* Average age of staff was 32, no experience of banking crashes
* Treasury officials, in charge of banking, worst paid in Whitehall
* Officials judged risk of major financial problems was low
By Matt Falloon
LONDON, March 29 (Reuters) - Britain’s Treasury walked blind and ill-equipped into the 2007-9 financial crisis, staffed by a young, small workforce with little experience of bank failure and a “limited capacity on financial stability”, an official report said on Thursday.
The White report, commissioned by government to learn lessons from the crisis and to improve the finance ministry’s handling of economic turbulence, delivers a scathing assessment of pre-credit crunch contingency planning and said not enough had been done since to improve capability.
Among other criticisms it said that Treasury officials involved in policy were the lowest paid in London’s Whitehall district of government departments, despite being in charge of the highly-paid banking sector.
“The Treasury was stretched and could have been better prepared,” the report said. “The vast majority of officials would have had no experience of a period of economic turbulence or bank failure.”
“The Treasury had in place a small policy team on financial stability, based on the judgement and broader global consensus that systemic risks had been substantially reduced.”
The report said staffing levels were increased after the collapse of U.S. investment bank Lehman Brothers in 2008, but found the “scaling up proved to be inadequate and resources were thinly stretched”.
“This put pressure on workloads and had an impact on staff well-being. In hindsight, staffing should have been more substantially increased.”
The report points to one situation in the weeks before the 2008 nationalisation of British lender Northern Rock, when three different officials took the lead on dealing with the bank.
Another section of the report reveals the Treasury followed up on conclusions from stress-testing war games in the mid-2000s, “but not vigorously as the risk of major financial instability was deemed to be low.”
Treasury staff were much younger - 32 on average - than those in other civil service departments, and low pay and a lack of career progression meant the ministry found it difficult to retain staff with financial services expertise, the report said.
Top Treasury civil servant Nick MacPherson welcomed the report by Sharon White, a long-standing civil servant who has since become director general of public spending at the ministry.
“This report will help the Treasury learn the lessons of its handling of the financial crisis which started five years ago and ensure the department has the right capability to fulfil its duties in relation to financial services in the future,” he said.
White said the Treasury had “already substantially improved its contingency planning”, but had not gone far enough.
“There is scope, however, to bring the Treasury fully into line with best practice in other parts of government to ensure that its crisis management capability reflects the lessons of 2007-09.” (Reporting by Matt Falloon; editing by Patrick Graham)