
branches, reduced media coverage and avoided immediate potential
problems at other banks.
- Although the initial guarantee arrangements prevented
wider financial instability, they did not completely stem the
outflow of funds from Northern Rock. From 18 September
2007 to the end of that month, a further £4.4 billion of retail
deposits was withdrawn. These outflows necessitated additional
borrowing from the Bank and required further guarantee arrangements
for deposits and certain wholesale borrowing to be made over
subsequent months, all backed by the taxpayer. With each decision
to extend public support, the Treasury’s intention was to put
taxpayers’ money at risk only to the extent necessary to stabilise
the situation. While the situation did eventually stabilise, the
company’s finances remained vulnerable.
- Under the terms of the loans provided by the Bank, Northern
Rock was required to put in place a plan to stabilise its business
by conserving cash, primarily by reducing the number of mortgages
written. The company also required the Bank’s approval before
entering into any corporate restructuring, making substantial
changes to the general nature of its business and paying dividends.
The Bank put in place arrangements to monitor compliance with the
stabilisation plan and had wide ranging rights to information on
Northern Rock’s business. Given the extent of the financial
assistance provided from October 2007, the Treasury could have
sought to introduce further conditions to limit the company’s
activities, for example on the risk profile of lending
undertaken.
- Northern Rock continued to write Together mortgages of
up to 125 per cent of a property’s value throughout the period that
it was receiving emergency support, albeit at a reduced
volume. Between September 2007 and February 2008, over
£1.8 billion of Together loans were written, around 30 per cent of
total mortgage lending, compared with just under £5 billion (26 per
cent of total mortgage lending) in the preceding eight months of
2007. Around £1 billion of these new mortgages reflected
commitments made by the company to potential borrowers prior to
September 2007. As part of the company’s stabilisation plan, the
terms for Together loans were tightened by the company in October
and November 2007. At 31 December 2008, Together mortgages
represented around 30 per cent of the mortgage book but about 50
per cent of overall arrears and 75 per cent of repossessions. The
Treasury judged that mortgage transactions were necessary to
maintain the business while a longer term solution was sought.
- Indefinite and unlimited public support for Northern
Rock was not an option that was available or desirable.
Under the European Union rules on state aid, the emergency support
provided to Northern Rock had to be notified to the European
Commission. The Commission considered that the guarantee
arrangements provided by the Treasury were permissible but could
not remain in place for more than six months, unless the Treasury
submitted a restructuring or liquidation plan by March 2008. In any
event, it would not have been in the taxpayers’ interest to
continue to fund and bear the commercial risks of a private company
over which the Treasury had limited control. The Treasury therefore
had to find a longer term solution by March 2008.
On the search for a longer term solution
- The Treasury set itself objectives at an early stage: to
protect the taxpayers’ interest; keep the company stable to protect
depositors; and maintain wider financial stability. The Treasury
had to operate under a number of constraints: it needed to be aware
of how its actions might be interpreted by volatile financial
markets; not put itself in the position of controlling the actions
of the company as a shadow director; remain aware of shareholders’
rights; and find a solution that would be consistent with European
Union state aid rules.
- In late September 2007, the Treasury identified through
a systematic assessment of the available options essentially three
choices:
- allowing Northern Rock to fall into administration;
- stopping it taking deposits and writing new mortgages and
beginning a process of winding down the company; or
- allowing it to continue to take deposits and write new
mortgages while putting in place a longer term recovery plan which
would keep the company in business.
A wind-down or a continuation of business could be taken forward
with Northern Rock remaining in the private sector, probably under
new ownership, or by taking the business into public ownership.
- Allowing Northern Rock to fall into administration
would have prevented depositors from accessing their money and
entailed potential taxpayer losses of between £2 billion and £10
billion. There were no special procedures under UK law
that would allow depositors in a bank to be treated any differently
from the creditors of another private sector business in
difficulty. Allowing Northern Rock to enter an insolvency procedure
would therefore have resulted in depositors not having access to
their savings for a period of months, thereby risking a loss of
confidence at other banks and hardship for individuals. The
Treasury was also concerned that a rapid sale of the company’s
assets at reduced prices might mean that part of the emergency
support was not repaid. The Treasury and its advisers estimated a
potential loss of between £2 billion and £10 billion, the wide
range reflecting the uncertainties in estimating the prices that
might be obtained for the company’s assets.
- The option of winding down the business was considered,
but inadequate IT systems at Northern Rock meant that depositors
would have had to wait for their money, risking another major run
and potential hardship for those reliant on access to their
funds. A wind-down of the business would have involved a
sale of the branches, deposits and some of the mortgages to another
bank, followed by longer term disposals of the remaining assets to
repay creditors. If the sale of the deposits and branches proved
impossible, the alternative would have been to implement a scheme
for rapid repayment of retail and wholesale deposit accounts.
Northern Rock was not, however, able to return depositors’ cash
quickly. The company operated a manual account closure process and
estimated that it would have taken up to 10 to 12 weeks to repay
depositors with a likely error rate of 25 per cent. The scope for
securing better prices through a more controlled and longer term
series of asset sales would have depended on financial market
conditions not deteriorating further. The Treasury therefore ruled
out an immediate wind-down on practical grounds, although work was
put in hand to update the IT systems to enable quicker repayment of
depositors if needed at a later stage.
- In September 2007, the Treasury took a timely decision
to commission a team of officials to work on proposals for public
ownership, as a contingency measure. While the Treasury
considered that public ownership would provide the control over the
company necessary to protect the interests of the taxpayer, it did
not see it as an immediate response as other options were
preferable and should be considered. Public ownership might
introduce uncertainty for investors in the UK banking system, as
well as risking reputational damage to the UK’s standing as a
leading international provider of other financial services. There
was, at that time, no legislation on the statute book or available
in draft form that would allow the Government to take the company
into public ownership should it be required at a future date.
- The Treasury’s preferred option was to support the company’s
search for a private sector solution. Before and after approaching
the Bank for emergency support, Northern Rock had searched for a
private sector buyer, initially of the entire business and later
for parts of it as well. The Treasury considered that the search
for a solution was a matter for the Board of Northern Rock which
remained in place and was accountable to shareholders. As this
initial search failed to find a suitable purchaser, the Treasury
asked Goldman Sachs to liaise with the company as it took the
process forward. Following legal advice received in September 2007,
the Treasury considered that it should avoid taking any actions
that were properly a matter for the directors of Northern Rock. The
Treasury judged that it could not directly intervene in the process
run by the company to find a potential buyer. Bidders reported that
the sale process to December 2007 had been frustrating and
confused, partly as a result of challenges arising as a consequence
of the company employing three sets of financial advisers.
- During this period depositors continued to withdraw money,
despite the guarantee arrangements, with the
pace quickening again in November when a total of £1 billion was
withdrawn during a week. Amid media reports that the bidding
process was in difficulty, Northern Rock, with agreement from the
Treasury, announced on 26 November 2007 that discussions would be
taken forward with one of the bidders, the Virgin Consortium. The
announcement reduced deposit outflows. But competitive
tension in the bidding process was interrupted on the basis of a
non-binding bid, which in the event could not be taken forward
because of difficulties in obtaining financing.
- As financial market conditions worsened the prospect of
a sale to a sufficiently well capitalised buyer, who could repay
the publicly financed element in due course, became increasingly
remote. The Treasury announced in November 2007 that it
would consider financing bids on a matched basis with the private
sector. Potential buyers, however, were not in a position to
arrange private funding for a bid and further public support would
be needed if the process was to be taken forward. The Treasury
therefore began to take a more active role in finding a solution
and announced in January 2008 proposals to replace the emergency
support from the Bank with a guarantee covering a bond issue worth
up to £27 billion, secured over the company’s assets. A new
invitation to bid was therefore issued in January. Only two
detailed bids were received, from Virgin and from Northern Rock’s
management team. Across a wide range of criteria, the Treasury
considered that these proposals did not meet the test of protecting
the taxpayers’ interest, and would carry considerable uncertainties
over their deliverability as the financing plan was put in place
and State Aid clearance sought.
- The Treasury estimated in February 2008 that if Northern Rock
was taken into public ownership for three years it was likely to
require a net subsidy of £1.3 billion. On a base case scenario, the
subsidy to Northern Rock in public ownership was below the estimate
of £1.9 billion to £2.2 billion if one of the two final private
sector bids had been chosen.
- The estimate of public support to Northern Rock was,
however, highly dependent on the forecast price of £1.2 billion the
Treasury might obtain if the company was restructured and returned
to the private sector when market conditions had
stabilised. Such an estimate would always be uncertain
given its dependence on the economic climate, changes in the
housing market and on potential buyers’ perceived confidence in the
Northern Rock brand. As there were material uncertainties around
the deliverability of the private sector bids, the Treasury
considered that in all the circumstances the best option to protect
the taxpayer interest was a period of public ownership.
- Northern Rock was therefore placed into public ownership on 22
February 2008 using powers provided by the newly enacted Banking
(Special Provisions) Act 2008.
On the oversight of Northern Rock in public ownership
- Following public ownership the Treasury has maintained
oversight of Northern Rock’s progress against a new business plan.
On entering public ownership, the Treasury appointed two directors
to the company’s board and soon afterwards a Shareholder
Relationship Framework was agreed. The Treasury receives regular
updates on the company’s performance and holds regular meetings
with the management team to review progress.
- By 31 December 2008, the company had repaid some £3 billion
more than planned for that year. One of the key objectives for the
company was to encourage existing mortgage customers to move to
other lenders, with the resultant repayments used to repay the
loans from the Bank. The business plan envisaged full repayment of
the loans from the Bank by 2010. As part of the government’s
financial intervention to support lending in the economy, Northern
Rock announced in January 2009 that it would reduce the rate of
mortgage redemptions and that repayments of the Bank’s loans (which
were transferred to the Treasury in 2008) would continue at a
slower rate.
- The Treasury did not challenge with sufficient rigour
the company’s forecasts of future trading conditions, before
approving its initial business plan under public
ownership. The timetable for approving an initial business
plan for the company was driven by the need to submit an approved
plan to the European Commission by the end of March 2008, less than
six weeks after it was taken into public ownership. When
scrutinising the plan, the Treasury’s focus was on the period over
which the emergency support would be repaid and the factors that
might directly impinge on that objective. It paid less attention to
the robustness of the broader business plan. The plan, which had
been under development during the last few months of 2007 and early
2008, for example, assumed a five per cent fall in house prices
between 2008 and 2011. These assumptions were not updated as the
housing market began to turn downwards in early 2008.
- In the lead up to public ownership, the Treasury did
not commission its own due diligence on the company’s operations,
for example, on the quality of the loan book. The Treasury
judged that it could rely on the work of the Bank, supported by its
accounting advisers, and the Financial Services Authority as
respectively lender to and regulator of the company. The company
had capitalised arrears on its mortgage book at a much earlier
stage than other lenders which, when changed in May 2008, increased
the reported rate of arrears significantly and brought it into line
with that reported by other lenders.
- The company’s reported loss at 30 June 2008 of £585
million was £314 million greater than the base case and worse than
the recession case used in the plan approved three months
earlier. In response to continued volatility and
increasing weakness in the financial markets, some banks began to
take steps to strengthen their regulatory capital positions. The
Treasury announced in August 2008 that, subject to approval by the
European Commission for State Aid purposes, some of the outstanding
emergency loans to Northern Rock would be converted into an equity
investment to bolster Northern Rock’s regulatory capital and that
the company had estimated that up to £3 billion of debt might need
to be converted for this purpose. In March 2009, the company
announced a loss of £1.4 billion for the year to 31 December
2008.
On the capacity of the Treasury
- The Treasury worked with the Bank of England and
Financial Services Authority to find a solution and benefited from
their advice, but it alone had responsibility for determining what
action was in the best interests of taxpayers. UK-based
banks have collapsed before, for example BCCI in 1991 and Barings
in 1995, but these crises did not involve a run on a significant
high street financial institution. The crisis at Northern Rock
therefore presented a new situation for the Treasury.
- The Treasury had been aware of potential shortcomings
in the arrangements for dealing with a financial institution in
difficulty prior to the crisis at Northern Rock. From 2004
the Tripartite Authorities had undertaken exercises to test their
response to a range of scenarios. These exercises had identified
the need for further work on how the resolution of an insolvent
firm with systemic repercussions would be handled and by whom. As a
result, scoping work was done to identify the key issues the UK
would face in winding up a financial institution, the practical
processes available and therefore the gaps and options to fill
them. Prior to 2007, work on improving the existing arrangements
was not, however, judged by the Treasury to be a priority in a
benign economic environment, compared with other financial crisis
response planning. The Treasury started a project in early 2007 to
produce a consultation document by Autumn 2007 on how the
Tripartite Authorities would deal with a bank in difficulty.
Following consultation, new legislation was put before Parliament
in December 2008 and received royal assent in February 2009.
- Once the scale of the crisis was recognised, the
appointment of the second Permanent Secretary to lead the Treasury
team was crucial to providing clear leadership at official
level. The early appointment of a senior responsible owner
for the project provided a clear focus for other members of the
Tripartite, private sector bidders and others seeking an informed
view of the Treasury’s likely position.
- Following the initial guarantee arrangements for
depositors, the Treasury brought together a team drawn from across
the Department but struggled to maintain continuity in its
staffing. The maintenance of financial stability had not,
in terms of staff resources, been a major part of the Treasury’s
work. In dealing with Northern Rock, the Treasury had to respond
very quickly to events as they developed. As a result, decision
making had to take place largely outside of normal risk management
procedures for major departmental projects and made limited
reference to the Treasury board, although the board did receive
briefing on two occasions over the five months prior to public
ownership. The availability of people with relevant skills and
experience was severely stretched and resulted in two changes of
team leader along with changes to the composition of the team. The
Treasury was therefore very reliant on key officials and its
advisers for the expertise it needed. In the event, some
stakeholders found it difficult to work with the rapid turnover of
staff within the Treasury team.
- The Treasury made extensive use of professional advice for
support during the bidding process and preparing the financial
analyses of the various options. Professional fees for the
Tripartite Authorities have amounted to just under £27 million,
including over £9 million on legal advice. Separately from this
advice, Northern Rock spent £39 million on advisers to review its
strategic options and search for a private sector solution. In
addition, the company paid bidders’ costs totalling £13 million.
With the company in public ownership since February 2008, all the
advisory and bidding costs have ultimately been borne by the
taxpayer.
- The Treasury worked closely with its advisers to
understand the assumptions underlying the options available but
there were weaknesses in the initial contract negotiated by the
Treasury with its financial adviser, Goldman Sachs. These
weaknesses included, for example:
- An initial agreement by the Treasury that a large part of the
firm’s remuneration would consist of a success fee, but no clear
definition of what success might look like in a complex and
evolving situation. Once the decision was reached to take Northern
Rock into public ownership, agreement was reached that it would be
inappropriate for a success fee to form part of the final sum to be
paid.
- Although the Treasury discussed the options analyses prepared
by Goldman Sachs and tested the assumptions used, it did not
request access to the underlying financial models developed by its
advisers, which were regarded as proprietary information. This
limited its ability to validate estimates of the costs and benefits
of each option.
- There were also weaknesses in the management of
electronic records. Following the decision to take
Northern Rock into public ownership, the Treasury had to expend
significant time and resources to collate relevant records in an
accessible form for litigation and audit purposes.
- The Treasury applied lessons from its experience of
Northern Rock to the handling of Bradford & Bingley.
In September 2008, Bradford & Bingley experienced difficulties
that necessitated Treasury action. Although there were differences
to the Northern Rock case, the Tripartite Authorities were better
prepared, having kept a watch on the company before market
conditions made action necessary. The scale of the problems in the
financial markets and the prospect of prolonged difficulties were
by this point apparent. At a practical level, the availability of
suitable powers on the statute book proved crucial to the
Treasury’s ability to take action quickly. The Banking (Special
Provisions) Act 2008 allowed the Treasury to take into public
ownership or transfer to another owner a bank or building society
judged to be a threat to financial stability. The Tripartite
Authorities’ experience in considering the options for Northern
Rock allowed the Treasury to take a course of action to protect
financial stability, without having to put large sums of taxpayers’
money at stake in a company it did not own and therefore did not
directly control, although it now has to manage the risks
associated with public ownership.
Conclusion on value for money
- The crisis at Northern Rock presented the Treasury, and other
members of the Tripartite, with a situation that had not been
experienced in recent times in the UK. The failure of Northern Rock
could have had adverse consequences for the economy through its
wider impact on consumer confidence. Once the initial run had
started, the announcement of the initial guarantee arrangements
slowed the outflow of retail deposits. It took several extensions
to the scope of taxpayer support to stabilise the company. The
public support protected customers and prevented the liquidity
problems experienced by Northern Rock at the time causing wider
disruption to financial stability.
- The Treasury undertook a comprehensive review of a range of
options for the longer term resolution of Northern Rock’s
difficulties. The search for a solution to Northern Rock’s problems
took place against a backdrop of deteriorating conditions in the
financial markets. Public ownership was eventually chosen because
it offered the best prospect of protecting the taxpayer from the
risk that over £50 billion of public support that had already been
provided to Northern Rock would be called upon or not be repaid.
The analysis of options that resulted in Northern Rock being
brought into public ownership was sufficiently robust.
Nevertheless, the action needed to resolve Northern Rock’s
difficulties stretched the capacity of the Treasury to handle the
complex issues involved.
- Following public ownership, the Treasury put in place adequate
systems to monitor the progress of Northern Rock in repaying the
public support provided. But the Treasury did not carry out
sufficient testing of the company’s initial business plan. In light
of an increasingly difficult economic context, additional public
support has had to be provided to the company. Under the original
business plan, the Treasury had expected the emergency loans to be
repaid by 2010 and then to be in a position to return the company
to the private sector when market conditions stabilised. Any sale
and the eventual cost to the taxpayer are dependent on the
company’s performance in managing its existing mortgage portfolio,
its future lending activities, as well as the performance of the UK
housing market.
Recommendations
Once the initial guarantee arrangements were announced
the taxpayer was exposed to risk. As a condition of receiving
public support, the volume of mortgage business written by the
company was reduced significantly. Throughout the period of that
support, however, Northern Rock continued to write together loans
of up to 125 per cent of a property’s value. Where it
decides to provide support to a company in difficulty, the Treasury
should assess systematically the risks to the taxpayer, as distinct
from the risks relevant to the responsibilities of the other
Tripartite Authorities acting as lender or regulator. It should
also identify what information will be needed to monitor those
risks and decide how they should be mitigated.
Scenario tests conducted by the Tripartite Authorities
prior to the collapse of Northern Rock had identified potential
weaknesses in the arrangements for dealing with a bank in
difficulty. When reviewing the lessons to be learned from
future scenario tests, the Tripartite Authorities, having
identified the lessons learned and agreed an action plan with
target dates, should take forward the necessary work with vigour.
The Tripartite Authorities should review progress against these
targets at suitable intervals.
The need to revise Northern Rock’s business plan so soon
in the light of tougher economic conditions illustrates the
importance of developing sufficiently robust business plans from
the start. The Treasury should vigorously challenge the
assumptions underlying any future business plans presented by
Northern Rock. Any financial forecasts should be tested under a
sufficiently wide range of economic assumptions, both positive and
negative.
At the time it took Northern Rock into public ownership,
the Treasury had not conducted due diligence on the company, for
example on the quality of the entire loan book. Although
the Treasury worked with the Bank of England and Financial Services
Authority to find a solution and benefited from their advice, it
alone had responsibility for determining what action was in the
best interests of taxpayers. The Treasury should use future
scenario testing exercises to trial the actions that would be
needed in the time available to it to properly assess and validate
the information it receives on the quality of the underlying
business of a financial institution in difficulty. This assessment
can then inform the Treasury’s scrutiny of any proposed business
plan should an individual institution require public support.
In deciding to take Northern Rock into public ownership,
the Treasury considered the outcome of its financial analysis to be
uncertain and gave due weight to the deliverability of private
sector bids. In any comparable situations in the future,
the Treasury should follow the practice adopted here of looking
beyond financial estimates to consider the deliverability of the
options open to it and the likelihood of protecting the taxpayers’
interest.
Once the scale of the crisis became clear, the Treasury
benefited from assigning responsibility to a senior official for
managing its response. In future crisis situations, the
appointed officials, as in this case, should have sufficient
seniority to marshal the necessary resources, make clear the
Treasury’s position to third parties and act as a focus for
overseeing the response at official level. The arrangements put in
place should also spell out the role of the Treasury board in
helping to manage the risks. The Treasury should also examine the
training and development it provides its officials to handle such
situations, for example drawing on the experiences in other parts
of the public sector, for instance in civil and military
contingency planning, where preparation for handling a crisis is a
key part of staff development.
The Treasury required extensive professional advice and
was necessarily dependent on its advisers for support in evaluating
the available options. Although the Treasury challenged
the underlying assumptions used by external advisers, it should be
in a position to validate the analyses prepared for it,
particularly in fast moving situations where crucial decisions have
to be taken quickly. To this end, it should draw where appropriate
on expertise from within the Treasury or from expertise available
elsewhere in the public sector, such as in Partnerships UK.